1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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USA NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4833 59-2712887
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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SEE TABLE OF ADDITIONAL REGISTRANTS
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152 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 314-7300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
THOMAS J. KUHN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
USA NETWORKS, INC.
152 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 314-7300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
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COPY TO:
STEPHEN A. INFANTE, ESQ.
HOWARD, SMITH & LEVIN LLP
1330 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 841-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE REGISTRATION FEE(2)
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6 3/4% Senior Notes due 2005..... $500,000,000 100% $500,000,000 $139,000
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Guarantees of 6 3/4% Senior Notes
due 2005....................... $500,000,000 -- -- (3)
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2) under the Securities Act.
(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act.
(3) Pursuant to Rule 457(n) under the Securities Act, no registration fee is
payable with respect to the Guarantees.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS
PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL IRS EMPLOYER
INCORPORATION CLASSIFICATION IDENTIFICATION
NAME OR ORGANIZATION CODE NUMBER NUMBER
- ---- --------------- ---------------- --------------
USANi LLC........................................ Delaware 6790 59-3490970
Home Shopping Network, Inc. ..................... Delaware 6790 59-2649518
USANi Sub LLC.................................... Delaware 6790 59-3490972
USAi Sub, Inc. .................................. Delaware 6790 13-4009792
Home Shopping Club LP............................ Delaware 5961 59-3490596
National Call Center LP.......................... Delaware 7389 59-3490594
Internet Shopping Network LLC.................... Delaware 5999 58-2370854
HSN Capital LLC.................................. Delaware 6790 58-2370732
HSN Fulfillment LLC.............................. Delaware 7389 59-3491619
HSN Realty LLC................................... Delaware 6512 59-3491523
HSN of Nevada LLC................................ Delaware 6790 58-2370732
New-U Studios Holdings, Inc. .................... Delaware 6790 59-3490978
HSN Holdings, Inc. .............................. Delaware 6790 59-3491974
USA Networks Holdings, Inc. ..................... Delaware 6790 95-4671319
New-U Studios, Inc. ............................. Delaware 7812 59-3490977
HSN General Partner LLC.......................... Delaware 5961 59-3490974
Studios USA LLC.................................. Delaware 7812 58-2370625
USA Networks Partner LLC......................... Delaware 6790 95-4671573
USA Networks (New York General Partnership)...... New York 4841 06-1060657
Studios USA Television LLC....................... Delaware 7812 58-2370631
Studios USA First-Run Television LLC............. Delaware 7812 58-2370679
Studios USA Pictures LLC......................... Delaware 7812 58-2370682
Studios USA Development LLC...................... Delaware 7812 58-2370683
Studios USA Reality Television LLC............... Delaware 7812 58-2370685
Studios USA Talk Television LLC.................. Delaware 7812 58-2370686
Studios USA Pictures Development LLC............. Delaware 7812 58-2370688
Studios USA Television Distribution LLC.......... Delaware 7812 58-2370690
Studios USA Talk Video LLC....................... Delaware 7812 58-2370686
New-U Pictures Facilities LLC.................... Delaware 7812 58-2370688
SK Holdings, Inc. ............................... Delaware 6790 59-3450233
USA Broadcasting, Inc. .......................... Delaware 4830 59-3256535
USA Station Group of Houston, Inc. .............. Delaware 4833 74-2433702
Silver King Capital Corporation, Inc. ........... Delaware 4830 36-3918128
USA Station Group of Dallas, Inc. ............... Delaware 4833 75-2148097
USA Station Group of Illinois, Inc. ............. Delaware 4833 36-3478449
USA Station Group of Massachusetts, Inc. ........ Delaware 4833 04-2931082
USA Station Group of New Jersey, Inc. ........... Delaware 4833 22-2737475
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PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL IRS EMPLOYER
INCORPORATION CLASSIFICATION IDENTIFICATION
NAME OR ORGANIZATION CODE NUMBER NUMBER
- ---- --------------- ---------------- --------------
USA Station Group of Ohio, Inc. ................. Delaware 4833 31-1183627
USA Station Group of Vineland, Inc. ............. Delaware 4833 22-2737473
USA Station Group of Atlanta, Inc. .............. Delaware 4833 52-1476428
USA Station Group of Southern California,
Inc. .......................................... Delaware 4833 94-3018135
USA Station Group of Virginia, Inc. ............. Delaware 4833 59-2953189
USA Station Group of Tampa, Inc. ................ Delaware 4833 59-2776456
USA Station Group of Hollywood Florida, Inc. .... Delaware 4833 59-2752398
Telemation, Inc. ................................ Delaware 7819 59-2948691
USA Station Group of Northern California,
Inc. .......................................... Delaware 4833 93-0933892
USA Station Group, Inc. ......................... Delaware 4833 59-3256534
USA Broadcasting Productions, Inc. .............. Delaware 7819 59-3458378
Miami, USA Broadcasting Station Productions,
Inc. .......................................... Florida 4833 58-2351011
Miami, USA Broadcasting Productions, Inc. ....... Florida 4833 58-2351007
Silver King Investment Holdings, Inc. ........... Delaware 6790 59-3343774
SKC Investments, Inc. ........................... Delaware 6790 36-3967151
USA Station Group Partnership of Dallas.......... Delaware 4833 65-0510883
USA Station Group Partnership of Houston......... Delaware 4833 65-0510887
USA Station Group Partnership of Illinois........ Delaware 4833 65-0510862
USA Station Group Partnership of Massachusetts... Delaware 4833 65-0510886
USA Station Group Partnership of New Jersey...... Delaware 4833 65-0510885
USA Station Group Partnership of Ohio............ Delaware 4833 65-0510890
USA Station Group Partnership of Vineland........ Delaware 4833 65-0510879
USA Station Group Partnership of Atlanta......... Delaware 4833 65-0510865
USA Station Group Partnership of Southern
California..................................... Delaware 4833 65-0510878
USA Station Group Partnership of Tampa........... Delaware 4833 65-0510875
USA Station Group Partnership of Hollywood,
Florida........................................ Delaware 4833 65-0510876
Ticketmaster Group, Inc. ........................ Illinois 7990 36-3597489
Ticketmaster Corporation......................... Illinois 7990 36-3285772
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PROSPECTUS SUBJECT TO COMPLETION, DATED JANUARY 27, 1999
USA NETWORKS, INC.
USANi LLC
OFFER TO EXCHANGE THEIR
6 3/4% SENIOR NOTES DUE 2005 WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT FOR ANY AND ALL OF THEIR OUTSTANDING
6 3/4% SENIOR NOTES DUE 2005
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1999, UNLESS EXTENDED.
We are offering to exchange up to $500,000,000 aggregate principal amount of new
6 3/4% Senior Notes due 2005, which are registered with the Securities and
Exchange Commission, for any and all outstanding 6 3/4% Senior Notes due 2005
issued in a private offering on November 18, 1998. We refer to this Prospectus
and the Letter of Transmittal that accompanies it as the "Exchange Offer." We
refer to the 6 3/4% Senior Notes due 2005 being offered in the Exchange Offer as
the "Exchange Notes" and we refer to the outstanding 6 3/4% Senior Notes due
2005 that can be exchanged for Exchange Notes as the "Initial Notes." We refer
to the Initial Notes and Exchange Notes together as the "Notes."
TERMS OF THE EXCHANGE OFFER
- - Expires 5 p.m., New York City time, on , 1999, unless extended.
- - Subject to certain customary conditions, including the condition that the
Exchange Offer not violate any applicable law or any applicable interpretation
of the staff of the Securities and Exchange Commission.
- - Tenders of Initial Notes may be withdrawn any time prior to the expiration of
the Exchange Offer.
- - All Initial Notes that are validly tendered and not withdrawn will be
exchanged for Exchange Notes.
- - We believe that the exchange of Initial Notes for Exchange Notes should not be
a taxable exchange for U.S. federal income tax purposes.
- - We will not receive any proceeds from the Exchange Offer.
- - All broker-dealers must comply with the registration and prospectus delivery
requirements of the Securities Act. See "Plan of Distribution."
- - We do not intend to apply for listing of the Exchange Notes on any securities
exchange or to arrange for them to be quoted on any quotation system.
See "The Exchange Offer" beginning on page 27 for more information about the
Exchange Offer.
TERMS OF THE EXCHANGE NOTES
- - The terms of the Exchange Notes are substantially identical to the terms of
the Initial Notes, except that the Exchange Notes will be freely transferable
and will be issued free of any covenants regarding exchange and registration
rights.
- - The Notes are redeemable at our option at any time at a redemption price
determined as set forth in this Prospectus.
- - The Notes are senior securities, subordinated only to our senior secured
indebtedness to the extent of the assets securing such indebtedness.
- - Interest payable semi-annually on May 15 and November 15 of each year,
beginning May 15, 1999.
- - Interest accrues from November 23, 1998. No interest will be payable on
Initial Notes that are exchanged for Exchange Notes.
- - The Notes are unconditionally guaranteed by each of our subsidiaries that is
or becomes a guarantor under our existing credit agreement to the extent that
and for so long as such subsidiary remains a guarantor thereunder.
See "Description of the Exchange Notes" beginning on page 135 for more
information about the Notes.
INVESTING IN THE EXCHANGE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 19.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
WE MAY AMEND OR SUPPLEMENT THIS PROSPECTUS FROM TIME TO TIME BY FILING
AMENDMENTS OR SUPPLEMENTS AS REQUIRED. YOU SHOULD READ THIS ENTIRE PROSPECTUS
(AND ACCOMPANYING LETTER OF TRANSMITTAL AND RELATED DOCUMENTS) AND ANY
AMENDMENTS OF SUPPLEMENTS CAREFULLY BEFORE MAKING YOUR INVESTMENT DECISION.
The date of this Prospectus is , 1999
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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TABLE OF CONTENTS
PAGE
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Where You Can Find More Information......................... 3
Forward-Looking Information................................. 4
Prospectus Summary.......................................... 5
Risk Factors................................................ 19
Use of Proceeds............................................. 24
Capitalization.............................................. 25
The Exchange Offer.......................................... 27
Selected Historical Financial Data.......................... 36
Selected Pro Forma Combined Financial Data.................. 41
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 46
Business.................................................... 68
Corporate History........................................... 103
Management.................................................. 105
Security Ownership of Certain Beneficial Owners and
Management................................................ 116
Certain Relationships and Related Party Transactions........ 119
Description of the Exchange Notes........................... 135
Exchange and Registration Rights Agreement.................. 147
Certain United States Federal Income Tax Considerations..... 148
Plan of Distribution........................................ 149
Legal Matters............................................... 150
Experts..................................................... 150
Index to Financial Statements............................... F-1
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Our principal executive offices are located at 152 West 57th Street, New York,
New York 10019. Our telephone number is (212) 314-7300. The Company's Common
Stock is quoted on the Nasdaq Stock Market under the symbol "USAI."
You should rely only on the information contained in this Prospectus. We have
not authorized anyone to provide you with information different from that
contained in this Prospectus or incorporated by reference in this Prospectus. We
are not making offers to exchange the Notes or soliciting offers to exchange the
Notes in any jurisdiction in which such an offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
The information in this Prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this Prospectus
is accurate as of any other date.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
Exchange Notes. This Prospectus does not contain all of the information included
in the Registration Statement. For a more complete understanding of the Exchange
Offer, you should refer to the Registration Statement, including its exhibits.
The Company files annual, quarterly and special reports, proxy statements and
other information with the SEC. In addition, following the Exchange Offer, USANi
LLC and Home Shopping Network, Inc. will also file annual, quarterly and special
reports and other information with the SEC. You may read and copy the
Registration Statement and any other document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. These
documents are also available at the public reference rooms at the SEC's regional
offices in New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also be available to the public at the SEC's Internet site
(http://www.sec.gov).
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. These incorporated documents contain important business
and financial information about us that is not included in or delivered with
this Prospectus. The information incorporated by reference is considered to be
part of this Prospectus, and later information filed with the SEC will update
and supersede this information. We incorporate by reference the documents listed
below and any future filings made by us with the SEC under Section 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") prior to
the Expiration Date of the Exchange Offer.
- The Company's Annual Report on Form 10-K for the year ended December 31,
1997;
- The Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998;
- The Company's Registration Statement on Form S-4, dated May 19, 1998; and
- The Company's Current Reports on Form 8-K dated June 24, 1998, May 19,
1998, May 1, 1998, March 26, 1998, February 23, 1998, February 12, 1998,
January 23, 1998, January 9, 1998, and July 29, 1997.
These filings are available without charge to holders of the Notes. You may
request a copy of these filings by writing or telephoning us at the following
address:
USA Networks, Inc.
152 West 57th Street
New York, New York 10019
Attention: Investor Relations
(212) 314-7300
TO OBTAIN TIMELY DELIVERY OF ANY COPIES OF FILINGS REQUESTED FROM US, PLEASE
WRITE OR TELEPHONE US NO LATER THAN , 1999 [FIVE BUSINESS DAYS
PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER].
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FORWARD-LOOKING INFORMATION
This Prospectus contains "forward-looking statements" within the meaning of the
securities laws. We have based these forward-looking statements on our current
expectations and projections about future events, based on the information
currently available to us. Such forward-looking statements are principally
contained in the sections "Prospectus Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." The
forward-looking statements include, among other things, statements relating to
our anticipated financial performance, business prospects, new developments, new
merchandising strategies and similar matters.
These forward-looking statements are subject to risks, uncertainties and
assumptions, including, among other things, risks described in the "Risk
Factors" section and the following:
- Material adverse changes in economic conditions in our markets;
- Future regulatory actions and conditions in our operating areas;
- Competition from others;
- Successful integration of our divisions' management structures;
- Product demand and market acceptance;
- The ability to protect proprietary information and technology or to
obtain necessary licenses on commercially reasonable terms; and
- Obtaining and retaining key executives and employees.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this Prospectus may not occur.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus. This
summary is not complete and may not contain all of the information you should
consider before making a decision about whether to exchange your Initial Notes
for the Exchange Notes. You should read the entire Prospectus carefully,
including the section entitled "Risk Factors." We use certain defined terms in
this Prospectus, including the following: "USAi" and the "Company" refer to USA
Networks, Inc., a Delaware corporation; "USANi LLC" refers to USANi LLC, a
Delaware limited liability company; the "Issuers," "we," "our," "ours," and "us"
refer to the Company and USANi LLC; "Ticketmaster" refers to Ticketmaster Group,
Inc., an Illinois corporation; "USA Broadcasting" refers to USA Broadcasting,
Inc., a Delaware corporation; "Holdco" refers to Home Shopping Network, Inc., a
Delaware corporation; and "TMCS" and "Ticketmaster Online-CitySearch" refer to
Ticketmaster Online-CitySearch, Inc., a Delaware corporation. All references to
"USAi," the "Company," "USANi LLC," the "Issuers," "Ticketmaster," "USA
Broadcasting" or "TMCS" which appear herein or are incorporated by reference
herein include such entity's subsidiaries. All information in this Prospectus
reflects the two-for-one split of the Company's Common Stock and Class B Common
Stock, which became effective on March 26, 1998.
THE COMPANY
The Company, through its subsidiaries, is a leading media and electronic
commerce company. The Company's principal operating assets include USA Network,
The Sci-Fi Channel, Studios USA, Home Shopping Network, Ticketmaster,
Ticketmaster Online-CitySearch and USA Broadcasting.
USANi LLC
USANi LLC is an indirect subsidiary of the Company that holds virtually all of
the Company's businesses other than Ticketmaster, Ticketmaster Online-City
Search and USA Broadcasting. USANi LLC was formed on February 12, 1998 in
connection with the Company's acquisition (the "Universal Transaction") of USA
Networks (which consisted of USA Network and The Sci-Fi Channel cable television
networks) and the domestic television production and distribution business
("Studios USA") of Universal Studios, Inc. ("Universal"). See "-- Corporate
Structure" and "Corporate History."
BUSINESSES
The Company is organized along five principal lines of business: (i) Networks
and Television Production, (ii) Television Broadcasting, (iii) Electronic
Retailing, (iv) Ticketing Operations and (v) Internet Services.
Networks and Television Production
The Company operates two domestic advertiser-supported 24-hour cable television
networks, USA Network and The Sci-Fi Channel. According to Nielsen Media
Research, as of December 1998, USA Network and The Sci-Fi Channel were available
in 75.2 million and 52.6 million U.S. households, respectively. For the 1998
year, USA Network earned the highest primetime rating of any domestic basic
cable network, with an average rating of 2.3 in primetime (Source: Nielsen Media
Research). USA Network features original series and movies, theatrical movies,
off-network television series and major sporting events. The Sci-Fi Channel, one
of the fastest-growing satellite-delivered networks, features science fiction,
horror, fantasy and science-fact oriented programming.
The Company, through Studios USA, produces and distributes television programs
and motion picture films intended for initial exhibition on television and home
video, and is the exclusive
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domestic distributor of the Universal television library. Studios USA and its
predecessor companies have produced programming for network television since the
early 1950s and Studios USA remains a major supplier of network and first-run
syndication programming, including Law & Order, Hercules: The Legendary Journeys
and Xena: Warrior Princess.
Television Broadcasting
The Company's television broadcasting operations are conducted through USA
Broadcasting. USA Broadcasting owns and operates 13 full-power UHF television
stations, including one satellite station, which comprise the USA Station Group.
The USA Station Group owns television stations in 12 of the nation's top 22
markets and reaches approximately 31% of television households in the United
States. USA Broadcasting also has minority investments in four additional
full-power UHF stations, reaching approximately 7% of television households in
the United States. USA Broadcasting airs Home Shopping Network's electronic
retail sales programming on all but two of its stations. As part of its efforts
to maximize the value of the USA Broadcasting stations, the Company intends over
time to disaffiliate the USA Broadcasting stations from Home Shopping Network
and develop and program the stations independently, while changing the
distribution method of Home Shopping Network. The first station launched in this
manner was the Company's station in the Miami/Ft. Lauderdale market on June 8,
1998.
Electronic Retailing
The Company, through its Electronic Retailing business, operates two retail
sales programs, Home Shopping Network and America's Store (collectively, "HSN
Services"), that sell a variety of consumer goods and services by means of live,
customer-interactive electronic retail sales programs, transmitted via satellite
to cable systems, affiliated broadcast television stations and satellite dish
receivers.
Ticketing Operations
The Company's Ticketing Operations are conducted through Ticketmaster.
Ticketmaster is the leading provider of automated ticketing services in the
United States with over 3,750 domestic clients, including many of the country's
foremost entertainment facilities, promoters and professional sports franchises.
Ticketmaster has a comprehensive domestic distribution system that includes
approximately 2,700 remote sales outlets, covering many of the major
metropolitan areas in the United States, and 15 domestic call centers with
approximately 1,750 operator positions. Ticketmaster also operates in Great
Britain, Canada, Ireland, Mexico and Australia and, in 1998, expanded into
France, Chile and Argentina. The number of tickets sold through Ticketmaster
increased from approximately 29 million in 1990 to approximately 70 million in
1998.
On September 28, 1998, CitySearch, Inc., a publisher of local city guides on the
World Wide Web (the "Web"), merged with Ticketmaster Multimedia Holdings, Inc.,
a wholly owned subsidiary of Ticketmaster ("Ticketmaster Online") (the
"Ticketmaster Online-CitySearch Transaction"). Ticketmaster Online is
Ticketmaster's exclusive agent for the online sale of tickets to live events
presented by Ticketmaster clients, subject to certain limitations. Following the
merger, the combined company, Ticketmaster Online-CitySearch, became a
majority-owned subsidiary of Ticketmaster. Shares of TMCS's Class B Common Stock
were sold to the public in an initial public offering that was consummated on
December 8, 1998. TMCS's Class B Common Stock is quoted on the NASDAQ Stock
Market. As of December 31, 1998, USAi beneficially owned 59.5% of the
outstanding TMCS common stock, representing 67.3% of the total voting power of
TMCS's outstanding common stock. For financial reporting purposes, TMCS's
Ticketmaster Online ticketing business is considered part of the Company's
Ticketing Operations, while TMCS's CitySearch local city guide business is
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considered part of the Company's Internet Services. See "Business -- Ticketing
Operations" and "--Internet Services."
Internet Services
In July 1998, the Company announced the formation of USA Networks Interactive to
coordinate the operations of its Internet Services businesses. Internet Services
consists primarily of TMCS's CitySearch local city guide business and the
Internet Shopping Network and its principal retailing service, First Auction, an
interactive Internet site which auctions consumer merchandise.
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CORPORATE STRUCTURE
USANi LLC holds virtually all of the Company's businesses other than
Ticketmaster, TMCS and USA Broadcasting. Holdco's only asset is its 38.8%
ownership interest in USANi LLC. The Company adopted its present corporate
structure in connection with the Universal Transaction, primarily to comply with
Federal Communication Commission ("FCC") restrictions on foreign ownership of
entities controlling domestic television broadcast licenses and for certain
other tax and regulatory reasons. These foreign ownership restrictions limit
Universal's ability to own equity in and voting power of the Company because
Universal is controlled by The Seagram Company Ltd, a Canadian corporation
("Seagram").
Assuming the conversion or exchange of all equity securities convertible into or
exchangeable for Common Stock or Class B Common Stock of the Company (including
shares of USANi LLC and Holdco, but excluding employee stock options), as of
December 31, 1998, approximately 45% of the Common Stock and Class B Common
Stock would be owned by Universal, approximately 21% would be owned by Liberty
Media Corporation ("Liberty"), which is a wholly owned subsidiary of Tele-
Communications, Inc. ("TCI"), and approximately 34% would be owned by the public
shareholders, including Mr. Barry Diller and other Company officers and
directors. Pursuant to a stockholders agreement, Mr. Diller, the Chairman and
Chief Executive Officer of the Company, generally exercises voting control over
the shares of Common Stock and Class B Common Stock beneficially owned by
Universal, Liberty and Mr. Diller (totaling approximately 74.5% of the
outstanding total voting power as of December 31, 1998), subject to certain
exceptions relating to fundamental changes, as to which no such shares can be
voted unless all three stockholders agree. The Company maintains control and
management of USANi LLC, and the businesses held by USANi LLC are managed by the
Company in substantially the same manner as they would be if the Company held
them directly through wholly owned subsidiaries. See "Risk
Factors -- Controlling Shareholders" and "Corporate History."
[CORPORATE STRUCTURE FLOW CHART]
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THE EXCHANGE OFFER
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
We issued the Initial Notes on November 23, 1998 to Chase Securities, Inc., Bear
Stearns & Co. Inc., BNY Capital Markets, Inc. and NationsBanc Montgomery
Securities LLC (the "Initial Purchasers"). The Initial Purchasers subsequently
resold the Initial Notes to institutional investors in transactions exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") pursuant to Section 4(2) of, and Regulation S under, the
Securities Act and applicable state securities laws. In connection with this
private placement, the Company, the Guarantors and the Initial Purchasers
entered into the Exchange and Registration Rights Agreement, providing, among
other things, for the Exchange Offer. See "The Exchange Offer."
THE EXCHANGE OFFER
We are offering Exchange Notes in exchange for an equal principal amount of
Initial Notes. As of this date, there are $500,000,000 aggregate principal
amount of Initial Notes outstanding. Initial Notes may be tendered only in
integral multiples of $1,000.
RESALE OF EXCHANGE NOTES
We believe that the Exchange Notes issued in the Exchange Offer may be offered
for resale, resold or otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that:
- you are acquiring the Exchange Notes in the ordinary course of your
business;
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in a
distribution of the Exchange Notes; and
- you are not an "affiliate" of ours.
If any of the foregoing are not true and you transfer any Exchange Note without
delivering a prospectus meeting the requirements of the Securities Act or
without an exemption from registration of your Exchange Notes from such
requirements, you may incur liability under the Securities Act. We do not assume
or indemnify you against such liability.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Initial Notes which were acquired by such broker-dealer as a result of
market making or other trading activities must acknowledge that it will deliver
a prospectus meeting the requirements of the Securities Act, in connection with
any resale of the Exchange Notes. A broker-dealer may use this Prospectus for an
offer to resell, resale or other retransfer of the Exchange Notes. See "Plan of
Distribution." Subject to certain limitations, we will take steps to ensure that
the issuance of the Exchange Notes will comply with state securities or "blue
sky" laws.
CONSEQUENCES OF FAILURE TO EXCHANGE INITIAL NOTES
If you do not exchange your Initial Notes for Exchange Notes, you will no longer
be able to force us to register the Initial Notes under the Securities Act. In
addition, you will not be able to offer or sell the Initial Notes unless they
are registered under the Securities Act (and we will have no obligation to
register them, except for some limited exceptions), or unless you offer or sell
them under an exemption from the requirements of, or a transaction not subject
to, the Securities Act. See "Risk Factors -- Failure to Participate in the
Exchange Offer Will Have Adverse Consequences" and "The Exchange Offer -- Terms
of the Exchange Offer."
9
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EXPIRATION DATE
The Exchange Offer will expire at 5:00 p.m., New York City Time, on
, 1999 (the "Expiration Date"), unless we decide to extend the
Expiration Date.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will accrue interest at 6 3/4% per year, from either the last
date we paid interest on the Initial Notes you exchanged, or if you surrendered
your Initial Notes for exchange after the applicable record date, the date we
paid interest on such Initial Notes. We will pay interest on the Exchange Notes
on May 15 and November 15 of each year.
CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer is not subject to any condition other than certain customary
conditions, including that:
- the Exchange Offer does not violate any applicable law or applicable
interpretation of law of the staff of the Securities and Exchange
Commission;
- no litigation materially impairs our ability to proceed with the
Exchange Offer; and
- we obtain all the governmental approvals we deem necessary for the
Exchange Offer. See "The Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING INITIAL NOTES
If you wish to accept the Exchange Offer, you must complete, sign and date the
Letter of Transmittal, or a facsimile of the Letter of Transmittal and transmit
it together with all other documents required by the Letter of Transmittal
(including the Initial Notes to be exchanged) to The Chase Manhattan Bank, as
exchange agent (the "Exchange Agent"), at the address set forth on the cover
page of the Letter of Transmittal. In the alternative, you can tender your
Initial Notes by following the procedures for book-entry transfer, as described
in this document. For more information on accepting the Exchange Offer and
tendering your Initial Notes, see "The Exchange Offer -- Procedures for
Tendering" and "-- Book Entry Transfer."
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your Initial Notes and you cannot get your required
documents to the Exchange Agent by the Expiration Date, you may tender your
Initial Notes according to the guaranteed delivery procedures under the heading
"The Exchange Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS
You may withdraw the tender of your Initial Notes at any time prior to 5:00
p.m., New York City time, on the Expiration Date. To withdraw, you must send a
written or facsimile transmission notice of withdrawal to the Exchange Agent at
its address set forth herein under "The Exchange Offer -- Exchange Agent" by
5:00 p.m., New York City time, on the Expiration Date.
ACCEPTANCE OF INITIAL NOTES AND DELIVERY OF EXCHANGE NOTES
Subject to certain conditions, we will accept any and all Initial Notes that are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on the Expiration Date. We will deliver the Exchange Notes promptly after the
Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer."
10
14
TAX CONSIDERATIONS
We believe that the exchange of Initial Notes for Exchange Notes should not be a
taxable exchange for federal income tax purposes, but you should consult your
tax adviser about the tax consequences of this exchange. See "Certain United
States Income Tax Considerations."
EXCHANGE AGENT
The Chase Manhattan Bank is serving as Exchange Agent for the Exchange Offer.
FEES AND EXPENSES
We will bear all expenses related to consummating the Exchange Offer and
complying with the Exchange and Registration Rights Agreement. See "The Exchange
Offer -- Fees and Expenses."
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the Exchange Notes.
We used the proceeds from the sale of the Initial Notes to repay a portion of
our outstanding obligations under our existing credit agreement. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
THE EXCHANGE NOTES
NOTES OFFERED
$500,000,000 aggregate principal amount of 6 3/4% Senior Notes due 2005. The
form and terms of the Exchange Notes are substantially identical to the form and
terms of the Initial Notes, except that the Exchange Notes will be registered
under the Securities Act and, therefore, will not bear legends restricting their
transfer and will not be entitled to registration under the Securities Act. The
Exchange Notes will evidence the same debt as the Initial Notes and both the
Initial Notes and the Exchange Notes are governed by the same indenture.
MATURITY
November 15, 2005.
INTEREST PAYMENT DATES
May 15 and November 15 of each year, commencing May 15, 1999.
OPTIONAL REDEMPTION
We may redeem the Exchange Notes, in whole or in part at any time and from time
to time, at a redemption price determined as set forth in this Prospectus under
the heading "Description of the Exchange Notes," plus accrued and unpaid
interest, if any, to the date of redemption.
RANKING AND SUBSIDIARY GUARANTEES
The Exchange Notes will be unsecured and unsubordinated, joint and several
obligations of the Issuers ranking equal in right of payment with all existing
and future unsecured and unsubordinated indebtedness of the Issuers.
The Exchange Notes will be unconditionally guaranteed, jointly and severally
(the "Guarantees"), by each Subsidiary (as defined in this Prospectus) that is a
Credit Agreement Guarantor (as defined in
11
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this Prospectus) and future Subsidiaries that become Credit Agreement Guarantors
in each case, to the extent that and for so long as such Subsidiary remains a
Credit Agreement Guarantor.
The Issuers and their Subsidiaries may issue senior secured indebtedness,
subject to certain limitations; the Notes would be, in effect, subordinated to
such senior secured indebtedness to the extent of its security interest in
assets of our companies or their subsidiaries.
As of September 30, 1998, on a pro forma basis after giving effect to the
Offering and the application of net proceeds therefrom and the Exchange Offer,
the Company and USANi LLC would have had approximately $814.3 million and $762.2
million, respectively of total consolidated indebtedness outstanding, including
$497.6 million outstanding under the Notes net of discount and approximately
$316.7 million and $264.6 million, respectively, of other unsubordinated
Indebtedness, $31.1 million, $14.6 million, respectively, of which would have
been secured. See "Description of the Exchange Notes -- Ranking."
RESTRICTIVE COVENANTS
The indenture under which the Exchange Notes will be issued will contain
covenants for your benefit which, among other things, and subject to certain
exceptions, restrict our ability to:
- enter into sale-leaseback transactions;
- create liens; and
- consolidate, merge, or sell substantially all of our assets.
See "Description of the Exchange Notes -- Certain Covenants."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Exchange Notes are new securities and there is currently no established
market for them.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the Exchange Notes.
We used the proceeds from the sale of the Initial Notes to repay a portion of
our outstanding obligations under our existing credit agreement. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Position, Liquidity and Capital Resources."
12
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
In the tables below, we provide you with selected consolidated historical and
pro forma combined financial data (the "Pro Forma Financial Data") of USAi,
Holdco, and USANi LLC. We prepared the historical financial data using the
consolidated financial statements of USAi, Holdco, and USANi LLC. The Pro Forma
Financial Data attempts to illustrate the financial results of USAi, Holdco and
USANi LLC after giving effect to the offering of the Initial Notes (the
"Offering"), the Exchange Offer, the Universal Transaction, the Ticketmaster
Transaction, the Ticketmaster Online-CitySearch Transaction and the sale of SF
Broadcasting (collectively, the "Transactions") which had been completed
previously. Presented below is the combined statement of operations data for the
year ended December 31, 1997 and the nine months ended September 30, 1998 as if
the Transactions, where applicable, had been completed on January 1, 1997 and
1998, respectively. Also presented below is the consolidated historical balance
sheet data as of September 30, 1998 as if the Offering and Exchange Offer had
been completed on September 30, 1998. When you read this, it is important that
you read the footnotes set forth below the financial data.
It is important to remember that the Pro Forma Financial Data is hypothetical,
and does not necessarily reflect the financial performance that would have
actually resulted if the Transactions had been completed on those dates. It is
also important to remember that this information does not necessarily reflect
future financial performance of USAi, Holdco or USANi LLC.
Please see "Selected Pro Forma Combined Financial Data" on page of this
Prospectus for a more detailed explanation of this analysis. See also "Where You
Can Find More Information."
USAi
ACTUAL PRO FORMA
------------------------------------ ----------------------------
NINE MONTHS
YEAR ENDED ENDED NINE MONTHS
DECEMBER 31, SEPTEMBER 30, YEAR ENDED ENDED
-------------------- ------------- DECEMBER 31, SEPTEMBER 30,
1996(1) 1997(2) 1998(3) 1997 1998
------- ---------- ------------- ------------ -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues........................... $75,172 $1,261,749 $1,867,017 $2,527,922 $2,008,570
Operating profit....................... 3,612 94,519 160,246 136,917 125,109
Net earnings (loss)(4)................. (6,539) 13,061 26,041 (77,443) (6,273)
Basic earnings (loss) per share(5)..... (.30) .12 .19 (0.55) (0.04)
Diluted earnings (loss) per share(5)... (.30) .12 .14 (0.55) (0.04)
OTHER DATA:
Net cash provided by (used in):
Operating activities................. 11,968 47,673 146,731
Investing activities................. (2,622) (82,293) (1,148,859)
Financing activities................. 14,120 108,050 1,180,046
EBITDA(6).............................. $19,098 $ 191,543 $ 323,958 $ 414,540 $ 334,496
Ratio of earnings to fixed
charges(7)........................... 0.64x 2.81x 2.55x 2.45x
Ratio of total debt to EBITDA.......... n/m 2.41x n/m 1.75x(8)
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AS OF SEPTEMBER 30, 1998
------------------------------
PRO FORMA
----------------
AS ADJUSTED FOR
ACTUAL THE OFFERING(9)
---------- ----------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................................. $ 14,427 $ 7,927
Total assets................................................ 8,266,957 8,262,057
Existing Credit Agreement, including current maturities..... 750,000 250,000
Senior Notes................................................ -- 500,000
Discount on face value of Notes............................. -- (2,400)
Other long-term obligations, including current maturities... 66,665 64,265
Minority interest........................................... 3,589,338 3,589,338
Stockholders' equity........................................ 2,456,764 2,454,264
ADDITIONAL PRO FORMA OPERATING DATA:
COMBINED NET REVENUES EBITDA(6)
---------------------------- ----------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1998 1997 1998
------------ ------------- ------------ -------------
(IN THOUSANDS)
ADDITIONAL PRO FORMA OPERATING DATA:
Networks and Television Production.............. $1,107,604 $ 914,669 $237,800 $239,761
Electronic Retailing............................ 1,024,249 776,418 171,700 115,463
Ticketing Operations............................ 361,697 283,538 58,700 43,895
Internet Services............................... 18,995 25,784 (44,800) (33,800)
Broadcasting and other.......................... 15,377 8,161 (8,860) (30,823)
---------- ---------- -------- --------
Total................................. $2,527,922 $2,008,570 $414,540 $334,496
========== ========== ======== ========
HOLDCO
ACTUAL PRO FORMA
------------------------------------------- --------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, YEAR ENDED NINE MONTHS ENDED
----------------------- ----------------- DECEMBER 31, SEPTEMBER 30,
1996 1997 1998(3) 1997 1998
---------- ---------- ----------------- ------------ -----------------
(PREDECESSOR COMPANY)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $1,014,705 $1,037,060 $1,548,189 $2,144,664 $1,705,553
Operating profit................. 41,186 61,142 147,872 183,961 175,012
Net earnings (loss).............. 20,620 13,809 (3,193) (27,878) (30)
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ACTUAL PRO FORMA
------------------------------------------- --------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, YEAR ENDED NINE MONTHS ENDED
----------------------- ----------------- DECEMBER 31, SEPTEMBER 30,
1996 1997 1998(3) 1997 1998
---------- ---------- ----------------- ------------ -----------------
(PREDECESSOR COMPANY)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OTHER DATA:
Net cash provided by (used in):
Operating activities........... 23,123 34,068 120,720
Investing activities........... (10,733) (49,791) (1,379,163)
Financing activities........... (21,280) 22,471 1,360,666
EBITDA(6)........................ 74,669 126,294 273,824 364,474 314,733
Ratio of earnings to fixed
charges(7)..................... 3.66x 5.19x 2.51x 1.99x
Ratio of total debt to EBITDA.... n/m 0.85x n/m 1.65x(8)
AS OF SEPTEMBER 30, 1998
-------------------------
AS ADJUSTED
FOR THE
ACTUAL OFFERING(9)
---------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................................. $ 71,150 $ 64,650
Total assets................................................ 6,916,429 6,911,529
Existing Credit Agreement, including current maturities..... 750,000 250,000
Senior Notes................................................ -- 500,000
Discount on face value of Notes............................. -- (2,400)
Other long-term obligations, including current maturities... 14,607 12,207
Minority interest........................................... 3,770,146 3,770,146
Stockholders' equity........................................ 1,308,687 1,306,187
ADDITIONAL PRO FORMA OPERATING DATA:
COMBINED NET REVENUES EBITDA(6)
----------------------------- ----------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1998 1997 1998
------------- ------------- ------------ -------------
(IN THOUSANDS)
Networks and Television Production............ $1,107,604 $ 914,669 $237,800 $239,761
Electronic Retailing.......................... 1,024,249 776,417 141,991 94,300
Internet Services............................. 12,811 14,467 (7,900) (9,633)
Other......................................... -- -- (7,417) (9,695)
---------- ---------- -------- --------
Total............................... $2,144,664 $1,705,553 $364,474 $314,733
========== ========== ======== ========
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USANi LLC
ACTUAL PRO FORMA
--------------------------------------- ----------------------------
NINE MONTHS
YEAR ENDED ENDED NINE MONTHS
DECEMBER 31, SEPTEMBER 30, YEAR ENDED ENDED
----------------------- ------------- DECEMBER 31, SEPTEMBER 30,
1996 1997 1998(3) 1997 1998
---------- ---------- ------------- ------------ -------------
(PREDECESSOR COMPANY)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues........................... $1,014,705 $1,037,060 $1,548,189 $2,144,664 $1,705,553
Operating profit....................... 41,186 61,142 147,872 183,961 175,012
Net earnings........................... 20,621 16,255 62,186 65,648 78,383
OTHER DATA:
Net cash provided by (used in):
Operating activities................. 23,123 40,237 120,720
Investing activities................. (10,733) (49,791) (1,379,163)
Financing activities................. (21,280) 16,302 1,360,666
EBITDA................................. 74,669 126,294 273,824 364,474 314,733
Ratio of earnings to fixed
charges(7)........................... 3.66x 8.78x 2.01x 2.16x
Ratio of total debt to EBITDA.......... n/m n/m n/m 1.65x(8)
AS OF SEPTEMBER 30, 1998
----------------------------------
AS ADJUSTED
FOR THE
ACTUAL OFFERING(9)
---------- --------------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital............................................. $ 90,062 $ 83,562
Total assets................................................ 6,907,543 6,902,643
Existing Credit Agreement, including current maturities..... 750,000 250,000
Notes offered hereby........................................ -- 500,000
Discount on face value of Notes............................. -- (2,400)
Other long-term obligations, including current maturities... 14,607 12,207
Members' equity............................................. 5,093,010 5,090,510
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COMBINED NET REVENUES EBITDA(6)
ADDITIONAL PRO FORMA OPERATING DATA: ---------------------------- ----------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1998 1997 1998
------------ ------------- ------------ -------------
(IN THOUSANDS)
Networks and Television Production.............. $1,107,604 $ 914,669 $237,800 $239,761
Electronic Retailing............................ 1,024,249 776,417 141,991 94,300
Internet Services............................... 12,811 14,467 (7,900) (9,633)
Other........................................... -- -- (7,417) (9,695)
---------- ---------- -------- --------
Total................................. $2,144,664 $1,705,553 $364,474 $314,733
========== ========== ======== ========
- -------------------------
(1) The consolidated statements of operations include the operations of Savoy
(as defined herein) and Holdco since their acquisition by the Company on
December 19, 1996 and December 20, 1996, respectively.
(2) The consolidated statements of operations data include the operations of
Ticketmaster since the acquisition by the Company of its controlling
interest in Ticketmaster on July 17, 1997.
(3) The consolidated statements of operations data include the operations of
Networks and Studios USA since their acquisition by the Company from
Universal on February 12, 1998.
(4) Net earnings for the nine months ended September 30, 1998 includes a
pre-tax gain of $74.9 million related to the Company's sale of its
Baltimore television station during the first quarter of 1998.
(5) Earnings (loss) per common share data retroactively reflects the impact of
two-for-one Common Stock and Class B Common Stock splits which became
effective on March 26, 1998.
(6) EBITDA is defined as net income plus (i) extraordinary items and cumulative
effect of accounting changes, (ii) provision for income taxes, (iii)
interest expense (iv) depreciation and amortization and (v) minority
interest. EBITDA is presented here because we believe it is a widely
accepted indicator of a company's ability to service debt as well as a
valuation methodology for companies in the media, entertainment and
communications industries. EBITDA should not be considered in isolation or
as a substitute for measures of financial performance or liquidity prepared
in accordance with generally accepted accounting principles. EBITDA as
calculated by us may not be comparable to calculations of similarly titled
measures presented by other companies.
(7) For purposes of calculating the ratio of earnings to fixed charges,
earnings were calculated by adding (i) earnings (loss) before minority
interest and income taxes, (ii) interest expense, including the portion of
rents representative of an interest factor and (iii) the amount of
undistributed losses of the Company's less than 50%-owned companies. Fixed
charges consist of interest expense and the portions of rents
representative of an interest factor. For periods in which earnings before
fixed charges were insufficient to cover fixed charges, the dollar amount
of the coverage deficiencies (in millions) is presented.
(8) For the purposes of this calculation, debt has been adjusted to reflect the
Notes Offering and Exchange Offer. EBITDA is based on the pro forma results
of operations for the twelve-month period ended September 30, 1998.
(9) Amount reduced by the cash needed in excess of the net proceeds of the
Offering to repay $500 million of the Tranche A Term Loan. Net proceeds
from the Offering and available cash will be used to repay the Tranche A
Term Loan. See "Use of Proceeds" and "Capitalization."
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of the
Issuers and Holdco for the periods indicated. For the period in which earnings
before fixed charges were insufficient to cover fixed charges, the dollar amount
of coverage deficiency (in millions), instead of the ratio, is indicated.
USAi
YEARS
YEARS ENDED FOUR MONTHS ENDED NINE MONTHS
AUGUST 31, ENDED DECEMBER 31, ENDED
------------------ DECEMBER 31, ------------- SEPTEMBER 30,
1993 1994 1995 1995 1996 1997 1998
---- ---- ---- ------------ ----- ----- -------------
Ratio of earnings to fixed charges........... 0.57x 1.05x 1.11x 0.13x 0.64x 2.81x 2.55x
HOLDCO
PREDECESSOR COMPANY HOLDCO
------------------------------------- ------------------
YEARS ENDED DECEMBER 31,
------------------------------------- NINE MONTHS ENDED
1993 1994 1995 1996 1997 SEPTEMBER 30, 1998
------ ---- ------ ---- ----- ------------------
Ratio of earnings to fixed charges
(deficiency)................................. $(19.0) 4.00x $(94.9) 3.66x 5.19x 2.51x
USANi LLC
PREDECESSOR COMPANY USANi LLC
------------------------------------- ------------------
YEARS ENDED DECEMBER 31,
------------------------------------- NINE MONTHS ENDED
1993 1994 1995 1996 1997 SEPTEMBER 30, 1998
------ ---- ------ ---- ----- ------------------
Ratio of earnings to fixed charges
(deficiency)................................. $(19.0) 4.00x $(94.9) 3.66x 8.78x 2.01x
For purposes of calculating the ratio of earnings to fixed charges, earnings
were calculated by adding (i) earnings (loss) before minority interest and
income taxes, (ii) interest expense, including the portion of rents
representative of an interest factor, and (iii) the amount of USANi LLC's
undistributed losses of less than 50%-owned companies. Fixed charges consist of
interest expense and the portions of rents representative of an interest factor.
For the periods in which earnings before fixed charges were insufficient to
cover fixed charges, the dollar amount of coverage deficiency (in millions) is
presented. The ratios of earnings to fixed charges should be read in conjunction
with the consolidated financial statements, including the notes thereto, and
other financial data included or incorporated by reference herein.
18
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RISK FACTORS
You should carefully consider the following factors together with the other
matters set forth herein or incorporated by reference herein before deciding
whether to exchange your Initial Notes for Exchange Notes in the Exchange Offer.
FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
We issued the Initial Notes in a private offering exempt from the registration
requirements of the Securities Act. Accordingly, holders of the Initial Notes
may not offer, sell or otherwise transfer their Initial Notes except in
compliance with the registration requirements of the Securities Act and
applicable state securities laws or pursuant to exemptions from, or in
transactions not subject to, such registration requirements. Holders of Initial
Notes who do not exchange their Initial Notes for Exchange Notes in the Exchange
Offer will continue to be subject to these transfer restrictions after the
completion of the Exchange Offer. See "The Exchange Offer."
In addition, after completion of the Exchange Offer, holders of the Initial
Notes who do not tender their Initial Notes in the Exchange Offer will no longer
be entitled to any exchange or registration rights under the Exchange and
Registration Rights Agreement, except under limited circumstances.
To the extent Initial Notes are tendered and accepted in the Exchange Offer, the
liquidity of the trading market, if any, for the Initial Notes could be
adversely affected. See "The Exchange Offer."
EXCHANGE OFFER PROCEDURES
We will issue the Exchange Notes in exchange for the Initial Notes pursuant to
the Exchange Offer only after timely receipt by us of the Initial Notes, a
properly completed and duly executed Letter of Transmittal and all other
required documents or an Agent's Message (as defined herein) in lieu thereof.
Holders desiring to tender Initial Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely delivery. We are under no duty to give
notification of defects or irregularities with respect to the tenders of the
Initial Notes for exchange. Initial Notes that are not tendered or are tendered
but not accepted will continue to be subject to the existing transfer
restrictions after the completion of the Exchange Offer. In addition, any holder
of the Initial Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for the Initial Notes, where the
Initial Notes were acquired by the broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of those Exchange Notes. See "Plan of
Distribution."
RANKING OF NOTES AND THE GUARANTEES
The Notes are unsecured and unsubordinated, joint and several obligations of the
Issuers and rank equal in right of payment with all other existing and future
unsecured and unsubordinated indebtedness of the Issuers. The Guarantees are
unsecured and unsubordinated obligations of the relevant Guarantor and rank
equal in right of payment with all other existing and future unsecured and
unsubordinated indebtedness of each such Guarantor. Neither the Notes nor the
Guarantees are secured by any assets of the Issuers or the Guarantors.
Accordingly, the Notes and the Guarantees will effectively rank junior to any
secured obligations of the Issuers and the Guarantors to the extent of the
assets securing such obligations. If either of the Issuers or a Guarantor
becomes insolvent or is liquidated, or if payment under any secured obligation
is accelerated, the lenders under such secured obligation will be entitled to
exercise the remedies available to a secured lender under applicable law
19
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and pursuant to the terms of the agreement securing such obligation. Any claims
of such lenders with respect to such assets will be prior to any claim of the
holders of the Notes with respect to such assets. It is possible that there
would be no assets remaining from which claims of the holders of the Notes could
be satisfied or if any such assets remain, such assets might be insufficient to
fully satisfy such claims. As of September 30, 1998, on a pro forma basis after
giving effect to the Offering and the application of net proceeds therefrom and
the Exchange Offer, the Company and USANi LLC would have had approximately
$814.3 million and $762.2 million, respectively, of total consolidated
indebtedness outstanding, including $497.6 million outstanding under the Notes
net of discount and approximately $316.7 million and $264.6 million,
respectively, of other unsubordinated Indebtedness, $31.1 million and $14.6
million, respectively, of which would have been secured. See "Description of the
Exchange Notes -- Ranking."
RESTRICTIVE COVENANTS
The Existing Credit Agreement (as defined in this Prospectus) contains various
financial and operating covenants which, among other things, require the
maintenance of certain financial ratios. Violation of such covenants could
result in a default under the Existing Credit Agreement which would permit the
bank lenders thereunder to (i) restrict USANi LLC's ability to borrow undrawn
funds under the Existing Credit Agreement and (ii) accelerate the maturity of
borrowings thereunder.
DEPENDENCE ON CERTAIN KEY PERSONNEL
The Company is dependent upon the continued contributions of its senior
corporate management, particularly Mr. Diller, and certain key employees for its
future success. Mr. Diller is the Chairman of the Board and Chief Executive
Officer of the Company. Mr. Diller does not have an employment agreement with
the Company, although he has been granted options to purchase a substantial
number of shares of Common Stock and the vesting of such options is to occur
over the next few years, subject to acceleration in certain specified
circumstances. Except in certain circumstances, such vesting is conditioned upon
Mr. Diller remaining at the Company. There can be no assurance that the Company
will be able to retain the services of Mr. Diller or any other members of senior
management or key employees of the Company.
If Mr. Diller no longer serves in his positions at the Company, the business of
the Company could be substantially adversely affected. In addition, under the
terms of the Governance Agreement, dated October 19, 1997 (the "Governance
Agreement"), among the Company, Universal, Liberty and Mr. Diller entered into
in connection with the Universal Transaction, if Mr. Diller no longer serves as
Chief Executive Officer of the Company or becomes disabled (as defined in the
Governance Agreement), then certain restrictions on the conduct of Universal
will be eliminated, and Universal's ability to increase its equity interest in
the Company will be accelerated. Due to current FCC restrictions on foreign
ownership of entities controlling domestic television broadcast licenses and
cross-ownership of cable franchises and television broadcast licenses which
limit the ability of Universal and Liberty, respectively, to exercise voting
control over entities that hold television broadcast licenses, in the event that
Mr. Diller is no longer Chief Executive Officer or has become disabled, the
Company would be required to divest itself of its television broadcast licenses
so that Universal and Liberty could exercise control over the Company in
compliance with FCC law or otherwise enter in arrangements relating to the
control of the Company in compliance with FCC law. See "Certain Relationships
and Related Party Transactions -- Agreements with Universal and Liberty."
CONTROLLING SHAREHOLDERS
Mr. Diller, through entities he controls, currently beneficially owns or has the
right to vote 100% of the shares of Class B Common Stock of the Company, which
is sufficient to control the outcome of
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any matter submitted to a vote or for the consent of the Company's shareholders
(other than with respect to the election by the holders of Common Stock of 25%
of the members of the Board of Directors of the Company (rounded up to the
nearest whole number) and certain matters as to which a separate class vote of
the holders of Common Stock is required under the Delaware General Corporation
Law). Each share of Class B Common Stock is entitled to ten votes per share with
respect to matters on which Common and Class B stockholders vote as a single
class. Without giving effect to the issuance of any Company securities upon
exercise of options held by Mr. Diller or upon exchange of shares of USANi LLC
or Holdco, as of December 31, 1998, Mr. Diller owns or has the right to vote
11.3% of the outstanding Common Stock, 100% of the outstanding Class B Common
Stock and 74.5% of the outstanding total voting power of the Common Stock and
Class B Common Stock.
Pursuant to the Stockholders Agreement (as defined in this Prospectus), Mr.
Diller, Universal and Liberty have agreed that the Company securities owned by
any of Mr. Diller, Universal, Liberty and certain of their respective affiliates
will not be voted in favor of the taking of any action with respect to certain
fundamental changes relating to the Company, except with the consent of each of
Mr. Diller, Universal and Liberty. Accordingly, in respect of such matters, each
of Mr. Diller, Universal and Liberty has the ability to veto, in his or its sole
discretion, the taking of any action with respect to these matters. In addition,
there can be no assurance that Mr. Diller, Universal and Liberty will be able to
agree in the future with respect to any such transaction or action, in which
case the Company would not be able to engage in such transaction or take such
action, provided that, under the terms of the Stockholders Agreement, if Mr.
Diller and Universal agree to certain fundamental changes that Liberty does not
agree to, subject to certain conditions, Universal will be entitled to purchase
Liberty's entire equity interest of the Company and the Company would then be
able to engage in such transaction or take such action.
Upon Mr. Diller's permanent departure from the Company, the Company may change
in various fundamental respects. For example, generally, Universal would be able
to control USANi LLC and would have the ability to cause the Company to effect a
spinoff or other disposition of USA Broadcasting, after which Universal could
directly control the Company. In addition, Universal and Liberty have certain
agreements relating to the management and governance of the Company and USANi
LLC, as well as the voting and disposition of their shares of the Company and
the stock of the regulated businesses that are spun off. The Company has
generally agreed to use its reasonable best efforts to implement the
arrangements agreed to by Universal and Liberty. In the case of Universal or
Liberty selecting the manager of USANi LLC, these actions could, depending on
the circumstances, result in deconsolidation for financial accounting purposes
of the results of operations of USANi LLC from those of the Company. See
"Certain Relationships and Related Party Transactions -- Agreements with
Universal and Liberty."
YEAR 2000 ISSUE
We are currently working to resolve the potential impact of the Year 2000 on the
processing of date-sensitive information by our computerized information
systems. The Year 2000 problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of our
programs that have time-sensitive software may recognize a date using "00" as
the Year 1900 rather than the Year 2000, which could result in miscalculations
or system failures. Based on preliminary information, we do not expect that the
costs of addressing potential problems will have a material adverse impact on
our financial position, results of operations or cash flows in future periods.
However, if we or our customers or vendors are unable to resolve such processing
issues in a timely manner, it could result in a material financial risk.
Accordingly, we plan to devote the necessary resources to resolve all
significant Year 2000 issues in a timely manner.
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For a more complete discussion of Year 2000 issues, please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Other Matters."
ABSENCE OF A PUBLIC MARKET
Although holders of Exchange Notes (who are not "affiliates" of the Issuers
within the meaning of the Securities Act) may resell or otherwise transfer their
Exchange Notes without compliance with the registration requirements of the
Securities Act, there is no existing market for the Exchange Notes, and there
can be no assurance as to the liquidity of any markets that may develop for the
Exchange Notes, the ability of holders of Exchange Notes to sell their Exchange
Notes or the prices at which holders would be able to sell their Exchange Notes.
Future trading prices of the Exchange Notes will depend on many factors,
including, among other things, prevailing interest rates, our operating results
and the market for similar securities.
The initial purchasers in the Offering have advised us that they intend to make
a market in the Exchange Notes after the Exchange Offer. However, they are not
obligated to do so, and any market-making may be discontinued at any time
without notice. In addition, such market-making activity may be limited during
the Exchange Offer.
We do not intend to apply for listing of the Exchange Notes on any securities
exchange or to arrange for them to be quoted on any quotation system.
Accordingly, an active trading market for the Exchange Notes may not develop,
either before, during or after the consummation of the Exchange Offer. The
absence of an active trading market may have an adverse effect on the market
price and liquidity of the Exchange Notes.
FRAUDULENT CONVEYANCE CONSIDERATIONS
Each Issuer is a holding company. All of our operating assets are held by our
respective Subsidiaries and all of our operating revenues are derived from
operations of our respective Subsidiaries. Therefore, our ability to make
payments when due to holders of the Notes is dependent upon the receipt of
sufficient funds from our Subsidiaries. Our obligations under the Notes are
fully and unconditionally guaranteed on a joint and several basis by the
Guarantors.
Under the federal or state fraudulent transfer laws, a court could take certain
actions detrimental to you if it found that, at the time the Initial Notes or
the Guarantees of our Subsidiaries were issued:
- we or a Guarantor issued the Initial Notes or a Guarantee with the intent
of hindering, delaying or defrauding current or future creditors; or
- we or a Guarantor received less than fair consideration or reasonably
equivalent value for incurring the indebtedness represented by the
Initial Notes or a Guarantee, and:
-- we or a Guarantor were insolvent or rendered insolvent by issuing the
Initial Notes or the Guarantee;
-- we or a Guarantor were engaged (or about to engage) in a business or
transaction for which our assets were unreasonably small; or
-- we or a Guarantor intended to incur indebtedness beyond our ability
to pay, or believed or should have believed that we would incur
indebtedness beyond our ability to pay.
If a court made these findings, it could:
- void all or part of our obligations, or a Guarantor's obligations, to the
holders of Exchange Notes; or
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- subordinate our obligations, or a Guarantor's obligations to the holders
of Exchange Notes to other indebtedness of ours or of the Guarantor.
The effect of the court's action would be to entitle the other creditors to be
paid in full before any payment could be made on the Exchange Notes. The court
could take other action detrimental to the holders of Exchange Notes, including
in certain circumstances, invalidating the Exchange Notes or a guarantee of
payment of the Exchange Note by one of our subsidiaries. In that event, there
would be no assurance that any repayment on the Exchange Notes would ever be
recovered by the holders of the Exchange Notes.
The definition of insolvency varies among jurisdictions depending upon the
federal or state law applied in the proceeding. However, we or a Guarantor
generally would be considered insolvent at the time we or the Guarantor incur
the debt constituting the Initial Notes or a Guarantee, if:
- the fair market value (or fair salable value) of the relevant assets is
less than the amount required to pay our total existing debts and
liabilities (including the probable liability on contingent liabilities)
or those of the Guarantor, as they become absolute or matured; or
- we or the Guarantor incurs debts beyond our or its ability to pay as such
debts mature.
We cannot be sure what standard a court would apply in order to determine
whether we or a Guarantor were "insolvent" as of the date the Initial Notes or
Guarantees of payment of the Initial Notes by our Subsidiaries were issued
regardless of the method of valuation. We cannot be certain whether a court
would determine that we or a Guarantor were insolvent on that date. We also
cannot be certain whether a court would determine that the payments constituted
fraudulent transfers on another ground regardless.
To the extent a court voids a Guarantee of payment of the Initial Notes as a
fraudulent conveyance or holds it unenforceable for any other reason, holders of
Exchange Notes would cease to have any claim against the Guarantor. Holders of
Exchange Notes could proceed solely against us and against any Guarantor whose
guarantee was not voided or held unenforceable. The claims of the holders of
Exchange Notes against the issuer of an invalid Guarantee (if a court allowed
any of those claims) could be subject to the prior payment of all liabilities
and preferred stock claims of that Guarantor. There can be no assurance that,
after providing for all prior claims and preferred stock interests, the
Guarantor's assets would be sufficient to satisfy the claims of the holders of
Exchange Notes relating to any voided portions of any of the Guarantees.
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the Exchange Notes in
the Exchange Offer. In consideration for issuing the Exchange Notes as
contemplated in this Prospectus, we will receive in exchange Initial Notes in
like principal amount, the terms of which are substantially identical to the
Exchange Notes. The Initial Notes surrendered in exchange for the Exchange Notes
will be retired and canceled and cannot be reissued. The issuance of the
Exchange Notes will not result in any increase in our indebtedness.
USANi LLC used the net proceeds received from the sale of the Initial Notes
together with available cash to repay a portion of the $750.0 million Tranche A
Term Loan (the "Tranche A Term Loan") outstanding under the Credit Agreement,
dated February 12, 1998, among the Company, USANi LLC, as borrower, the lenders
party thereto, The Chase Manhattan Bank ("Chase"), as administrative and
collateral agent, and Bank of America National Trust & Savings Association and
The Bank of New York, as co-documentation agents (the "Existing Credit
Agreement"). The amounts repaid under the Tranche A Term Loan may not be
reborrowed. The Tranche A Term Loan accrued interest at a weighted average rate
per annum of 6.62% as of September 30, 1998 and was scheduled to mature on
December 31, 2002. The proceeds from the Tranche A Term Loan were used to
finance a portion of the Universal Transaction.
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CAPITALIZATION
The following tables set forth the unaudited consolidated capitalization of the
Company, Holdco and USANi LLC as of September 30, 1998, (i) on a historical
basis and (ii) on a pro forma basis as adjusted to give effect to the Offering
and the Exchange Offer (as if they had occurred on such date), and the
application of the estimated net proceeds therefrom and available cash to repay
a portion of the Tranche A Term Loan. This table should be read in conjunction
with the financial statements and accompanying notes and other financial data
included elsewhere, or incorporated by reference, in this Prospectus.
USAi
AS OF
SEPTEMBER 30, 1998
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
Cash and cash equivalents(1)................................ $ 292 $ 286
====== ======
Long-term debt, including current maturities:
Existing Credit Agreement:
Revolving Credit Facility.............................. $ -- $ --
Tranche A Term Loan.................................... 750 250
------ ------
Total Existing Credit Agreement................... 750 250
Senior Notes due 2005....................................... -- 500
Discount on face value of Notes............................. -- (2)
Other long-term obligations................................. 67 67
------ ------
Total long-term debt.............................. 817 815
Minority interest........................................... 3,589 3,589
Total stockholders' equity.................................. 2,457 2,454
------ ------
Total capitalization........................................ $6,863 $6,858
====== ======
- -------------------------
(1) Cash and cash equivalents include amounts held on behalf of Ticketmaster's
clients, which cannot be used to repay indebtedness.
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HOLDCO
AS OF SEPTEMBER 30,
1998
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
Cash and cash equivalents................................... $ 125 $ 119
====== ======
Long-term debt, including current maturities:
Existing Credit Agreement:
Revolving Credit Facility.............................. $ -- $ --
Tranche A Term Loan.................................... 750 250
------ ------
Total Existing Credit Agreement...................... 750 250
Senior Notes due 2005....................................... -- 500
Discount on face value of Notes............................. -- (2)
Other long-term obligations................................. 15 15
------ ------
Total long-term debt................................. 765 763
Minority interest........................................... 3,770 3,770
Total stockholders' equity.................................. 1,309 1,306
------ ------
Total capitalization........................................ $5,844 $5,839
====== ======
USANi LLC
AS OF SEPTEMBER 30,
1998
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
Cash and cash equivalents................................... $ 125 $ 119
====== ======
Long-term debt, including current maturities:
Existing Credit Agreement:
Revolving Credit Facility.............................. $ -- $ --
Tranche A Term Loan.................................... 750 250
------ ------
Total Existing Credit Agreement...................... 750 250
Senior Notes due 2005....................................... -- 500
Discount on face value of Notes............................. -- (2)
Other long-term obligations................................. 15 15
------ ------
Total long-term debt................................. 765 763
Total members' equity....................................... 5,093 5,090
------ ------
Total capitalization........................................ $5,858 $5,853
====== ======
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THE EXCHANGE OFFER
The following summary of certain provisions of the Exchange and Registration
Rights Agreement entered into by the Issuers, the Guarantors and the Initial
Purchasers as of November 23, 1998 (the "Registration Rights Agreement") does
not purport to be complete and reference is made to the provisions of the
Registration Rights Agreement, which has been filed as an exhibit to the
Registration Statement and a copy of which is available as set forth under the
heading "Where You Can Find More Information."
PURPOSE OF THE EXCHANGE OFFER
In connection with the issuance of the Initial Notes pursuant to a purchase
agreement dated as of November 19, 1998 by and among the Issuers, certain of the
Guarantors and the Initial Purchasers (the "Purchase Agreement"), the Initial
Purchasers and their respective assignees became entitled to the benefits of the
Registration Rights Agreement.
Under the Registration Rights Agreement, we and the Guarantors are required to
file, not later than 120 days following the date the Initial Notes were
originally issued (the "Issue Date"), the Registration Statement of which this
Prospectus is a part providing for a registered exchange offer of new notes
identical in all material respects to the Initial Notes, except that such new
notes will be freely transferable and will not have any covenants regarding
exchange and registration rights. Under the Registration Rights Agreement, we
and the Guarantors are required to:
- use reasonable best efforts to cause the Registration Statement to
be declared effective no later than 150 days after the Issue Date,
- keep the Exchange Offer open for not less than 20 business days (or
longer if required by applicable law) after the date that notice of
the Exchange Offer is mailed to holders of the Initial Notes, and
- use reasonable best efforts to consummate the Exchange Offer as
promptly as practicable, but no later than 180 days after the Issue
Date.
The Registration Rights Agreement also provides that under certain
circumstances, we and the Guarantors will file with the SEC a shelf registration
statement (the "Shelf Registration Statement") relating to the offer and sale of
Initial Notes by holders of Initial Notes who satisfy certain conditions
regarding the provision to us of information in connection with the Shelf
Registration Statement.
The Exchange Offer being made by this Prospectus is intended to satisfy your
exchange and registration rights under the Registration Rights Agreement. If we
fail to fulfill such registration and exchange obligations, you, as a holder of
outstanding Initial Notes, are entitled to receive "Additional Interest" until
we have fulfilled such obligations, at the rate of 0.25% per annum. All amounts
of accrued Additional Interest will be payable in cash on the same interest
payment dates as the Notes.
EFFECT OF THE EXCHANGE OFFER
Based on interpretations by the staff of the SEC set forth in no-action letters
issued to third parties, we believe that you may offer for resale, resell and
otherwise transfer the Exchange Notes issued to you pursuant to the Exchange
Offer in exchange for your Initial Notes without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that you can represent that:
- you are acquiring the Exchange Notes in the ordinary course of your
business;
- you are not participants and do not intend to participate and have
no arrangement or understanding with any person to participate, in a
distribution of the Exchange Notes; and
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- you are not an "affiliate" (as defined in Rule 405 of the Securities
Act) of ours or any Guarantor.
If you are not able to make these representations, you are a "Restricted
Holder." As Restricted Holder, you will not be able to participate in the
Exchange Offer and may only sell your Initial Notes pursuant to a registration
statement containing the selling security holder information required by Item
507 of Regulation S-K under the Securities Act, or pursuant to an exemption from
the registration requirement of the Securities Act.
In addition, each broker-dealer (other than a Restricted Holder) that receives
Exchange Notes for its own account in exchange for Initial Notes which were
acquired by such broker-dealer as a result of market-making or other trading
activities (a "Participating Broker-Dealer"), must acknowledge in the Letter of
Transmittal that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based upon interpretations by the staff of the
SEC, we believe that a participating Broker-Dealer may offer for resale, resell
and otherwise transfer Exchange Notes issued pursuant to the Exchange Offer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with such resales. We have agreed
that, for a period of 90 days after the consummation of the Exchange Offer, we
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. By acceptance of this Exchange Offer, each broker-dealer
that receives Exchange Notes pursuant to the Exchange Offer agrees to notify the
Issuer prior to using this Prospectus in connection with the sale or transfer of
Exchange Notes. See "Plan of Distribution."
To the extent Initial Notes are tendered and accepted in the Exchange Offer, the
principal amount of outstanding Initial Notes will decrease with a resulting
decrease in the liquidity in the market for the Initial Notes. Initial Notes
that are still outstanding following the consummation of the Exchange Offer will
continue to be subject to certain transfer restrictions.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus and in
the Letter of Transmittal, we will accept any and all Initial Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date. As of the date of this Prospectus, an aggregate of $500 million
principal amount of the Initial Notes is outstanding. We will issue $1,000
principal amount at maturity of Exchange Notes in exchange for each $1,000
principal amount at maturity of outstanding Initial Notes accepted in the
Exchange Offer. Holders may tender some or all of their Initial Notes pursuant
to the Exchange Offer. However, Initial Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Exchange Notes will be substantially identical to the
form and terms of the Initial Notes, except that:
- the offering of the Exchange Notes has been registered under the
Securities Act,
- the Exchange Notes will not be subject to transfer restrictions,
- the Exchange Notes will be issued free of any covenants regarding
exchange and registration rights (including that they will not
provide for additional interest), and
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- the Exchange Notes will evidence the same debt as the Initial Notes
and will be entitled to the benefits of the Indenture under which
the Initial Notes were, and the Exchange Notes will be, issued.
You do not have any appraisal or dissenters, rights under law or the Indenture
in connection with the Exchange Offer. We intend to conduct the Exchange Offer
in accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC thereunder.
We shall be deemed to have accepted validly tendered Initial Notes when, as and
if we have given oral (promptly confirmed in writing) or written notice thereof
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from us.
If we do not accept for exchange any tendered Initial Notes because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Initial Notes will be returned
to you, without expense, as promptly as practicable after the Expiration Date.
If you tender Initial Notes in the Exchange Offer, you will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Initial Notes
pursuant to the Exchange Offer. We will pay all charges and expenses, other than
certain applicable taxes, in connection with the Exchange Offer. See "-- Fees
and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on
, 1999, unless we, in our sole discretion, extend the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, we will notify the Exchange Agent of any
extension by oral (promptly confirmed in writing) or written notice and will
make a public announcement thereof, each prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled expiration date unless
otherwise required by applicable law or regulation.
We have the right, in our reasonable discretion, (i) to delay accepting any
Initial Notes, to extend the Exchange Offer or, if any of the conditions set
forth below under "Conditions" shall not have been satisfied, to terminate the
Exchange Offer, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If we believe that we have made a material amendment of the terms of
the Exchange Offer, we will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of the Notes of such amendment and
we will extend the Exchange Offer to the extent required by law.
Without limiting the manner in which we may choose to make public announcement
of any delay, extension, termination or amendment of the Exchange Offer, we
shall have no obligation to publish, advertise or otherwise communicate any such
public announcement, other than by making a timely release to the Dow Jones News
Service.
PROCEDURES FOR TENDERING
Only a Holder of Initial Notes may tender such Initial Notes in the Exchange
Offer. To tender in the Exchange Offer, a Holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or
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otherwise deliver such Letter of Transmittal or such facsimile, together with
the Initial Notes (or a confirmation of an appropriate book-entry transfer into
the Exchange Agent's account at The Depository Trust Company ("DTC" or the
"Depositary") (as described below)) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
To be tendered effectively, the Initial Notes (or a timely confirmation of a
book-entry transfer of such Initial Notes into the Exchange Agent's account at
DTC as described below), Letter of Transmittal and other required documents must
be received by the Exchange Agent at the address set forth below under "Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date.
The tender by a holder will constitute an agreement between such holder and the
Issuer in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
Any financial institution which is a participant in DTC may make book-entry
delivery of the Initial Notes by causing DTC to transfer such Initial Notes into
the Exchange Agent's account and to deliver an Agent's Message on or prior to
the Expiration Date in accordance with DTC's procedure for such transfer.
Although delivery of Initial Notes may be effected through book-entry transfer
into the Exchange Agent's account at DTC, the Letter of Transmittal, with any
required signature guarantees and any other required documents, must in any case
be transmitted to and received by the Exchange Agent prior to 5:00 p.m., New
York City time, on the Expiration Date at one of its addresses set forth below
under "Exchange Agent", or the guaranteed delivery procedure described below
must be complied with. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in
this Prospectus to deposit or delivery of Initial Notes shall be deemed to
include DTC's book-entry delivery method.
The method of delivery of Initial Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent, including delivery through DTC,
is at the election and risk of the holder. Instead of delivery by mail, it is
recommended that holders use an overnight or hand delivery service. If Initial
Notes are sent by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
assure delivery to the Exchange Agent before the Expiration Date. No Letter of
Transmittal or Initial Notes should be sent to the Issuer.
Holders may request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect the above transactions for such holders.
Any beneficial owner whose Initial Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If such beneficial owner
wishes to tender on such owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal and delivering such owner's
Initial Notes, either make appropriate arrangements to register ownership of the
Initial Notes in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, must be guaranteed by an Eligible Institution (as defined below) unless the
Initial Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities
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Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal or any Initial Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuer, proper
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of receipt),
acceptance and withdrawal of tendered Initial Notes will be determined by us in
our sole discretion, which determination will be final and binding. We reserve
the absolute right to reject any and all Initial Notes not properly tendered or
any Initial Notes our acceptance of which would, in the opinion of our counsel,
be unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular Initial Notes. Our interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Initial Notes must
be cured within such time as we shall determine. Although we intend to notify
holders of defects or irregularities with respect to tenders of Initial Notes,
neither we nor the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Initial Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Initial Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders (or, in
the case of Initial Notes delivered by book-entry transfer within DTC, will be
credited to the account maintained within DTC by the participant in DTC which
delivered such Initial Notes), unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, we reserve the right in our sole discretion (a) to purchase or make
offers for any Initial Notes that remain outstanding subsequent to the
Expiration Date, (b) as set forth below under "Conditions," to terminate the
Exchange Offer and (c) to the extent permitted by applicable law, purchase
Initial Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each Holder will represent to us that, among other things, such
holder is not a Restricted Holder. In addition, each Participating Broker-Dealer
must acknowledge that it will deliver a prospectus in connection with any resale
of Exchange Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will establish a new account or utilize an existing account
with respect to the Initial Notes at DTC promptly after the date of this
Prospectus, and any financial institution that is a participant in DTC and whose
name appears on a security position listing as the owner of Initial Notes may
make a book-entry tender of Initial Notes by causing DTC to transfer such
Initial Notes into the Exchange Agent's account in accordance with DTC's
procedures for such transfer. However, although tender of Initial Notes may be
effected through book-entry transfer at DTC, the Letter of Transmittal (or a
facsimile thereof), properly completed and validly executed, with any required
signature guarantees, or an Agent's Message in lieu of the Letter of
Transmittal, and any other required documents, must, in any case, be received by
the Exchange Agent at its address set forth below under the caption "Exchange
Agent" on or prior to the Expiration Date, or the guaranteed delivery procedures
described below must be complied with. The confirmation of book-entry transfer
of Initial Notes into the Exchange Agent's account at DTC as described above is
referred to herein
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35
as a "Book-Entry Confirmation." Delivery of documents to DTC in accordance with
DTC's procedures does not constitute delivery to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC to, and received
by, the Exchange Agent and forming a part of a Book-Entry Confirmation, which
states that DTC has received an express acknowledgment from the participant in
DTC tendering Initial Notes stating (i) the aggregate principal amount of
Initial Notes which have been tendered by such participant, (ii) that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal and (iii) that we may enforce such agreement against the
participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Initial Notes and (i) whose Initial Notes are
not immediately available or (ii) who cannot deliver their Initial Notes (or a
confirmation of book-entry transfer of Initial Notes into the Exchange Agent's
account at DTC), the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date or (iii) who cannot complete the
procedure for book-entry transfer on a timely basis, may effect a tender if:
- the tender is made by or through an Eligible Institution;
- prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of such Initial Notes
and the principal amount of Initial Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three (3) New
York Stock Exchange, Inc. trading days after the Expiration Date, a duly
executed Letter of Transmittal (or facsimile thereof) together with the
Initial Notes (or a confirmation of book-entry transfer of such Initial
Notes into the Exchange Agent's account at DTC), and any other documents
required by the Letter of Transmittal and the instructions thereto, will
be deposited by such Eligible Institution with the Exchange Agent; and
- such properly completed and executed Letter of Transmittal (or facsimile
thereof), and all tendered Initial Notes in proper form for transfer (or
a confirmation of book-entry transfer of such Initial Notes into the
Exchange Agent's account at DTC) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three (3)
New York Stock Exchange, Inc. trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent
to holders who wish to tender their Initial Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Initial Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Initial Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Initial Notes to be withdrawn (the "Depositor"),
(ii) identify the Initial Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Initial Notes), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Initial Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Initial Notes register the transfer of such
Initial Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any
32
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such Initial Notes are to be registered, if different from that of the
Depositor. If the Initial Notes have been delivered pursuant to the book-entry
procedure set forth above under "-- Procedures for Tendering," any notice of
withdrawal must specify the name and number of the participant's account at DTC
to be credited with the withdrawn Initial Notes. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by us in our sole discretion, which determination shall be final
and binding on all parties. Any Initial Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Initial Notes so withdrawn
are validly retendered. Properly withdrawn Initial Notes may be retendered by
following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the Expiration Date.
Any Initial Notes which are tendered but which are not accepted due to
withdrawal, rejection of tender or termination of the Exchange Offer will be
returned as soon as practicable to the holder thereof without cost to such
holder (or, in the case of Initial Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Initial Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Initial Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, we are not required to
accept for exchange any Initial Notes, and may terminate the Exchange Offer as
provided herein before the acceptance of such Initial Notes, if:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer
which, in our reasonable judgment, might materially impair our ability to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to us, or any material adverse development
has occurred in any existing action or proceeding with respect to us or
any of our subsidiaries, or
- any change, or any development involving a prospective change, in our
business or financial affairs or the business or financial affairs of any
of our subsidiaries has occurred which, in our reasonable judgment, might
materially impair our ability to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to us;
or
- any law, statute, rule or regulation is proposed, adopted or enacted,
which, in our reasonable judgment, might materially impair our ability to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to us; or
- there shall have occurred (i) any general suspension of trading in, or
general limitation on prices for, securities on the New York Stock
Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by
any governmental agency or authority that adversely affects the extension
of credit to us or (iii) a commencement of war, armed hostilities or
other similar international calamity directly or indirectly involving the
United States; or, in the case any of the foregoing exists at the time of
commencement of the Exchange Offer, a material acceleration or worsening
thereof; or
- any governmental approval has not been obtained, which approval we shall
in our reasonable judgment, deem necessary, for the consummation of the
Exchange Offer as contemplated hereby.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any
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37
time and from time to time in our reasonable discretion. Our failure at any time
to exercise any of the foregoing rights shall not be deemed a waiver of such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
If we determine in our reasonable judgment that any of the conditions are not
satisfied, we may (i) refuse to accept any Initial Notes and return all tendered
Initial Notes to the tendering Holders (or, in the case of Initial Notes
delivered by book-entry transfer within DTC, credit such Initial Notes to the
account maintained within DTC by the participant in DTC which delivered such
Notes), (ii) extend the Exchange Offer and retain all Initial Notes tendered
prior to the expiration of the Exchange Offer, subject, however, to the rights
of Holders to withdraw such tenders of Initial Notes (see "Withdrawal of
Tenders" above) or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Initial Notes which have not
been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, we will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to the registered Holders, and we will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
Holders, if the Exchange Offer would otherwise expire during such five to ten
business day period.
EXCHANGE AGENT
The Chase Manhattan Bank, the Trustee under the Indenture, has been appointed as
Exchange Agent for the Exchange Offer. Questions and requests for assistance and
inquiries for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:
THE CHASE MANHATTAN BANK
By Mail, Hand or Overnight Delivery: Facsimile Transmission Number:
55 Water Street (212) 638-7375
Room 234, North Building or (212) 344-9367
New York, NY 10041 (FOR ELIGIBLE INSTITUTIONS ONLY)
Attention: Carlos Esteves Confirm by Telephone
(IF BY MAIL, REGISTERED OR CERTIFIED MAIL (212) 638-0828
RECOMMENDED)
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will pay expenses of soliciting tenders. The principal solicitation is being
made by mail; however, additional solicitation may be made by facsimile,
telephone or in person by our officers and regular employees.
We have not retained any dealer-manager in connection with the Exchange Offer
and will not make any payments to brokers, dealers or others soliciting
acceptance of the Exchange Offer. We will, however, pay the Exchange Agent
reasonable and customary fees for services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith and will pay the
reasonable fees and expenses of one firm acting as counsel for the holders of
Initial Notes should such holders deem it advisable to appoint such counsel.
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We will pay the cash expenses to be incurred in connection with the Exchange
Offer. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of Initial
Notes pursuant to the Exchange Offer. If, however, Exchange Notes or Initial
Notes for principal amounts not tendered or accepted for exchange are to be
registered, or are to be issued in the name of, or delivered to, any person
other than the registered holder, or if tendered Initial Notes are registered in
the name of any person other than the person signing the Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the exchange of
Initial Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Initial
Notes on the date of the exchange. Accordingly, we will recognize no gain or
loss for accounting purposes. The expenses of the Exchange Offer and the
unamortized expenses relating to the issuance of the Initial Notes will be
amortized over the term of the Exchange Notes.
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SELECTED HISTORICAL FINANCIAL DATA
USAi
The following table sets forth selected historical financial data of USAi for
(i) each of the years in the three-year period ended August 31, 1995, (ii) the
four month period ended December 31, 1995 and (iii) each of the years in the two
year-period ended December 31, 1997, each of which was derived from the USAi's
audited consolidated financial statements and reflects the operations and
financial position of the USAi at the dates and for the periods indicated. Also
set forth below is selected historical financial data of USAi for the nine
months ended September 30, 1998, which was derived from USAi's unaudited
consolidated condensed financial statements, which, in the opinion of management
of USAi, have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments (consisting of normal and
recurring adjustments and accruals) necessary for a fair presentation of such
information. Results for the nine months ended September 30, 1998 are not
necessarily indicative of results for any interim period or the entire year. The
information in this table should be read in conjunction with the financial
statements and accompanying notes and other financial data included elsewhere,
or incorporated by reference, in this Prospectus.
YEARS ENDED FOUR MONTHS YEARS ENDED NINE MONTHS
AUGUST 31, ENDED DECEMBER 31, ENDED
------------------------------ DECEMBER 31, ----------------------- SEPTEMBER 30,
1993 1994 1995 1995 1996(1)(2) 1997(2) 1998(3)
-------- -------- -------- ------------ ---------- ---------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net revenues...................... $ 46,136 $ 46,563 $ 47,918 $ 15,980 $ 75,172 $1,261,749 $ 1,867,017
Operating profit (loss)........... 5,705 8,111 8,236 (680) 3,612 94,519 160,246
Earnings (loss) before cumulative
effect of change in accounting
principle(4)(5)................. (6,386) (899) 115 (2,882) (6,539) 13,061 26,041
Net earnings (loss)(5)............ (6,386) (3,878) 115 (2,882) (6,539) 13,061 26,041
Basic earnings(loss) per common
share(6):
Earnings (loss) before
cumulative effect of change in
accounting principle.......... (.36) (.05) .01 (.15) (.30) .12 .19
Net earnings (loss)............. (.36) (.22) .01 (.15) (.30) .12 .19
Diluted earnings (loss) per common
share(6):
Earnings (loss) before
cumulative effect of change in
accounting principle.......... (.36) (.05) .01 (.15) (.30) .12 .14
Net earnings (loss)............. (.36) (.22) .01 (.15) (.30) .12 .14
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit)......... $ 4,423 $ 1,553 $ 6,042 $ 7,553 $ (24,444) $ 60,941 $ 14,427
Total assets...................... 153,718 145,488 142,917 136,670 2,116,232 2,670,796 8,266,957
Long-term obligations, net of
current maturities.............. 128,210 114,525 97,937 95,980 271,430 448,346 748,101
Minority interest................. -- -- -- -- 356,136 372,223 3,589,338
Stockholders' equity.............. 6,396 2,614 9,278 7,471 1,158,749 1,447,354 2,456,764
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YEARS ENDED FOUR MONTHS YEARS ENDED NINE MONTHS
AUGUST 31, ENDED DECEMBER 31, ENDED
------------------------------ DECEMBER 31, ----------------------- SEPTEMBER 30,
1993 1994 1995 1995 1996(1)(2) 1997(2) 1998(3)
-------- -------- -------- ------------ ---------- ---------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OTHER DATA:
Net cash provided by (used in):
Operating activities............ $ 12,605 $ 15,088 $ 17,442 $ 2,582 $ 11,968 $ 47,673 $ 146,731
Investing activities............ (5,757) (908) (1,696) 249 (2,622) (82,293) (1,148,859)
Financing activities............ 2,761 (11,997) (5,576) (5,901) 14,120 108,050 1,180,046
EBITDA(7)......................... 23,554 23,111 22,910 4,021 19,098 191,543 323,958
Ratio of earnings to fixed
charges(8)...................... 0.57x 1.05x 1.11x 0.13x 0.64x 2.81x 2.55x
- -------------------------
(1) The consolidated statement of operations data include the operations of
Savoy and Holdco since their acquisition by USAi on December 19, 1996 and
December 20, 1996, respectively. Prior to the Universal Transaction, the
assets of Holdco consisted principally of the HSN Services.
(2) The consolidated statement of operations data include the operations of
Ticketmaster since the acquisition by USAi of its controlling interest in
Ticketmaster on July 17, 1997.
(3) The consolidated statement of operations data include the operations of
Networks and Studios USA since their acquisition by USAi from Universal on
February 12, 1998.
(4) In fiscal 1993, the USA Station Group was charged interest expense on the
note payable to HSN Capital Corporation (presently HSN Capital LLC), then a
wholly owned subsidiary of Holdco, at a rate of 9.5% per annum. In fiscal
1994, USAi paid interest to HSN Capital Corporation until August 1, 1994
when USAi repaid the long-term obligation to HSN Capital Corporation.
(5) Net earnings for the nine months ended September 30, 1998 includes a pre-tax
gain of $74.9 million related to USAi's sale of its Baltimore television
station during the first quarter of 1998. In fiscal 1994, USAi adopted
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." The cumulative effect of the accounting change resulted in a charge
of approximately $3.0 million. Prior years' financial statements were not
restated.
(6) Earnings (loss) per common share data and shares outstanding retroactively
reflect the impact of two-for-one Common Stock and Class B Common Stock
splits paid on March 26, 1998.
(7) EBITDA is defined as net income plus (i) extraordinary items and cumulative
effect of accounting changes, (ii) provision for income taxes, (iii)
interest expense (iv) depreciation and amortization and (v) minority
interest. EBITDA is presented here because we believe it is a widely
accepted indicator of a company's ability to service debt as well as a
valuation methodology for companies in the media, entertainment and
communications industries. EBITDA should not be considered in isolation or
as a substitute for measures of financial performance or liquidity prepared
in accordance with generally accepted accounting principles. EBITDA as
calculated by us may not be comparable to calculations of similarly titled
measures presented by other companies.
(8) For purposes of calculating the ratio of earnings to fixed charges, earnings
were calculated by adding (i) earnings (loss) before minority interest and
income taxes, (ii) interest expense, including the portion of rents
representative of an interest factor and (iii) the amount of undistributed
losses of USAi's less than 50%-owned companies. Fixed charges consist of
interest expense and the portions of rents representative of an interest
factor.
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HOLDCO AND USANi LLC
The following tables set forth selected historical financial data of Holdco and
its predecessor company and USANi LLC and its predecessor company, respectively
(see Notes (1) and (2) below), for each of the years in the five year period
ended December 31, 1997, which were derived from audited consolidated financial
statements of Holdco and USANi LLC or their respective predecessors, and reflect
the operations and financial position of Holdco and USANi LLC or their
respective predecessors, as applicable, at the dates and for the periods
indicated. Also set forth below is selected historical financial data of Holdco
and USANi LLC for the nine months ended September 30, 1998 was derived from the
unaudited consolidated financial statements of Holdco and USANi LLC,
respectively, which, in the opinion of their management, has been prepared on
the same basis as the audited consolidated financial statements and include all
adjustments (consisting of normal and recurring adjustments and accruals)
necessary for a fair presentation of such information. Results for the nine
months ended September 30, 1998 are not necessarily indicative of results for
any interim period or the entire year. The information in this table should be
read in conjunction with the financial statements and accompanying notes and
other financial data included elsewhere, or incorporated by reference, in this
Prospectus.
HOLDCO
PREDECESSOR COMPANY HOLDCO
--------------------------------------------- ------------------------------
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
---------------------------------------------------------- SEPTEMBER 30,
1993(1) 1994(1) 1995(1) 1996(1)(2) 1997(2) 1998(2)(3)(8)
-------- ---------- -------- ---------- ---------- -----------------
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Net revenues................... $954,369 $1,014,981 $919,796 $1,014,705 $1,037,060 $1,548,189
Operating profit (loss)........ (6,949) 26,879 (80,280) 41,186 61,142 147,872
Earnings (loss) before
extraordinary item (4)(5).... (15,539) 17,701 (61,883) 20,620 13,809 (3,193)
Net earnings (loss)(4)......... (22,781) 16,777 (61,883) 20,620 13,809 (3,193)
BALANCE SHEET DATA (END OF
PERIOD):
Working capital................ $ 8,053 $ 23,073 $ 7,571 $ 3,148 $ 43,869 71,150
Total assets................... 501,143 446,499 436,295 1,645,108 1,663,508 6,916,429
Long-term obligations, net of
current maturities........... 86,927 27,491 135,810 107,567 106,628 704,266
Minority interest.............. -- -- -- -- -- 3,770,146
Stockholders' equity........... 196,554 206,443 125,061 1,289,463 1,304,404 1,308,687
OTHER DATA:
Net cash provided by (used in):
Operating activities.......... $ 55,000 $ (27,871) $(74,474) $ 23,123 $ 34,068 120,720
Investing activities.......... (14,200) 107,421 (8,406) (10,733) (49,791) (1,379,163)
Financing activities.......... (24,655) (81,468) 74,396 (21,280) 22,471 1,360,666
EBITDA(6)...................... 17,223 55,945 (41,426) 74,669 126,294 273,824
Ratio of earnings to fixed
charges (deficiency)(9)(10).. $ (19.0) 4.00x $ (94.9) 3.66x 5.19x 2.51x
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USANi LLC
HOLDCO (PREDECESSOR COMPANY) USANi LLC
---------------------------------------------------------- -----------------
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
---------------------------------------------------------- SEPTEMBER 30,
1993(1) 1994(1) 1995(1) 1996(1)(2) 1997(2) 1998(2)(3)(8)
-------- ---------- -------- ---------- ---------- -----------------
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Net revenues................... $954,369 $1,014,981 $919,796 $1,014,705 $1,037,060 $1,548,189
Operating profit (loss)........ (6,949) 26,879 (80,280) 41,186 61,142 147,872
Earnings (loss) before
extraordinary item (4)(5).... (15,539) 17,701 (61,883) 20,621 16,255 62,186
Net earnings (loss)(4)......... (22,781) 16,777 (61,883) 20,621 16,255 62,186
BALANCE SHEET DATA(END OF
PERIOD):
Working capital................ $ 8,053 $ 23,073 $ 7,571 $ 3,398 $ 41,321 $ 90,062
Total assets................... 501,143 446,499 436,295 1,636,380 1,653,875 6,907,543
Long-term obligations, net of
current maturities........... 86,927 27,491 135,810 -- -- 704,266
Members' equity(7)............. 196,554 206,443 125,061 1,390,975 1,408,362 5,093,010
OTHER DATA:
Net cash provided by (used in):
Operating activities.......... $ 55,000 $ (27,871) $(74,474) $ 23,123 $ 40,237 120,720
Investing activities.......... (14,200) 107,421 (8,406) (10,733) (49,791) (1,379,163)
Financing activities.......... (24,655) (81,468) 74,396 (21,280) 16,302 1,360,666
EBITDA(6)...................... 17,223 55,945 (41,426) 74,669 126,294 273,824
Ratio of earnings to fixed
charges
(deficiency)(9)(10).......... $ (19.0) 4.00x $ (94.9) 3.66x 8.78x 2.01x
- -------------------------
(1) The years ended December 31, 1993, 1994, 1995 and 1996 represent the
consolidated results of the predecessor to Holdco or USANi LLC on a
historical basis. On December 20, 1996, Holdco was merged into a subsidiary
of USAi. The transaction was accounted for by USAi using the purchase
method of accounting. The assets and liabilities of Holdco were adjusted as
of December 31, 1996 to reflect their respective fair values and the excess
of the purchase price, including expenses, over the fair value of
identifiable net assets, was assigned to goodwill. For the period from
December 20, 1996 to December 31, 1996, Holdco and USANi LLC's results of
operations were net revenues of $30.6 million and net earnings of $.3
million.
(2) Prior to the Universal Transaction, the assets of Holdco consisted
principally of the HSN Services. The contribution of assets by the Company
and Holdco to USANi LLC was accounted for as a merger of entities under
common control, similar to the pooling-of-interests method of accounting
for business combinations. Accordingly, the inception date of USANi LLC for
accounting purposes is considered December 31, 1996 (the date of the Home
Shopping Merger) for accounting purposes and the assets and liabilities
were transferred to USANi LLC at USAi's historical cost.
(3) The consolidated statement of operations data includes Networks and Studios
USA since their acquisition by USANi LLC on February 12, 1998.
(4) USANi LLC is not subject to federal and state income tax since its
formation on February 12, 1998. Net earnings (loss) for USANi LLC's
predecessor, Holdco, for the years ended December 31, 1993, 1994, 1995,
1996 and 1997 and for the nine months ended September 30, 1998 include
income tax expense
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(benefit) of ($4.0) million, $12.8 million, ($33.3) million, $12.6 million,
$30.3 million and $1.9 million, respectively.
(5) Net earnings (loss) for the years ended December 31, 1993 and 1994 include
a loss of $7.2 million and $0.9 million (net of tax benefit of $4.4 million
and $0.6 million), respectively, on early extinguishment of long-term
obligations. The loss is presented as an extraordinary item in the
consolidated statements of operations.
(6) EBITDA is defined as net income plus (i) extraordinary items and cumulative
effect of accounting changes, (ii) provision for income taxes, (iii)
interest expense, (iv) depreciation and amortization and (v) minority
interest. EBITDA is presented here because we believe it is a widely
accepted indicator of a company's ability to service debt as well as a
valuation methodology for companies in the media, entertainment and
communications industries. EBITDA should not be considered in isolation or
as a substitute for measures of financial performance or liquidity prepared
in accordance with generally accepted accounting principles. EBITDA as
calculated by us may not be comparable to calculations of similarly titled
measures presented by other companies.
(7) Given that equity interests in limited liability companies are not in the
form of common stock and the change in capitalization from the predecessor
companies, earnings per share data is not presented for USANi LLC. Earnings
per share data for Holdco is not meaningful.
(8) Includes the results of the predecessor company for the period January 1,
1998 to February 12, 1998.
(9) For purposes of calculating the ratio of earnings to fixed charges,
earnings were calculated by adding (i) earnings (loss) before minority
interest and income taxes, (ii) interest expense, including the portion of
rents representative of an interest factor, and (iii) the amount of USANi
LLC's undistributed losses of less than 50%-owned companies. Fixed charges
consist of interest expense and the portions of rents representative of an
interest factor.
(10) For the periods in which earnings before fixed charges were insufficient to
cover fixed charges, the dollar amount of coverage deficiency (in millions)
is presented.
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SELECTED PRO FORMA COMBINED FINANCIAL DATA
USAi
The following table presents selected pro forma combined financial data of USAi
("USAi Pro Forma Financial Data") for the periods indicated. USAi Pro Forma
Financial Data has been prepared to give effect to the Transactions. The
unaudited pro forma combined balance sheet data as of September 30, 1998 has
been prepared to give effect to the Offering and the Exchange Offer. The
unaudited pro forma combined statement of operations data for the year ended
December 31, 1997 and the nine months ended September 30, 1998 give effect to
the Transactions as if they had all occurred on January 1, 1997 and 1998,
respectively.
USAi Pro Forma Financial Data does not purport to represent what USAi's results
would have been if the Transactions had occurred on the dates or for the periods
indicated, or to project what USAi's results of operations or financial position
for any future period or date will be. USAi Pro Forma Financial Data should be
read in conjunction with the financial statements and accompanying notes and
other financial data included elsewhere, or incorporated by reference, in this
Prospectus.
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
----------------- -----------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA(1):
Net revenues:
Networks and Television Production................. $1,107,604 $ 914,669
Electronic Retailing............................... 1,024,249 776,418
Ticketing Operations............................... 361,697 283,538
Internet Services.................................. 18,995 25,784
Broadcasting and Other............................. 15,377 8,161
---------- ----------
Total........................................... 2,527,922 2,008,570
Operating costs and expenses:
Cost related to revenues........................... 1,315,295 1,040,377
Other costs and expenses........................... 798,087 633,697
Depreciation and amortization...................... 277,623 209,387
---------- ----------
Total operating costs and expenses.............. 2,391,005 1,883,461
Operating profit..................................... 136,917 125,109
Net loss............................................. (77,443) (6,273)
Basic loss per share................................. (0.55) (0.04)
Diluted loss per share............................... (0.55) (0.04)
OTHER DATA:
EBITDA(2)............................................ $ 414,540 $ 334,496
Ratio of earnings to fixed charges(3)................ 2.45x
Ratio of total debt to EBITDA(4)..................... 1.75x
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AS OF SEPTEMBER 30, 1998
----------------------------
ACTUAL AS ADJUSTED(5)
---------- --------------
(IN THOUSANDS)
(UNAUDITED)
BALANCE SHEET DATA(1):
Working capital............................................. $ 14,427 $ 7,927
Total assets................................................ 8,266,957 8,262,057
Existing Credit Agreement, including current maturities..... 750,000 250,000
Senior Notes due 2005....................................... -- 500,000
Discount on face value of Notes............................. -- (2,400)
Other long-term obligations, including current maturities... 66,665 64,265
Minority interest........................................... 3,589,338 3,589,338
Stockholders' equity........................................ 2,456,764 2,454,264
- -------------------------
(1) Assumes proceeds of the Offering were used to repay outstanding debt at the
date or as of the beginning of the period indicated.
(2) EBITDA is defined as net income plus (i) extraordinary items and cumulative
effect of accounting changes, (ii) provision for income taxes, (iii)
interest expense (iv) depreciation and amortization and (v) minority
interest. EBITDA is presented here because we believe it is a widely
accepted indicator of a company's ability to service debt as well as a
valuation methodology for companies in the media, entertainment and
communications industries. EBITDA should not be considered in isolation or
as a substitute for measures of financial performance or liquidity prepared
in accordance with generally accepted accounting principles. EBITDA as
calculated by us may not be comparable to calculations of similarly titled
measures presented by other companies.
(3) For purposes of this pro forma calculation, earnings were calculated by
adding (i) earnings (loss) before minority interest and income taxes, (ii)
interest expense, including the portion of rents representative of an
interest factor and (iii) the amount of undistributed losses of the
Company's less than 50%-owned companies. Fixed charges consist of interest
expense and the portions of rents representative of an interest factor.
Amounts computed give effect to the Notes Offering as if it had occurred on
January 1, 1997. For periods in which earnings before fixed charges were
insufficient to cover fixed charges, the dollar amount of the coverage
deficiency (in millions) is presented.
(4) For the purposes of this calculation, total debt is adjusted to reflect the
Offering. EBITDA is based on the pro forma results of operations for the
twelve months period ended September 30, 1998.
(5) Amount reduced by cash needed in excess of the net proceeds of the Offering
to repay $500 million of the Tranche A Term Loan. In connection with the
repayment, $2.5 million of deferred costs were written-off.
HOLDCO AND USANi LLC
The following tables present selected pro forma combined financial data of
Holdco and USANi LLC, respectively ("Holdco and USANi LLC Pro Forma Financial
Data"), for the periods indicated. The Holdco and USANi Pro Forma Financial Data
has been prepared to give effect to the Offering and the Exchange Offer, and the
Universal Transaction. The unaudited pro forma combined balance sheet
42
46
data as of September 30, 1998 has been prepared to give effect to the Offering
and the Exchange Offer as if they had all occurred on September 30, 1998. The
unaudited pro forma combined statement of operations data for the year ended
December 31, 1997 and the nine months ended September 30, 1998 give effect to
the Offering and the Universal Transaction as if they had all occurred on
January 1, 1997 and 1998, respectively.
The Holdco and USANi LLC Pro Forma Financial Data does not purport to represent
what Holdco or USANi LLC's results would have been if the Offering and the
Universal Transaction had occurred on the dates or for the periods indicated, or
to project what Holdco's results of operations or financial position for any
future period or date will be. The Holdco and USANi LLC Pro Forma Financial Data
should be read in conjunction with the financial statements and accompanying
notes and other financial data included elsewhere in this Prospectus.
HOLDCO
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
----------------- ------------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA(1):
Net revenues:
Networks and Television Production................ $1,107,604 $ 914,669
Electronic Retailing.............................. 1,024,249 776,417
Internet Services................................. 12,811 14,467
---------- ----------
Total.......................................... 2,144,664 1,705,553
Operating costs and expenses:
Costs related to revenues......................... 1,267,478 978,661
Other costs and expenses.......................... 512,712 412,159
Depreciation and amortization..................... 180,513 139,721
---------- ----------
Total operating costs and expenses............. 1,960,703 1,530,541
Operating profit.................................. 183,961 175,012
Net loss.......................................... (27,878) (30)
OTHER DATA:
EBITDA(2)........................................... 364,474 314,733
Ratio of earnings to fixed charges(3)............... 1.99x
Ratio of total debt to EBITDA(4).................... 1.65x
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AS OF SEPTEMBER 30, 1998
-------------------------
AS
ACTUAL ADJUSTED(5)
---------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
BALANCE SHEET DATA:
Working capital............................................. $ 71,150 $ 64,650
Total assets................................................ 6,916,429 6,911,529
Existing Credit Agreement, including current maturities..... 750,000 250,000
Senior Notes due 2005....................................... -- 500,000
Discount on face value of Notes............................. -- (2,400)
Other long-term obligations, including current maturities... 14,607 12,207
Minority interest........................................... 3,770,146 3,770,146
Stockholders' equity........................................ 1,308,687 1,306,187
USANi LLC
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
----------------- -----------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA(1):
Net revenues:
Networks and Television Production................. $1,107,604 $ 914,669
Electronic Retailing............................... 1,024,249 776,417
Internet Services.................................. 12,811 14,467
---------- ----------
2,144,664 1,705,553
Operating costs and expenses:
Costs related to revenues.......................... 1,267,478 978,661
Other costs and expenses........................... 512,712 412,159
Depreciation and amortization...................... 180,513 139,721
---------- ----------
Total operating costs and expenses.............. 1,960,703 1,530,541
---------- ----------
Operating profit................................ 183,961 175,012
Net earnings.................................... 65,648 78,383
OTHER DATA:
EBITDA(2)............................................ $ 364,474 $ 314,733
Ratio of earnings to fixed charges(3)................ 2.16x
Ratio of total debt to EBITDA(4)..................... 1.65x
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AS OF SEPTEMBER 30, 1998
----------------------------
ACTUAL AS ADJUSTED(5)
---------- --------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
BALANCE SHEET DATA(1):
Working capital............................................. $ 90,062 $ 83,562
Total assets................................................ 6,907,543 6,902,643
Existing Credit Agreement, including current maturities..... 750,000 250,000
Senior Notes due 2005....................................... -- 500,000
Discount on face value of Notes............................. -- (2,400)
Other long-term obligations, including current maturities... 14,607 12,207
Members' equity............................................. 5,093,010 5,090,510
- -------------------------
(1) Assumes proceeds of the Offering were used to repay outstanding debt at the
date or as of the beginning of the period indicated.
(2) EBITDA is defined as net income plus (i) extraordinary items and cumulative
effect of accounting changes, (ii) provision for income taxes, (iii)
interest expense, (iv) depreciation and amortization and (v) minority
interest. EBITDA is presented here because we believe it is a widely
accepted indicator of a company's ability to service debt as well as a
valuation methodology for companies in the media, entertainment and
communications industries. EBITDA should not be considered in isolation or
as a substitute for measures of financial performance or liquidity prepared
in accordance with generally accepted accounting principles. EBITDA as
calculated by us may not be comparable to calculations of similarly titled
measures presented by other companies.
(3) For purposes of this pro forma calculation, earnings were calculated by
adding (i) earnings (loss) before minority interest and income taxes, (ii)
interest expense, including the portion of rents representative of an
interest factor and (iii) the amount of undistributed losses of the
Company's less than 50%-owned companies. Fixed charges consist of interest
expense and the portions of rents representative of an interest factor.
Amounts computed give effect to the Notes Offering as if it had occurred on
January 1, 1997. For periods in which earnings before fixed charges were
insufficient to cover fixed charges, the dollar amount of the coverage
deficiency (in millions) is presented.
(4) For the purposes of this calculation, total debt is adjusted to reflect the
Offering. EBITDA is based on the proforma results of operations for the nine
months period ended September 30, 1998.
(5) Amount reduced by the amount of cash needed in excess of the net proceeds of
the Offering to repay $500 million of the Tranche A Term Loan. In connection
with the repayment, $2.5 million of deferred costs were written off.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS
GENERAL
USA Networks, Inc., formerly known as HSN, Inc., is a holding company, the
subsidiaries of which are engaged in diversified media and electronic commerce
businesses. USANi LLC is a holding company that holds virtually all the
Company's businesses other than Ticketmaster, Ticketmaster Online-CitySearch and
USA Broadcasting. Holdco is a holding company whose only asset is its 38.8%
ownership in USANi LLC. The Company adopted its present corporate structure in
connection with the Universal Transaction. The Company maintains control and
management of Holdco and USANi LLC, and the businesses held by USANi LLC are
managed by the Company, in substantially the same manner as they would be if the
Company held them directly through wholly owned subsidiaries.
In December 1996, the Company consummated mergers with each of Holdco (the "Home
Shopping Merger") and Savoy Pictures Entertainment, Inc. ("Savoy") (the "Savoy
Merger" and, together with the Home Shopping Merger, the "Mergers"). At the time
of the Home Shopping Merger, Holdco owned and operated the Home Shopping Network
electronic retailing business. In July 1997, the Company acquired a controlling
interest in Ticketmaster. On June 24, 1998, the Company completed its
acquisition of Ticketmaster in a tax-free merger (the "Ticketmaster Merger"),
pursuant to which each outstanding share of Ticketmaster common stock not owned
by the Company was exchanged for 1.126 shares of Common Stock. The acquisition
of the controlling interest and the tax-free merger are referred to as the
"Ticketmaster Transaction."
On February 12, 1998, pursuant to the Universal Transaction, the Company
acquired USA Networks, a New York general partnership, consisting of cable
television networks USA Network and The Sci-Fi Channel, as well as the domestic
television production and distribution businesses of Universal Studios from
Universal, and the Company changed its name to USA Networks, Inc.
As of December 31, 1998, the Company engaged in five principal areas of
business:
- - NETWORKS AND TELEVISION PRODUCTION, which includes Networks and Studios USA.
Networks operates the USA Network and The Sci-Fi Channel cable television
networks and Studios USA produces and distributes television programming.
- - ELECTRONIC RETAILING, which consists primarily of the Home Shopping Network
and America's Store, which are engaged in the electronic retailing business.
- - TICKETING OPERATIONS, which primarily represents Ticketmaster, the leading
provider of automated ticketing services in the United States, and
Ticketmaster Online, Ticketmaster's exclusive agent for online ticket sales.
- - TELEVISION BROADCASTING, which includes television stations.
- - INTERNET SERVICES, which represents the Company's online retailing networks
business and CitySearch online local city guide business.
TRANSACTIONS AFFECTING THE COMPARABILITY OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
During the past two years, the Company has pursued several strategic initiatives
which have resulted in the acquisition and development of several new
businesses. As a result, the following changes should be considered when
comparing the Company's results of operations and financial position. These
include the acquisition of a controlling interest in Ticketmaster in July 1997
and the
46
50
acquisition of Holdco and Savoy in December 1996. The acquisitions caused a
significant increase in net revenues, operating costs and expenses and operating
profit. To enhance comparability, the discussion of consolidated results of
operation 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.
In February 1998, the Company completed its acquisition of USA Networks and
Studios USA from Universal. In connection with the acquisition, the Company's
credit facility was also refinanced with the Existing Credit Agreement. In March
1998, the Company reached an agreement for a tax-free merger transaction whereby
the Company would acquire the remaining outstanding common stock of
Ticketmaster. The merger was consummated in June 1998. See "-- Financial
Position, Liquidity and Capital Resources" for additional information.
In September 1998, the Company merged Ticketmaster Online into a subsidiary of
CitySearch, Inc., a publisher of local city guides on the Web, to create
Ticketmaster Online-CitySearch.
The pro forma information is not necessarily indicative of the revenues and cost
of revenues which would have actually been reported had the Ticketmaster
Transaction, the Universal Transaction and the Mergers occurred at the beginning
of the respective periods, nor is it necessarily indicative of future results.
Reference should be also be made to the consolidated financial statements and
summary financial data included or incorporated by reference herein.
USAi CONSOLIDATED RESULTS OF OPERATIONS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. QUARTER AND NINE MONTHS
ENDED SEPTEMBER 30, 1997
The Universal Transaction and the Ticketmaster Transaction resulted in
significant increases in net revenues, operating costs and expenses, other
income (expense), minority interest and income taxes and will continue to
materially impact the Company's operations for the remainder of 1998 when
compared to 1997, and accordingly, no significant discussion of these
fluctuations is presented.
Net Revenues
For the quarter ended September 30, 1998, revenues increased $314 million
compared to 1997 primarily due to increases of $281 million, $22 million, and
$21 million from the Networks and Television Production business, Ticketing
Operations and Electronic Retailing, respectively.
For the nine months ended September 30, 1998, revenues increased $996 million
compared to 1997 primarily due to increases of $757 million, $216 million, and
$24 million from the Networks and Television Production business, Ticketing
Operations and Electronic Retailing, respectively.
Operating Costs and Expenses
For the quarter ended September 30, 1998, operating expenses increased $287
million compared to 1997 primarily due to increases of $250 million and $24
million from the Networks and Television Production business and Ticketing
Operations, respectively.
For the nine months ended September 30, 1998, operating expenses increased $903
million compared to 1997 primarily due to increases of $641 million, $206
million and $64 million from the Networks and Television Production business,
Ticketing Operations and Electronic Retailing, respectively.
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51
Other Income (Expense)
For the quarter and nine months ended September 30, 1998, net interest expense
increased $15 million and $65 million, respectively, compared to 1997 primarily
due to interest incurred under the Existing Credit Agreement to finance the
Universal Transaction and non-cash interest expense on long-term program
liabilities at the Networks and Television Production business.
On January 20, 1998, the Company sold its Baltimore television station at a gain
of $74.9 million. On July 16, 1998, the Company completed the sale of the assets
of SF Broadcasting for a pre-tax gain of $9.2 million.
For the nine months ended September 30, 1998, other expense increased $10
million compared to 1997 primarily due to losses from international joint
ventures of Home Shopping Network and Networks and Television Production
business.
Income Taxes
The Company's effective tax rate of 48.9% and 51.3% for the quarter and nine
months ended September 30, 1998 was higher than the statutory rate due primarily
to non-deductible goodwill and other acquired intangible and state income taxes.
During the remainder of 1998, the Company's effective tax rate is expected to be
higher than the statutory rate as a result of the items mentioned above and
higher than the first nine months rate because the gain on the sale of the
Baltimore television station in the first quarter had the effect of lowering the
Company's effective tax rate.
Minority Interest
For the quarter and nine months ended September 30, 1998, minority interest
represented Universal's and Liberty's ownership interest in USANi LLC for the
period February 12 through September 30, 1998, Liberty's ownership interest in
Holdco, Fox Broadcasting Company's 50% ownership interest in SF Broadcasting for
the period January 1 through July 16, 1998 and the public's ownership interest
in Ticketmaster for the period January 1 through June 24, 1998.
PRO FORMA QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. PRO FORMA
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997
The following unaudited pro forma operating results of USAi present combined
results of operations as if the Universal Transaction, Ticketmaster Transaction
and the sale of the assets of SF Broadcasting all had occurred on January 1,
1998 and 1997, respectively.
As of September 28, 1998, the Company completed the Ticketmaster
Online-CitySearch Transaction. For comparative purposes, the impact of the
Ticketmaster Online-CitySearch Transaction has not been reflected in the
following pro forma presentation of results of operations. During the first nine
months of 1998, CitySearch generated operating losses of $27.3 million and
negative EBITDA of $24.2 million. The operating losses and negative EBITDA are
expected to continue for the foreseeable future.
The Unaudited Combined Condensed Pro Forma Statements of Operations of USAi 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, 1998 and 1997,
respectively, nor are they necessarily indicative of future results of
operations.
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52
USAi UNAUDITED COMBINED CONDENSED PRO FORMA STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET REVENUES:
Networks and television production............ $281,302 $255,762 $ 914,669 $ 777,710
Electronic retailing.......................... 261,183 236,706 776,418 743,893
Ticketing operations.......................... 89,134 91,489 283,538 268,462
Internet services............................. 5,934 3,330 14,467 8,511
Broadcasting and other........................ 1,175 6,294 8,161 14,147
-------- -------- ---------- ----------
Total net revenues....................... 638,728 593,581 1,997,253 1,812,723
Operating costs and expenses:
Cost related to revenues...................... 345,882 306,356 1,029,886 936,771
Other costs and expenses...................... 183,268 182,153 605,591 563,309
Depreciation and amortization................. 58,168 57,841 177,630 173,880
-------- -------- ---------- ----------
Total operating costs and expenses....... 587,318 546,350 1,813,107 1,673,960
-------- -------- ---------- ----------
Operating profit......................... $ 51,410 $ 47,231 184,146 $ 138,763
======== ======== ========== ==========
EBITDA................................... $109,578 $105,072 $ 361,776 $ 312,643
======== ======== ========== ==========
For the quarter ended September 30, 1998, pro forma revenues for the Company
increased $45.1 million, or 7.6%, to $638.7 million from $593.6 million compared
to 1997. For the quarter ended September 30, 1998, pro forma cost related to
revenues and other costs and expenses increased $40.9 million, or 7.5%, to
$587.3 million from $546.4 million compared to 1997.
For the nine months ended September 30, 1998, pro forma revenues for the Company
increased $184.5 million, or 10.2%, to $2.0 billion from $1.8 billion compared
to 1997. For the nine months ended September 30, 1998, pro forma cost related to
revenues and other costs and expenses increased $139.1 million or 9.0%, to $1.8
billion from $1.7 billion compared to 1997.
For the quarter ended September 30, 1998, pro forma EBITDA increased $4.5
million, or 4.3%, to $109.6 million from $105.1 million compared to 1997.
For the nine months ended September 30, 1998, pro forma EBITDA increased $49.2
million, or 15.7%, to $361.8 million from $312.6 million compared to 1997.
The following discussion provides an analysis of the aforementioned increases in
pro forma revenues and costs related to revenues and other costs and expenses by
significant business segment.
Networks and Television Production
Net revenues for the quarter ended September 30, 1998 increased by $25.5
million, or 10.0%, to $281.3 million from $255.8 million compared to 1997. The
increase primarily resulted from an increase in advertising revenues at USA
Network and The Sci-Fi Channel cable networks, an increase in affiliate revenues
at both networks and increased revenues from first run syndication product at
Studios USA. The increase in advertising revenues resulted from both higher
ratings and a higher percentage of available advertising spots sold compared to
the prior year. The increase in affiliate revenues resulted primarily from a
significant increase in the number of subscribers at The
49
53
Sci-Fi Channel and higher affiliate fees at both networks. The increase in first
run syndication revenues resulted from higher barter revenue from higher ratings
and greater foreign sales.
Net revenues for the nine months ended September 30, 1998 increased $137.0
million, or 17.6%, to $914.7 million from $777.7 million compared to 1997. The
increase in revenues resulted primarily from higher advertising and affiliate
revenues at both USA Network and The Sci-Fi Channel and higher ratings on first
run syndication product by Studios USA.
Cost related to revenues and other costs and expenses for the quarter ended
September 30, 1998 increased by $18.8 million, or 9.2%, to $221.8 million from
$203.0 million compared to 1997. This increase resulted primarily from the cost
of increased deliveries of first run syndication product by Studios USA and
higher cost of original programming at USA Network, partially offset by the
absence in 1998 of write offs of USA Network programming recorded in 1997.
Cost related to revenues and other costs and expenses for the nine months ended
September 30, 1998 increased $59.9 million, or 9.6%, to $686.8 million from
$626.9 million compared to 1997. The increase was primarily due to higher cost
of network and first run syndication product at Studios USA and slightly higher
cost of programming at The Sci-Fi Channel partially offset by lower cost of
programming at USA Network.
EBITDA for the quarter ended September 30, 1998 increased $19.5 million, or
36.9%, to $72.2 million from $52.7 million compared to 1997.
EBITDA for the nine months ended September 30, 1998 increased $89.7 million, or
59.5%, to $240.5 million from $150.8 million compared to 1997.
Electronic Retailing
Net revenues for the quarter ended September 30, 1998 increased by $24.5
million, or 10.3%, to $261.2 million from $236.7 million compared to 1997. The
increase primarily resulted from increased sales of hardgoods, which includes
consumer electronics, collectibles and housewares. Total units shipped increased
by 9.4% to 7.0 million units compared to 6.4 million units in 1997 and the
average price point increased by 1.1%. The increase in net revenues also
reflected a decrease in the return rate to 20.8% from 22.8% compared to 1997.
Net revenues for the nine months ended September 30, 1998 increased $32.5
million, or 4.4%, to $776.4 million from $743.9 million compared to 1997. Total
units shipped increased 5.1% to 20.6 million units compared to 1997 and the
average price point decreased by 1.5%.
Cost related to revenues and other costs and expenses for the quarter ended
September 30, 1998 increased by $20.8 million, or 10.4%, to $220.0 million from
$199.2 million compared to 1997. This increase resulted primarily from higher
net revenues and the sale of merchandise at lower gross margins (38.3% in 1998
compared to 38.2% in 1997).
Cost related to revenues and other costs and expenses for the nine months ended
September 30, 1998 increased $45.3 million, or 7.4%, to $661.0 million from
$615.7 million compared to 1997. This increase resulted from higher net
revenues, the sale of merchandise at lower gross margins (39.7% in 1998 compared
to 41.4% in 1997) and from higher merchandising personnel costs.
EBITDA for the quarter ended September 30, 1998 increased $3.9 million, or
10.5%, to $41.4 million from $37.5 million compared to 1997.
EBITDA for the nine months ended September 30, 1998 decreased $12.7 million, or
9.9%, to $115.5 million from $128.2 million compared to 1997.
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54
Ticketing Operations
Net revenues for the quarter ended September 30, 1998 decreased by $2.4 million,
or 2.6%, to $89.1 million from $91.5 million compared to 1997. The decrease
resulted from a slight decrease in the number of tickets sold, reflecting the
absence in 1998 of any major outdoor concerts and the ceasing of the publication
of the Company's event guide magazine, partially offset by an increase in
ticketing revenue due to an increase in revenue per ticket to $4.68 from $4.54
compared to 1997.
Net revenues for the nine months ended September 30, 1998 increased $15.0
million, or 5.6%, to $283.5 million from $268.5 million compared to 1997. The
increase resulted from an increase of 3.2% in the number of tickets sold,
including an increase of 1.2 million in the number of tickets sold on-line, and
an increase in revenue per ticket to $4.68 from $4.47 compared to 1997. This
increase was partially offset by a decrease of $2.9 million in publication
revenue due to the ceasing of publication of the Company's event guide magazine.
Cost related to revenues and other costs and expenses for the quarter ended
September 30, 1998 decreased by $1.0 million, or 1.3%, to $74.3 million from
$75.3 million compared to 1997. The decrease resulted primarily from the sale of
fewer tickets and the ceasing of the publication of the Company's event guide
magazine, offset by costs incurred to launch ticketing operations in Northern
California, South America and France.
Cost related to revenues and other costs and expenses for the nine months ended
September 30, 1998 increased $16.0 million, or 7.2%, to $239.6 million from
$223.6 million compared to 1997. This increase resulted from higher ticketing
operation costs resulting from higher ticketing revenue and from costs incurred
to launch ticketing operations in Northern California, South America and France,
partially offset by the ceasing of the publication of the Company's event guide
magazine.
EBITDA for the quarter ended September 30, 1998 decreased $1.4 million, or 8.6%,
to $14.8 million from $16.2 million compared to 1997.
EBITDA for the nine months ended September 30, 1998 decreased $1.0 million, or
2.2%, to $43.9 from $44.9 compared to 1997.
Internet Services
Net revenues for the quarter ended September 30, 1998 increased $2.6 million to
$5.9 million in 1998 compared to $3.3 million in 1997. The increase resulted
from an increase in registered users to the Company's primary online retailing
service, First Auction. Net revenues for the nine months ended September 30,
1998 increased $6.0 million to $14.5 million in 1998 from $8.5 million compared
to 1997.
EBITDA loss increased to $3.9 million for the quarter ended September 30, 1998
compared to $2.1 million in 1997 and for the nine months ended September 30,
1998 increased to $9.6 million from $5.5 million compared to 1997, primarily due
to costs to maintain and enhance the Internet services and to increased
advertising and promotion costs.
On September 28, 1998, the Ticketmaster Online-CitySearch Transaction was
consummated. During the nine months ended September 28, 1998, CitySearch
generated operating losses of $27.3 million and negative EBITDA of $24.2
million. The operating losses and negative EBITDA are expected to continue for
the foreseeable future.
Broadcasting and Other
Net revenues includes revenue generated from the distribution of films from the
Savoy library acquired as a result of the Savoy Merger and revenues generated at
the television station in the Miami/Ft. Lauderdale market.
51
55
Other costs related to revenues and other costs and expenses include costs to
generate the Savoy revenues, corporate expenses and $6.3 million and $11.1
million of cost in the quarter and nine months ended September 30, 1998,
respectively, to launch the Miami/Ft. Lauderdale station.
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
Net Revenues
For the year ended December 31, 1997, total revenues of the Company increased
$1.2 billion compared to 1996 primarily due to increases of $1.0 billion and
$156.4 million related to Home Shopping Network and Ticketmaster, respectively.
Operating Costs and Expenses
For the year ended December 31, 1997, total operating costs and expenses
increased $1.1 billion compared to 1996 primarily due to increases of $897.6
million and $144.1 million related to Home Shopping Network and Ticketmaster,
respectively.
Other Income (Expense), Net
For the year ended December 31, 1997, interest income increased $2.1 million due
to higher combined cash balances of the merged entity.
For the year December 31, 1997, interest expense increased $19.7 million
compared to 1996, due to the higher combined debt balance of the merged entity
and non-cash interest expense related to long-term cable distribution and
broadcast fees recorded as a result of the Mergers.
For the year ended December 31, 1997, the Company had net miscellaneous expense
of $11.8 million primarily due to equity losses relating to the Company's
investments in Home Order Television GmbH & Co. and Jupiter Shop Channel Co.
Ltd.
Income Taxes
The Company's effective tax rate of 73% for the year ended December 31, 1997,
calculated on earnings before income taxes and minority interest, was higher
than the statutory rate due primarily to the amortization of non-deductible
goodwill and other acquired intangibles, the non-recognition of benefit for net
operating losses of less than 80% owned subsidiaries and state income taxes.
Similarly the Company's effective tax rate is expected to exceed the statutory
rate for 1998.
Minority Interest
For the year ended December 31, 1997, minority interest represented the
ownership interest of third parties in the net assets and results of operations
of certain consolidated subsidiaries.
PRO FORMA NET REVENUES AND COST OF REVENUES FOR THE YEAR ENDED DECEMBER 31, 1997
VS. PRO FORMA NET REVENUES AND COST OF REVENUES FOR THE YEAR ENDED DECEMBER 31,
1996
The pro forma revenues and cost of revenues for the years ended December 31,
1997 and 1996, have been prepared to show results of the Company for those
periods, as if the Ticketmaster Transaction and the Mergers had occurred at the
beginning of 1997 and 1996, respectively. Revenues and cost of revenues
specifically related to Savoy's motion picture operations are excluded from the
1996 pro forma amounts because these activities ceased prior to the Mergers.
For the year ended December 31, 1997, pro forma net revenues for the Company
increased $.1 billion, or 4.4%, to $1.5 billion from $1.4 billion compared to
1996. For the year ended December 31,
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1997, pro forma costs of revenues increased $1.0 million, or .2%, to $661.4
million from $660.4 million compared to 1996.
The following discussion provides an analysis of the aforementioned increases in
pro forma revenues and cost of revenues by significant component.
Electronic Retailing
Net sales for Home Shopping Network increased $22.4 million, or 2.2%, for the
year ended December 31, 1997 compared to 1996. Net sales of Home Shopping Club
("HSC"), the primary source of Home Shopping Network revenues, increased $71.9
million, or 8.0%, for the year ended December 31, 1997 compared to 1996. HSC's
sales reflected an increase of 8.7% in the number of packages shipped and a
decrease of 4.3% in the average price per unit sold for the year ended December
31, 1997, compared to 1996. The increase in HSC net sales was offset by planned
decreases in net sales of wholly owned subsidiaries, HSN Mail Order, Inc. ("Mail
Order"), and the retail outlet stores of $33.8 million and $10.6 million,
respectively, compared to 1996. Management believes that the improved sales for
1997 compared to 1996 were primarily the result of ongoing changes made to Home
Shopping Network's merchandising and programming strategies.
For the year ended December 31, 1997, HSC's merchandise return percentage
decreased to 22.2% from 23.5% compared to 1996. Management believes that the
lower return rate was primarily attributable to the decrease in the average
price per unit and the mix of products sold.
During 1998, cable system contracts covering 4.5 million cable subscribers are
subject to termination or renewal. This represents 8.8% of the total number of
unduplicated cable households receiving the Home Shopping Network. Home Shopping
Network is pursuing both renewals and additional cable television system
contracts, but channel availability, competition, consolidation within the cable
industry and cost of carriage are some of the factors affecting the negotiations
for cable television system contracts. Although management cannot determine the
percentage of expiring contracts that will be renewed or the number of
households that will be added through new contracts, management believes that a
majority of these contracts will be successfully renegotiated.
As a percentage of net sales, Home Shopping Network's cost of sales decreased to
59.3% from 61.7% for the year ended December 31, 1997, compared to 1996. Cost of
sales of HSC increased $24.2 million due to increases in net sales. This was
offset by decreases of $19.9 million and $14.1 million in cost of sales of Mail
Order and the retail outlet stores, respectively, compared to 1996, as a result
of the planned reduction in revenues for these subsidiaries. As a percentage of
HSC's net sales, cost of sales decreased to 60.1% from 62.3% compared to 1996.
These decreases were primarily the result of changes in merchandising and
programming strategies, as discussed above.
Ticketing Operations
For the year ended December 31, 1997, pro forma Ticketmaster revenue increased
$24.4 million, or 7.5% compared to 1996 and can be attributed to increases in
the number of tickets sold and the average per ticket operations revenue.
Ticketmaster's primary source of revenue is ticketing operations which are
primarily comprised of convenience charges which Ticketmaster generates by
providing clients with access to Ticketmaster's extensive distribution
capabilities, including Ticketmaster-owned call centers, an independent network
of sales outlets remote to the client's box office, and non-traditional
distribution channels such as the Internet. Other components of ticket
operations revenue include handling fees attributed to the sale and distribution
of tickets through channels other than remote sales outlets, credit card fee
reimbursements and licensing fees. Through continued acquisitions and growth,
management expects continued increases in ticketing operations revenues.
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Other sources of Ticketmaster revenue are relatively consistent, on a pro forma
basis, when comparing 1997 to 1996, and include revenues from concession control
system sales, publications, and merchandising businesses. Concession inventory
control systems and associated service contracts are marketed to movie theaters,
stadiums, arenas and general admission facilities. Ticketmaster produces and
distributes publications, primarily the Live! Magazine, and the Entertainment
Guide included therein, and recognizes revenue from the sale of subscriptions.
The merchandising business, Entertainment To Go, is designed to leverage
Ticketmaster's inbound call center traffic, its database of consumers, and its
relationships with the music and entertainment industries to effectively sell,
at retail prices, music, tour and entertainment related merchandise products to
consumers.
OTHER
For the year ended December 31, 1997, $14.2 million of pro forma other revenue
related primarily to the Savoy motion picture business which was discontinued in
1996. The costs associated with these revenues were $11.2 million for 1997. The
Company does not expect significant additional revenues or costs from the motion
picture business.
YEAR ENDED DECEMBER 31, 1996 VS. FISCAL YEAR ENDED AUGUST 31, 1995
Net Revenues
BROADCASTING. For the year ended December 31, 1996, broadcasting revenues
decreased $1.2 million, or 2.7% to $43.4 million from $44.6 million for the
fiscal year ended August 31, 1995. This decrease was primarily the result of the
elimination of $1.1 million of the USA Station Group's revenues for the 11 days
ended December 31, 1996, due to the Home Shopping Merger. Revenues from Home
Shopping Network are eliminated in consolidation as are the same amount of Home
Shopping Network engineering and programming expenses. The year ended December
31, 1996 also includes $1.5 million of revenues of SF Broadcasting for the 12
days ended December 31, 1996.
HOME SHOPPING NETWORK. Home Shopping Network was acquired on December 20, 1996
in the Home Shopping Merger and, accordingly, $30.6 million of revenues for the
11 day period ended December 31, 1996 is reflected in total revenues. Home
Shopping Network revenues are generated primarily from electronic retailing.
OTHER. For the year ended December 31, 1996, other revenues decreased $2.1
million, or 63.5%, to $1.2 million from $3.4 million for the fiscal year ended
August 31, 1995. This decrease was primarily the result of a decrease in
production revenues due to the closing of the Denver Telemation facility in
December 1995.
Operating Expenses
COST OF SALES, SELLING AND MARKETING AND ENGINEERING AND PROGRAMMING. Cost of
sales increased $20.4 million for the year ended December 31, 1996 compared to
the fiscal year ended August 31, 1995, as a result of the inclusion of 11 days
of Home Shopping Network. In addition, increases in selling and marketing and
engineering and programming expenses of $5.0 million and $1.8 million,
respectively, also related to 11 days of activity for Home Shopping Network.
GENERAL AND ADMINISTRATIVE. For the year ended December 31, 1996, general and
administrative expenses increased $3.9 million primarily due to the inclusion of
$2.8 million of expense as a result of the Mergers. The remaining increase of
$1.1 million is attributable to an equity and bonus compensation arrangement
with the Company's Chairman and Chief Executive Officer, offset by decreases in
payroll due to the restructuring of the Company in 1995.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization of
$.8 million for the year ended December 31, 1996 was primarily due to the
inclusion of $1.4 million of expense as a
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result of the Mergers. In addition, an increase of $.9 million was due to
goodwill amortization related to the Mergers. These increases were offset by
decreases of $1.5 million, primarily related to the closure and subsequent sale
of fixed assets related to the Denver Telemation facility.
OTHER INCOME (EXPENSE). For the year ended December 31, 1996, net other expense
increased $1.6 million compared to the year ended August 31, 1995. This increase
was primarily due to non-cash interest expense related to the acceleration of
upfront bank fees in anticipation of the refinancing of the Company's debt in
early 1997, offset by decreased interest expense attributable to a reduction in
the Company's long-term debt in 1996. In addition, $.5 million of net interest
expense was due to the inclusion of partial periods for Holdco and Savoy.
INCOME TAXES. The Company's effective tax rate was higher than the statutory
rate due primarily to the amortization of goodwill and other acquired
intangibles, certain non-deductible executive compensation and a deduction for
certain dividends received. In addition, some states require separate company
tax filings which cause state income taxes to be disproportionate with
consolidated earnings.
MINORITY INTEREST. For the year ended December 31, 1996, minority interest
represented the ownership interest of third parties in the net assets and
results of operations of certain consolidated subsidiaries.
FOUR MONTHS ENDED DECEMBER 31, 1995 VS. FOUR MONTHS ENDED DECEMBER 31, 1994
Revenues
For the four months ended December 31, 1995, net revenue decreased $1.3 million
to $16.0 million from $17.3 million when compared to the four months ended
December 31, 1994. The decrease primarily related to the receipt of $1.8 million
of additional fees in fiscal 1995, compared to $.8 million in fiscal 1994 under
the affiliation arrangements with Home Shopping Network and a decrease of $.4
million due to a reduction in production revenue. The Company closed the Denver
Telemation facility effective November 1995.
Operating Expenses
GENERAL AND ADMINISTRATIVE. For the four months ended December 31, 1995,
general and administrative expenses increased $1.7 million to $9.2 million from
$7.5 million when compared to the four months ended December 31, 1994. An
additional $1.1 million was attributable to an equity and bonus compensation
arrangement with the Company's Chairman and Chief Executive Officer. The
remaining increase was due to additional consulting and legal expenses
associated with new executive management.
OTHER. In December 1995, the Company implemented a formal plan to increase
operating efficiency, reduce personnel at the Company's television broadcasting
stations and the Company's corporate offices and close the Denver Telemation
facility. As a result, the Company recorded a $2.6 million charge to operations
for the four months ended December 31, 1995, which included severance costs,
facility closure and non-cancelable lease costs and the write-down of property,
plant and equipment.
OTHER INCOME (EXPENSE). For the four months ended December 31, 1995, interest
income increased $.5 million to $.9 million from $.4 million when compared to
the four months ended December 31, 1994. The increase was primarily due to the
settlement of the Company's lawsuit against Urban Broadcasting Corporation. The
Company did not recognize any interest income from a note receivable from Urban
in the four month period ended December 31, 1994 until the settlement was
reached and the funds were received in May 1995.
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INCOME TAXES. The Company's effective tax rate for these periods differed from
the statutory rate due primarily to the amortization of goodwill and other
acquired intangible assets relating to acquisitions from prior years, other
non-deductible items, and state income taxes.
HOLDCO AND USANi LLC CONSOLIDATED RESULTS OF OPERATIONS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. QUARTER AND NINE MONTHS
ENDED SEPTEMBER 30, 1997
The Universal Transaction resulted in significant increases in net revenues,
operating costs and expenses, other income (expense), minority interest and
income taxes and will continue to materially impact the Holdco and USANi LLC's
results of operations for the remainder of 1998 when compared to 1997, and
accordingly, no significant discussion of these fluctuations is presented.
Net Revenues
For the nine months ended September 30, 1998, revenues increased $796 million
compared to 1997 primarily due to increases of $757 million and $32.5 million
from the Networks and Television Production business and Electronic Retailing,
respectively.
Operating Costs and Expenses
For the nine months ended September 30, 1998, operating expenses increased $694
million compared to 1997 primarily due to increases of $641 million and $64
million from the Networks and Television Production business and Electronic
Retailing, respectively.
Other Income (Expense)
For the nine months ended September 30, 1998, net interest expense increased $60
million and $63 million for Holdco and USANi LLC, respectively, compared to the
1997 period primarily due to interest incurred under the Existing Credit
Agreement to finance the Universal Transaction and non-cash interest expense on
long-term program liabilities at the Networks and Television Production
business.
For the nine months ended September 30, 1998, miscellaneous expense increased $7
million compared to the 1997 period primarily due to losses from international
joint ventures of Home Shopping Network and Networks and Television Production
business.
Income Taxes
Holdco taxes for the nine months ended September 30, 1998 were higher than the
statutory rate due primarily to non-deductible goodwill and other acquired
intangible and state income taxes.
Minority Interest
For the nine months ended September 30, 1998, Holdco minority interest
represents Universal's and Liberty's ownership interest in USANi LLC for the
period February 12 through September 30, 1998, and Fox Broadcasting Company's
50% ownership interest in SF Broadcasting for the period January 1 through July
16, 1998.
PRO FORMA QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. PRO FORMA QUARTER
AND NINE MONTHS ENDED SEPTEMBER 30, 1997
The following unaudited pro forma operating results of Holdco and USANi LLC
present combined results of operations as if the Universal Transaction had
occurred on January 1, 1998 and 1997, respectively.
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The Unaudited Combined Condensed Pro Forma Statements of Operations of Holdco
and USANi LLC 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, 1998 and
1997, respectively, nor are they necessarily indicative of future results of
operations.
HOLDCO AND USANi LLC
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET REVENUES:
Networks and television production....... $281,302 $255,762 $ 914,669 $ 777,710
Electronic retailing..................... 261,183 236,706 776,417 743,893
Internet services........................ 5,934 3,330 14,467 8,511
-------- -------- ---------- ----------
Total net revenues.................. 548,419 495,798 1,705,553 1,530,114
Operating costs and expenses:
Cost related to revenues............... 313,599 294,979 978,661 904,430
Other costs and expenses............... 130,386 112,739 412,159 380,567
Depreciation and amortization.......... 47,137 49,099 139,721 135,070
-------- -------- ---------- ----------
Total operating costs and
expenses.......................... 491,122 456,817 1,530,541 1,420,067
-------- -------- ---------- ----------
Operating profit.................... $ 57,297 $ 38,981 $ 175,012 $ 110,047
======== ======== ========== ==========
EBITDA.............................. $104,434 $ 88,080 $ 314,733 $ 245,117
======== ======== ========== ==========
For the quarter ended September 30, 1998, pro forma revenues for Holdco and
USANi LLC increased $52.6 million, or 10.6%, to $548.4 million from $495.8
million compared to 1997. For the quarter ended September 30, 1998, pro forma
cost related to revenues and other costs and expenses increased $34.3 million,
or 7.5%, to $491.1 million from $456.8 million compared to 1997.
For the nine months ended September 30, 1998, pro forma revenues for Holdco and
USANi LLC increased $175.4 million, or 11.5%, to $1.7 billion from $1.5 billion
compared to 1997. For the nine months ended September 30, 1998, pro forma cost
related to revenues and other costs and expenses increased $110.5 million or
7.8%, to $1.5 billion from $1.4 billion compared to 1997.
For the quarter ended September 30, 1998, pro forma EBITDA increased $16.4
million, or 18.6%, to $104.4 million from $88.1 million compared to 1997.
For the nine months ended September 30, 1998, pro forma EBITDA increased $69.6
million, or 28.4%, to $314.7 million from $245.1 million compared to 1997.
The following discussion provides an analysis of the aforementioned increases in
pro forma revenues and costs related to revenues and other costs and expenses by
significant business segment.
Networks and Television Production
Net revenues for the quarter ended September 30, 1998 increased by $25.5
million, or 10.0%, to $281.3 million from $255.8 million compared to 1997. The
increase primarily resulted from an increase in advertising revenues at USA
Network and The Sci-Fi Channel cable networks, an
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increase in affiliate revenues at both networks and increased revenues from
first run syndication product at Studios USA. The increase in advertising
revenues resulted from both higher ratings and a higher percentage of available
advertising spots sold compared to the prior year. The increase in affiliate
revenues resulted primarily from a significant increase in the number of
subscribers at The Sci-Fi Channel and higher affiliate fees at both networks.
The increase in first run syndication revenue resulted from higher barter
revenue from higher ratings and greater foreign sales.
Net revenues for the nine months ended September 30, 1998 increased $137.0
million, or 17.6%, to $914.7 million from $777.7 million compared to 1997. The
increase in revenues resulted primarily from higher advertising and affiliate
revenues at both USA Network and The Sci-Fi Channel and higher ratings on first
run syndication product by Studios USA.
Cost related to revenues and other costs and expenses for the quarter ended
September 30, 1998 increased by $18.8 million, or 9.2%, to $221.8 million from
$203.0 million compared to 1997. This increase resulted primarily from the cost
of increased deliveries of first run syndication product by Studios USA and
higher cost of original programming at USA Network, partially offset by the
absence in 1998 of write offs of USA Network programming recorded in 1997.
Cost related to revenues and other costs and expenses for the nine months ended
September 30, 1998 increased $59.9 million, or 9.6%, to $686.8 million from
$626.9 million compared to 1997. The increase was primarily due to higher cost
of network and first run syndication product at Studios USA and slightly higher
cost of programming at The Sci-Fi Channel partially offset by lower cost of
programming at USA Network.
EBITDA for the quarter ended September 30, 1998 increased $19.5 million, or
36.9%, to $72.2 million from $52.7 million compared to 1997.
EBITDA for the nine months ended September 30, 1998 increased $89.7 million, or
59.5%, to $240.5 million from $150.8 million compared to 1997.
Electronic Retailing
Net revenues for the quarter ended September 30, 1998 increased by $24.5
million, or 10.3%, to $261.2 million from $236.7 million compared to 1997. The
increase primarily resulted from increased sales of hardgoods, which includes
consumer electronics, collectibles and housewares. Total units shipped increased
by 9.4% to 7.0 million units compared to 6.4 million units in 1997 and the
average price point increased by 1.1%. The increase in net revenues also
reflected a decrease in the return rate to 20.8% from 22.8% compared to 1997.
Net revenues for the nine months ended September 30, 1998 increased $32.5
million, or 4.4%, to $776.4 million from $743.9 million compared to 1997. Total
units shipped increased 5.1% to 20.6 million units compared to 1997 and the
average price point decreased by 1.5%.
Cost related to revenues and other costs and expenses for the quarter ended
September 30, 1998 increased by $20.8 million, or 10.4%, to $220.0 million from
$199.2 million compared to 1997. This increase resulted primarily from higher
net revenues and the sale of merchandise at lower gross margins (38.3% in 1998
compared to 38.2% in 1997).
Cost related to revenues and other costs and expenses for the nine months ended
September 30, 1998 increased $45.3 million, or 7.4%, to $661.0 million from
$615.7 million compared to 1997. This increase resulted from higher net
revenues, the sale of merchandise at lower gross margins (39.7% in 1998 compared
to 41.4% in 1997) and from higher merchandising personnel costs.
EBITDA for the quarter ended September 30, 1998 increased $3.9 million, or
10.5%, to $41.4 million from $37.5 million compared to 1997.
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EBITDA for the nine months ended September 30, 1998 decreased $12.7 million, or
9.9%, to $115.5 million from $128.2 million compared to 1997.
Internet Services
Net revenues for the quarter ended September 30, 1998 increased $2.6 million to
$5.9 million in 1998 compared to $3.3 million in 1997. The increase resulted
from an increase in registered users to Holdco and USANi LLC's primary online
retailing service, First Auction. Net revenues for the nine months ended
September 30, 1998 increased $6.0 million to $14.5 million in 1998 from $8.5
million compared to 1997.
EBITDA loss increased to $3.9 million for the quarter ended September 30, 1998
compared to $2.1 million in 1997 and for the nine months ended September 30,
1998 increased to $9.6 million from $5.5 million compared to 1997, primarily due
to costs to maintain and enhance the Internet services and to increased
advertising and promotion costs.
On September 28, 1998, the Ticketmaster Online-CitySearch Merger was
consummated. During the nine months ended September 28, 1998, CitySearch
generated operating losses of $27.3 million and negative EBITDA of $24.2
million. The operating losses and negative EBITDA are expected to continue for
the foreseeable future.
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
Net Revenues
Net sales for Home Shopping Network increased $22.4 million, or 2.2%, to 1,037.1
million from 1,014.7 million for the year ended December 31, 1997 compared to
1996. Net sales of HSC, the primary source of Home Shopping Network revenues,
increased $71.9 million, or 8.0%, for the year ended December 31, 1997 compared
to 1996. HSC's sales reflected an increase of 8.7% in the number of packages
shipped and a decrease of 4.3% in the average price per unit sold for the year
ended December 31, 1997, compared to 1996. The increase in HSC net sales was
offset by planned decreases in net sales of wholly-owned subsidiaries, HSN Mail
Order, Inc. ("Mail Order"), and the retail outlet stores of $33.8 million and
$10.6 million, respectively, compared to 1996. Management believes that the
improved sales for 1997 compared to 1996, were primarily the result of ongoing
changes made to Home Shopping Network's merchandising and programming
strategies.
For the year ended December 31, 1997, HSC's merchandise return percentage
decreased to 22.2% from 23.5% compared to 1996. Management believes that the
lower return rate is primarily attributable to the decrease in the average price
per unit and the mix of products sold.
During 1998, cable system contracts covering 4.5 million cable subscribers are
subject to termination or renewal. This represents 8.8% of the total number of
unduplicated cable households receiving the Home Shopping Network. Home Shopping
Network is pursuing both renewals and additional cable television system
contracts, but channel availability, competition, consolidation within the cable
industry and cost of carriage are some of the factors affecting the negotiations
for cable television system contracts. Although management cannot determine the
percentage of expiring contracts that will be renewed or the number of
households that will be added through new contracts, management believes that a
majority of these contracts will be successfully renegotiated.
Operating Expenses
As a percentage of net sales, Home Shopping Network's cost of sales decreased to
59.3% from 61.7% for the year ended December 31, 1997, compared to 1996. Cost of
sales of HSC increased $24.2 million due to increases in net sales. This was
offset by decreases of $19.9 million and $14.1 million in cost of sales of Mail
Order and the retail outlet stores, respectively, compared to 1996, as a result
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of the planned reduction in revenues for these subsidiaries. As a percentage of
HSC's net sales, cost of sales decreased to 60.1% from 62.3% compared to 1996.
These decreases were primarily the result of changes in merchandising and
programming strategies, as discussed above.
Other operating costs and expenses increased $13.3 million or 3.8%, to $361.1
million from 347.9 million for the year ended December 31, 1997 compared to the
year ended December 31, 1996. The increase was primarily due to an increase in
goodwill and other intangibles amortization related to the Home Shopping Merger
and an increase in costs related to an increase in sales, offset by a decrease
in other costs related to the reduction in cable and broadcast fees.
Other Income (Expense), Net
For the year ended December 31, 1997, net miscellaneous expense was $11.8
million primarily due to equity losses relating to the Home Shopping Network's
investments in Home Order Television GmbH & Co. and Jupiter Shop Channel Co.,
Ltd. Litigation settlement income for the year ended December 31, 1996
represents the reversal of amounts accrued in prior years which were in excess
of the actual settlements of certain litigation.
Income Taxes
Holdco's effective tax rate of 73% for the year ended December 31, 1997,
calculated on earnings before income taxes and minority interest, was higher
than the statutory rate due primarily to the amortization of non-deductible
goodwill and other acquired intangibles, the non-recognition of benefit for net
operating losses of less than 80% owned subsidiaries and state income taxes.
Holdco's effective tax rate of 38% for the year ended December 31, 1996 was
higher than the statutory rate due primarily to the amortization of goodwill,
state income taxes and the provision for interest on adjustments proposed by the
Internal Revenue Service.
YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995
Net Revenues
For the year ended December 31, 1996, net revenues increased $94.9 million, or
10.3%, to $1,014.7 million from $919.8 million for the year ended December 31,
1995. Net sales of HSC increased $108.3 million, or 13.8%, for the year ended
December 31, 1996, reflecting a 12.0% increase in the number of packages shipped
and a 1.5% decrease in the average price per unit sold compared to the year
ended December 31, 1995. Sales by wholly-owned subsidiaries, Vela Research, Inc.
("Vela"), Mail Order and Internet Shopping Network, Inc. ("ISN") increased $9.0
million, $7.8 million and $4.4 million, respectively, for the year ended
December 31, 1996. These increases were partially offset by decreases related to
HSND and Ortho-Vent of $17.7 million and $15.6 million, respectively.
In November 1995, Holdco appointed a new Chairman of the Board of Directors and
a new President and Chief Executive Officer, both with significant experience in
the electronic retailing and programming areas. Management believes that the
improvement in sales in the year ended December 31, 1996 compared to 1995 was
primarily the result of changes made by new management to the Company's
merchandising and programming strategies. In addition, Home Shopping Network
offered a "non interest-no payment" credit promotion through September 1996 for
certain purchases made during June 1996 using Home Shopping Network's private
label credit card and offered a similar promotion during the fourth quarter of
1996 with the payment deferral period extending to March 1997.
For the year ended December 31, 1996, HSC's merchandise return percentage
decreased to 23.5% from 25.7%, in 1995. Management believes that the lower
return rate was primarily attributable to the
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decrease in the average price per unit sold. Promotional price discounts
remained constant at 2.8% of HSC sales for the year ended December 31, 1996
compared to 1995.
Operating Costs and Expenses
COST OF SALES. As a percentage of net sales, Home Shopping Network's cost of
sales decreased to 61.7% for the year ended December 31, 1996 compared to 65.5%
for the year ended December 31, 1995. Cost of sales increased $22.8 million for
the year ended December 31, 1996 compared to 1995 due to the increase in net
sales in 1996. The decrease in the cost of sales percentage in 1996 related in
part to non-recurring warehouse sales and other promotional events held in 1995
which increased cost of sales. In addition, the 1996 product sales mix was
composed of higher gross margin merchandise. Cost of sales for the year ended
December 31, 1995 also included higher inventory carrying adjustment costs for
products which were not consistent with the change in Home Shopping Network's
sales and merchandising philosophy in late 1995.
OTHER OPERATING COSTS. Other operating costs decreased $49.4 million to 12.4%
to $347.8 million for the year ended December 31, 1996 compared to $397.2
million for the year ended December 31, 1995.
SELLING AND MARKETING. The decrease in selling and marketing costs of $20.2
million relates primarily to a decrease of $10.0 million in selling costs due to
lower sales at HSND, a decrease of $3.9 million in mail order catalog costs due
to the sale of Ortho-Vent assets in the fourth quarter of 1995, a decrease of
$3.6 million in promotional and media expense and a decrease of $2.7 million in
fees to cable operators due to the expiration and renegotiation of older
agreements with higher fees, offset by an increase of $3.6 million in telephone
and customer service costs due to higher sales.
ENGINEERING AND PROGRAMMING. Engineering and programming costs decreased $3.6
million or 3.7% to $94.6 million for the year ended December 31, 1996 compared
to $94.6 million for the year ended December 31, 1995. The decrease in 1996 is
primarily due to the exclusion of $3.4 million of performance bonus commissions
not payable as a result of the Home Shopping Merger.
GENERAL AND ADMINISTRATIVE. General and administrative costs decreased $6.8
million or 8.9% to $70.2 million for the year ended December 31, 1996 compared
to $77.0 million for the year ended December 31, 1995. For the year ended
December 31, 1996, decreases in consulting, legal, repairs and maintenance and
other administrative expenses totaled $7.7 million compared to 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization costs decreased
$5.4 million or 13.8% to $33.9 million for the year ended December 31, 1996
compared to $33.5 million for the year ended December 31, 1995. The decrease in
depreciation and amortization was primarily due to a decrease of $5.8 million
related to assets that became fully depreciated in 1995, a decrease of $3.9
million in amortization expenses for the mail order catalog operation due to the
sale of Ortho-Vent asset in the fourth quarter of 1995, the retirement of
certain equipment in the fourth quarter of 1995 and lower relative capital
expenditures in 1995 compared to 1996, offset by increased amortization of cable
distribution fees of $4.4 million for 1996 compared to 1995.
Other Charges
For the year ended December 31, 1996, the other charges of $2.6 million relate
to work force reductions and other asset write downs in conjunction with the
closing of three outlet stores and a fulfillment center.
Other charges for the year ended December 31, 1995, included $4.1 million which
represented management's estimate of costs to be incurred in connection with the
closing of the Home Shopping Network's Reno, Nevada, fulfillment center, which
was accomplished in June 1995. The decision to close the Reno fulfillment center
was based on an evaluation of the Company's overall distribution
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strategy. An additional $11.9 million of charges for the year ended December 31,
1995 related to severance costs of $4.0 million resulting from a reduction in
work force, $4.8 million of payments to certain executives as provided for under
their employment agreements in connection with the termination of their
employment and the write-off of certain equipment maintenance and contractual
fees totaling $1.8 million related to service contracts which were no longer
utilized. Home Shopping Network also recorded a write-down of inventory totaling
$1.3 million to net realizable value based on the disposition of Ortho-Vent's
assets.
Other Income (Expense)
For the year ended December 31, 1996, Home Shopping Network had net other
expense of $7.9 million compared to net other expense of $14.9 million for the
year ended December 31, 1995.
Interest expense decreased $0.2 million for the year ended December 31, 1996,
compared to 1995, due to a lower level of borrowings by Home Shopping Network at
a lower average interest rate primarily due to the private placement on March 1,
1996, of $100.0 million of Convertible Subordinated Debentures (the
"Debentures").
For the year ended December 31, 1996, net miscellaneous expenses increased to
$1.9 million compared to $0.4 million for the year ended December 31, 1995. In
1996, equity losses totaling $5.7 million relating to Home Shopping Network's
investments in Home Order Television GmbH & Co. ("HOT") and Jupiter Shop Channel
Co. Ltd. ("Shop Channel") were partially offset by a gain on the sale of a
controlling interest in HSND of $1.9 million and a one-time $1.5 million payment
received in the first quarter of 1996 in connection with the termination of the
Canadian Home Shopping Network license agreement. In 1995, $6.0 million in
losses recorded in connection with the retirement of equipment was offset by
receipts from lawsuit settlements, royalty income and other miscellaneous income
totaling $5.6 million.
Litigation settlement income for the year ended December 31, 1996 represented
the reversal of amounts accrued in prior years which were in excess of the
actual settlement on certain litigation. Litigation expense for the year ended
December 31, 1995, of $6.4 million, represented litigation settlements and
anticipated costs in connection with the resolution of certain pending
litigation.
Income Taxes
Holdco's effective tax rate was 38.0% for the year ended December 31, 1996, and
a benefit of 35.0% for the year ended December 31, 1995. Holdco's effective tax
rate for these periods differed from the statutory rate due primarily to the
amortization of goodwill, state income taxes and the provision for interest on
adjustments proposed by the Internal Revenue Service.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The operating results and capital resources and liquidity requirements of USAi,
Holdco and USANi LLC are dependent on each other. The Investment Agreement, as
amended and restated as of December 18, 1997 (the "Investment Agreement"), among
Universal, Liberty, USAi and Holdco requires that all cash generated by entities
not owned by USANi LLC be transferred to USANi LLC and requires that any cash
needs by entities not owned by USANi LLC be funded by USANi LLC. In addition,
USAi and USANi LLC are jointly and severally obligated under the Notes. The
following discussion of financial resources, liquidity and capital resources is
presented on a consolidated basis. For a summary of the terms of the Investment
Agreement, see "Certain Relationships and Related Party
Transaction -- Agreements with Universal and Liberty -- Investment Agreement."
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Net cash provided by operating activities was $146.7 million for USAi ($120.7
million for Holdco and USANi LLC) for the nine months ended September 30, 1998.
These cash proceeds were used to pay for capital expenditures of $64.2 million
for USAi ($34.5 million for Holdco and USANi LLC), to make long-term investments
totaling $25.6 million for USAi ($22.5 million for Holdco and USANi LLC) and to
reduce amounts outstanding under the Existing Credit Agreement.
Funds are transferred between USAi and its wholly owned subsidiaries and USANi
LLC as needed to fund operations and other related items. Pursuant to the
Investment Agreement, all excess cash held at USAi and subsidiaries is
transferred to USANi LLC no less frequently than monthly and USANi LLC may
transfer funds to USAi to satisfy obligations of USAi and its subsidiaries.
Under the Investment Agreement, transfers of cash are evidenced by a demand note
and accrue interest at USANi LLC's borrowing rate under the Existing Credit
Agreement.
During the nine months ended September 30, 1998, net transfers from USANi LLC to
USAi totaling approximately $172 million were made to repay USAi's revolving
credit facility, repay Ticketmaster's existing bank credit facility and fund the
operations of USAi's television broadcast operation, reduced by amounts received
from USAi from the sale of the SF Broadcasting assets and the Baltimore
television station. The interest incurred on the net transfers for the nine
months ended September 30, 1998 was approximately $6.5 million.
In accordance with the Investment Agreement, certain transfers of funds between
Holdco, USANi LLC and USAi are not evidenced by a demand note and do not accrue
interest, primarily relating to the establishment of the operations of USANi LLC
and capital contributions from USAi into USANi LLC.
Consolidated capital expenditures for the nine months ended September 30, 1998
relate in part to the build-out of the Miami/Ft. Lauderdale television station.
Consolidated capital expenditures are expected to approximate $90.0 million in
1998.
On February 12, 1998, the Company and certain of its subsidiaries, including
USANi LLC as borrower, entered into the Existing Credit Agreement which provides
for a $1.6 billion credit facility (the "Existing Credit Facility"). The
Existing Credit Facility was used to finance the Universal Transaction and to
refinance USAi's then-existing $275.0 million revolving credit facility. The
Existing Credit Facility consists of a $600.0 million revolving credit facility
with a $40.0 million sub-limit for letters of credit, a $750.0 million Tranche A
Term Loan and a $250.0 million Tranche B Term Loan (the "Tranche B Term Loan").
On August 5, 1998, USANi LLC repaid the Tranche B Term Loan in the amount of
$250.0 million from cash on hand. The Tranche B Term Loan was scheduled to
mature on December 31, 2003. The revolving credit facility and the Tranche A
Term Loan mature on December 31, 2002. USANi LLC used the proceeds received from
the sale of the Initial Notes together with available cash to repay $500 million
of the Tranche A Term Loan. The Existing Credit Facility is guaranteed by
substantially all of the Company's material subsidiaries. The interest rate on
borrowings under the Existing Credit Facility is tied to an alternate base rate
or the London InterBank Rate, in each case, plus an applicable margin. As of
December 31, 1998, there was $250.0 million in outstanding borrowings under the
Tranche A Term Loan and, under the revolving credit portion of the Existing
Credit Facility, $599.9 million was available for borrowing after taking into
account outstanding letters of credit. As of December 31, 1998, the interest
rate on loans outstanding under the Tranche A Term Loan was 6.0%.
On October 9, 1998, the parties to the Existing Credit Agreement entered into an
amendment thereto (the "Credit Agreement Amendment"), which, among other things,
provided for the release of all security interests in favor of the lenders,
increased the level of permitted stock repurchases from $100 million to $300
million and lowered the maximum ratio of Total Debt to EBITDA (each as defined
in the Existing Credit Agreement) permitted under the Existing Credit Agreement
from 5.0x to 4.0x.
On February 12, 1998, the Company completed the Universal Transaction. The
consideration paid to Universal included a cash payment of $1.6 billion, a
portion of which ($300.0 million plus interest)
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was deferred until no later than June 30, 1998. The Investment Agreement
relating to the Universal Transaction also contemplated that, on or prior to
June 30, 1998, the Company and Liberty would complete a transaction involving a
$300.0 million cash investment, plus an interest factor, by Liberty in the
Company through the purchase of USANi LLC shares. Pursuant to this agreement, on
June 30, 1998, Liberty contributed $308.5 million in exchange for 15,000,000
USANi LLC shares.
Pursuant to the Investment Agreement, the Company has granted to Universal and
Liberty preemptive rights with respect to future issuances of Common Stock and
Class B Common Stock, which generally allow Universal and Liberty the right to
maintain an ownership percentage equal to the ownership percentage such entity
held, on a fully converted basis, immediately prior to such issuance. In
addition, Universal had certain mandatory purchase obligations with respect to
Common Stock (or USANi LLC shares) issued with respect to the conversion of the
Home Shopping Debentures and the Ticketmaster Merger. During the period from
February 12, 1998 through July 27, 1998, Universal and Liberty contributed to
USAi and USANi LLC approximately $787.0 million pursuant to the preemptive
rights in exchange for Common Stock and USANi LLC shares. These preemptive
rights exercises are described more fully below. See "Certain Relationships and
Related Party Transactions -- Agreements with Universal and
Liberty -- Investment Agreement."
In connection with the Universal Transaction, the Company entered into a joint
venture agreement relating to the development of international general
entertainment television channels including international versions of USA
Network, The Sci-Fi Channel and Universal's action/adventure channel 13th
Street. Unless the Company elects to have Universal buy out its interest in the
venture, the Company and Universal will be 50-50 partners in the venture, which
will be managed by Universal. USANi LLC and Universal have each committed to
contribute $100 million in capital in the venture over a number of years. The
decision by the Company on whether to have Universal buy out its interest in the
joint venture is expected to be made during the first quarter of 1999.
In connection with the Universal Transaction and other strategic initiatives,
the Company anticipates that it will need to invest working capital in
connection with the development and expansion of its overall operations.
The Company implemented its plan to disaffiliate its television station in the
Miami/Ft. Lauderdale market in June 1998. The Company has incurred and will
continue to incur expenditures to develop programming and promotion of this
station, which during the development and transitional stage, may not be offset
by sufficient advertising revenues. The Company may also transition additional
broadcasting stations to the new format in 1999. The Company believes that the
process of disaffiliation can be successfully managed so as not to have a
material adverse effect on the Company and so as to maximize the value of the
broadcasting stations.
On June 24, 1998, the Company completed the Ticketmaster Merger by issuing
15,967,200 shares of Common Stock to the public shareholders of Ticketmaster and
converted 3.6 million options to acquire Ticketmaster common stock into options
to acquire Common Stock for a total consideration of $467.0 million. In
connection with the closing, the Company repaid all outstanding borrowings under
the Ticketmaster credit agreement using proceeds from the Existing Credit
Facility. In connection with the Ticketmaster Merger, Universal and Liberty
exercised their preemptive rights with respect to the issuance of shares of
Common Stock to the holders of Ticketmaster common stock. In the aggregate,
Universal and Liberty acquired 24,649,716 USANi LLC Shares in exchange for total
consideration of $493.0 million. Of that amount, $105.2 million was applied to
the remainder of the Universal deferred purchase price obligation (including
accrued interest) and the remainder was received in cash. These transactions
closed in July 1998.
On January 20, 1998, the Company consummated the sale of its Baltimore, Maryland
television station for $80.0 million. On June 18, 1998, the Company purchased a
television station serving the
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Atlanta, Georgia, market. On June 18, 1998 the Company acquired the remaining
interest in an entity partially owned by the Company, which owned television
stations serving the Orlando, Florida, Portland, Oregon and Rapid City, South
Dakota markets. The aggregate purchase prices for these transactions was
approximately $70.0 million. The proceeds from the sale of the Baltimore station
were used, in part, to complete the purchase of the Atlanta station. On June 19,
1998 the Company sold the station serving Portland, Oregon for total cash
consideration of $30 million. On October 30, 1998, the Company sold the station
serving Rapid City, South Dakota for total consideration of $5.5 million.
As of March 1, 1998, the Company redeemed, at a redemption price of 104.7% of
the principal amount, all of Holdco's outstanding 5.875% Convertible
Subordinated Debentures (the "Home Shopping Debentures"). The Home Shopping
Debentures were all converted by the holders into an aggregate 7,499,022 shares
of Common Stock on or prior to the redemption date. In connection with their
preemptive mandatory and optional rights with respect to issuances of shares by
the Company, Universal exercised its right in connection with the redemption of
the Home Shopping Debentures which resulted in the issuance of 9,978,830 USANi
LLC shares, generating an increase in minority interest in USANi LLC of $199.6
million. Such amount reduced the Company's deferred purchase price liability by
the same amount. Liberty exercised its optional preemptive rights (related to
the redemption of the Home Shopping Debentures and the Universal preemptive
elections) in exchange for 4,697,327 shares of Common Stock, generating proceeds
of $93.9 million. The proceeds were used by USANi LLC to pay down debt
outstanding under the Existing Credit Facility. USAi, in turn, invested the
$93.9 million in USANi LLC in exchange for 4,697,327 Class A LLC Shares.
On February 20, 1998, the Company's Board of Directors approved the declaration
of a dividend to its stockholders in the form of a distribution of one share of
Common Stock for each share of common stock outstanding to holders of record as
of the close of business on March 12, 1998. The payment date for the dividend
was March 26, 1998. The two-for-one stock split also included an identical stock
dividend with respect to the Company's Class B Common Stock, paid in the form of
one share of Class B Common Stock for each share of Class B Common Stock
outstanding as of the close of business on March 12, 1998.
On July 30, 1998, the Company announced that its Board of Directors authorized a
stock repurchase program of up to 10 million shares of the Company's outstanding
common stock over the next 12 months, 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 the Company's overall capital structure.
Funds for these purchases will come from cash on hand or borrowings under the
Existing Credit Facility.
On September 28, 1998, Ticketmaster Online was merged with a subsidiary of
CitySearch, a publisher of local city guides on the Web (the "CitySearch
Merger"), to create Ticketmaster Online-CitySearch. The Company had acquired
Ticketmaster Online as part of the Ticketmaster Transaction and has
preliminarily allocated to Ticketmaster Online a total of $154.8 million of the
goodwill resulting from the Company's acquisition of Ticketmaster. The
CitySearch Merger was accounted for using the "reverse purchase" method of
accounting, pursuant to which Ticketmaster Online was treated as the acquiring
entity for accounting purposes, and the portion of the assets and liabilities of
CitySearch acquired were recorded at their respective fair values under the
purchase method of accounting.
Prior to the CitySearch Merger, the Company owned approximately 11.8% of
CitySearch, which it had purchased for total consideration of $23.0 million.
Pursuant to the CitySearch Merger, the Company acquired 50.7% of CitySearch in
exchange for an effective 35.2% interest in Ticketmaster Online. The total
purchase price for the acquisition of the additional CitySearch interest was
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approximately $120.9 million, substantially all of which was allocated to
goodwill which will be amortized over five years.
In connection with the Ticketmaster Online-CitySearch Transaction, on October 2,
1998, the Company commenced a tender offer to acquire from other TMCS
stockholders up to 2,924,339 shares of TMCS common stock. The Company purchased
1,997,502 TMCS shares pursuant to the tender offer, which was completed on
November 3, 1998, representing an additional 3.1% interest in CitySearch, for
total consideration of $17.3 million. On December 8, 1998, TMCS consummated an
initial public offering of its Class B Common Stock. Pursuant to the offering,
an aggregate of 8,050,000 shares of TMCS's Class B Common Stock were issued and
sold for aggregate net proceeds to TMCS of approximately $104 million. Upon
consummation of the TMCS initial public offering, TMCS paid approximately $51
million to USAi as repayment in full (including accrued interest) of a $50
million loan made by USAi to TMCS on August 12, 1998. As of December 31, 1998,
USAi beneficially owned 59.5% of the outstanding TMCS common stock, representing
67.3% of the total voting power of TMCS's outstanding common stock.
In connection with the CitySearch Merger, the Company recorded a deferred gain
of $65.8 million by exchanging a 35.2% interest in Ticketmaster Online with a
basis of $55.1 million for a 50.7% interest in CitySearch, which had a fair
value of $120.9 million. The gain was deferred because the stockholders of
CitySearch had various put options on their TMCS stock to USAi, which options
terminated upon the completion of the December 1998 initial public offering of
TMCS Class B Common Stock. This gain was recognized at the time of the
completion of the TMCS initial public offering.
CitySearch has experienced significant losses during its startup phase and the
Company expects TMCS to continue to incur losses for the foreseeable future as
it rolls out its product into new markets. As of December 31, 1998, TMCS had
approximately $100 million in cash which it believes is sufficient to cover
losses for the foreseeable future.
In Management's opinion, available cash, internally generated funds and
available borrowings will provide sufficient capital resources to meet the
Company's foreseeable needs.
During the nine months ended September 30, 1998, the Company did not pay any
cash dividends, and none are permitted under the Existing Credit Facility.
OTHER MATTERS
The Company is currently working to resolve the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000 which could result in miscalculation or system failures. Various systems
could be affected ranging from complex information technology ("IT") computer
systems to non-information technology ("non-IT") devices such as an individual
machine's programmable logic controller.
The Company is currently conducting a detailed assessment of all of its IT and
non-IT hardware and software to assess the scope of its year 2000 issue. The
Company has potential exposure in technological operations within the sole
control of the Company and in technological operations which are dependent in
some way on one or more third parties. The Company believes that it has
preliminarily identified all significant technological areas within its control.
The Company has initiated communications with significant vendors and customers
to confirm their plans to become Year 2000 compliant and is assessing any
possible risk to or effects on the Company's operations. The Company believes
that, with respect to technological operations which are dependent on third
parties,
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the significant areas of potential risk are the ability of cable operators to
receive the signal transmission of USA Network, The Sci-Fi Channel and the HSN
Services, and the ability of banks and credit card processors to process credit
card transactions. The Company expects its Year 2000 assessment, remediation,
implementation and testing to be completed by the second quarter of 1999 with
the exception of certain of its systems at Ticketmaster which are scheduled to
be completed by October 1999.
Because the assessment is still in progress, it is not possible at this time to
predict with any reasonable certainty the total cost to remediate all Year 2000
issues. However, the Company believes that the total costs associated with the
Year 2000 issue will not exceed $10 million (exclusive of capital expenditures
that are currently planned to replace existing hardware and software systems as
part of the Company's ongoing efforts to upgrade its infrastructure and
systems). The figure will be revised as a result of further assessment.
Accordingly, based on existing information, the Company believes that the costs
of addressing potential problems will not have a material adverse effect on the
Company's financial position, results of operations or cash flows in future
periods. However, if the Company, its customers or vendors were unable to
resolve such issues in a timely manner, it could result in a material adverse
effect on the Company's financial position, results of operations or cash flows.
The Company plans to devote the necessary resources to resolve all significant
year 2000 issues in a timely manner.
The Company is currently focusing its efforts on identification and remediation
of its Year 2000 exposures and has not yet developed contingency plans in the
event it does not successfully complete all phases of its Year 2000 program. The
Company intends to examine its status in the first quarter of 1999, and
periodically thereafter, to determine whether such plans are necessary.
SEASONALITY
The Company's businesses are subject to the effects of seasonality.
Consequently, the operating results for the quarter and nine months ended
September 30, 1998 for each line of business, and for the Company as a whole,
are not necessarily indicative of results for the full year.
Networks and Television Production revenues are influenced by advertiser demand
and the seasonal nature of programming, and generally peak in the spring and
fall.
The Company 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.
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BUSINESS
GENERAL
The Company, through its subsidiaries, is a leading media and electronic
commerce company. The Company is organized along five principal lines of
business:
- - NETWORKS AND TELEVISION PRODUCTION, which includes Networks and Studios USA.
Networks operates USA Network and The Sci-Fi Channel cable television networks
and Studios USA produces and distributes television programming.
- - TELEVISION BROADCASTING, which includes television stations.
- - ELECTRONIC RETAILING, which consists primarily of the Home Shopping Network
and America's Store, which are engaged in the electronic retailing business.
- - TICKETING OPERATIONS, which primarily represents Ticketmaster, the leading
provider of automated ticketing services in the United States, and
Ticketmaster Online, Ticketmaster's exclusive agent for online ticket sales.
- - INTERNET SERVICES, which represents the Company's online retailing networks
business and CitySearch online local city guide business.
USANi LLC is an indirect subsidiary of the Company that holds virtually all of
the Company's businesses other than Ticketmaster, Ticketmaster Online-CitySearch
and USA Broadcasting. USANi LLC was formed on February 12, 1998 in connection
with the Universal Transaction. USANi LLC was formed primarily to hold the
Company's non-broadcast businesses in order to comply with FCC restrictions on
foreign ownership of entities controlling domestic television broadcast licenses
and for certain other tax and regulatory reasons. See "Corporate History."
NETWORKS AND TELEVISION PRODUCTION
Networks
Networks operates two domestic advertiser-supported 24-hour cable television
networks -- USA Network and The Sci-Fi Channel. Since its inception in 1977, USA
Network has grown into one of the nation's most widely distributed and viewed
satellite-delivered television networks. According to Nielsen Media Research, as
of December 1998, USA Network was available in approximately 75.2 million U.S.
households (76% of the total U.S. households with televisions). For the 1998
year, USA Network earned the highest primetime rating of any domestic basic
cable network, with an average rating of 2.3 in primetime for the 12-month
period (Source: Nielsen Media Research). USA Network is a general entertainment
network featuring original series and movies, theatrical movies, off-network
television series and major sporting events, designed to appeal to the available
audiences during particular viewing hours. In general, USA Network's programming
is targeted at viewers between the ages of 18 to 54.
The Sci-Fi Channel was launched in 1992. It has been one of the fastest-growing
satellite-delivered networks since its inception. According to Nielsen Media
Research, as of December 1998, The Sci-Fi Channel was available in 52.6 million
U.S. households (53% of the total U.S. households with televisions). The Sci-Fi
Channel features science fiction, horror, fantasy and science-fact oriented
programming. In general, The Sci-Fi Channel's programming is designed to appeal
to viewers between the ages of 18 to 49. According to Nielsen Media Research,
the Sci-Fi Channel averaged a prime time 0.9 rating for the fourth quarter of
1998, a 50% gain over its fourth quarter 1997 average.
USA Network and The Sci-Fi Channel derive virtually all of their revenues from
two sources. The first is the per-subscriber fees paid by the cable operators
and other distributors. The second is from
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the sale of advertising time within the programming carried on each of the
networks. TCI, which is the parent company of Liberty, and Time Warner together
represent nearly 40% of USA Network's distribution and more than 30% of The
Sci-Fi Channel's distribution. The Company is currently in negotiations with TCI
to renew its distribution agreement for USA Network. See "Certain Relationships
and Related Party Transactions -- Relationship with Liberty."
PROGRAMMING AND TRANSMISSION. Presently, USA Network's program line-up features
original series, produced exclusively for USA Network, including the following:
La Femme Nikita, Silk Stalkings and Pacific Blue. USA Network also exhibits
approximately 22 movies produced exclusively for it each year. USA Network's
programming includes off-network series such as Baywatch and Walker, Texas
Ranger and major theatrically-released feature films. USA Network is home to
exclusive midweek coverage of the U.S. Open Tennis Championships and early round
coverage of The Masters and major PGA Tour golf events.
USA Network typically enters into long-term agreements for its major off-network
series programming. Its original series commitments usually start with less than
a full year's commitment, but contain options for further production over
several years. USA Network is planning to produce some original programming to
enable it to control all of the rights to such programs. These original
productions will include both series and made-for-television movies. USA Network
acquires theatrical films in both their "network" windows and "pre-syndication"
windows. Under these arrangements, the acquisition of such rights is often
concluded many years before the actual exhibition of the films begins on the
network. USA Network's original films start production less than a year prior to
their initial exhibition. USA Network typically obtains the right to exhibit
both its acquired theatrical films and original films numerous times over
multiple year periods.
The Sci-Fi Channel's program lineup includes original programs produced
specifically for it, such as Sliders and Mystery Science Theater 3000 (and
starting in March 1999, is expected to include Farscape and Poltergeist), as
well as science fiction movies and classic science fiction series, such as the
original Star Trek, The Twilight Zone and Quantum Leap. The Sci-Fi Channel's
programming arrangements for off-network series, original series, theatrical
movies and original movies are similar to those entered into by USA Network.
USA Network and The Sci-Fi Channel each distribute their programming service on
a 24-hour per day, seven day per week basis. Both networks are distributed in
all 50 states and Puerto Rico via satellite for distribution by cable television
systems and direct broadcast satellite systems and for satellite antenna owners
by means of satellite transponders owned and leased by Networks. Any cable
television system or individual satellite dish owner in the United States and
its territories and possessions equipped with standard satellite receiving
facilities is capable of receiving Networks' programs.
Networks has the full-time use of four transponders on two domestic
communications satellites, although one of those transponders has been
subleased, and is available only in the event of certain catastrophic events.
Like Home Shopping Network, each of the transponders is a "protected"
transponder. A transponder failure that would necessitate a move to another
transponder on the same satellite would not result in any significant
interruption of service to those that receive Networks' programs. However, a
failure that would necessitate a move to another satellite temporarily may
affect the number of cable systems which receive Networks programs (as well as
other programming carried on the failed satellite) because of the need to
install equipment or to reorient earth stations. The projected ends of life of
the two satellites utilized by Networks are May, 2004 and March, 2006,
respectively.
Networks' control of two different transponders on each of two different
satellites would enable it to continue transmission of its programs should
either one of the satellites fail. Although Networks
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believes it is taking every reasonable measure to ensure its continued satellite
transmission capability, there can be no assurance that termination or
interruption of satellite transmission will not occur. Such a termination or
interruption of service by one or both of these satellites could have a material
adverse effect on the operations and financial condition of the Company. The
availability of replacement satellites and transponders is dependent on a number
of factors over which Networks has no control, including competition among
prospective users for available transponders and the availability of satellite
launching facilities for replacement satellites.
Each of the networks enters into agreements with cable operators and other
distributors which agree to carry the programming service, generally as part of
a package with other advertiser-supported programming services. These agreements
are multi-year arrangements in which the distributor pays Networks a fee for
each subscriber to the particular programming service.
Television Production
The Company through Studios USA produces and distributes television programs and
motion picture films intended for initial exhibition on television and home
video in both domestic and international markets. These productions include
original programming for network television, first-run syndication through local
television stations, pay television, basic cable and home video and
made-for-television movies. Studios USA also is the exclusive domestic
distributor of the Universal television library.
Studios USA and its predecessor companies have produced programming for network
television since the early 1950s and Studios USA remains a major supplier of
network and first-run syndication programming today, including Law & Order,
Hercules: The Legendary Journeys and Xena: Warrior Princess. For the 1998/1999
broadcast season, Studios USA is launching two new series for CBS and one new
sitcom series for ABC. Studios USA generally retains foreign and off-network
distribution rights for programming originally produced for television networks.
In addition, Studios USA distributes original television programming in domestic
markets for first-run syndication as well as exhibition on basic cable and other
media and generally retains foreign distribution rights.
Television production generally includes four steps: development,
pre-production, principal photography and post-production. The
production/distribution cycle represents the period of time from development of
the property through distribution and varies depending upon such factors as type
of product and primary form of exhibition. Pursuant to a facilities lease
agreement, Studios USA's production activities are centered on the Universal
production lot. Some television programs and films are produced, in whole or in
part, at other locations both inside and outside the United States.
Development of television programs and films begins with ideas and concepts of
producers and writers, which form the basis of a television series or film.
Producers and writers are frequently signed to term agreements generally
providing Studios USA with exclusive use of their services for a term ranging
from one to five years in the case of producers and one to two years in the case
of writers. Term agreements are signed with such talent to develop network
comedy and drama and first-run syndication programming. Term agreements are also
signed with actors, binding them to Studios USA for a period of time during
which Studios USA attempts to attach them to a series under development. These
term agreements represent a significant investment for Studios USA.
In the case of network development, the ideas and concepts developed by
producers and writers are presented to broadcast networks to receive their
approval to develop a "pilot" that could possibly become a commitment from the
network to license a minimum number of episodes based on the pilot. In general,
the production cycle for network programming begins with the presentation of
pilot concepts to network broadcasters in the fall of each year. Each May,
networks release their fall schedules, committing to the series production of
pilots, renewing existing programs and canceling others. Networks typically
commit to seven to thirteen episodes for such new series with options to
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acquire additional episodes for a negotiated license fee and twenty-two episodes
for a renewed series. Production on these series begins in June and continues
through March, depending upon the network commitment. The network broadcast
season runs from September through May. Studios USA incurs production costs
throughout the production cycle up through completion of an episode while
networks remit a portion of the license fees to Studios USA upon commencement of
episodic production and a portion upon delivery of episodes.
Several of Studios USA's subsidiary companies are individually and separately
engaged in the development and/or production of television programs. Certain of
these subsidiaries are also signatories to various collective bargaining
agreements within the entertainment industry. The most significant of these are
the agreements with the Writers Guild of America ("WGA"), the Directors Guild of
America ("DGA") and the Screen Actors Guild ("SAG"), which agreements typically
have a term of several years and then require re-negotiation.
TELEVISION PRODUCTION CUSTOMERS. Studios USA produces television films for the
U.S. broadcast networks for prime time television exhibition. Certain television
films are initially licensed for network television exhibition in the U.S. and
are simultaneously syndicated outside the U.S. Historically, Studios USA'
customers for network television film product have been concentrated with the
three established major U.S. television networks -- ABC, CBS and NBC. In recent
years, Fox Broadcasting, UPN and the WB Network have created new networks,
decreasing to some extent Studios USA' dependence on ABC, CBS and NBC and
expanding the outlets for its network product. Revenue from licensing agreements
is recognized in the period that the films are first available for telecast.
Programming consists of various weekly series and "made for television" feature
length films. 1998 network programming includes the returning production Law &
Order and three new series -- Payne and Turks on CBS, and Brothers Keeper on
ABC. In the initial telecast season, the network license provides for the
production of a minimum number of episodes, with the network having the option
to order additional episodes for both the current and future television seasons.
Network licenses give the networks the exclusive right to telecast new episodes
of a given series for a period of time, generally four to five years. The
success of any one series may be influenced by the time period in which the
network airs the series, the strength of the programs against which it competes,
promotion of the series by the network and the overall commitment of the network
to the series.
In addition to the broadcast networks, Studios USA has had a long-standing
relationship with USA Network, The Sci-Fi Channel, and Sci-Fi Europe (which was
contributed to the joint venture between Universal and the Company), producing
original programming and licensing off-network and off-syndication product. In
recent years, Studios USA has typically licensed seven to ten made-for-
television movies per year to USA Network and has produced the original series
Weird Science and Campus Cops for the network. Studios USA is currently
producing the original series Sliders for The Sci-Fi Channel and has licensed 48
previously developed episodes of Sliders that had originally aired on the Fox
Network. Studios USA has licensed to USA Network off-syndication episodes of
Hercules: The Legendary Journeys and Xena: Warrior Princess and off-network
episodes of New York Undercover.
Studios USA also produces television film product that is initially syndicated
directly to independent television stations for airing throughout the broadcast
day and to network affiliated stations for non-primetime airing. 1998 first-run
syndication programming includes one hour weekly series including returning
productions of Hercules: The Legendary Journeys and Xena: Warrior Princess as
well as the initial year production of Young Hercules and talk shows including
returning productions of The Sally Jessy Raphael Show and The Jerry Springer
Show. In addition, in the fall of 1998, Studios USA launched Maury, hosted by
talk show veteran Maury Povich.
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Studios USA licenses television film product to independent stations and
directly to network affiliated stations in return for either a cash license fee,
barter or part-barter and part-cash. Barter syndication is the process whereby
Studios USA obtains commitments from television stations to broadcast a program
in certain agreed upon time periods. Studios USA retains advertising time in the
program in lieu of receiving a cash license fee, and sells such retained
advertising time for its own account to national advertisers at rates based on
the projected number of viewers. By placing the program with television stations
throughout the United States, an "ad hoc" network of stations is created to
carry the program. The creation of this ad hoc network of stations, typically
representing a penetration of at least 80% of total U.S. television households,
enables Studios USA to sell the commercial advertising time through advertising
agencies for sponsors desiring national coverage. The rates charged for this
advertising time are typically lower than rates charged by U.S. broadcast
networks for similar demographics since the networks' coverage of the markets is
generally greater. In order to create this ad hoc network of stations and reach
80% of total U.S. television households, Studios USA must syndicate its
programming with stations that are owned and operated by the major broadcast
networks and station groups, which are essentially entities which own many
stations in the major broadcast markets across the United States. Without
commitments from broadcast network stations and station groups, the necessary
market penetration may not be achieved which may adversely affect the chances of
success in the first-run syndication market.
Generally, television films produced for broadcast or cable networks or barter
syndication provide license fees and/or advertising revenues that cover only a
portion of the anticipated production costs. The recoverability of the balance
of the production costs and the realization of profits, if any, is dependent
upon the success of other exploitation including international syndication
licenses, subsequent basic cable and domestic syndication licenses, releases in
the home video market, merchandising and other uses. Pursuant to an agreement
with Universal, Studios USA has the right to include eligible product in
Universal's international free television output and volume agreements with
television broadcasters in major international territories. These agreements
represent a substantial revenue source for Studios USA.
DISTRIBUTION. In general, during a series' initial production years (i.e.,
seasons one to four), domestic network and international revenues fall short of
production costs. As a result, the series will likely remain in a deficit
position until sold in the domestic syndication market. The series will be
available for airing in the off-network syndication market after a network's
exclusivity period ends, typically the September following the completion of the
third or fourth network season (or the subsequent season if the series was a
mid-season order). For a successful series, the syndication sales process
generally begins during the third network season. The price that a series will
command in syndication is a function of supply and demand. Studios USA
syndicated series are sold for cash and/or bartered services (i.e., advertising
time) for a period of at least five years. Barter transactions have played an
increasingly important role in the syndication process as they can represent a
majority of the distributor's syndication revenue.
Studios USA will distribute its current programming domestically. In addition,
the Company and Universal have agreed that Studios USA will have the exclusive
right to distribute domestically Universal's large television library, with
programming dating back to the 1950s and including such series as Alfred
Hitchcock Presents; The Virginian; Marcus Welby, M.D.; Dragnet; Columbo; Kojak;
The Rockford Files; Murder She Wrote; Magnum P.I.; Miami Vice; Coach and
Northern Exposure. Studios USA also has the exclusive right, with limited
exceptions, to distribute domestically television programming produced by
Universal during the next 15 years.
In addition, the Company and Universal have agreed that Universal will have the
exclusive right, again with limited exceptions, to distribute all Studios USA
programming internationally. In that regard, Universal has recently signed
several output and volume agreements with international
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television broadcasters that include programming produced by Studios USA. In May
1996, Universal signed a free television output and co-production agreement with
Germany's RTL. The ten-year agreement covers all new and existing product
distributed by Universal to RTL, UFA and CLT broadcasting outlets in Germany and
other German-speaking territories and provides that RTL will co-produce a
minimum number of series from Universal and Studios USA over the term of the
agreement, providing a portion of each series' production costs. With regard to
the output arrangement, RTL has exclusive first-run free television rights in
its territories to carry every series and television movie made by Universal and
Studios USA during the term of the agreement. In 1997, Universal signed similar
volume agreements in France, Spain, Italy and the United Kingdom in which the
licensor generally committed to license a minimum number per year of first-run
series and first-run television movies during a specified term in the territory.
Pursuant to the terms of the international distribution agreement between the
Company and Universal, the Company's eligible programming will have the first
right to participate in Universal's international output and volume agreements
with international television broadcasters, including in Germany, France, Spain,
Italy and the United Kingdom.
Studios USA also produces "direct to video" programming. Studios USA has
licensed a third party to sell videos of The Jerry Springer Show that contain
portions of previously produced programs that had been edited out when the
episodes aired on television.
TELEVISION BROADCASTING
The Company's television broadcasting operations are conducted through USA
Broadcasting. USA Broadcasting, through its wholly owned subsidiaries, owns and
operates 13 full-power UHF television stations, including one satellite station,
which comprise the USA Station Group. The USA Station Group owns television
stations in 12 of the nation's top 22 markets, including seven of the top 10
markets, which reach approximately 31% of television households in the United
States. USA Broadcasting also owns minority interests in an additional four
full-power UHF television stations which reach approximately 7% of television
households in the United States.
With the exception of the television stations serving the Miami/Ft. Lauderdale
and Atlanta markets, each of USA Broadcasting's full-power television stations
airs Home Shopping Network's electronic-retail sales programming. Contingent
upon consideration of the possible impact on Home Shopping Network in each
market, as part of its efforts to maximize the value of the USA Broadcasting
stations, the Company intends over time to disaffiliate the USA Station Group
stations from Home Shopping Network and develop and program the stations
independently.
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SUMMARY OF USA STATION GROUP MARKETS
HOUSEHOLDS IN
DESIGNATED LICENSE
TELEVISION CHANNEL METROPOLITAN MARKET AREA DMA EXPIRATION
STATION CITY OF LICENSE NO. AREA SERVED ("DMA")(1) RANK(1) DATE
- ---------- --------------- ------- ------------------ ------------- ------- ----------
WHSE-TV(2)................ Newark, NJ 68 New York, NY 6,755,510 1 6/1/99
WHSI-TV(2)................ Smithtown, NY 67 New York, NY 6,755,510 1 6/1/99
KHSC-TV................... Ontario, CA 46 Los Angeles, CA 5,009,230 2 12/1/06
WEHS-TV................... Aurora, IL 60 Chicago, IL 3,140,460 3 12/1/05
WHSP-TV................... Vineland, NJ 65 Philadelphia, PA 2,659,260 4 6/1/99
WHSH-TV................... Marlborough, MA 66 Boston, MA 2,174,300 6 4/1/99(3)
KHSX-TV................... Irving, TX 49 Dallas, TX 1,899,330 8 8/1/06
WNGM-TV................... Athens, GA 34 Atlanta, GA 1,674,700 10 4/1/05
KHSH-TV................... Alvin, TX 67 Houston, TX 1,624,340 11 8/1/06
WQHS-TV................... Cleveland, OH 61 Cleveland, OH 1,469,010 13 10/1/05
WBHS-TV................... Tampa, FL 50 Tampa/ 1,435,520 15 2/1/05
St. Petersburg, FL
WAMI-TV................... Hollywood, FL 69 Miami, FL 1,385,940 16 2/1/05
WBSF-TV................... Melbourne, FL 43 Orlando, FL 1,041,380 22 2/1/05
- -------------------------
(1) Estimates by Nielsen Marketing Research as of January 1998. For multiple
ownership purposes, the FCC attributes only 50% of a market Area of Dominant
Influence ("ADI") reach to UHF stations. Arbitron ADI's, like Nielsen DMA's,
are measurements of television households in television markets throughout
the country. For the Company's purposes, ADI and DMA measurements do not
materially differ.
(2) Operating as a satellite of WHSE-TV, WHSI-TV primarily rebroadcasts the
signal of WHSE-TV. Together, the two stations serve the metropolitan New
York City television market and are considered one station for FCC multiple
ownership purposes.
(3) Renewal pending.
Broadcast Station Transactions
In January 1998, certain entities controlled by the Company sold to United
Television, Inc. the assets of television station WHSW-TV, Baltimore, Maryland
for $80 million.
In June 1998, certain entities controlled by the Company acquired from Paxson
Communications of Atlanta-14, Inc. the assets of television station WNGM-TV,
Channel 34, Athens, Georgia which serves the Atlanta metropolitan area for $50
million.
In June 1998, USA Broadcasting acquired all of the membership interests of
Blackstar L.L.C. ("Blackstar"), other than those already owned by USA
Broadcasting, for $17 million, plus $1.5 million as consideration for consulting
agreements by two of the selling members. At the time, Blackstar was the parent
company of the licensees of television stations WBSF(TV), Melbourne, Florida and
KBSP-TV, Salem, Oregon, which serve all or portions of the metropolitan areas of
Orlando, Florida and Portland, Oregon, respectively. Both of these television
stations were affiliates of Home Shopping Network and carried Home Shopping
Network programming on a substantially full-time basis. Blackstar was also the
parent company of the licensee of television station KEVN-TV, Rapid City, South
Dakota, and its satellite station, KIVV-TV, licensed to Lead-Deadwood, South
Dakota, both of which are affiliated with, and carry the programming of, Fox
Broadcasting Company.
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Concurrently with USA Broadcasting's acquisition of the remaining membership
interests of Blackstar, Blackstar sold the assets of the Salem, Oregon
television station to Paxson Communications Corporation, and Home Shopping
Network terminated the Home Shopping Network affiliation of the station for
other consideration. On October 30, 1998, Blackstar sold the stock of the entity
controlling the South Dakota television stations to Mission TV, LLC.
SF Broadcasting consisted of SF Multistations, Inc. ("SF Multistations"), and
its wholly owned subsidiaries, which owned television station KHON-TV, Honolulu,
Hawaii (with its satellite stations KAII(TV), Wailuku, Hawaii and KHAW(TV),
Hilo, Hawaii); WALA-TV, Mobile, Alabama; and WVUE-TV, New Orleans, Louisiana,
and SF Broadcasting of Wisconsin, Inc. ("SF Wisconsin") and its wholly owned
subsidiaries, which owned WLUK, Green Bay, Wisconsin. Savoy Stations, Inc.
("Savoy Stations"), an indirect wholly owned subsidiary of the Company, owned
50% of the common equity and 100% of the voting stock of each of SF Wisconsin
and SF Multistations. A subsidiary of Fox Television Stations, Inc. owned 50% of
the common equity of SF Multistations and SF Wisconsin. On July 16, 1998, SF
Multistations and SF Wisconsin sold the assets of their stations to Emmis
Communications Corporation for $307 million.
As of December 31, 1998, USA Broadcasting and its affiliates held minority
interests in several television stations as described below:
An affiliate of USA Broadcasting owns a 45% nonvoting common stock interest in
the following entities: Roberts Broadcasting Company, which owns Station
WHSL(TV), East St. Louis, Illinois, serving the St. Louis, Missouri metropolitan
area; Urban Broadcasting Corporation ("Urban"), which owns Station WTMW(TV),
Arlington, Virginia, serving the Washington, D.C. metropolitan area; and Roberts
Broadcasting Company of Denver, which owns Station KTVJ(TV), Boulder, Colorado,
serving the Denver, Colorado metropolitan area. All of these stations carry Home
Shopping Network programming. Various court actions are pending among various
subsidiaries of the Company involving, among other things, performance issues
concerning the affiliation agreements for each of the aforementioned stations.
On April 26, 1996, Channel 66 of Vallejo, California, Inc. ("Channel 66"), an
entity in which an affiliate of USA Broadcasting holds a 49% nonvoting common
stock interest, consummated the acquisition of Station KPST-TV, Vallejo,
California which serves the San Francisco market.
A subsidiary of USA Broadcasting has an option to purchase a 45% nonvoting
common stock interest in Jovon Broadcasting Company ("Jovon"), the licensee of
Station WJYS(TV), Hammond, Indiana, serving the Chicago, Illinois television
market. Jovon has contested the validity of the option. See "-- Legal
Proceedings." The licensee of WJYS(TV) has filed a petition with the FCC that
questions whether the FCC, in a 1996 ruling, intended to rewrite the option to
permit a partial exercise. The Company has opposed that petition. In addition,
the Company is seeking, in a Florida court, action to enforce its rights under
the option.
LPTV Stations
The Company's 26 low power television stations (the "LPTV Stations") are located
in the New York, New York; Atlanta, Georgia; St. Petersburg, Florida; St. Louis,
Missouri; Knoxville, Tennessee; Minneapolis, Minnesota; New Orleans, Louisiana;
Roanoke, Virginia; Tucson, Arizona; Tulsa, Oklahoma; Wichita, Kansas; Columbus,
Ohio; Kansas City, Missouri; Springfield, Illinois; Huntington, West Virginia;
Champaign, Illinois; Toledo, Ohio; Portsmouth, Virginia; Raleigh, North
Carolina; Des Moines, Iowa; Shreveport, Louisiana; Spokane, Washington;
Pensacola, Florida; Birmingham, Alabama; Mobile, Alabama; and Jacksonville,
Florida areas. The Company's LPTV Stations, for the most part, carry America's
Store. The LPTV Stations have an average coverage radius of 10-12 miles and an
average transmitter power of 1,000-2,000 watts. This contrasts with the
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Company's full-power UHF television stations, which cover an average radius of
45-55 miles and have an average transmitter power of 120,000 watts. Each of the
LPTV Stations are regarded by the FCC as having secondary status to full power
stations and are subject to being displaced by changes in full power stations
resulting from digital television allotments.
PROGRAMMING. Each of the USA Station Group stations ("USA Stations") (other
than the stations in the Miami/Ft. Lauderdale and Atlanta markets), through the
applicable subsidiaries, broadcasts Home Shopping Network for approximately 164
hours per week. As part of its efforts to maximize the value of the USA Station
Group, the Company intends over time, subject to consideration of the possible
impact on Home Shopping Network on a market by market basis, to disaffiliate the
USA Station Group stations from Home Shopping Network and develop and program
the stations independently. In June 1998, USA Broadcasting implemented its plans
to disaffiliate WAMI-TV, its television station in the Miami/Ft. Lauderdale
market. Instead of Home Shopping Network programming, the station now airs news,
sports and entertainment programming.
Upon disaffiliation, substantial expenditures are and will be required to
develop USA Broadcasting programming and promotions on the USA Stations, which,
during this developmental and transitional stage, would not be offset by
sufficient advertising revenues. Additionally, the Company may also incur
additional expenses and cash outflows (including the making of up-front
payments), which could be substantial, in connection with entering into cable
distribution agreements to secure carriage of Home Shopping Network programming
and/or the USA Stations' programming. Furthermore, disaffiliation will disrupt
Home Shopping Network's ability to reach some of its existing customers which
may cause a reduction in the Company's revenues. The Company believes that the
process of disaffiliation can be successfully managed to minimize these adverse
consequences while maximizing the value of the USA Stations.
There can be no assurance that, if Home Shopping Network and the USA Stations
disaffiliate, the Company will be successful in its strategy to develop and
broadcast new programming formats, whether on a local or national basis, or that
the Company will be able to find other means of distributing its Home Shopping
Network programming on favorable terms to the households in the broadcast areas
currently served by USA Station Group stations. The consequences of any of the
foregoing decisions will impact the business, financial condition and results of
operations of the Company.
ELECTRONIC RETAILING
Home Shopping Network sells a variety of consumer goods and services by means of
live, customer-interactive electronic retail sales programs which are
transmitted via satellite to cable television systems, affiliated broadcast
television stations and satellite dish receivers. Home Shopping Network operates
two retail sales programs, Home Shopping Network ("Home Shopping Network" or
"HSN") and America's Store, each 24 hours a day, seven days a week.
Home Shopping Network retail sales and programming are intended to promote sales
and customer loyalty through a combination of product quality, price and value,
coupled with product information and entertainment. The HSN Services are carried
by cable television systems and broadcast television stations throughout the
country. The HSN Services are divided into segments which are televised live
with a host who presents the merchandise, sometimes with the assistance of a
guest representing the product vendor, and conveys information relating to the
product. Viewers purchase products by calling a toll-free telephone number.
According to Nielsen Media Research, as of December 31, 1998, Home Shopping
Network was available in approximately 69.3 million unduplicated households,
including approximately 53.4 million cable households.
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The following table highlights the changes in the estimated unduplicated
television household reach of HSN, Home Shopping Network's primary service, by
category of access for the year ended December 31, 1998:
CABLE BROADCAST SATELLITE TOTAL
------ --------- --------- ------
(IN THOUSANDS OF HOUSEHOLDS)
Households -- December 31, 1997................ 51,362 16,645 2,100 70,107
Net additions/(deletions)...................... 1,592 (2,302) (72) (782)
Shift in classification........................ 501 (501) 0 0
Change in Nielsen household counts............. -- 0 0 0
------ ------ ----- ------
Households -- December 31, 1998................ 53,455 13,842 2,028 69,325
====== ====== ===== ======
Households capable of receiving both broadcast and cable transmissions are
included under cable and therefore are excluded from broadcast to present
unduplicated household reach. Cable households included 5.0 million and 4.0
million direct broadcast satellite ("dbs") households at December 31, 1998 and
1997, respectively, and therefore are excluded from satellite.
According to industry sources, as of December 31, 1998, there were 98.0 million
homes in the United States with a television set, 67.0 million basic cable
television subscribers and 2.0 million homes with satellite dish receivers,
excluding dbs.
As of December 31, 1998, America's Store reached approximately 9.5 million cable
television households of which 3.6 million were on a part-time basis. Of the
total cable television households receiving America's Store, 7.7 million also
receive HSN.
Customer Service and Return Policy
Home Shopping Network believes that satisfied customers will be loyal and will
purchase merchandise on a regular basis. Accordingly, Home Shopping Network has
customer service personnel and computerized voice response units (the "VRU")
available to handle calls relating to customer inquiries 24 hours a day, seven
days a week. Generally, any item purchased from Home Shopping Network may be
returned within 30 days for a full refund of the purchase price, including the
original shipping and handling charges.
Distribution, Data Processing and Telecommunications
Home Shopping Network's fulfillment subsidiaries store, service and ship
merchandise from warehouses located in Salem, Virginia and Waterloo, Iowa.
Generally, merchandise is delivered to customers within seven to ten business
days of the receipt by Home Shopping Network of the customer's payment for an
order.
Home Shopping Network currently operates multiple main frame and distributed
computing platforms and has extensive computer systems which track purchase
orders, inventory, sales, payments, credit authorization, and delivery of
merchandise to customers. During 1998, Home Shopping Network took steps to
upgrade many of its computer systems which will continue through 1999.
Home Shopping Network has digital telephone and switching systems and utilizes
the VRU, which allows callers to place their orders by means of touch tone input
or to be transferred to an operator.
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Product Purchasing and Liquidation
Home Shopping Network purchases merchandise made to its specifications,
merchandise from manufacturers' lines, merchandise offered under certain
exclusive rights and overstock inventories of wholesalers. The mix of products
and source of such merchandise depends upon a variety of factors including price
and availability. Home Shopping Network generally does not have long-term
commitments with its vendors, and there are various sources of supply available
for each category of merchandise sold.
Home Shopping Network's product offerings include: jewelry; hardgoods, which
include fitness products, consumer electronics, collectibles, housewares, and
consumables; health and beauty, which consists primarily of cosmetics;
softgoods, which consist primarily of apparel; and fashion accessories. For
1998, jewelry, hardgoods, health and beauty, softgoods and fashion accessories
accounted for approximately 28.7%, 40.6%, 14.3%, 12.1% and 4.3%, respectively,
of Home Shopping Network's net sales.
Home Shopping Network liquidates excess inventory through its four outlet stores
located in the Tampa Bay and Orlando areas and one outlet store in the Chicago
area which opened in November 1998. Damaged merchandise is liquidated by Home
Shopping Network through traditional channels.
Transmission and Programming
Home Shopping Network produces the HSN Services in its studios located in St.
Petersburg, Florida. The HSN Services are distributed to cable television
systems, broadcast television stations, dbs and satellite antenna owners by
means of Home Shopping Network's satellite uplink facilities to satellite
transponders leased by Home Shopping Network. Any cable television system,
broadcast television station or individual satellite dish owner in the United
States and the Caribbean Islands equipped with standard satellite receiving
facilities is capable of receiving the HSN Services.
Home Shopping Network has lease agreements securing full-time use of three
transponders on three domestic communications satellites, although one of those
transponders has been subleased as described below. Each of the transponder
lease agreements grants Home Shopping Network "protected" rights. When the
carrier provides services to a customer on a "protected" basis, replacement
transponders (i.e., spare or unassigned transponders) on the satellite may be
used in the event the "protected" transponder fails. Should there be no
replacement transponders available, the "protected" customer will displace a
"preemptible" transponder customer on the same satellite. The carrier also
maintains a protection satellite and should a satellite fail completely, all
"protected" transponders would be moved to the protection satellite which is
available on a "first fail, first served" basis.
Use of the transponder which Home Shopping Network subleases may, however, be
preempted in order to satisfy the owner's obligations to provide the transponder
to another lessee on the satellite in the event that the other lessee cannot be
restored to service through the use of spare or reserve transponders (the
"Special Termination Right"). As of June 5, 1995, Home Shopping Network
discontinued use of this satellite transponder for which it has a non-cancelable
operating lease calling for monthly payments of approximately $150,000 through
December 31, 2006. In 1996, Home Shopping Network subleased this satellite
transponder for a term of 10 years with an option to cancel after four years.
The monthly sublease rental is in excess of the monthly payment.
A transponder failure that would necessitate a move to another transponder on
the same satellite would not result in any significant interruption of service
to the cable systems and/or television stations which receive the HSN Services.
However, a failure that would necessitate a move to another satellite may
temporarily affect the number of cable systems and/or television stations which
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receive the HSN Services (as well as all other programming carried on the failed
satellite) because of the need to install equipment or to reorient earth
stations.
The terms of two of the satellite transponder leases utilized by Home Shopping
Network are for the life of the satellites, which are projected through 2004.
The term of the third subleased satellite is through December 31, 2006, subject
to earlier implementation of the Special Termination Right.
Home Shopping Network's access to two transponders pursuant to long-term
agreements would enable it to continue transmission of HSN should either one of
the satellites fail. Although Home Shopping Network believes it is taking every
reasonable measure to ensure its continued satellite transmission capability,
there can be no assurance that termination or interruption of satellite
transmissions will not occur. Such a termination or interruption of service by
one or both of these satellites could have a material adverse effect on the
operations and financial condition of the Company.
The availability of replacement satellites and transponder time beyond current
leases is dependent on a number of factors over which Home Shopping Network has
no control, including competition among prospective users for available
transponders and the availability of satellite launching facilities for
replacement satellites.
The FCC grants licenses to construct and operate satellite uplink facilities
which transmit signals to satellites. These licenses are generally issued
without a hearing if suitable frequencies are available. Home Shopping Network
has been granted two licenses for operation of C-band satellite transmission
facilities and two licenses for operation of KU-band satellite transmission
facilities on a permanent basis in Clearwater and St. Petersburg, Florida.
Affiliation Agreements with Cable Operators
Home Shopping Network has entered into affiliation agreements with cable system
operators to carry HSN, America's Store, or both services. The agreements have
terms ranging from 3 to 14 years, and obligate the cable operator to assist with
the promotional efforts of Home Shopping Network by carrying commercials
promoting HSN and America's Store and by distributing Home Shopping Network's
marketing materials to the cable operator's subscribers. All cable operators
receive a commission of 5 percent of the net merchandise sales within the cable
operator's franchise area, regardless of whether the sale originated from a
cable or a broadcast household. With larger, multiple system operators, Home
Shopping Network has agreed to provide additional compensation, e.g., by
purchasing advertising availabilities from cable operators on other programming
networks, by establishing commission guarantees for the operator, or by making
an upfront payment to the operator in return for commitments to deliver a
minimum number of HSN subscribers for a certain number of years.
Affiliation Agreements with Television Stations
Home Shopping Network has entered into affiliation agreements with television
stations to carry HSN or America's Store. In addition to the 13 owned and
operated full power and 26 low power television stations owned by the Company as
of December 31, 1998, the Company has affiliation agreements with 8 full-time,
full power stations, 35 part-time, full power stations and 38 low power
stations. The Company has a minority ownership interest in 4 of the full-time,
full power stations. The affiliation agreements have terms ranging from four
weeks to fourteen years. All television station affiliates other than stations
owned by the Company receive an hourly or monthly fixed rate for airing the HSN
Services. Full power television signals are carried by cable operators within a
station's coverage area. See "-- Regulation -- Must-Carry/Retransmission
Consent" below. Low power station signals are rarely carried by cable systems.
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TICKETING OPERATIONS
Ticketmaster
Ticketmaster, through its wholly and majority owned subsidiaries, is the leading
provider of automated ticketing services in the United States with over 3,750
domestic clients, including many of the country's foremost entertainment
facilities, promoters and professional sports franchises. Ticketmaster has
established its market position by providing these clients with comprehensive
ticket inventory control and management, a broad distribution network and
dedicated marketing and support services. Ticket orders are received and
fulfilled through operator-staffed call centers, independent sales outlets
remote to the facility box office and Ticketmaster Online's Web site. Revenue is
generated principally from convenience charges received by Ticketmaster for
tickets sold on its clients' behalf. Ticketmaster generally serves as an
exclusive agent for its clients and typically has no financial risk for unsold
tickets.
Ticketmaster has a comprehensive domestic distribution system that includes
approximately 2,700 remote sales outlets, covering many of the major
metropolitan areas in the United States, and 15 domestic call centers with
approximately 1,750 operator positions. Ticketmaster also operates in Great
Britain, Canada, Ireland, Mexico and Australia and, in 1998, has expanded into
France, Chile and Argentina. The number of tickets sold through Ticketmaster has
increased from approximately 29 million tickets in 1990 to approximately 70
million tickets in 1998.
The Company believes that the Ticketmaster system for live event ticketing
transactions (the "Ticketmaster System") and its distribution capabilities
enhance Ticketmaster's ability to attract new clients and maintain its existing
client base. The Ticketmaster System, which includes both hardware and software,
is typically installed in a client's box office and provides a single
centralized inventory control management system capable of tracking total ticket
inventory for all events, whether sales are made on a season, subscription,
group or individual ticket basis. The versatility of the Ticketmaster System
allows it to be customized to satisfy a full range of client requirements.
Ticketmaster generally enters into written agreements with its clients pursuant
to which it agrees to provide the Ticketmaster System and to serve as the
client's exclusive ticket sales agent for all sales of individual tickets sold
outside of the facility's box office for a specified period, typically three to
five years. Pursuant to its agreements with facilities, Ticketmaster generally
is granted the right to sell tickets for all live events presented at a
facility, and installs the Ticketmaster System in the facility's box office.
Agreements with promoters generally grant Ticketmaster the right to sell tickets
for all live events presented by that promoter at any facility, unless the
facility is covered by an exclusive agreement with another automated ticketing
service company.
Pursuant to its client agreements, Ticketmaster is generally granted the right
to collect from ticket purchasers a per ticket convenience charge on all tickets
sold other than at the box office and an additional per order handling charge on
all tickets sold by Ticketmaster other than at remote sales outlets to partially
offset the cost of fulfillment. The amount of the convenience charge is
typically determined during the contract negotiation process, and varies based
upon numerous factors, including the services to be rendered to the client, the
amount and cost of equipment to be installed at the client's box office and the
amount of advertising and/or promotional allowances to be provided, as well as
the type of event and whether the ticket is purchased at a remote sales outlet,
by telephone, through the Ticketmaster Online Web site or otherwise. Any
deviations from those amounts for any event are negotiated and agreed upon by
Ticketmaster and the client prior to the commencement of ticket sales. During
Ticketmaster's fiscal 1998, the convenience charges generally ranged from $1.50
to $7.00 per ticket. Convenience charges, when added to per order handling
charges, averaged approximately $4.50 per ticket in fiscal 1998. Ticketmaster's
client agreements also generally establish the amounts and frequency of any
increases in the convenience charge and handling charge during the term of the
agreement.
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The agreements with certain of Ticketmaster's clients may provide for a client
to participate in the convenience charges paid by ticket purchasers for tickets
bought through Ticketmaster for that client's events. The amount of such
participation, if any, is determined by negotiation with that client. Some
agreements also may provide for Ticketmaster to make participation advances to
the client, generally recoupable by Ticketmaster out of the client's future
right to participation. In limited cases, Ticketmaster makes an upfront,
non-recoupable payment to a client for the right to sell tickets for that
client.
Clients are routinely required by contract to include the Ticketmaster name in
print, radio and television advertisements for entertainment events sponsored by
such clients. The Ticketmaster name and logo are also prominently displayed on
printed tickets and ticket envelopes.
Ticketmaster generally does not buy tickets from its clients for resale to the
public and has no financial risk for unsold tickets. In the United Kingdom,
Ticketmaster may from time to time buy tickets from its clients for resale to
the public in an amount typically not exceeding (Pounds) 600,000 in the
aggregate. Ticket prices are not determined by Ticketmaster. Ticketmaster's
clients also generally determine the scheduling of when tickets go on sale to
the public and what tickets will be available for sale through Ticketmaster.
Facilities and promoters, for example, often handle group and season ticket
sales in-house. Ticketmaster only sells a portion of its clients' tickets, the
amount of which varies from client to client and varies as to any single client
from year to year.
The Company believes that the primary benefits derived by Ticketmaster's clients
by use of the Ticketmaster System include (i) centralized control of total
ticket inventory as well as accounting information and market research data,
(ii) centralized accountability for ticket proceeds, (iii) manageable and
predictable transaction costs, (iv) broader and expedited distribution of
tickets, (v) wide dissemination of information about upcoming events through
Ticketmaster's call centers, the Ticketmaster Online Web site and other media
platforms, (vi) the ability to easily add additional performances if warranted
by demand, and (vii) marketing and promotional support.
If an event is canceled, Ticketmaster's current policy is to refund the per
ticket convenience charges (but not the handling charge). Refunds of the ticket
price for a canceled event are funded by the client. To the extent that funds
then being held by Ticketmaster on behalf of the client are insufficient to
cover all refunds, the client is obligated to provide Ticketmaster with
additional funds within 24 to 72 hours after a request by Ticketmaster.
Ticketmaster Online
Ticketmaster Online is a leading online ticketing service that enables consumers
to purchase tickets for live music, sports, theater and family entertainment
events presented by Ticketmaster clients and related merchandise over the Web.
Consumers can access the Ticketmaster Online service at www.ticketmaster.com and
from CitySearch owned and operated city guides at www.citysearch.com through
numerous direct links from banners and event profiles. In addition to these
services, the Ticketmaster Online Web site provides local information and
original content regarding live events for Ticketmaster clients throughout the
United States, Canada and the United Kingdom.
Throughout the Ticketmaster Online Web site and at the conclusion of a confirmed
ticket purchase, the consumer is prompted to purchase merchandise that is
related to a particular event, such as videos, tour merchandise and sports
memorabilia. TMCS intends to expand the types and range of merchandise that can
be ordered by consumers through the Ticketmaster Online Web site. TMCS also
intends to organize membership programs that will provide Ticketmaster Online
members with certain benefits centered around entertainment, leisure and travel
activities. Membership is expected to include participation in other activities
not generally available to the public.
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Since the commencement of online ticket sales in November 1996, Ticketmaster
Online has experienced significant growth in tickets sold through its Web site.
Gross transaction dollars for ticket sales increased from approximately $223,000
in November 1996 to $16.6 million in December 1998. Similarly, tickets sold on
the Ticketmaster Online Web site in November 1996 represented less than 0.1% of
total tickets sold by Ticketmaster, while tickets sold online in the month of
December 1998 represented more than 7.3%.
TICKETMASTER LICENSE AGREEMENT. Under the License and Services Agreement
entered into among Ticketmaster, Ticketmaster Online and USAi, in connection
with the Ticketmaster Online-City Search Transaction (the "Ticketmaster License
Agreement"), subject to certain limitations, Ticketmaster has granted
Ticketmaster Online an exclusive, perpetual, irrevocable, worldwide license to
use the Ticketmaster trademark and certain Ticketmaster databases to sell live
event tickets online for Ticketmaster's clients. In addition, subject to certain
limitations, Ticketmaster authorized TMCS to be Ticketmaster's exclusive,
perpetual, worldwide agent for such online ticket sales. The Ticketmaster
License Agreement further provides that Ticketmaster may use and permit others
to use the Ticketmaster trademark in connection with the online promotion of
ticket sales.
Ticketmaster retains the rights to sell tickets by non-online means and to use
the Ticketmaster trademark in connection with such sales. The Ticketmaster
License Agreement defines such non-online means to include by telephone; by
other voice-to-voice means or voice-to-voice recognition unit systems; by
non-interactive broadcast, cable and satellite television; and by kiosks and
retail ticket outlets. Client venues retain the rights to sell tickets at their
box offices or as otherwise provided in client venue agreements with
Ticketmaster.
Ticketmaster is the contracting party with client venues, promoters and sports
franchises, providing ticket inventory management, consumer information and
related data for all ticketing transactions. Ticketmaster provides such
information to TMCS in connection with processing online live event ticket sales
and provides all transaction processing and fulfillment services for online live
event ticket sales. TMCS is required under the Ticketmaster License Agreement to
comply with the terms of Ticketmaster's client agreements and TMCS rights as set
forth in the Ticketmaster License Agreement are subordinated and subject to such
agreements. The Ticketmaster License Agreement also generally restricts TMCS
from cooperating with, offering online links to, or entering into any agreements
with venues, ticket sellers or sales agents for online sale of tickets.
Under the Ticketmaster License Agreement, TMCS pays Ticketmaster a royalty based
on the percentage of the net profit it derives from online ticket sales. TMCS
also reimburses Ticketmaster for Ticketmaster's direct expenses related to
online ticket sales.
Under the Ticketmaster License Agreement, Ticketmaster Online has also been
granted the non-exclusive right to promote and sell online certain merchandise
available through Ticketmaster. Ticketmaster serves as Ticketmaster Online's
exclusive fulfillment provider for the online sales of such merchandise. As long
as Ticketmaster's fees, terms and quality of service are no less favorable than
those available to Ticketmaster Online from third parties, Ticketmaster or its
affiliates will serve as Ticketmaster Online's exclusive fulfillment provider
for the online sales of all other merchandise available through Ticketmaster.
Ticketmaster may also solicit sponsorship and advertising for Ticketmaster
Online's Web sites in a bundle with other sponsorship and advertising
opportunities offered by Ticketmaster.
INTERNET SERVICES
The Company operates several Internet services associated with its media and
entertainment and electronic retailing businesses. In July 1998, the Company
announced the formation of USA Networks Interactive to coordinate the operations
of its Internet Services business.
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RETAILING
The Company conducts its Internet retailing operations through Internet Shopping
Network ("ISN"). ISN's principal Internet retailing service is First Auction,
which was launched in June 1997. First Auction is an interactive Internet site,
which auctions merchandise, including housewares, home decor products, jewelry,
apparel, collectibles, outdoor, fitness and sporting equipment, consumer
electronics and computers. As of December 31, 1998, First Auction had
approximately 260,000 registered members and processed over 2,500 orders each
day.
ISN specializes in marketing, fulfillment, customer service and site development
in online retailing. ISN has online advertising distribution agreements with
America Online, Microsoft Network and @Home. ISN's technology partners include
Sun Microsystems, Oracle and Netscape.
In addition to First Auction, ISN is in the process of developing a number of
new electronic commerce sites, including an online version of Home Shopping
Network.
CITYSEARCH
CITYSEARCH SERVICE FOR CONSUMERS. CitySearch produces and delivers
comprehensive local city guides on the Web, providing up-to-date information
regarding arts and entertainment events, community activities, recreation,
business, shopping, professional services and news/sports/weather to consumers
in metropolitan areas. Each local city guide primarily consists of original
content developed and designed specifically for the Web by CitySearch and its
partners. The CitySearch service is topically organized by categories, such as
arts and entertainment, restaurants and bars, community, shops and services,
sports and outdoors, hotels and tourism, local news and professional services.
Within most of the city guides, consumers can search neighborhood shopping
areas, obtain maps, contact community organizations and vendors by e-mail, and
engage in bulletin board discussions with individuals such as local public
officials and celebrities. In CitySearch owned and operated markets, consumers
can also access the Ticketmaster Online Web site through CitySearch city guides
to purchase live event tickets and related merchandise online. In certain
markets, consumers can also access audio streams, including recent news and
other information, from local radio partners. CitySearch offers local and
regional businesses the opportunity to reach and interact with targeted
consumers. In addition, content generated by consumers through e-mail and
bulletin boards enhances the sense of community in CitySearch sites.
The CitySearch service has been launched in markets across the United States and
in selected international markets. CitySearch plans to continue to expand the
service both in owned and operated markets and by partnering with major media
companies in other markets. These major media partners bring capital, brand
recognition, promotional strength and local knowledge to their city guides and
allow CitySearch to build out its national and international network of sites
faster than it could solely through owned and operated sites. The following
table lists the CitySearch's owned and operated and partner-led markets:
MARKETS DATE OF LAUNCH SELECTED PARTNERS
------- -------------- -----------------
OWNED AND OPERATED:
Raleigh-Durham-Chapel Hill... May 1996 WUNC (public radio station)
Capstar Broadcasting Corporation (4
radio stations)
WCHL AM
San Francisco Bay Area....... October 1996 KGO (ABC)
CBS Radio (2 radio stations)
Austin....................... March 1997 KTBC (Fox)
Clear Channel Communications, Inc.
(4 radio stations)
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MARKETS DATE OF LAUNCH SELECTED PARTNERS
------- -------------- -----------------
Salt Lake City/Utah.......... April 1997 Citadel Communications Corporation
(6 radio stations)
Nashville.................... May 1997 WZTV (Fox)
Dick Broadcasting (2 radio
stations)
Portland..................... June 1997 KATU (ABC)
KKCW FM
New York(1).................. September 1997 New York Daily News
Time Out New York (weekly arts and
entertainment publication)
PARTNER-LED:
Melbourne.................... July 1997 The Melbourne Age
Big Colour Pages (independent
yellow pages of Australia)
Sydney....................... September 1997 The Sydney Morning Herald
Big Colour Pages
Toronto...................... September 1997 Toronto Star
Tele-Direct (the yellow pages
subsidiary of Bell Canada)
Washington, D.C.............. January 1997 Washingtonpost.Newsweekinteractive
Los Angeles(2)............... April 1998 Los Angeles Times
Dallas....................... July 1998 The Dallas Morning News
Baltimore.................... August 1998 The Baltimore Sun
Stockholm.................... September 1998 Schibsted ASA/Scandinavia Online
Copenhagen................... November 1998 Schibsted ASA/Scandinavia Online
Oslo......................... 1999* Schibsted ASA/Scandinavia Online
San Diego.................... 1999* The San Diego Union-Tribune
- -------------------------
* Estimated launch dates
(1) CitySearch acquired Metrobeat, Inc. ("Metrobeat") in June 1996 and
relaunched the Metrobeat site as a CitySearch site in September 1997.
(2) Includes Pasadena, California, which was launched as a beta test site
in January 1996.
CITYSEARCH SERVICE FOR BUSINESS CUSTOMERS. CitySearch creates and hosts
CitySearch Web sites for local and regional businesses and organizations for a
monthly fee. CitySearch offers local businesses a wide range of options in
creating Web presences, from a basic Web presence costing as little as $60 per
month to a multi-page site with additional features and functionality costing up
to $750 per month. Most business customers have entered into a one-year
agreement that automatically converts into a month-to-month contract upon
expiration of the initial term. By aggregating a customer's Web site with those
of numerous other businesses in a comprehensive local city guide, CitySearch
provides categorical, geographic and editorial context to a customer's Web
presence to generate usage by consumers, as well as significant Internet
traffic. Based on internal studies, CitySearch believes that CitySearch users
are more evenly split between men and women, better educated, slightly older and
have higher annual incomes than the typical Internet user. CitySearch believes
that these demographics are attractive to its business customers.
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CitySearch provides an integrated solution for businesses to establish a
CitySearch Web presence, including design, photography, layout, posting of
updated information, hosting and maintenance. Businesses are able to provide a
targeted audience with current information about their products and services
including photographs, prices, location, schedules of live entertainment, sales
and other relevant information. Unlike traditional media such as yellow pages
advertising, CitySearch offers CitySearch business customers a certain number of
free updates each month. The business customers also receive usage reports,
e-mails from interested consumers and access to an expanded base of potential
buyers including tourists and out-of-town users. CitySearch has recently
introduced a strategy of bundling enhanced features and functionality, including
panoramic images and audio clips. These services, when bundled with the basic
CitySearch services, are typically priced from $190 to $1,195 per month, and
have accounted for significant increases in the average selling prices of
CitySearch's offerings. CitySearch believes its broad offering of services and
its prices compare favorably to other Web advertising options available to
businesses. Such options range from low cost, low quality scanned-in information
to free- standing custom-designed sites that may cost in excess of $10,000 in
up-front fees to produce and that rely on significant promotion to attract
traffic. By providing a high-quality Web presence at an affordable price,
CitySearch believes that its services address the demand of the large number of
businesses whose online needs fall between these market extremes.
INTERNATIONAL VENTURES
International TV Channel Joint Venture
In connection with the Universal Transaction, the Company entered into a joint
venture agreement relating to the development of international general
entertainment television channels, including the international versions of USA
Network, The Sci-Fi Channel and Universal's action/adventure channel, 13th
Street. As part of the agreement, the Latin American operations of USA Network
and The Sci-Fi Channel, Sci-Fi Europe and the international operations of 13th
Street have been contributed to the venture. Unless the Company elects to have
Universal buy out the Company's interest in the venture, which election the
Company expects to make in the first quarter of 1999, the Company and Universal
will be 50-50 partners in the venture, which is managed by Universal. Under the
joint venture agreement, the venture generally has the exclusive right to
develop the international version of domestic general entertainment channels
that are owned or controlled by the Company or Universal, excluding, for
example, channels that feature HSN Services and local USA Station Group
channels. USANi LLC and Universal have each committed to contribute $100 million
in capital to the venture over a number of years. Additional capital
contributions are subject to the Company's election to maintain its 50% interest
or to be diluted based on additional contributions from Universal. Pursuant to
the joint venture agreement, each party is obligated to present certain
international opportunities relating to general entertainment channel
development to the venture, so that the partners may elect whether to pursue
such opportunity in the venture. Under certain circumstances, a "passed"
international opportunity that is subject to these "first offer" provisions may
be pursued by the venture partner outside the venture.
Home Shopping Network Ventures
GERMANY. Home Shopping Network owns a 41.9% interest in Home Order Television
GmbH & Co. KG ("HOT"), a venture based in Munich. HOT broadcasts television
shopping 24 hours per day, 16 of which are devoted to live shopping. HOT is
carried via cable and satellite to approximately 16.0 million full-time
equivalent households in Germany and Austria as of December 31, 1998.
JAPAN. Home Shopping Network acquired a 30% interest in Jupiter Shop Channel
Co;. Ltd. ("Shop Channel") a venture based in Tokyo. Shop Channel broadcasts
televised shopping 24 hours a day, 36.5 hours per week of which are devoted to
live shopping. Shop Channel has reached agreements to
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be available in approximately 2.1 million full-time equivalent households as of
December 31, 1998. Tele-Communications International, Inc., a subsidiary of TCI
("TCI International"), owns a 50% interest in Jupiter Programming Co. Ltd.
("JPC") which is the 70% shareholder in the venture.
SPANISH LANGUAGE NETWORKS. Home Shopping Network has entered into an agreement
with Univision Communications, Inc. to form a Spanish and Portuguese language
live television shopping venture focused on North and South American and
European markets. Home Shopping Network owns a 50.1% interest in the venture.
The venture currently broadcasts as Home Shopping Network en Espanol three hours
per day in the United States reaching 2.6 million homes.
ITALY. In June 1998, Home Shopping Network entered into an agreement with
Scandinavian Broadcasting System SA and SBS Italia S.p.A. to explore and, if
deemed feasible, develop a live shopping venture in Italy. The venture is
addressing a number of regulatory and business issues to determine the viability
of the project.
REGULATION
Current FCC Regulation -- General
A substantial portion of the Company's businesses is subject to various
statutes, rules, regulations and orders relating to communications and generally
administered by the FCC. The communications industry, including the operation of
broadcast television stations, cable television systems, satellite distribution
systems and other multichannel distribution systems and, in some respects,
vertically integrated cable programmers, is subject to substantial federal
regulation, particularly pursuant to the Communications Act of 1934, as amended
(the "1934 Act"), the Telecommunications Act of 1996 (the "Telecommunications
Act") and the rules and regulations promulgated thereunder by the FCC. Cable
television systems are also subject to regulation at the state and local level.
The 1934 Act prohibits the operation of television broadcasting stations except
under a license issued by the FCC and empowers the FCC, among other matters, to
issue, renew, revoke and modify broadcast licenses, to determine the location of
stations, to establish areas to be served and to regulate certain aspects of
broadcast and cable programming. The 1934 Act prohibits the assignment of a
broadcast license or the transfer of control of a licensee without prior FCC
approval. If the FCC determines that violations of the 1934 Act or any FCC rule
have occurred, it may impose sanctions ranging from admonishment of a licensee
to license revocation.
Broadcast Television License Grant and Renewal
The 1934 Act provides that a broadcast license, including the licenses
controlled by USA Broadcasting, may be granted to any applicant upon a finding
that the public interest, convenience and necessity would be served thereby,
subject to certain limitations. Television stations operate pursuant to
broadcasting licenses that are usually granted by the FCC for a maximum
permitted term of eight years. Television station licenses are subject to
renewal upon application to the FCC, which is required under the
Telecommunications Act to grant the renewal application if it finds that (i) the
station has served the public interest, convenience and necessity; (ii) there
have been no serious violations by the licensee of the 1934 Act or the rules and
regulations of the FCC; and (iii) there have been no other violations by the
licensee of the 1934 Act or the rules and regulations of the FCC that, when
taken together, would constitute a pattern of abuse.
Alien Ownership of Broadcast Television Stations
The 1934 Act prohibits the issuance of a broadcast license to, or the holding of
a broadcast license by, any corporation of which more than 20% of the capital
stock is beneficially or nominally owned or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens").
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The 1934 Act also authorizes the FCC, if the FCC determines that it would be in
the public interest, to prohibit the issuance of a broadcast license to, or the
holding of a broadcast license by, any corporation directly or indirectly
controlled by any other corporation of which more than 25% of the capital stock
is beneficially or nominally owned or voted by Aliens. The FCC has issued
interpretations of existing law under which these restrictions in modified form
apply to other forms of business organizations, including partnerships. Under
the relevant provision of the 1934 Act. Universal is regarded to be an Alien,
since it is owned 84% by Seagram, a Canadian corporation, and 16% by Matsushita
Electric Industrial Co. Ltd., a Japanese corporation. At the Annual Meeting of
Stockholders held in February 1998, the Company's stockholders approved
amendments to the Company's certificate of incorporation to ensure that the
Company will continue to be in compliance with the Alien ownership limitation of
the 1934 Act. Universal's equity interest in the Company to the extent held
through the ownership of LLC Shares relating to USANi LLC, which does not hold
any broadcast licenses, is not regarded as an equity interest in USAi for
purposes of the statutory provision regarding Alien ownership.
Multiple and Cross Ownership
Current FCC regulations impose significant restrictions on certain positional
and ownership interests in broadcast television stations, cable systems and
other media. As a general matter, officers, directors and stockholders who own
5% or more of the outstanding voting stock of a media company (except for
certain institutional shareholders, who may own up to 10%) are deemed to have
"attributable" interests in the company. Nonvoting stockholders, minority voting
stockholders in companies controlled by a single majority stockholder, and
holders of options, warrants and debt instruments are generally exempt from
attribution under the current rules.
Under the FCC's rules, an individual or entity may hold attributable interests
in an unlimited number of television stations nationwide, subject to the
restriction that no individual or entity may have an attributable interest in
television stations reaching, in the aggregate, more than 35% of the national
television viewing audience (subject to a 50% discount in the number of
television households attributed to any UHF station). Locally, unless applicable
waiver standards are met, an individual or entity with an attributable interest
in one television station may not hold an attributable interest in another
television station with an overlapping coverage area (the "Duopoly Rule"). The
rules also currently prohibit (with certain qualifications) the holder of an
attributable interest in a television station from also having an attributable
interest in a radio station, daily newspaper or cable television system serving
a community located within the coverage area of that television station.
Separately, the FCC's "cross-interest" policy generally prohibits the common
ownership of an attributable interest in one media company and certain
non-attributable, but "meaningful" interests, including substantial
non-attributable equity interests, in another media company serving
"substantially the same area." Liberty's ownership interests in the Company,
including its non-voting ownership interest in the BDTV entities, have been
structured to comply with these regulations, which apply to Liberty because of
its other interests in cable and broadcast assets. In a June 14, 1996
"Memorandum Opinion and Order," the FCC concluded that Liberty's beneficial
interest in the Company through its ownership of convertible non-voting common
stock of the BDTV entities, as augmented by an imputed 50% "control" premium, is
subject to the cross-interest policy. The FCC subjected Liberty's ownership
interest in the Company to certain conditions, including that (i) the prior
approval of the FCC be obtained for any increase in Liberty's interest, and (ii)
the FCC be notified prior to consummation of any transaction whereby the
aggregate percentage of television households served by cable systems owned or
controlled by TCI in any of USA Broadcasting's television markets would exceed
50 percent. Liberty's ownership of LLC Shares relating to USANi LLC is not
regarded as an equity interest in USAi for purposes of the FCC cross-ownership
rules or practices. Two members of the Company's board of directors, Messrs.
Paul G. Allen and William D. Savoy, have attributable
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interests in cable television systems located within the coverage areas of
certain of the television stations controlled by USA Broadcasting. On November
3, 1998, the Company notified the FCC that Messrs. Allen and Savoy have pledged
to recuse themselves from any matters that come before the Company's Board of
Directors pertaining to the operation or management of the television stations
and therefore qualify under the FCC's rules for exemption from attribution of
any interests of the Company or USA Broadcasting in the television stations.
In pending rulemaking proceedings, the FCC is considering, among other things,
(i) the relaxation, under certain circumstances, of the Duopoly Rule, and (ii)
the codification of the cross-interest policy to the extent it was applied to
limit Liberty's beneficial equity interest in the Company. Specifically in this
regard, the FCC has proposed to prohibit the common ownership of an attributable
interest in a media company and a greater than 33% non-attributable equity or
debt interest in another media company in the same market, but has requested
comment on whether a higher or a lower non-attributable equity or debt benchmark
would be more appropriate. It is not possible to predict the extent to which the
Duopoly Rule may be modified or the timing or effect of changes in the
cross-interest policy pursuant to the rulemaking proceeding. The outcome of that
proceeding could have a material effect on the Company.
Pursuant to the requirements of the Telecommunications Act, the FCC is
considering a formal inquiry to review all of its broadcast ownership rules
which are not otherwise under review, including the national audience
limitation, the associated 50% discount for UHF stations and the
cable/television cross-ownership rule. It is not possible at this time to
predict what action the FCC may take and how it may affect the Company.
Digital Television
The FCC has taken a number of steps to implement digital television ("DTV")
service (including high-definition television) in the United States. On February
17, 1998, the FCC adopted a final table of digital channel allotments and rules
for the implementation of DTV. The table of digital allotments provides each
existing television station licensee or permittee with a second broadcast
channel to be used during the transition to DTV, conditioned upon the surrender
of one of the channels at the end of the DTV transition period. The implementing
rules permit broadcasters to use their assigned digital spectrum flexibly to
provide either standard- or high-definition video signals and additional
services, including, for example, data transfer, subscription video, interactive
materials, and audio signals, subject to the requirement that they continue to
provide at least one free, over-the-air television service. The FCC has set a
target date of 2002 for completion of construction of DTV facilities and 2006
for expiration of the transition period, subject to biennial reviews to evaluate
the progress of DTV, including the rate of consumer acceptance. Conversion to
DTV may reduce the geographic reach of the Company's stations or result in
increased interference, with, in either case, a corresponding loss of population
coverage. DTV implementation will impose additional costs on the Company,
primarily due to the capital costs associated with construction of DTV
facilities and increased operating costs both during and after the transition
period. The FCC has adopted rules that require broadcasters to pay a fee of 5%
of gross revenues received from ancillary or supplementary uses of the digital
spectrum for which they receive subscription fees or compensation other than
advertising revenues derived from free over-the-air broadcasting services.
The Company continually reviews developments relating to the FCC's DTV
proceedings, and the DTV industry generally. Material developments in this
regard could have a material impact on the Company's businesses. For example, in
the future, seven of the Company's 26 LPTV stations (as well as other LPTV
affiliates of Home Shopping Network) will likely have to cease business
operations due to irremediable interference to or from new DTV allocations.
Pursuant to procedures established in the DTV rulemaking proceeding, the Company
has filed applications for authorization to shift the
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operation of 15 additional LPTV stations to alternative channels that are not
subject to displacement. To date, six of such applications have been granted by
the FCC. The remaining four of the Company's LPTV stations are not expected to
be subject to DTV displacement at their existing channel assignments.
Children's Television Programming
Pursuant to legislation enacted in 1990, the amount of commercial matter that
may be broadcast during programming designed for children 12 years of age and
younger is limited to 12 minutes per hour on weekdays and 10.5 minutes per hour
on weekends. Violations of the children's commercial limitations may result in
monetary fines or non-renewal of a station's broadcasting license. In addition,
the FCC has adopted a guideline for processing television station renewals under
which stations are found to have complied with the Children's Television Act if
they broadcast three hours per week of "core" children's educational
programming, which, among other things, must have as a significant purpose
serving the educational and informational needs of children 16 years of age and
under. A television station found not to have complied with the "core"
programming processing guideline could face sanctions, including monetary fines
and the possible non-renewal of its broadcasting license, if it has not
demonstrated compliance with the Children's Television Act in other ways. The
FCC has indicated its intent to enforce its children's television rules
strictly.
Television Violence
Pursuant to a directive in the Telecommunications Act, the broadcast and cable
television industries have adopted, and the FCC has approved a voluntary content
ratings system which, when used in conjunction with so-called "V-Chip"
technology, would permit the blocking of programs with a common rating. The FCC
has directed that all television receiver models with picture screens 13 inches
or greater be equipped with "V-Chip" technology under a phased implementation
beginning on July 1, 1999. The Company cannot predict how changes in the
implementation of the ratings system and "V-Chip" technology will affect its
business.
Closed Captioning
The FCC's closed captioning rules, which became effective January 1, 1998,
provide for the phased implementation, beginning in the year 2000, of a
universal on-screen captioning requirement with respect to the vast majority of
video programming. The captioning requirement applies to programming carried on
broadcast television stations and cable programming networks. Although the FCC
has provided for exceptions to or exemptions from the rules under certain
circumstances, none applies to any of the current broadcast or cable programming
services of USA Broadcasting, USA Networks or Home Shopping Network. The FCC
will entertain requests for waivers of the rules upon a showing that compliance
would impose an "undue burden".
Other Broadcast Television Regulation
The FCC continues to enforce strictly its regulations concerning "indecent"
programming, political advertising, environmental concerns, technical operating
matters and antenna tower maintenance and marking. The FCC also has
traditionally enforced its equal employment opportunity rules vigorously, with
respect both to compliance with numerical employment guidelines and recruitment
efforts and recordkeeping requirements. The FCC's employment rules, as they
relate to outreach efforts for recruiting minorities, recently were struck down
as unconstitutional by the U.S. Court of Appeals for the D.C. Circuit. The FCC
currently is conducting a rulemaking proceeding to modify its employment rules
in a manner consistent with the court's ruling. In addition, FCC regulations
governing network affiliation agreements mandate that television broadcast
station licensees retain the right to reject or refuse network programming in
certain circumstances or to substitute programming
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that the licensee reasonably believes to be of greater local or national
importance. Violation of FCC regulations can result in substantial monetary
forfeitures, periodic reporting conditions, short-term license renewals and, in
egregious cases, denial of license renewal or revocation of license.
Must-Carry/Retransmission Consent
Pursuant to the Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Act"), television broadcasters are required to make triennial
elections to exercise either certain "must-carry" or "retransmission consent"
rights in connection with their carriage by cable systems in each broadcaster's
local market. By electing must-carry rights, a broadcaster demands carriage on a
specified channel on cable systems within its Area of Dominant Influence
("ADI"), in general as defined by the Arbitron 1991-92 Television Market Guide.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for a
fee or other consideration. Home Shopping Network, USA Broadcasting and USA
Networks are affected by the must-carry rules, which were upheld in a 1997 U.S.
Supreme Court ruling. A material change in the must-carry rules, or their
repeal, could have a material impact on the Company's businesses. The FCC
currently is conducting a rulemaking proceeding to determine carriage
requirements for digital broadcast television stations on cable systems during
and following the transition from analog to digital broadcasting, including
carriage requirements with respect to ancillary and supplemental services that
may be provided by broadcast stations over their digital spectrum.
Cable Television Rate Regulation
The Telecommunications Act phases out cable rate regulation, except with respect
to the "basic" tier (which must include all local broadcast stations and public,
educational, and governmental access channels and must be provided to all
subscribers). Both of the HSN Services are distributed on the basic tier in some
areas, and "expanded basic" tiers in other areas. USA Network and The Sci-Fi
Channel are primarily distributed on expanded basic tiers. Rate regulation of
all non-basic tiers (including the expanded basic tiers) is scheduled to be
completely eliminated by March 31, 1999. In the interim, the Telecommunications
Act liberalizes the 1992 Act's definition of "effective competition" to expand
the circumstances under which systems are exempted from rate regulation. The
local franchising authorities ("LFAs") remain primarily responsible for
regulating the basic tier of cable service. Furthermore, the Telecommunications
Act eliminates the right of an individual subscriber to bring a rate complaint,
providing that any rate complaint must be filed by an LFA, and then only after
the LFA has received multiple subscriber complaints regarding the rate
adjustment in question. Thus, beyond the basic tier of cable service, which
continues to be regulated by the LFAs, rate regulation of other cable services
between now and March 31, 1999 will be triggered only by a valid rate complaint
by an LFA, and only in an area where no effective competition exists. Because
the Company's revenues are, to some degree, affected by changes in cable
subscriber rates, increased regulation of cable subscriber rates, or a reduction
in the rates that cable service providers may charge customers could have a
significant impact on the Company's revenues.
Regulation of Cable System Operators Affiliated With Video Programming Vendors
The 1992 Act prohibits a cable operator from engaging in unfair methods of
competition that prevent or significantly hinder competing multichannel video
programming distributors ("MVPD") from providing satellite-delivered programming
to their subscribers. The FCC has adopted regulations to prevent a cable
operator that has an attributable interest (including voting or non-voting stock
ownership of at least 5%) in a programming vendor from exercising improper
influence over the programming vendor in the latter's dealings with competitors
to cable, and to prevent a programmer
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in which a cable operator has an attributable interest from discriminating
between cable operators and other MVPDs, including other cable operators.
The FCC's rules may have the effect, in some cases, of requiring vertically
integrated programmers to offer their programming to MVPD competitors of cable
television, and of prohibiting certain exclusive contracts between such
programmers and cable system operators. The rules also permit MVPDs to bring
complaints before the FCC if they are unable to obtain cable programming on non-
discriminatory terms because of "unfair practices" by the programmer.
Pursuant to the 1992 Act, the FCC set a 40% limit on the number of programming
channels on a cable system that may be occupied by video programmers in which
the cable operator has an attributable interest. The Company could be affected
by the 1992 Act as a consequence of Liberty's ownership interests, directly and
through its affiliates, in both cable systems and cable programming services.
State and Local Regulation
Cable television systems are generally constructed and operated under
non-exclusive franchises granted by a municipality or other state or local
governmental entity. Franchises are granted for fixed terms and are subject to
periodic renewal. The Cable Communications Policy Act of 1984 places certain
limitations on an LFA's ability to control the operations of a cable operator,
and the courts from time to time have reviewed the constitutionality of several
franchise requirements, often with inconsistent results. The 1992 Act prohibits
exclusive franchises, and allows LFAs to exercise greater control over the
operation of franchised cable television systems, especially in the areas of
customer service and rate regulation. The 1992 Act also allows LFAs to operate
their own multichannel video distribution systems without having to obtain
franchises. Moreover, LFAs are immunized from monetary damage awards arising
from their regulation of cable television systems or their decisions on
franchise grants, renewals, transfers, and amendments.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Cable franchises generally contain provisions governing time
limitations on the commencement and completion of construction, and governing
conditions of service, including the number of channels, the types of
programming (but not the actual cable programming channels to be carried), and
the provision of free service to schools and certain other public institutions.
The specific terms and conditions of a franchise and the laws and regulations
under which it is granted directly affect the profitability of the cable
television system, and thus the cable television system's financial ability to
carry programming. Local governmental authorities also may certify to regulate
basic cable rates. Local rate regulation for a particular system could result in
resistance on the part of the cable operator to the amount of subscriber fees
charged by the Company for its programming.
Various proposals have been introduced at the state and local level with regard
to the regulation of cable television systems, and a number of states have
enacted legislation subjecting cable television systems to the jurisdiction of
centralized state governmental agencies. It is not possible to predict the
impact such regulation could have on the businesses of the Company.
Other Cable Regulation
The FCC's regulations concerning the commercial limits in children's programming
and political advertising also apply, in certain circumstances, to cable
television system operators. The Company also must provide program ratings
information and, pursuant to the phased implementation established by the FCC,
closed captioning of its cable program services, which could increase its
operating expenses.
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Proposed Changes
The Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of the Company's broadcast stations and broadcast and cable
programming networks. In addition to the changes and proposed changes noted
above, such matters include, for example, the extension of rate regulation for
upper tiers of service past the March 1999 sunset, political advertising rates,
potential restrictions on the advertising of certain products (beer, wine and
hard liquor, for example), and the rules and policies to be applied in enforcing
the FCC's equal employment opportunity regulations. Other matters that could
affect the Company's regulated media businesses include technological
innovations and developments generally affecting competition in the mass
communications industry, such as direct radio and television broadcast satellite
service, the continued establishment of wireless cable systems, digital
television and radio technologies, and the advent of telephone company
participation in the provision of video programming service.
Other Regulatory Considerations
The foregoing summary does not purport to be a complete discussion of all
provisions of the Communications Act or other congressional acts or of the
regulations and policies of the FCC. For further information, reference should
be made to the Communications Act, other congressional acts, and regulations and
public notices promulgated from time to time by the FCC. There are additional
regulations and policies of the FCC and other federal agencies that govern
political broadcasts, public affairs programming, equal opportunity employment
and other matters affecting the Company's business and operations.
TRADEMARKS, TRADENAMES AND COPYRIGHTS
The Company has registered and continues to register, when appropriate, its
trade and service marks as they are developed and used, and the Company
vigorously protects its trade and service marks. The Company believes that its
marks are a primary marketing tool for promoting its identity. The Company also
obtains copyrights with respect to its original programming as appropriate.
COMPETITION
Networks and Television Production
Networks
VIEWERSHIP AND ADVERTISING REVENUES. Networks competes for access to its
customers and for audience share and revenue with broadcasters and other forms
of entertainment. Cable operators and other distributors only contract to carry
a limited number of the available networks. Therefore, they may decide not to
offer a particular network to their subscribers, or they may package a network
with other networks in such a manner (for example, by charging an additional
fee) that only a portion of their subscribers will receive the service. In
addition, there has been increased consolidation among cable operators, so that
USA Network and The Sci-Fi Channel have become increasingly subject to the
carriage decisions made by a small number of operators. This consolidation may
reduce the per-subscriber fees received from cable operators in the future. The
consolidation also means that the loss of any one or more of the major
distributors could have a material adverse impact on the networks. The
competition for advertising revenues also has become more intense as the number
of television networks has increased. While many factors affect advertising
rates, ultimately they are dependent on the numbers and types of viewers which a
program attracts. As more networks compete for viewers, it becomes increasingly
difficult to increase or even maintain a network's number of viewers. Moreover,
to do so may require a network to expend significantly greater amounts of money
on programming.
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Therefore, increased pressure may be placed on the networks' ability to generate
advertising revenue increases consistent with the increases they have achieved
in the past. Both Networks and Television Broadcasting are affected by
competition for advertising revenues.
THIRD-PARTY PROGRAMMING. The competition for third-party programming is likely
to increase as more networks seek to acquire such programming. In addition, many
networks, including USA Network and The Sci-Fi Channel, are affiliated with
companies which produce programming. As a result, non-affiliated networks may
have a diminished capacity to acquire product from production companies
affiliated with other networks.
Television Production
PROGRAMMING. Studios USA operates in a highly competitive environment. The
production and distribution of television programming are highly competitive
businesses. While television programs and films produced by Studios USA compete
with all other forms of network and syndication programming, Studios USA
essentially competes with all other forms of entertainment and leisure
activities. Competition is also faced from other major television studios and
independent producers for creative talent, writers and producers, essential
ingredients in the filmed entertainment business. The profitability of Studios
USA is dependent upon factors such as public taste that is volatile, shifts in
demand, economic conditions and technological developments.
In 1995, the FCC repealed its financial interest and syndication rules ("fin-syn
rules"). The fin-syn rules, which were adopted in 1970 to limit television
network control over television programming and thereby foster the development
of diverse programming sources, had restricted the ability of the three
established, major U.S. televisions networks (i.e., ABC, CBS and NBC) to own and
syndicate television programming. The repeal of the fin-syn rules has increased
in-house production of television programming for the networks' own use. As a
result of the repeal of the fin-syn rules, the industry has become vertically
integrated, with four of the six major broadcast networks being aligned with a
major studio. In addition, two major broadcast networks have formed their own
in-house production units. Mergers and acquisitions of broadcast networks by
studios (e.g., Disney-ABC) have altered the landscape of the industry. It is
possible that this change will have a negative impact on Studios USA' business
as its network customers are now able to choose between their own product and
Studios USA' product in making programming decisions.
Television Broadcasting
VIEWERSHIP AND ADVERTISING REVENUE. The USA Stations, to the extent they do not
air HSN Services, also compete for a share of advertising dollars. A station's
share is based in part upon the size of its viewing audience, in part upon the
demographics of those viewers and in part upon the ability to deliver to an
advertiser "added" value audience share primarily on the basis of program
popularity, which has a direct effect on advertising rates. Other factors that
are material to a television station's competitive position include signal
coverage, local program acceptance, audience characteristics, assigned broadcast
frequency and cable channel position. These factors will directly impact the USA
Stations that develop local programming other than the HSN Services.
LOCAL MARKETS. In addition to the above factors, the Company's ownership of and
affiliation with broadcast television stations creates another set of
competitive conditions. These stations compete for television viewers primarily
within local markets. The Company's broadcast television stations are located in
highly competitive markets and compete against both VHF and UHF stations. Due to
technical factors, a UHF television station generally requires greater power and
a higher antenna to secure substantially the same geographical coverage as a VHF
television station. The Company also competes with new entertainment and
shopping networks for carriage on broadcast television stations. The Company
cannot quantify the competitive effect of the foregoing or any other sources of
video
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programming on any of the Company's affiliated television stations, nor can it
predict whether such competition will have a material adverse effect on its
operations.
Electronic Retailing
GENERAL. The Company's Home Shopping Network business operates in a highly
competitive environment. It is in direct competition with retail merchandisers,
other electronic retailers, direct marketing retailers such as mail order
companies, companies that sell from catalogs, other discount retailers and
companies that market through computer technology.
Home Shopping Network and QVC, Inc. ("QVC") are currently the two leading
electronic retailing companies. TCI, which indirectly holds a substantial equity
interest in the Company, currently owns 43% of QVC but has entered into a
stockholders agreement with Comcast Corporation (which owns 57% of QVC) pursuant
to which Comcast Corporation controls the day to day operations of QVC. There
are other companies, some having an affiliation or common ownership with cable
operators, that now market merchandise by means of live television. A number of
other entities are engaged in direct retail sales businesses which utilize
television in some form and which target the same markets in which Home Shopping
Network operates. Certain competitors of the Company's Home Shopping Network
business are larger and more diversified than the Company.
VIEWERSHIP. The Company's Home Shopping Network business also competes for
access to its customers and for audience share and revenue with broadcasters and
conventional forms of entertainment and information, such as programming for
network and independent broadcast television stations, basic and pay cable
television services, satellite master antenna systems, home satellite dishes and
home entertainment centers, newspapers, radio, magazines, outdoor advertising,
transit advertising and direct mail. In particular, the price and availability
of programming for cable television systems affect the availability of these
channels for the Company's HSN Services and the compensation which must be paid
to cable operators for carriage of the HSN Services.
CHANNEL CAPACITY. In addition, the Company believes that due to a number of
factors, including the development of cable operator owned programming, the
competition for channel capacity has substantially increased. With the advent of
new compression technologies on the horizon, this competition for channel
capacity may substantially decrease, although additional competitors may have
the opportunity to enter the marketplace. No prediction can be made with respect
to the viability of these technologies or the extent to which they will
ultimately impact the availability of channel capacity. A substantial portion of
the Company's businesses are affected by changes in channel capacity and
competition among programming providers for available channel capacity.
Ticketing Operations
Ticketmaster's and Ticketmaster Online's competitors include event facilities
and promoters that handle their own ticket sales and distribution, live event
automated ticketing companies which may or may not currently offer online
transactional capabilities and certain Web-based live event ticketing companies
which only conduct business online. Where facilities and promoters decide to
utilize the services of a ticketing company, Ticketmaster and Ticketmaster
Online compete with international, national and regional ticketing services,
including TicketWeb, Telecharge (Shubert Ticketing Services), NEXT Ticketing,
Advantix, ETM Entertainment Network, Dillard's, Prologue, Capital Tickets and
Lasergate (Lasergate Systems, Inc.). Several of Ticketmaster's and Ticketmaster
Online's competitors have operations in multiple locations throughout the United
States and compete on a national level, while others compete principally in one
specific geographic region. In certain specific geographic regions, including
certain of the local markets in which CitySearch provides or intends to provide
its local city guide service, one or more of Ticketmaster and Ticketmaster
Online's competitors may serve as the primary ticketing service in the region.
The Company believes that
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Ticketmaster Online will experience significant difficulty in establishing a
significant online presence in such regions and, as a result, any local city
guide for such a region may be unable to provide significant ticketing
capabilities. In addition, there can be no assurance that one or more of these
regional automated ticketing companies will not expand into other regions or
nationally.
In addition, pursuant to the Ticketmaster License Agreement, Ticketmaster Online
is restricted from entering into agreements with facilities, promoters or other
ticket sellers for the online sale of live event tickets. As a result,
Ticketmaster Online is dependent on the ability of Ticketmaster to acquire and
maintain live event ticketing rights, including online ticketing rights, with
facilities and promoters and to negotiate commercially favorable terms for such
rights. Furthermore, substantially all of the tickets sold through Ticketmaster
Online's Web site are also sold by Ticketmaster by telephone and through
independent retail outlets. Such sales by Ticketmaster Corp. could have a
material adverse effect on Ticketmaster Online's online sales.
Internet Services
The Company's ISN and First Auction Internet retailing service competes with a
number of other companies including uBid, Yahoo! Auctions Powered by OnSale,
Excite, OnSale, ZAuction and Surplus Auction. The Company potentially faces
competition from a number of large online communities and services that have
expertise in developing online commerce. The Company believes that the principal
competitive factors in its market are volume, selection of goods, population of
buyers and sellers, community cohesion and interaction, customer service,
reliability of delivery and payment by users, brand recognition, web site
convenience and accessibility, price, quality of search tools and system
reliability.
Currently, CitySearch's primary competitors include Digital City, Inc., a
company wholly-owned by America Online, Inc. and Tribune Company, and Microsoft
Corporation (Sidewalk). CitySearch also competes against search engine and other
site aggregation companies which primarily serve to aggregate links to sites
providing local content such as Excite, Inc. (City.Net), Lycos, Inc. (Lycos City
Guide) and Yahoo! (Yahoo! Local). In addition, CitySearch competes against
offerings from media companies, including Cox Interactive Media, Inc., Knight
Ridder, Inc. and Zip2 Corporation, as well as offerings from several
telecommunications and cable companies and Internet service providers that
provide local interactive programming such as SBC Communications, Inc. (At Hand)
and MediaOne Group, Inc. (DiveIn). There are also numerous niche competitors
which focus on a specific category or geography and compete with specific
content offerings provided by CitySearch. CitySearch may also compete with
online services and other Web site operators, as well as traditional media such
as television, radio and print, for a share of advertisers' total advertising
budgets. CitySearch faces different competitors in most of its CitySearch
markets.
EMPLOYEES
As of the close of business on December 31, 1998, the Company and its
subsidiaries employed 7,265 full-time employees, with 1,022 employees employed
by Networks and Television Production, 3,671 employees employed by Electronic
Retailing, 91 employed by Internet Services, 250 employees employed by USA
Broadcasting and 2,189 employees employed by Ticketmaster including TMCS. Of
these employees, 4,794 were employed by the Company through USANi LLC. The
Company believes that it generally has good employee relationships, including in
the case of employees represented by unions and guilds.
PROPERTIES
The Company's facilities for its management and operations are generally
adequate for its current and anticipated future needs. The Company's facilities
generally consist of executive and administrative
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offices, fulfillment facilities, warehouses, operations centers, call centers,
television production and distribution facilities, satellite transponder sites
and sales offices.
All of the Company's leases are at prevailing market (or "most favorable") rates
and, except as noted, with unaffiliated parties, and the Company believes that
the duration of each lease is adequate. The Company believes that its principal
properties, whether owned or leased, are adequate for the purposes for which
they are used and are suitably maintained for such purposes. Most of the
office/studio space is substantially utilized, and where significant excess
space exists, the Company leases or subleases such space to the extent possible.
The Company anticipates no future problems in renewing or obtaining suitable
leases for its principal properties.
Corporate
The Company maintains its principal executive offices at Carnegie Hall Tower,
152 West 57th Street, New York, New York which consist of approximately 29,850
square feet leased by the Company through October 30, 2005.
Networks and Television Production
The executive offices of Networks are located at 1230 Avenue of the Americas,
New York, New York 10020. Networks leases approximately 168,000 square feet at
this office space pursuant to a lease that continues until March 31, 2005,
subject to two five-year options to continue the term. Networks also has smaller
offices in Chicago (affiliate relations and sales), Detroit (sales), and Los
Angeles (affiliate relations, sales and programming).
Networks also leases approximately 55,000 square feet in a facility in Jersey
City, New Jersey, where Networks has its broadcast operations center. This space
is used to originate and transmit the USA Network and The Sci-Fi Channel
signals. Post-production for both networks, including audio production, editing,
graphics and duplication, also is performed at this location. The lease for this
space continues through April 30, 2009, and there are options to continue the
term beyond that time.
Studios USA currently conducts its domestic television production and
distribution operations primarily from its executive and administrative offices
in Universal City, California. These offices, totaling approximately 84,000
square feet, are leased from Universal. It is anticipated that Studios USA will
relocate certain of its executive functions away from Universal City during
1999. Additionally, Studios USA has four domestic sales offices located in
Atlanta, Chicago, Dallas and New York City. Production facilities are leased
primarily from Universal on its Universal City lot on an as-needed basis
depending upon production schedules. Studios USA also leases production
facilities in New York City -- for the production of Law & Order, The Sally
Jesse Raphael Show and Maury -- and in Chicago for production of The Jerry
Springer Show.
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Television Broadcasting
The Company owns or leases office, studio and transmitter space for the USA
Station Group stations as follows:
LOCATION FUNCTION OWNED/LEASED
- -------- -------- ------------
Mt. Wilson, CA(1)................ Transmitter Leased
Ontario, CA...................... Offices/Studio Owned
Riverview, FL(1)................. Transmitter Leased
Hollywood, FL.................... Offices/Studio Leased
Melbourne, FL.................... Offices/Studio Leased
Miami, FL........................ Transmitter Leased
Miami Beach, FL.................. Offices/Studio Leased
Miramar, FL...................... Transmitter Leased
St. Cloud, FL.................... Transmitter Leased
St. Petersburg, FL............... Offices/Studio Leased
Flowery Branch, GA............... Transmitter Leased
Marietta, GA..................... Offices/Studio Leased
Aurora, IL....................... Offices(Dish and Master Control) Leased
Chicago, IL...................... Transmitter Leased
Hudson, MA....................... Offices/Studio/Transmitter Owned
Newark, NJ....................... Offices/Studio Owned
Newfield, NJ..................... Offices/Studio Owned
Waterford Works, NJ(1)........... Transmitter Leased
Central Islip, NY................ Offices/Studio Owned
Middle Island, NY................ Transmitter Owned
New York, NY..................... Transmitter Leased
Parma, OH........................ Offices/Studio/Transmitter Leased
Houston, TX...................... Offices(Master Control) Leased
Cedar Hill, TX................... Transmitter Leased
Irving, TX....................... Offices/Studio Owned
Missouri City, TX................ Transmitter Leased
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The Company leases the following LPTV transmitter sites:
Atlanta, GA Pensacola, FL
Birmingham, AL Portsmouth, VA
Champaign, IL Raleigh, NC
Columbus, OH Roanoke, VA
Des Moines, IA Shreveport, LA
Huntington, WV Springfield, IL
Jacksonville, FL Spokane, WA
Kansas City, MO St. Louis, MO
Knoxville, TN St. Petersburg, FL
Minneapolis, MN Toledo, OH
Mobile, AL Tulsa, OK
New Orleans, LA Tucson, AZ
New York, NY Wichita, KS
- -------------------------
(1) The Company owns the transmitter facility, but the site is leased.
Electronic Retailing
Home Shopping Network owns an approximately 480,000 square foot facility in St.
Petersburg, Florida, which houses its Home Shopping Network television studios,
broadcast facilities, administrative offices and training facilities.
Home Shopping Network owns two warehouse-type facilities totaling approximately
84,000 square feet near Home Shopping Network's main campus in St. Petersburg,
Florida. These facilities have been used for returns processing, retail
distribution and general storage.
Home Shopping Network leases a 21,000 square foot facility in Clearwater,
Florida for its video and post production operations.
Home Shopping Network owns and operates a warehouse consisting of 163,000 square
feet located in Waterloo, Iowa, which is used as a fulfillment center. In
addition, Home Shopping Network rents additional space in two locations in
Waterloo, Iowa consisting of 106,000 square feet and 36,000 square feet,
respectively.
Home Shopping Network operates a warehouse located in Salem, Virginia,
consisting of approximately 650,000 square feet which is leased from the City of
Salem Industrial Development Authority. On November 1, 1999, Home Shopping
Network will have the option to purchase the property for $1. In addition, Home
Shopping Network leases two additional locations in Salem, Virginia consisting
of 193,000 square feet and 74,500 square feet, respectively.
Home Shopping Network's retail outlet subsidiary leases five retail stores in
the Tampa Bay, Orlando and Chicago areas totaling approximately 105,785 square
feet.
Home Shopping Network and its other subsidiaries also lease office space in
California and Utah.
Ticketing Operations
Ticketmaster owns a 70,000 square foot building in West Hollywood, California,
of which approximately 60,000 square feet is used by Networks and Television
Production and Television Broadcasting. In addition, Ticketmaster, its
subsidiaries and affiliates lease office space in various other cities in the
United States and other countries in which Ticketmaster is actively engaged in
business.
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Internet Services
TMCS's executive offices are located in Pasadena, California, where TMCS
currently leases approximately 28,000 square feet under a lease expiring in
2002. TMCS also leases approximately 4,500 square feet in Austin, 3,900 and
7,880 square feet in Morrisville, North Carolina, 7,900 square feet in Research
Triangle Park, North Carolina, 4,600 square feet in Nashville, 10,000 square
feet in New York, 4,700 square feet in Portland, 4,600 square feet in Salt Lake
City and 5,800 square feet in San Francisco under leases which expire in 2002,
2001, 2003, 2003, 2000, 2004, 2002, 2001 and 1999, respectively.
ISN's executive offices are located in Sunnyvale, California, where ISN
currently leases 25,000 square feet under a lease expiring in 2000.
LEGAL PROCEEDINGS
In the ordinary course of business, the Issuers' and their 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 and, although there can be no assurance in this regard, are
not expected to be material to the Issuers' financial position or operations.
Federal Trade Commission Matter
Home Shopping Network is involved from time to time in investigations and
enforcement actions by consumer protection agencies and other regulatory
authorities. Effective October 2, 1996, the Federal Trade Commission ("FTC") and
Home Shopping Network and two of its subsidiaries entered into a consent order
under which Home Shopping Network agreed that it will not make claims for
specified categories of products, including any claim that any product can cure,
treat or prevent illness, or affect the structure or function of the human body,
unless it possesses competent and reliable scientific evidence to substantiate
the claims. The settlement did not represent an admission of wrongdoing by Home
Shopping Network, and did not require the payment of any monetary damages. The
FTC is investigating Home Shopping Network's compliance with its consent order.
The FTC has recently indicated to Home Shopping Network that it believes Home
Shopping Network has not complied with the consent order and that it intends to
seek monetary penalties and consumer redress for non-compliance.
ASCAP Litigation
Networks, along with almost every other satellite-delivered network, is involved
in continuing disputes regarding the amounts to be paid by it for the
performance of copyrighted music from members of the American Society of
Composers, Authors and Publishers ("ASCAP") and by Broadcast Music, Inc.
("BMI"). The payments to be made to ASCAP will be determined in a "rate court"
proceeding under the jurisdiction of the U.S. District Court in the Southern
District of New York. In the initial phase of this proceeding, it was determined
that Networks must pay ASCAP a specified interim fee, calculated as a percentage
of the gross revenues of each of USA Network and The Sci-Fi Channel. This fee
level is subject to upward or downward adjustment in future rate court
proceedings, or as the result of future negotiations, for all payments
subsequent to January 1, 1986 with respect to USA Network and for all payments
subsequent to launch with respect to The Sci-Fi Channel. All ASCAP claims prior
to these times have been settled and are final. As to BMI, Networks has agreed
with BMI with respect to certain interim fees to be paid by both USA Network and
Sci-Fi Channel. Subsequent to July 1, 1992 and subsequent to launch of The
Sci-Fi Channel, respectively, these interim fees are subject to upward or
downward adjustment, based on a future negotiated resolution or submission of
the issue to BMI's own federal "rate court." The Company cannot predict the
final
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outcome of these disputes, but does not believe that it will suffer any material
liability as a result thereof.
Ticketmaster Shareholder Litigation
The Company and certain of its directors (who were also directors of
Ticketmaster), along with other parties (including Ticketmaster), were named as
defendants in three purported class action lawsuits brought on behalf of
Ticketmaster shareholders in state court in Chicago and Los Angeles: In re
Ticketmaster Group, Inc. Securities Class Action Litigation, 97 CH 13411
(Circuit Court, Cook County, Ill.); Tiger Options LLC v. Ticketmaster Group,
Inc., et al., Case No. BC 180045 (Los Angeles Superior Court); and Bender v.
Ticketmaster Group, Inc., et al., Case No. BC 181006. The complaints in each
action generally allege that the defendants breached fiduciary duties they
allegedly owed to Ticketmaster shareholders in connection with the Company's
October 1997 merger proposal to Ticketmaster, and seek, among other things,
injunctive relief and damages in an unspecified amount. The Cook County Circuit
Court entered an order dismissing the Illinois case with prejudice. The
plaintiffs in the California cases agreed to postpone any response by defendants
to those complaints and defendants intend to seek dismissal of those cases based
on the decision of the Circuit Court in Illinois. No discovery or other
proceedings have taken place or been scheduled in any of the remaining actions.
The Company believes that the allegations against the Company and its directors
do not have merit.
Ticketmaster Consumer Class Action
During 1994, Ticketmaster was named as a defendant in 16 federal class action
lawsuits filed in United States District Courts purportedly on behalf of
consumers who were alleged to have purchased tickets to various events through
Ticketmaster. These lawsuits alleged that Ticketmaster's activities violated
antitrust laws. On December 7, 1994, the Judicial Panel on Multidistrict
Litigation transferred all of the lawsuits to the United States District Court
for the Eastern District of Missouri (the "District Court") for coordinated and
consolidated pretrial proceedings. After an amended and consolidated complaint
was filed by the plaintiffs, Ticketmaster filed a motion to dismiss and, on May
31, 1996, the District Court granted that motion ruling that the plaintiffs had
failed to state a claim upon which relief could be granted. On April 10, 1998,
the United States Court of Appeals for the Eighth Circuit issued an opinion
affirming the district court's ruling that the plaintiffs lack standing to
pursue their claims for damages under the antitrust laws and held that the
plaintiffs' status as indirect purchasers of Ticketmaster's services did not bar
them from seeking equitable relief against Ticketmaster. Discovery on the
plaintiff's remanded claim for equitable relief is ongoing in the District Court
and a trial date of July 17, 2000 has been set. On July 9, 1998, the plaintiffs
filed a petition for writ of certiorari to the United States Supreme Court
seeking review of the decision dismissing their damage claims. Plaintiff's
petition for writ of certiorari in the United States Supreme Court was denied on
January 19, 1999.
Ticketmaster has stated that the Court's affirmance of the decision prohibiting
plaintiffs from obtaining monetary damages against Ticketmaster eliminates the
substantial portion of plaintiffs' claims. With respect to injunctive relief,
the Antitrust Division of the United States Department of Justice had previously
investigated Ticketmaster for in excess of 15 months and closed its
investigation with no suggestion of any form of injunctive relief or
modification of the manner in which Ticketmaster does business.
Jovon Litigation
USA Capital Corporation holds an option to acquire 45% of the stock of Jovon
Broadcasting Corporation ("Jovon"), licensee of WJYS-TV, Hammond, Indiana. In a
1996 order, the FCC ruled that the Company could proceed to exercise its option
to acquire 45% of Jovon's stock, but limited
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the present exercise of that option to no more than 33% of Jovon's outstanding
stock. Jovon has filed a Petition with the FCC, requesting reconsideration and a
ruling that the option is no longer valid. Certain entities controlled by the
Company filed litigation on May 30, 1997 in the Circuit Court of Pinellas
County, Florida against Jovon seeking declaratory and injunctive relief to
permit the Company to proceed with the exercise of its option, or, in the
alternative, to obtain damages for breach of contract by Jovon. On September 11,
1998, the FCC released a Memorandum Opinion and Order ("Order") addressing
Jovon's petition for reconsideration of its 1996 ruling. In the Order, the FCC
affirmed its earlier holding that the option does not violate the cross-interest
policy and may be exercised up to a one-third equity interest in Jovon. The FCC
left the validity of the option agreement to be determined by the state courts.
On October 13, 1998, the Company filed a Request for Clarification, seeking to
confirm that it may use a trust mechanism in order to exercise the option. Jovon
has filed a response to the Request for Clarification. On January 9, 1998, the
Circuit Court of Pinellas County, Florida denied Jovon's motion to dismiss
litigation brought by certain entities controlled by the Company against Jovon.
However, the court stayed the action for a period of six months. A status
conference has been set for February 1, 1999 to determine whether the stay
should remain in effect.
Urban Litigation
Commencing in October 1996, Home Shopping Club, Inc. ("HSC") (predecessor in
interest to Home Shopping Club, L.P.) withheld monthly payments under the
Affiliation Agreement with Urban Broadcasting Corporation ("Urban") due to
certain breaches of the Affiliation Agreement by Urban. Urban has contested this
action. In addition, on January 10, 1997, Urban filed an Emergency Request for
Declaratory Ruling with the FCC requesting an order that the requirement in the
Affiliation Agreement that Urban broadcast at full power violates the FCC's
rules, or alternatively, requesting that the FCC revise the terms of the
Affiliation Agreement to bring it into compliance with its Rules. Urban also
requested that the FCC undertake an inquiry into the Company's actions of
withholding payments to Urban to determine whether the Company is fit to remain
an FCC licensee. As of this date, no ruling has been issued by the Commission.
On October 23, 1997, HSC filed suit against Urban in the Circuit Court for
Arlington County, Virginia seeking a judicial declaration that it was entitled
to withhold the payments in dispute because of Urban's breaches of the
Affiliation Agreement. Urban has responded with counterclaims and commenced a
related action in the Circuit Court against HSC, HSN, Inc. (now the Company) and
Silver King Broadcasting of Virginia, Inc. (now USA Station Group of Virginia,
Inc. ("USASGV")). Urban has asserted contract and tort claims related to HSC's
decision to withhold affiliation payments. The case is currently set for trial
on April 5-9, 1999. The Company, HSC and USASGV continue to defend the case
vigorously.
MovieFone Litigation
In March 1995, MovieFone, Inc. ("MovieFone") and The Teleticketing Company, L.P.
filed a complaint against Ticketmaster in the United States District Court for
the Southern District of New York. Plaintiffs allege that they are in the
business of providing movie information and teleticketing services, and that
they are parties to a contract with Pacer Cats Corporation, a wholly owned
subsidiary of Wembley plc ("Pacer Cats"), to provide teleticketing services to
movie theaters. Plaintiffs also allege that, together with Pacer Cats, they had
planned to commence selling tickets to live entertainment events, and that
Ticketmaster, by its conduct, frustrated and prevented plaintiffs' ability to do
so. Plaintiffs further allege that Ticketmaster has interfered with and caused
Pacer Cats to breach its contract with plaintiffs. The complaint asserts that
Ticketmaster's actions violate Section 7 of the Clayton Act and Sections 1 and 2
of the Sherman Act, and that Ticketmaster tortuously interfered with contractual
and prospective business relationships and seeks monetary and injunctive relief
based
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on such allegations. Ticketmaster filed a motion to dismiss. The court heard
oral argument on September 26, 1995. In March 1997, prior to the rendering of
any decision by the Court on Ticketmaster's motion to dismiss, Ticketmaster
received an amended complaint in which the plaintiffs assert essentially the
same claims as in the prior complaint but have added a RICO claim and tort
claims. Ticketmaster filed a motion to dismiss the amended complaint in April
1997, which is pending. Certain of the claims in this litigation are similar to
claims that were the subject of an arbitration award in which MovieFone was a
claimant and Pacer Cats a respondent. Among other things, the award included
damages from Pacer Cats to MovieFone of approximately $22.75 million before
interest and an injunction against certain entities, which may include certain
affiliates of Ticketmaster, restricting or prohibiting their activity with
respect to certain aspects of the movie teleticketing business for a specified
period of time. Neither the Company, Ticketmaster, nor any entity owned or
controlled by Ticketmaster, were parties to the arbitration. In May 1998,
MovieFone filed a petition in New York state court to hold an entity affiliated
with Ticketmaster in contempt of the injunction provision of the arbitration
award on the grounds that such entity is a successor or assignee of, or
otherwise acted in concert with, Pacer Cats. In November 1998, the court ruled
that the Ticketmaster affiliate is bound by the arbitrators' findings that it is
the successor to Pacer Cats and, as such, liable for breaches committed by Pacer
Cats and subject to the terms of the arbitration award's injunction. The court
further found that the Ticketmaster affiliate had violated the injunction and
awarded MovieFone approximately $1.38 million for losses it incurred as a result
of such violations. The Ticketmaster affiliate has filed a notice of appeal of
the court's decision, including to seek reversal of the ruling regarding
successor liability.
Other
The Issuers engaged in various other lawsuits either as plaintiffs or
defendants. In the opinion of management, the ultimate outcome of these various
lawsuits should not have a material impact on the Issuers.
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CORPORATE HISTORY
The Company was incorporated in July 1986 in Delaware under the name Silver King
Broadcasting Company, Inc. as a subsidiary of Holdco. On December 28, 1992,
Holdco distributed the capital stock of the Company to Holdco's stockholders.
SAVOY AND HOME SHOPPING MERGERS
In December 1996, the Company consummated mergers with Savoy Pictures
Entertainment, Inc. ("Savoy") (the "Savoy Merger") and Holdco (the "Home
Shopping Merger" and, together with the Savoy Merger, the "Mergers"), pursuant
to which Savoy and Holdco became subsidiaries of the Company. Concurrently with
the Mergers, the Company changed its name to HSN, Inc.
TICKETMASTER TRANSACTION
On July 17, 1997, the Company acquired a controlling interest in Ticketmaster
(the "Ticketmaster Acquisition") from Mr. Paul G. Allen in exchange for shares
of Common Stock. On June 24, 1998, the Company acquired the remaining
Ticketmaster common equity in a tax-free stock-for-stock merger (the
"Ticketmaster Merger" and together with the Ticketmaster Acquisition, the
"Ticketmaster Transaction").
UNIVERSAL TRANSACTION
On February 12, 1998, pursuant to the Universal Transaction, the Company
acquired USA Networks (which consisted of USA Networks and The Sci-Fi Channel
cable television networks) and Universal's domestic television production and
distribution business, which was renamed "Studios USA", from Universal, which is
controlled by Seagram. The consideration paid to Universal consisted of
approximately $1.6 billion in cash ($300 million of which was deferred with
interest) and an effective 45.8% interest in the Company through shares of
common stock, par value $.01 per share, of the Company (the "Common Stock"),
Class B common stock, par value $.01 per share, of the Company (the "Class B
Common Stock") and shares ("LLC Shares") of USANi LLC. The LLC Shares are
exchangeable for shares of Common Stock and Class B Common Stock. Due to FCC
restrictions on foreign ownership of entities controlling domestic television
broadcast licenses (such as USAi), Universal is limited in the number of shares
of the Company's stock that it may own. In connection with the Universal
Transaction, the Company formed USANi LLC primarily to hold the Company's
non-broadcast businesses in order to comply with such FCC restrictions and for
certain other tax and regulatory reasons. Universal's interest in USANi LLC is
not subject to the FCC foreign ownership limitations. The Company maintains
control and management of USANi LLC, and the businesses held by USANi LLC are
managed by the Company in substantially the same manner as they would be if the
Company held them directly through wholly owned subsidiaries. As long as Mr.
Diller is the Chairman and Chief Executive Officer of the Company and does not
become disabled, these arrangements will remain in place. At such time as Mr.
Diller no longer occupies such positions, or if Mr. Diller becomes disabled,
Universal has the right under certain circumstances to designate the manager of
USANi LLC (who would also be the Chairman and Chief Executive Officer of the
Company). If Universal does not have such right, Liberty may be entitled to
designate such persons. In all other cases, the Company is entitled to designate
the manager of USANi LLC.
In connection with the Universal Transaction, the Company changed its name to
USA Networks, Inc. and renamed its broadcast television division "USA
Broadcasting" (formerly "HSNi Broadcasting") and its primary television station
group "USA Station Group" (formerly "Silver King").
TICKETMASTER ONLINE-CITYSEARCH TRANSACTION
On September 28, 1998, CitySearch merged with Ticketmaster Online, a wholly
owned subsidiary of Ticketmaster, to form Ticketmaster Online -- CitySearch or
TMCS. Following the merger, TMCS
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was a majority-owned subsidiary of Ticketmaster. Shares of TMCS's Class B common
stock were sold to the public in an initial public offering that was consummated
on December 8, 1998. The TMCS Class B Common Stock is quoted on the Nasdaq Stock
Market. Following the initial public offering, as of December 31, 1998, USAi
beneficially owned 59.5% of the outstanding TMCS common stock, representing
67.3% of the total voting power of TMCS's outstanding common stock. For
financial reporting purposes, TMCS's Ticketmaster Online ticketing business is
considered part of the Company's Ticketing Operations, while TMCS's CitySearch
local city guides business is considered part of the Company's Internet
Services.
CORPORATE STRUCTURE; CONTROLLING SHAREHOLDERS
THE COMPANY. As of December 31, 1998, Liberty, through certain companies owned
by Liberty and Mr. Diller, owned 3.8% of the outstanding Common Stock and 78.7%
of the outstanding Class B Common Stock and Universal owned approximately 6.7%
of the outstanding Common Stock and 21.3% of the outstanding Class B Common
Stock. Mr. Diller, through certain companies owned by Liberty and Mr. Diller,
his own holdings and the Stockholders Agreement, dated as of October 19, 1997
(the "Stockholders Agreement"), among Mr. Diller, Universal, Liberty, the
Company and Seagram, controls 74.5% of the outstanding total voting power of the
Company. Mr. Diller, subject to the Stockholders Agreement and subject to veto
rights of Universal and Liberty over certain fundamental changes, is effectively
able to control the outcome of nearly all matters submitted to a vote of the
Company's stockholders.
USANi LLC. As of December 31, 1998, the Company owned directly 3.2%, and
indirectly through Holdco 38.8%, of the outstanding LLC Shares, Universal owned
49.5% of the outstanding LLC Shares and Liberty owned 8.5% of the outstanding
LLC Shares. In the event Mr. Diller is no longer Chief Executive Officer or if
Mr. Diller becomes disabled (as defined in the Governance Agreement), Universal
and Liberty will have certain additional rights regarding, among other things,
the management of USANi LLC and the ability to cause the Company to effect a
spinoff or other disposition of USA Broadcasting.
Pursuant to an exchange agreement among the Company, Universal and Liberty,
dated as of February 12, 1998 (the "LLC Exchange Agreement"), the LLC Shares
received by Universal and Liberty are exchangeable for shares of Common Stock
and Class B Common Stock (in the case of Universal) or Common Stock only (in the
case of Liberty). The Company has the right, subject to certain conditions, to
require Liberty to exchange such shares when, under applicable law (including
the regulations of the FCC), it is legally permitted to do so. Universal retains
the option, and the Company may not require Universal (other than in connection
with a sale of the Company as provided in the LLC Exchange Agreement), to
exchange its LLC Shares.
HOLDCO. Pursuant to the Home Shopping Merger, Liberty retained a 19.9% equity
interest (9.2% of the voting power) in Holdco, a subsidiary of the Company in
which the Company owns the remaining equity and voting interests. As of December
31, 1998, Holdco's only asset was a 38.8% interest in USANi LLC. Holdco has a
dual-class common stock structure similar to the Company's. Pursuant to an
exchange agreement, dated as of December 20, 1996 (the "Liberty Exchange
Agreement"), between the Company and a subsidiary of Liberty, at such time or
from time to time as Liberty or its permitted transferee is allowed under
applicable FCC regulations to hold additional shares of the Company's stock,
Liberty or its permitted transferee will exchange its Holdco Common Stock and
its Holdco Class B Common Stock for shares of Common Stock and Class B Common
Stock, respectively, at the applicable conversion ratio. Liberty, however, is
obligated to effect an exchange only after all of its LLC Shares have been
exchanged for shares of Common Stock pursuant to the LLC Exchange Agreement.
Upon completion of the exchange of Liberty's Holdco shares, Holdco would become
a wholly owned subsidiary of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of individuals who
serve as directors and executive officers of the Issuers, as indicated. Except
as otherwise indicated, each individual who serves as a director or executive
officer of the Company also serves in the same capacity at USANi LLC. Each
director will hold office until the next annual meeting of stockholders or until
his successor has been elected and qualified or until his earlier death,
resignation or removal. Officers of the Issuers are appointed by the Boards of
Directors of the Issuers and serve at the discretion of the Boards.
NAME AGE POSITION
---- --- --------
Barry Diller(1)...................... 56 Director, Chairman of the Board and Chief Executive
Officer
Michael P. Durney.................... 36 Vice President and Controller
Victor A. Kaufman(1)................. 55 Director, Office of the Chairman and Chief Financial
Officer
D. Stephen Goodin.................... 31 Vice President and Assistant to the Chairman
Dara Khosrowshahi.................... 28 Vice President, Strategic Planning
Thomas J. Kuhn....................... 36 Senior Vice President, General Counsel and Secretary
Paul G. Allen(5)..................... 45 Director
Robert R. Bennett(2)................. 40 Director
Edgar J. Bronfman, Jr.(1)............ 42 Director
James G. Held........................ 49 Director, Chairman and Chief Executive Officer of
Home Shopping Network
Leo J. Hindery, Jr.(2)............... 51 Director
Donald R. Keough(3)(4)............... 72 Director
John C. Malone(2).................... 57 Director
Robert W. Matschullat................ 51 Director
Samuel Minzberg...................... 49 Director
William D. Savoy(3)(4)(5)............ 34 Director
H. Norman Schwarzkopf(3)............. 64 Director
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(1) Member of the Executive Committee.
(2) Director of USANi LLC only.
(3) Member of the Audit Committee.
(4) Member of the Compensation/Benefits Committee.
(5) Member of the Performance-Based Compensation Committee.
Paul G. Allen has been a director of the Company and of USANi LLC since July
1997 and February 1998, respectively. Mr. Allen has been a private investor for
more than five years, with interests in a wide variety of companies, many of
which focus on multimedia digital communications such as Interval Research
Corporation, of which Mr. Allen is the controlling shareholder and a director.
In addition, Mr. Allen is the Chairman of the Board of Trail Blazers Inc. of the
National Basketball Association and is the owner of the Seattle Seahawks of the
National Football League.
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Mr. Allen currently serves as a director of Microsoft Corporation and also
serves as a director of various private corporations.
Robert R. Bennett has been a director of USANi LLC since February 1998. He is
President and Chief Executive Officer of Liberty, the programming arm of TCI,
and Executive Vice President of TCI. Mr. Bennett has been with Liberty since its
inception in 1990, serving as its principal financial officer and in various
other officer capacities. Prior to the creation of Liberty, he was Vice
President and Director of Finance at TCI, where he was employed since 1987.
Before joining TCI, Mr. Bennett was with The Bank of New York in its
Communications Entertainment and Publishing Division. Mr. Bennett is a director
of Black Entertainment Television, Inc., United Video Satellite Group, Inc., TCI
Music, Inc. and Discovery Communications, Inc.
Edgar J. Bronfman, Jr. has been a director of the Company and of USANi LLC since
February 1998. He has been President and Chief Executive Officer of Seagram
since June 1994. Previously, he was President and Chief Operating Officer of
Seagram. Mr. Bronfman is a director of Seagram and a member of the Boards of The
Wharton School of the University of Pennsylvania, New York University Medical
Center, the Teamwork Foundation and WNET/13. Mr. Bronfman is also Chairman of
the Board of Governors of The Joseph H. Lauder Institute of Management &
International Studies at the University of Pennsylvania.
Barry Diller has been a director and the Chairman of the Board and Chief
Executive Officer of the Company and of USANi LLC since August 1995 and February
1998, respectively. He was Chairman of the Board and Chief Executive Officer of
QVC, Inc. from December 1992 through December 1994. From 1984 to 1992, Mr.
Diller served as the Chairman of the Board and Chief Executive Officer of Fox,
Inc. Prior to joining Fox, Inc., Mr. Diller served for ten years as Chairman of
the Board and Chief Executive Officer of Paramount Pictures Corporation. Mr.
Diller is a director and member of the Executive Committee of Seagram, and
serves as a director of Ticketmaster Online-CitySearch. He also serves on the
Board of the Museum of Television and Radio and is a member of the Board of
Councilors for the University of Southern California's School of Cinema-
Television and is a member of the Board of Directors of 13/WNET. Mr. Diller also
serves on the Board of Directors for AIDS Project Los Angeles, the Executive
Board for the Medical Sciences of University of California, Los Angeles and the
Board of the Children's Advocacy Center of Manhattan.
Michael P. Durney has been Vice President and Controller of the Company and of
USANi LLC since March 1998. Prior to joining the Company, from 1996 to 1998, he
was the Chief Financial Officer of Newport Media, Inc., and from 1994 to 1996 he
was Executive Vice President of Finance of Hallmark Entertainment, Inc. From
1989 to 1994, he was Vice President, Controller of Univision Television Group,
Inc.
Stephen Goodin has been Vice President and Assistant to the Chairman of the
Company and of USANi LLC since March 1998. Prior to joining the Company, he
served as Special Advisor to President William J. Clinton's Chief of Staff and
as the President's Aide for three years from October 1994 to December 1997.
Prior to his employment with the Office of the President, Mr. Goodin was the
Director of Operations-Finance at the Democratic National Committee from January
1993 to October 1994.
James G. Held has been a director of the Company and of USANi LLC since November
1995 and February 1998, respectively, and became President and CEO of Home
Shopping Network, a division of USA Networks, Inc., in November, 1995. Mr. Held
is currently Chairman and CEO of the Home Shopping Network division. Immediately
before coming to Home Shopping Network, Mr. Held was President and CEO of
Adrienne Vittadini, Inc., a company with interests in wholesale and apparel
manufacturing, retail sales and licensing. He joined Vittadini in January 1995,
moving there from QVC, Inc. He began his association with QVC in September 1993,
serving first as senior vice
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president in charge of new business development and later becoming executive
vice president of merchandising, sales, product planning and new business
development.
Leo J. Hindery, Jr. has been a director of USANi LLC since February 1998. He has
served as the President and Chief Executive Officer of TCI Communications, Inc.
since March 1997. Mr. Hindery has also served as the President and Chief
Operating Officer of TCI since March 1997 and as the President and Chief
Executive Officer of TCI Pacific Communications, Inc. ("TPAC") since September
1997. In addition, he has served as a director of TCI Music since January 1997.
Mr. Hindery was previously founder, Managing General Partner and Chief Executive
Officer of InterMedia Partners, a cable television operator, and its affiliated
entities from 1988 to March 1997. Mr. Hindery is a director of TCI, and a
director of TCI Communications, Inc., TPAC, United Video Satellite Group, Inc.
and At Home Corporation, all of which are subsidiaries of TCI. Mr. Hindery is
also a director of TCI Satellite Entertainment ("Satellite"), Inc. and of
Cablevision Systems Corporation ("CSC"), Lenfest Group and Knowledge
Enterprises, Inc.
Victor A. Kaufman has been a director of the Company and of USANi LLC since
December 1996 and February 1998, respectively. Mr. Kaufman has served in the
Office of the Chairman for the Company since January 27, 1997, and as Chief
Financial Officer since November 1, 1997. Prior to that time, he served as
Chairman and Chief Executive Officer of Savoy since March 1992 and as a director
of Savoy since February 1992. Mr. Kaufman was the founding Chairman and Chief
Executive Officer of Tri-Star Pictures, Inc. ("Tri-Star") from 1983 until
December 1987, at which time he became President and Chief Executive Officer of
Tri-Star's successor company, Columbia Pictures Entertainment, Inc.
("Columbia"). He resigned from these positions at the end of 1989 following the
acquisition of Columbia by Sony USA, Inc. Mr. Kaufman joined Columbia in 1974
and served in a variety of senior positions at Columbia and its affiliates prior
to the founding of Tri-Star. Mr. Kaufman also serves as a director of
Ticketmaster-Online CitySearch.
Donald R. Keough has been a director of the Company and of USANi LLC since
September 1998. He is chairman of the board of Allen & Company Incorporated, a
New York investment banking firm. He was elected to that position on April 15,
1993. Mr. Keough retired as president, chief operating officer and a director of
The Coca-Cola Company in April 1993 and at that time, he was appointed advisor
to the board. Mr. Keough serves as a director on the boards of H. J. Heinz
Company, The Washington Post Company, The Home Depot, McDonald's Corporation and
is chairman of Excalibur Corporation. He is immediate past chairman of the board
of trustees of the University of Notre Dame and a trustee of several other
educational institutions. He also serves on the boards of a number of national
charitable and civic organizations.
Dara Khosrowshahi has been Vice President, Strategic Planning of the Company and
of USANi LLC since March 1998. Prior to joining the Company, from 1991 to 1998,
he worked at Allen & Company Incorporated where he served as a Vice President
from 1995 to 1998 and as Director from 1996 to 1998.
Thomas J. Kuhn has been Senior Vice President, General Counsel and Secretary of
the Company and of USANi LLC since February 1998. Prior to joining the Company,
from 1996 to 1998, he was a partner in the New York City law firm of Howard,
Smith & Levin LLP. From 1989 until 1996, Mr. Kuhn was associated with the law
firm of Wachtell, Lipton, Rosen & Katz in New York City.
John C. Malone has been a director of USANi LLC since September 1998. He has
been President and CEO of TCI since April 1973, and has served as Chairman of
Tele-Communications, Inc. since November, 1996. He is also a director of The
Bank of New York, BET Holdings, At Home Corporation, Cablevision Systems
Corporation, Lenfest Communications, and TCI Satellite.
Robert W. Matschullat has been a director of the Company and of USANi LLC since
February 1998. He has been Vice Chairman and Chief Financial Officer of Seagram
since
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October 1995. Previously, he was Managing Director and Head of Worldwide
Investment Banking for Morgan Stanley & Co., Inc. and a director of Morgan
Stanley Group, Inc., investment bankers. Mr. Matschullat is a director of
Seagram and Transamerica Corporation.
Samuel Minzberg has been a director of the Company and of USANi LLC since
February 1998. He has been President and Chief Executive Officer of Claridge
Inc., a management company, since January 1, 1998. Previously, he was Chairman
of and a partner in the Montreal office of Goodman, Phillips and Vineberg,
attorneys at law, of which he is currently of counsel. Mr. Minzberg is a
director of Seagram and Koor Industries, Limited.
William D. Savoy has been a director of the Company and of USANi LLC since July
1997 and February 1998, respectively. Currently, Mr. Savoy serves as President
of Vulcan Northwest Inc. and Vice President of Vulcan Ventures Inc. From 1987
until November 1990, Mr. Savoy was employed by Layered, Inc. and became its
President in 1988. Mr. Savoy serves on the Advisory Board of DreamWorks SKG and
also serves as director of Ticketmaster Online-CitySearch, CNET, Inc., Harbinger
Corporation, Metricom, Inc., Telescan, Inc., and U.S. Satellite Broadcasting Co,
Inc.
Gen. H. Norman Schwarzkopf has been a director of the Company and USANi LLC
since December 1996 and February 1998, respectively. He previously had served as
a director of Home Shopping Network since May 1996. Since his retirement from
the military in August 1991, Gen. Schwarzkopf has been an author and a
participant in several television specials and is currently working with NBC on
additional television programs. From August 1990 to August 1991, he served as
Commander-in-Chief, United States Central Command and Commander of Operations,
Desert Shield and Desert Storm. General Schwarzkopf had 35 years of service with
the military. He is also on the Board of Governors of the Nature Conservancy,
Chairman of the Starbright Capital Campaign, co-founder of the Boggy Creek Gang,
a member of the University of Richmond Board of Trustees, and serves on the
Boards of Directors of Borg Warner Security Corporation, Remington Arms Company,
Kuhlman Corporation and Cap CURE, Association for the Cure of Cancer of the
Prostate.
BOARD COMMITTEES
Executive Committee
The Executive Committee of the Boards of Directors of the Issuers, consisting of
Messrs. Bronfman, Diller and Kaufman, has all the power and authority of the
Boards of Directors of the Issuers, except those powers specifically reserved to
the Boards by Delaware law or the Issuers' respective organizational documents.
Audit Committee
The Audit Committee of the Boards of Directors of the Issuers, currently
consisting of Messrs. Keough and Savoy and Gen. Schwarzkopf, is authorized to
recommend to the Boards of Directors independent certified public accounting
firms for selection as auditors of the Issuers; make recommendations to the
Boards of Directors on auditing matters; examine and make recommendations to the
Boards of Directors concerning the scope of audits; and review and approve the
terms of transactions between or among the Issuers and related parties. None of
the members of the Audit Committee is an employee of the Issuers.
Compensation/Benefits Committee
The Compensation/Benefits Committee of the Boards of Directors of the Issuers,
currently consisting of Messrs. Keough and Savoy, is authorized to exercise all
of the powers of the Boards of Directors with respect to matters pertaining to
compensation and benefits, including, but not limited to, salary
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matters, incentive/bonus plans, stock option plans, investment programs and
insurance plans, except that the Performance-Based Compensation Committee
exercises such powers with respect to performance-based compensation of
corporate officers who are, or who are likely to become, subject to Section
162(m) of the Internal Revenue Code. The Compensation/Benefits Committee is also
authorized to exercise all of the powers of the Boards of Directors in matters
pertaining to employee promotions and the designation and/or revision of
employee positions and job titles. None of the members of the
Compensation/Benefits Committee is an employee of the Issuers.
Performance-Based Compensation Committee
The Performance-Based Compensation Committee of the Boards of Directors of the
Issuers, currently consisting of Messrs. Allen and Savoy, is authorized to
exercise all of the powers of the Board of Directors with respect to matters
pertaining to performance-based compensation of corporate officers who are, or
are likely to become, subject to Section 162(m) of the Internal Revenue Code.
(Section 162(m) limits the deductibility of compensation in excess of $1,000,000
paid to a corporation's chief executive officer and four other most highly
compensated executive officers, unless certain conditions are met.) None of the
members of the Performance-based Compensation Committee is an employee of the
Issuers.
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COMPENSATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
General
This section of the Prospectus sets forth certain information pertaining to
compensation of the Chief Executive Officer of the Issuers and the Issuers' four
most highly compensated executive officers other than the Chief Executive
Officer, as well as information pertaining to the compensation of members of the
Boards of Directors of the Issuers.
Summary of Executive Officer Compensation
The following table sets forth information concerning total compensation earned
by the Chief Executive Officer and the four other most highly compensated
executive officers of the Issuers who served in such capacities as of December
31, 1998 (the "Named Executive Officers") for services rendered to the Issuers
during each of the last three fiscal years. The information set forth below
represents all compensation earned by the Named Executive Officers for all
services performed for each Issuer or any of its subsidiaries. The Named
Executive Officers did not receive separate or additional compensation for
serving in their respective capacities for each Issuer.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- -----------------------
OTHER RESTRICTED
ANNUAL STOCK STOCK ALL OTHER
FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#)(2) ($)
- ------------------------- ------ ------- --------- ------------ ---------- --------- ------------
Barry Diller........... 1998 126,923(3) 0 -- 0 0 1,288,472(4)(5)
Chairman and 1997 0 0 -- 0 9,500,000(6) 1,282,343(4)
Chief Executive 1996 0 1,618,722(7) -- 0 0 1,280,508(4)(5)
Officer 0
Victor A. Kaufman...... 1998 500,000 450,000(9) -- 500,000(10) 100,000(11) 4,800(5)
Office of the 1997 500,000 0 -- 0 500,000(11) 0
Chairman and 1996 19,230 0 -- 0 346,000(11) 0
Chief Financial
Officer(8)
Thomas J. Kuhn......... 1998 398,077(13) 450,000(9) -- 187,500(10) 250,000(14) 2,118(5)
Senior Vice President,
General Counsel and
Secretary(12)
Dara Khosrowshahi...... 1998 248,077(16) 300,000(9) -- 125,000(10) 220,000(17) 0
Vice President,
Strategic Planning(15)
Michael P. Durney...... 1998 187,500(19) 125,000(9) -- 0 70,000(20) 1,731(5)
Vice President and
Controller(18)
- ---------------
(1) Disclosure of perquisites and other personal benefits, securities or
property received by each of the Named Executive Officers is only required
where the aggregate amount of such compensation exceeded the lesser of
$50,000 or 10% of the total of the Named Executive Officer's salary and
bonus for the year.
(2) These option grants reflect the two-for-one stock split which became
effective on March 26, 1998.
(3) Reflects an annual base salary of $500,000 commencing September 25, 1998.
(4) Mr. Diller was granted options in 1995 to purchase 3,791,694 shares of
Common Stock, vesting over a four-year period, at an exercise price below
the fair market value of Common Stock on
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the date of grant. USAi has amortized unearned compensation of $993,135 in
1996, $995,856 in 1997 and $999,162 in 1998. In addition, Mr. Diller has an
interest-free, secured, non-recourse promissory note in the amount of
$4,997,779 payable to USAi which was used to purchase 441,988 shares of
Common Stock. As a result, Mr. Diller had compensation for imputed interest
of $286,373 in 1996, $286,487 in 1997 and $286,368 in 1998.
(5) Includes USAi's matching contributions under its 401(k) Retirement Savings
Plan (the "401(k) Plan"). Pursuant to the 401(k) Plan as in effect through
December 31, 1998, the Company matches $.50 for each dollar a participant
contributes up to the first 6% of compensation.
(6) Consists of options to purchase 9,500,000 shares of Common Stock granted
pursuant to the 1997 Incentive Plan.
(7) Pursuant to an equity compensation agreement between Mr. Diller and USAi
(the "Equity Compensation Agreement"), Mr. Diller received a bonus payment
of approximately $2.5 million on August 24, 1996. USAi accrued four months
and seven days of such bonus in periods prior to the year ended December
31, 1996.
(8) Mr. Kaufman assumed the position of Chief Financial Officer of USAi on
November 1, 1997.
(9) Of this amount, Messrs. Kaufman, Kuhn, Khosrowshahi and Durney made
preliminary elections to defer $225,000, $90,000, $60,000 and $62,500,
respectively, pursuant to the Company's Bonus Stock Purchase Program. Under
the Bonus Stock Purchase Program, in lieu of receiving a cash payment for
the entire amount of their 1998 bonuses, all bonus eligible employees of
the Company had a right to make an initial election to purchase shares of
Common Stock (the "Bonus Shares") with up to 50% of the value of their 1998
bonus payments. Employees receive a 20% discount on the purchase price of
Bonus Shares, which is calculated by taking the average of the high and low
trading prices of Common Stock over a specified period of time. In
mid-February of 1999, after the purchase price is determined, employees
have an opportunity to revoke or decrease their initial elections.
(10) As of December 31, 1998, Messrs. Kaufman, Kuhn and Khosrowshahi held
20,000, 7,500 and 5,000 shares of Restricted Common Stock, respectively,
all of which were granted by the Company to such persons on December 15,
1998. These shares vest on the third anniversary of the date of grant,
except for Mr. Kaufman's shares, which vest on the first anniversary of the
date of grant. The value of these shares as of December 31, 1998 was
$662,500, $248,438 and $165,625, respectively.
(11) For 1998, consists of options to purchase 100,000 shares of Common Stock
granted pursuant to the 1997 Incentive Plan. For 1997, consists of options
to purchase 500,000 shares of Common Stock granted pursuant to the 1997
Incentive Plan. For 1996, consists of 56,000 options to purchase Common
Stock assumed by USAi pursuant to the Savoy Merger, 90,000 options to
purchase Common Stock resulting from conversion of options granted pursuant
to the 1996 Home Shopping Network, Inc. Employee Stock Plan (the "Home
Shopping Employee Plan") and 200,000 options to purchase Common Stock
granted pursuant to the 1995 Stock Incentive Plan.
(12) Mr. Kuhn joined USAi as its Senior Vice President, General Counsel and
Secretary on February 9, 1998.
(13) Reflects an annual base salary of $450,000 commencing February 9, 1998.
(14) Consists of options to purchase 250,000 shares of Common Stock granted
pursuant to the 1997 Incentive Plan.
(15) Mr. Khosrowshahi joined USAi as its Vice President, Strategic Planning on
March 2, 1998.
(16) Reflects an annual base salary of $300,000 commencing March 2, 1998.
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(17) Consists of options to purchase 220,000 shares of Common Stock granted
pursuant to the 1997 Incentive Plan.
(18) Mr. Durney joined USAi as its Vice President and Controller on March 30,
1998.
(19) Reflects an annual base salary of $250,000 commencing March 30, 1988.
(20) Consists of options to purchase 70,000 shares of Common Stock granted
pursuant to the 1997 Incentive Plan.
Option Grants
The following table sets forth information with respect to options to purchase
Common Stock granted to the Named Executive Officers during the year ended
December 31, 1998. The grants were made under the 1997 Incentive Plan.
The 1997 Incentive Plan is administered by the Compensation/Benefits Committee
and the Performance-Based Compensation Committee, which have the sole discretion
to determine the selected officers, employees and consultants to whom incentive
or non-qualified options, SARs, restricted stock and performance units may be
granted. As to such awards, the Compensation/ Benefits Committee and the
Performance-Based Compensation Committee also have the sole discretion to
determine the number of shares subject thereto and the type, terms, conditions
and restrictions thereof. The exercise price of an incentive stock option
granted under the 1997 Incentive Plan must be at least 100% of the fair market
value of the Common Stock on the date of grant. In addition, options granted
under the 1997 Incentive Plan terminate within ten years of the date of grant.
To date, only non-qualified stock options have been granted under the 1997
Incentive Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS TO ANNUAL RATES OF
SECURITIES EMPLOYEES EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED PRICE FOR OPTION TERMS(4)
OPTIONS IN THE PER SHARE EXPIRATION -------------------------
NAME GRANTED(#)(2) FISCAL YEAR ($/SH) DATE(3) 5%($) 10%($)
---- ------------- ----------- --------- ---------- ----------- -----------
Barry Diller................. 0 -- -- -- -- --
Chairman and Chief
Executive Officer
Victor A. Kaufman............ 100,000 1.69% 25.00 12/15/2008 1,572,237 3,984,356
Office of the Chairman and
Chief Financial Officer
Thomas J. Kuhn............... 200,000 3.39% 24.50 02/09/2008 3,081,584 7,809,338
Senior Vice President, 50,000 0.85% 25.00 12/15/2008 786,118 1,992,178
General Counsel and
Secretary
Dara Khosrowshahi............ 120,000 2.03% 25.75 03/02/2008 1,943,284 4,924,664
Vice President, Strategic 100,000 1.69% 25.00 12/15/2008 1,572,237 3,984,356
Planning
Michael P. Durney............ 50,000 0.85% 26.75 03/30/2008 841,147 2,131,631
Vice President and 20,000 0.34% 25.00 12/15/2008 314,447 796,871
Controller
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(1) Under the 1997 Incentive Plan, the Compensation/Benefits Committee and the
Performance-Based Compensation Committee retain discretion, subject to plan
limits, to modify the terms of outstanding options and to reprice such
options.
(2) These option grants and the related exercise prices reflect the two-for-one
stock split which became effective on March 26, 1998.
(3) Under the 1997 Incentive Plan, the Compensation/Benefits Committee and the
Performance-Based Compensation Committee determine the exercise price,
vesting schedule and exercise
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periods for option grants made pursuant to such Plan. Options granted during
the year ended December 31, 1998, generally become exercisable in four equal
annual installments commencing on the first anniversary of the grant date.
Each such option expires ten years from the date of grant.
(4) Potential value is reported net of the option exercise price, but before
taxes associated with exercise. These amounts represent certain assumed
rates of appreciation only. Actual gains, if any, on stock option exercises
are dependent on the future performance of Common Stock, overall stock
market conditions, as well as on the option holders' continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
The table below sets forth information concerning the exercise of stock options
by the Named Executive Officers during the year ended December 31, 1998 and the
fiscal year-end value of all unexercised options held by such persons.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
VALUE YEAR END (#) YEAR-END($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
Barry Diller.............. 980,000 14,754,390 14,153,770 11,377,924 300,853,247 195,495,882
Chairman and Chief
Executive Officer
Victor A. Kaufman......... 0 0 317,000 629,000 4,584,016 9,253,274
Office of the Chairman
and Chief Financial
Officer
Thomas J. Kuhn............ 0 0 0 250,000 0 2,131,250
Senior Vice President,
General Counsel and
Secretary
Dara Khosrowshahi......... 0 0 0 220,000 0 1,697,500
Vice President,
Strategic Planning
Michael P. Durney......... 0 0 0 70,000 0 481,250
Vice President and
Controller
- -------------------------
(1) Reflects the two-for-one stock split which became effective on March 26,
1998.
(2) Represents the difference between the $33.125 closing price of Common Stock
on December 31, 1998 and the exercise price of the options, and does not
include the U.S. federal and state taxes due upon exercise.
Compensation of Outside Directors
Each director of USAi and USANi LLC who is not an employee of USAi, USANi LLC or
one of their respective subsidiaries receives an annual retainer of $30,000 per
year. USAi also pays each such director $1,000 for each USAi or USANi LLC Board
meeting and each USAi or USANi LLC Board committee meeting attended, plus
reimbursement for all reasonable expenses incurred by such director in
connection with attendance at any such meeting. For the year ended December 31,
1998, the directors that were designated by Universal and Liberty waived their
rights to receive such annual retainer and attendance fees.
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Under the USAi Directors' Stock Option Plan (the "Directors' Stock Option
Plan"), directors who are not employees of USAi, USANi LLC or one of their
respective subsidiaries receive a grant of options to purchase 5,000 shares of
Common Stock upon initial election to office and thereafter annually on the date
of USAi's annual meeting of stockholders at which the director is re-elected.
The exercise price per share of Common Stock subject to such options is the fair
market value of Common Stock on the date of grant, which is defined as the mean
of the high and low sale price on such date on any stock exchange on which
Common Stock is listed or as reported by NASDAQ, or, in the event that Common
Stock is not so listed or reported, as determined by an investment banking firm
selected by the Compensation/Benefits Committee. Such options vest in increments
of 1,667 shares on each of the first two anniversaries of the date of grant, and
1,666 shares on the third. The options expire ten years from the date of grant.
For the year ended December 31, 1998, the directors that were designated by
Universal and Liberty waived their rights to receive such option grants.
Equity Compensation Agreement; Employment Agreements; Stock Option Grant
Agreements
MR. DILLER. On October 19, 1997, the Company and Mr. Diller entered into a
stock option grant agreement pursuant to which, in connection with the Universal
Transaction, the Company granted Mr. Diller options to purchase 9,500,000 shares
of Common Stock at an exercise price of $19.3125 per share. These options become
exercisable with respect to 25% of the total shares on each of the first four
anniversaries of the grant date. Upon a Change of Control (as defined in the
stock option grant agreement), all of Mr. Diller's options that have not
previously become exercisable or been terminated will become exercisable.
Mr. Diller waived any acceleration of his stock options which may have been
triggered by the Universal Transaction. Mr. Diller's Equity and Bonus
Compensation Agreement with the Company, dated August 24, 1995 discussed below,
provides for a gross-up payment to be made to Mr. Diller, if necessary, to
eliminate the effect of the imposition of the excise tax under Section 4999 of
the Code upon payments made to Mr. Diller and imposition of income and excise
taxes on such gross-up payment.
Mr. Diller and the Company are also parties to the Equity and Bonus Compensation
Agreement dated as of August 26, 1995. Under that Agreement, the Company issued
and sold to Mr. Diller 441,988 shares of Common Stock at $11.3125 per share in
cash (the "Initial Diller Shares") and an additional 441,988 shares of Common
Stock for the same per share price (the "Additional Diller Shares") payable by
means of a cash payment of $2,210 and an interest-free, secured, non-recourse
promissory note in the amount of $4,997,779. The promissory note is secured by
the Additional Diller Shares and by that portion of the Initial Diller Shares
having a fair market value on the purchase date of 20% of the principal amount
of the promissory note. In addition, the Company granted options to Mr. Diller
to purchase 3,791,694 shares of Common Stock at $11.3125 per share (the "Diller
Options"). The Diller Options were granted in tandem with conditional SARs,
which become exercisable only in the event of a change of control of the Company
and in lieu of exercise of the Diller Options. The Initial and Additional Shares
and the Diller Options were issued to Mr. Diller below the adjusted market price
of $12.375 on August 24, 1995.
Mr. Diller was also granted a bonus arrangement, contractually independent from
the promissory note, pursuant to which he received a bonus payment of
approximately $2.5 million on August 24, 1996, and was to receive a further such
bonus payment on August 24, 1997, which was deferred. The deferred amount
accrues interest at a rate of 6% per annum. Mr. Diller also received $966,263
for payment of taxes by Mr. Diller due to the compensation expense which
resulted from the difference in the per share fair market value of Common Stock
and the per share purchase price of the Initial Diller Shares and Additional
Diller Shares.
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MR. DURNEY. On March 30, 1998, the Company and Mr. Durney entered into a
three-year employment agreement (the "Durney Employment Agreement), providing
for an annual base salary of $250,000 per year. Mr. Durney is also eligible to
receive an annual discretionary bonus.
The Durney Employment Agreement provides for a grant of options to purchase
50,000 shares of Common Stock. Mr. Durney's options become exercisable with
respect to 25% of the total shares on March 30, 1999 and on each of the next
three anniversaries of such date. Upon a Change of Control (as defined in the
1997 Incentive Plan), 100% of Mr. Durney's options become vested and
exercisable. Mr. Durney's options expire upon the earlier to occur of 10 years
from the date of grant or 90 days following the termination of his employment
for any reason. In the event that Mr. Durney's employment is terminated by the
Company for any reason other than Cause (as defined in the Durney Employment
Agreement), death or disability, the Company is required to pay Mr. Durney's
base salary through the end of the term of his agreement (subject to mitigation
by Mr. Durney).
MR. KAUFMAN. As of October 19, 1997, the Company and Mr. Kaufman entered into a
stock option grant agreement pursuant to which, the Company granted Mr. Kaufman
options to purchase 500,000 shares of Common Stock for an exercise price of
$19.3125 per share, on substantially the same terms and conditions as Mr.
Diller's options granted on such date. Mr. Kaufman also waived any acceleration
of his stock options that may have been triggered by the Universal Transaction.
MR. KHOSROWSHAHI. On March 2, 1999, the Company and Mr. Khosrowshahi entered
into a three-year employment agreement (the "Khosrowshahi Employment
Agreement"), providing for an annual base salary of $300,000 per year. Mr.
Khosrowshahi is also eligible to receive an annual discretionary bonus.
The Khosrowshahi Employment Agreement provides for a grant of options to
purchase 120,000 shares of Common Stock. Mr. Khosrowshahi's options become
exercisable with respect to 25% of the total shares on March 2, 1999 and on each
of the next three anniversaries of such date. Upon a Change of Control (as
defined in the 1997 Incentive Plan), 100% of Mr. Khosrowshahi's options become
vested and exercisable. Upon termination by the Company of Mr. Khosrowshahi's
employment for any reason other than death, disability or Cause (as defined in
the Khosrowshahi Employment Agreement), or if Mr. Khosrowshahi terminates his
employment for Good Reason (as defined in the Khosrowshahi Employment
Agreement), the Company is required to pay Mr. Khosrowshahi the present value of
his base salary through the term of his agreement in a lump sum within thirty
days of the termination date (subject to mitigation by Mr. Khosrowshahi). In the
event of a termination for any reason other than death, disability or Cause or
if Mr. Khosrowshahi terminates his employment for Good Reason, Mr.
Khosrowshahi's options will vest immediately and remain exercisable for one year
from the date of such termination.
MR. KUHN. On February 9, 1998, the Company and Mr. Kuhn entered into a
four-year employment agreement (the "Kuhn Employment Agreement"), providing for
an annual base salary of $450,000 per year. Mr. Kuhn is also eligible to receive
an annual discretionary bonus.
The Kuhn Employment Agreement provides for a grant of options to purchase
200,000 shares of Common Stock. Mr. Kuhn's options will become exercisable with
respect to 25% of the total shares on February 9, 1999 and on each of the next
three anniversaries of such date. The provisions in the Kuhn Employment
Agreement regarding Change of Control, payment upon termination (for any reason
other than death, disability or Cause), payment in the event Mr. Kuhn terminates
his employment for Good Reason (as defined in the Kuhn Employment Agreement),
and vesting and exercisability of options upon termination are substantially the
same as those in the Khosrowshahi Employment Agreement.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1998, information relating to
the beneficial ownership of Common Stock by (i) each person known by USAi to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director of the Issuers, (iii) each of the Named Executive Officers, and (iv)
all executive officers and directors of the Issuers as a group:
NUMBER OF PERCENT PERCENT OF VOTES
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS (ALL CLASSES)(1)
- ------------------------------------ ---------- -------- ----------------
Capital Research & Management Co.(2).............. 7,796,500 6.1% 1.8%
333 South Hope Street
Los Angeles, CA 90071
Tele-Communications, Inc.(3)(4)................... 29,622,335 19.5% 57.1%
5619 DTC Parkway
Englewood, CO 80111
The Seagram Co. Ltd.(5)........................... 15,205,654 11.3% 17.1%
375 Park Avenue
New York, NY 10152
Barry Diller(3)(6)................................ 60,071,714 34.7% 75.3%
Paul Allen(7)..................................... 15,830,348 12.4% 3.6%
Robert R. Bennett (8)(9).......................... 13,048 * *
Edgar J. Bronfman, Jr.(9)......................... 0 * *
Michael P. Durney(10)............................. 900 * *
James G. Held(11)................................. 1,711,493 1.3% *
Leo J. Hindery(9)(12)............................. 85,500 * *
Victor A. Kaufman(13)............................. 495,000 * *
Donald R. Keough(14).............................. 10,000 * *
Dara Khosrowshahi................................. 0 * *
Thomas J. Kuhn(15)................................ 50,507 * *
John C. Malone(9)................................. 0 * *
Robert W. Matschullat(9).......................... 0 * *
Samuel Minzberg(9)................................ 0 * *
William D. Savoy(16).............................. 76,745 * *
Gen. H. Norman Schwarzkopf(17).................... 47,000 * *
All executive officers and directors as a group
(17 persons).................................... 78,392,255 44.7% 78.9%
- -------------------------
* The percentage of shares beneficially owned does not exceed 1% of the
class.
Unless otherwise indicated, beneficial owners listed here may be contacted
at USAi's corporate headquarters address, 152 West 57th Street, New York,
NY 10019. The number of shares and percent of class listed assumes the
conversion of any shares of Class B Common Stock owned by such listed
person, but does not assume the conversion of Class B Common Stock owned
by any other person. Shares of Class B Common Stock may at the option of
the holder be converted on a one-for-one basis into shares of Common
Stock. Under the rules of the SEC, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting
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power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose of or
to direct the disposition of such security. A person is also deemed to be
the beneficial owner of any securities of which that person has the right
to acquire beneficial ownership within 60 days. Under these rules, more
than one person may be deemed to be a beneficial owner of the same
securities and a person may be deemed to be a beneficial owner of
securities as to which that person has no beneficial interest. For each
listed person, the number of shares and percent of class listed includes
shares of Common Stock that may be acquired by such person upon exercise
of stock options that are or will be exercisable within 60 days of
December 31, 1998.
(1) The percentage of votes for all classes is based on one vote for each share
of Common Stock and ten votes for each share of Class B Common Stock. These
figures do not include any unissued shares of Common Stock or Class B
Common Stock issuable upon conversion of Liberty HSN's Home Shopping shares
and LLC Shares beneficially owned by Liberty or Seagram.
(2) Based upon information provided to the Issuers by Capital Research &
Management Co. as of September 30, 1998.
(3) Liberty, a wholly owned subsidiary of TCI, Universal, Seagram, the parent
of Universal, USAi and Mr. Diller are parties to a stockholders agreement
(the "Stockholders Agreement"), pursuant to which Liberty and Mr. Diller
have formed BDTV INC., BDTV II INC., BDTV III INC. and BDTV IV INC
(collectively, the "BDTV Entities") which entities, as of December 31,
1998, held 4,000,000, 15,618,222, 4,005,182 and 800,000 shares of Class B
Common Stock, respectively, and an aggregate of 22 shares of Common Stock
collectively. Mr. Diller generally has the right to vote all of the shares
of Common Stock and Class B Common Stock held by the BDTV Entities', and
the shares of Common Stock and Class B Common Stock held by Seagram and
Liberty.
(4) Consists of 4,820,587 shares of Common Stock and 378,322 shares of Class B
Common Stock held by Liberty as to which Mr. Diller has general voting
power and which are otherwise beneficially owned by TCI, and 22 shares of
Common Stock and 24,423,404 shares of Class B Common Stock held by the BDTV
Entities. These shares are subject to the Stockholders Agreement.
(5) Consists of 8,490,654 shares of Common Stock and 6,715,000 shares of Class
B Common Stock held by Universal as to which Mr. Diller has general voting
power and which are otherwise beneficially owned by Seagram. These shares
are subject to the Stockholders Agreement.
(6) Consists of 1,029,954 shares of Common Stock owned by Mr. Diller, options
to purchase 14,153,771 shares of Common Stock granted pursuant to the
Company's stock option plans, 60,000 shares of Common Stock held by a
private foundation as to which Mr. Diller disclaims beneficial ownership,
22 shares of Common Stock and 24,423,404 shares of Class B Common Stock
held by the BDTV Entities, and 4,820,587 shares of Common Stock and 378,322
shares of Class B Common (which are held by Liberty and otherwise
beneficially owned by TCI) and 8,490,654 shares of Common Stock and
6,715,000 shares of Class B Common Stock (which are held by Universal and
otherwise beneficially owned by Seagram) as to which Mr. Diller has general
voting authority pursuant to the Stockholders Agreement.
(7) Consists of 15,822,014 shares of Common Stock and options to purchase 8,334
shares of Common Stock granted pursuant to the Company's stock option
plans.
(8) Consists of 13,048 shares of Common Stock.
(9) Has waived the right to receive options under the Directors' Stock Option
Plan.
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(10) Consists of 900 shares of Common Stock.
(11) Consists of options to purchase 1,711,400 shares of Common Stock granted
pursuant to the Company's stock option plans and 93 shares of Common Stock
purchased under the 401(k) Plan.
(12) Consists of options to purchase 85,500 shares of Common Stock granted
pursuant to the Company's stock option plans.
(13) Consists of 160,000 shares of Common Stock, and options to purchase 335,000
shares of Common Stock granted pursuant to the Company's stock option
plans.
(14) Consists of 10,000 shares of Common Stock. Does not include 31,198 shares
of Common Stock held by an irrevocable trust for the benefit of a family
member as to which shares Mr. Keough disclaims beneficial ownership. Also
does not include 1,577,619 shares of Common Stock beneficially owned, as of
November 1998, by Allen & Co., for which Mr. Keough serves as Chairman, and
certain of its affiliates. Mr. Keough disclaims beneficial ownership of
such shares.
(15) Consists of options to purchase 50,000 shares of Common Stock granted
pursuant to the Company's stock option plans and 507 shares of Common Stock
purchased under the 401(k) Plan.
(16) Consists of 29,000 shares of Common Stock and options to purchase 47,745
shares of Common Stock granted pursuant to the Company's stock option
plans.
(17) Consists of options to purchase 47,000 shares of Common Stock granted
pursuant to the Company's stock option plans.
The following table sets forth, as of December 31, 1998, information relating to
the beneficial ownership of Class B Common Stock:
NAME AND ADDRESS NUMBER OF PERCENT
OF BENEFICIAL OWNER SHARES(1) OF CLASS
- ------------------- ---------- -----------
Barry Diller(2)............................................. 31,516,726 100%
c/o USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Tele-Communications, Inc.(2)(3)............................. 24,801,726 78.7%
5619 DTC Parkway
Englewood, CO 80111
BDTV Entities(2)(3)......................................... 24,423,404 77.5%
(includes BDTV INC., BDTV II INC.,
BDTV III INC. and BDTV IV INC.)
8800 West Sunset Boulevard
West Hollywood, CA 90069
The Seagram Company Ltd.(4)................................. 6,715,000 21.3%
375 Park Avenue
New York, NY 10152
- -------------------------
(1) All or any portion of shares of Class B Common Stock may be converted at any
time into an equal number of shares of Common Stock.
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(2) These figures do not include any unissued shares of Common Stock or Class B
Common Stock issuable upon conversion of Liberty's Holdco shares and LLC
shares beneficially owned by Liberty or Seagram.
(3) Liberty, a wholly owned subsidiary of TCI, Universal, Seagram, the parent of
Universal, USAi and Mr. Diller are parties to the Stockholders Agreement,
pursuant to which Liberty and Mr. Diller have formed the BDTV Entities which
entities hold 4,000,000, 15,618,222, 4,005,182 and 800,000 shares of Class B
Common Stock, respectively. Mr. Diller generally has the right to vote all
of the shares of Class B Common Stock held by the BDTV Entities and the
shares of Class B Common Stock held by Universal and Liberty. TCI disclaims
beneficial ownership of all USAi securities held by Mr. Diller but not any
of USAi Securities held by the BDTV Entities. Mr. Diller owns all of the
voting stock of the BDTV Entities and Liberty owns all of the non-voting
stock, which non-voting stock represents in excess of 99% of the equity of
the BDTV Entities.
(4) Mr. Diller generally votes all of the shares held by Seagram pursuant to the
terms of the Stockholders Agreement.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
GENERAL
Mr. Diller, the Chairman of the Board and Chief Executive Officer of the
Issuers, is the sole holder of the voting stock of the BDTV Entities. The BDTV
Entities hold shares of Common Stock and Class B Common Stock which have
effective voting control of the Company with respect to all matters submitted
for the vote or consent of stockholders as to which stockholders vote together
as a single class.
As of January 1, 1998, the Company entered into a lease (the "Lease") with
Nineteen Forty CC, Inc. ("Nineteen Forty") under which the Company leases an
aircraft for use by Mr. Diller and certain directors and executive officers of
the Issuers in connection with the Issuers' business. Nineteen Forty is wholly
owned by Mr. Diller. The Lease provides for monthly rental payments equal to the
monthly operating expenses incurred by Nineteen Forty for operation and
maintenance of the aircraft. The Lease has a five-year term and is terminable by
either party on thirty days' notice. In 1998, the Company paid a total of
$1,967,000 in expenses related to the use of the aircraft. The Company believes
that the terms of the Lease are more favorable to the Company than those the
Company would have received had it leased an aircraft from an unrelated third
party (or purchased and maintained a corporate aircraft).
In 1997, USAi and Mr. Diller agreed to defer repayment of an interest-free,
secured, non-recourse promissory note in the amount of $4,997,779 due from Mr.
Diller from September 5, 1997 to September 5, 2007. As of December 31, 1998,
such promissory note remained outstanding. In 1997, Mr. Diller and USAi agreed
to defer the payment of a bonus in the amount of $2.5 million that otherwise was
to be paid to Mr. Diller in 1997. The deferred bonus amount accrues interest at
a rate of 6% per annum.
In January 1997, USAi entered into a three-year consulting arrangement with Mr.
Hindery, currently a member of the Board of Directors of USANi LLC and the
President of TCI . Under the consulting arrangement, Mr. Hindery received fully
vested options to purchase 81,000 shares of Common Stock at an exercise price of
$16.39. These options expire in one third increments in 1999, 2000 and 2001.
In April 1996, USAi entered into a three-year consulting arrangement with
General Schwarzkopf, currently a member of the Boards of Directors of the
Issuers. Under the consulting arrangement, General Schwarzkopf received options
to purchase 45,000 shares of Common Stock at an exercise
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price of $11.11 per share. Of these options, options to purchase 30,000 shares
are fully vested and the remaining options will vest in April 1999. These
options expire as of April 3, 2006.
On July 1, 1998, the Company made a $4.0 million loan to Mr. Held, Chairman and
Chief Executive Officer of Home Shopping Network and a member of the Board of
Directors of the Issuers. The loan was made to facilitate Mr. Held's
construction of a personal residence. The loan bears interest at the Company's
average bank rate during the term of the loan and is secured by Mr. Held's
options to purchase 3,000,000 shares of Common Stock. The loan matures on July
1, 1999 and is to be repaid in three quarterly installments, either in cash or
through the exercise of options to purchase 163,600 shares of Common Stock per
installment following the public announcement of the Company's financial results
for each of (i) the quarter ending September 30, 1998, (ii) the year ending
December 31, 1998 and (iii) the quarter ending March 31, 1999. As required
pursuant to the terms of the loan, in November 1998, Mr. Held exercised options
and used the net proceeds therefrom to repay the first installment on the loan
in the amount of $1,375,568.
Pursuant to an employment agreement entered into by Home Shopping Network and
Mr. Held, in 1996, Home Shopping loaned Mr. Held $1.0 million for the purpose of
purchasing a residence in the Tampa/St. Petersburg area. As of December 31,
1998, a $400,000 balance on the loan remained outstanding. The loan bears
interest at 5% per annum, and the outstanding principal and any accrued and
unpaid interest become due and payable in the event that Mr. Held is terminated
for any reason, on the first anniversary of such termination.
RELATIONSHIP BETWEEN THE COMPANY AND UNIVERSAL
Pursuant to the agreements entered into in connection with the Universal
Transaction, the Company and certain of its subsidiaries entered into business
agreements with Universal and certain of its subsidiaries relating to, among
other things, the domestic distribution by the Company of Universal-produced
television programming and Universal's library of television programming; the
international distribution by Universal of television programming produced by
Studios USA; long-term arrangements relating to the use by Studios USA of
Universal's production facilities in Los Angeles and Orlando, Florida; a joint
venture relating to the development of international general entertainment
television channels; and various other business matters. Certain of these
agreements are summarized in this Prospectus under the caption "-- Ancillary
Business Agreements."
Universal, through its ownership of Company stock and LLC Shares, is the
Company's largest stockholder (assuming conversion of Universal's LLC Shares
which, under current FCC rules, is not permissible). Messrs. Bronfman,
Matschullat and Minzberg are members of the Boards of Directors of the Issuers
and (other than Mr. Minzberg) hold director and executive positions with
Universal and its affiliates, including Seagram. These individuals were elected
to the Issuers' Boards of Directors in connection with the consummation of the
Universal Transaction, pursuant to the transaction agreements. The Bronfman
family, which includes Mr. Bronfman, holds a controlling interest in Seagram,
which holds a controlling interest in Universal. Other than in their capacities
as stockholders and officers of Seagram or Universal (and as directors and
stockholders of the Company and USANi LLC), as applicable, these individuals do
not have any direct or indirect interest in the Universal-Company agreements.
The Issuers believe that the business agreements described below and entered
into in connection with the Universal Transaction are all on terms at least as
favorable to the Issuers as terms that could have been obtained from an
independent third party.
The Company and Universal are also parties to certain other agreements entered
into in connection with the Universal Transaction, which agreements are
summarized in this Prospectus under the
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caption "-- Agreements with Universal and Liberty." Such agreements were
negotiated on an arm's-length basis prior to the time that Universal held an
equity interest in the Issuers.
In the ordinary course of business, and otherwise from time to time, the Issuers
may determine to enter into other agreements with Universal and its affiliates.
RELATIONSHIP BETWEEN THE COMPANY AND LIBERTY
The Issuers in the ordinary course of business enter into agreements with
Liberty and its affiliates relating to, among other things, the carriage of the
USA Networks cable networks and the HSN Services and the acquisition of, or
other investment in, businesses related to the Issuers' businesses. Currently,
none of the members of the Company's Board of Directors is affiliated with, or
has been designated by, Liberty or TCI; pursuant to the agreements relating to
the Universal Transaction, three designees of Liberty (Messrs. Malone, Hindery
and Bennett) are members of the USANi LLC Board of Directors. Liberty and its
affiliates hold a substantial equity interest in the Company and USANi LLC, and
Liberty is a party to certain transaction agreements filed, or incorporated by
reference, as exhibits to the Registration Statement.
In the ordinary course of business, USA Networks and Home Shopping Network enter
into agreements with the operators of cable television systems for the carriage
of USA Networks cable networks and the HSN Services over such cable television
systems. USA Networks and Home Shopping Network have entered into agreements
with a number of cable television operators that are affiliates of TCI. The Home
Shopping Network contracts are long-term and provide for a minimum subscriber
guarantee and incentive payments based on the number of subscribers. Payments by
Home Shopping Network to TCI and certain of its affiliates under these contracts
for cable commissions and advertising were approximately $9.4 million for the
year ended December 31, 1998. The renewal of the USA Network contract is
currently being negotiated. The Sci-Fi Channel has entered into a long-term
contract, which provides, under certain circumstances, for certain carriage
commitments, and provides a fee schedule based upon the number of subscribers.
Payments by TCI and certain of its affiliates to USA Networks under these
contracts were approximately $70,000,000 in the aggregate for the year ended
December 31, 1998.
During April 1996, Home Shopping Network sold a majority of its interest in HSN
Direct Joint Venture, its infomercial operation, for $5.9 million to certain
entities controlled by Flextech P.L.C., a company controlled by TCI. In February
1998, Flextech paid Home Shopping Network a $250,000 installment of such
purchase price. One additional $250,000 installment remains outstanding and is
scheduled to be paid in February 1999. Home Shopping Network retains a 15%
interest in the venture and a related corporation.
During 1996, Home Shopping Network, along with Jupiter Programming Company
("JPC"), formed Shop Channel, a television shopping venture based in Tokyo. TCI
International, a subsidiary of TCI, owns a 50% interest in JPC, the 70%
shareholder in the venture. Home Shopping Network owns a 30% interest in Shop
Channel. During 1998, Home contributed $2.7 million to Shop Channel. In
addition, Home Shopping Network sold inventory and provided services in the
amount of $1.0 million to Shop Channel during 1998.
The Issuers believe that their business agreements with Liberty-related entities
have been negotiated on an arm's-length basis and contain terms at least as
favorable to the Issuers as those that could be obtained from an unaffiliated
third party. Neither Liberty nor TCI derives any benefit from such transactions
other than in its capacity as a stockholder of such other party or the Issuers,
as the case may be.
In the ordinary course of business, and otherwise from time to time, the Issuers
may determine to enter into other agreements with Liberty and its affiliates.
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AGREEMENTS WITH UNIVERSAL AND LIBERTY
This section summarizes various agreements that USAi, Seagram, Universal,
Liberty and Mr. Diller have entered into in connection with the Universal
Transaction. These agreements involve (i) certain governance matters relating to
USAi, (ii) stockholder arrangements among Universal, Liberty and Mr. Diller,
(iii) agreements between Universal and Liberty and (iv) a number of ancillary
business agreements between Universal and USAi for ongoing business
relationships involving the development of international channels, television
programming distribution, and other matters.
Investment Agreement
In connection with the Universal Transaction, each of Universal and Liberty was
granted a preemptive right, subject to certain limitations, to maintain their
respective percentage ownership interests in USAi in connection with future
issuances of USAi capital stock. In addition, with respect to issuances of USAi
capital stock in certain specified circumstances, Universal will be obligated to
maintain its percentage ownership interest in USAi that it had immediately prior
to such issuances.
Universal's Preemptive Rights
GENERAL. In the event that USAi issues any USAi securities, Universal will have
the right to purchase for cash the number of shares of USAi Common Stock (or, if
Universal requests, LLC Shares or a combination of USAi Common Stock and LLC
Shares) so that Universal will maintain the identical percentage equity
ownership interest (but not in excess of the lesser of the percentage ownership
interest limitations applicable pursuant to the Governance Agreement and 57.5%)
in USAi that Universal owned immediately prior to such issuance. Universal will
not have a preemptive right with respect to issuances of shares of USAi
securities in a Sale Transaction, issuances of restricted stock or issuances of
USAi securities upon conversion of shares of USAi Class B Common Stock or in
respect of LLC Shares or Additional Liberty Shares. A "Sale Transaction" is
defined as a merger, consolidation or amalgamation between USAi and a
non-affiliate of USAi in which USAi is acquired by such other entity or a sale
of all or substantially all of the assets of USAi to another entity which is not
a subsidiary of USAi. "Additional Liberty Shares" means the USAi securities
which USAi is obligated to issue to Liberty pursuant to certain agreements
entered into between Liberty and USAi in connection with the Home Shopping
Merger.
Universal's preemptive right percentage is currently 45%. To the extent that,
during the first four years after the Universal Transaction, Universal sells
shares of USAi stock (or LLC Shares) or does not exercise preemptive rights, its
preemptive percentage will be reduced, and subsequent purchases will not result
in an increase in that percentage. After this four-year period, Universal's
preemptive right percentage will increase or decrease to the extent Universal
buys or sells USAi stock (or LLC Shares), as permitted by the Stockholders
Agreement and the Governance Agreement.
In measuring the percentage equity or voting interest owned by Universal (or
Liberty) regarding the exercise of preemptive rights and the standstill
provisions under the Governance Agreement described below, the LLC Shares and
the Additional Liberty Shares will be regarded as outstanding USAi shares on an
as-exchanged basis (the "Assumptions").
UNIVERSAL VOTING THRESHOLD. If, in connection with the exercise by Universal of
its optional preemptive right, its voting power in USAi would be less than 67%
(based on the Assumptions), Universal may elect to purchase in connection with a
preemptive right exercise shares of USAi Class B Common Stock (or LLC Shares
exchangeable for USAi Class B Common Stock). However, if Universal has
previously declined to exercise its optional preemptive right, then the voting
threshold will be reduced to the lower percentage voting threshold owned by
Universal at such time.
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In addition, USAi has a purchase right relating to LLC Shares owned by Universal
to the extent that USAi purchases or redeems USAi securities, to maintain
Universal's ownership percentage at the levels set forth in the Governance
Agreement.
Liberty's Preemptive Rights
In the event that USAi issues any USAi securities under the circumstances set
forth in the first paragraph under "-- Universal's Preemptive
Rights -- General," Liberty will be entitled to purchase the number of shares of
USAi Common Stock or LLC Shares exchangeable for USAi Common Stock so that
Liberty will maintain the identical percentage equity beneficial ownership
interest in USAi that Liberty owned immediately prior to such issuance (but not
in excess of the percentage equity beneficial ownership interest that Liberty
owned immediately following the closing of the Universal Transaction or the
closing of any transaction with Liberty on or before June 30, 1998). Liberty
will only be entitled to purchase LLC Shares (as opposed to shares of USAi
Common Stock) if and to the extent the total number of USAi securities then
owned directly or indirectly by Liberty would exceed the amount allowable under
FCC regulations.
Management and Ownership of USANi LLC
As of December 31, 1998, Universal owns 49.5% of the USANi LLC, Liberty owns
8.5% and USAi owns the remaining 42.0% interest (38.8% of which is held
indirectly through Holdco). Except with respect to certain fundamental changes
related to the USANi LLC, USAi will manage and operate the businesses of the
USANi LLC in the same manner as it would if such businesses were wholly owned by
USAi. For a description of the fundamental changes, see "-- Governance
Agreement -- Fundamental Changes." Following the CEO Termination Date (as
hereinafter defined) or Mr. Diller's becoming Disabled (as hereinafter defined),
Universal (unless Liberty's beneficial ownership of USAi securities represents
more than 5% in excess of the voting power of USAi securities then beneficially
owned by Universal) will designate the manager of the USANi LLC who will
generally be responsible for managing the businesses of the USANi LLC. If
Liberty and Universal together do not own USAi securities representing at least
40% of the Total Voting Power (and which represent a greater percentage than the
amount owned by any other person), then USAi will select the manager. "Total
Voting Power" means the total number of votes represented by the shares of
Common Stock and Class B Common Stock when voting together as a single class,
with each share of Common Stock entitled to one vote and each share of Class B
Common Stock entitled to ten votes.
The LLC Shares will be exchangeable for shares of USAi Common Stock or USAi
Class B Common Stock (in the case of Universal) and shares of USAi Common Stock
(in the case of Liberty). The exchange agreement relating to LLC Shares (the
"USANi LLC Exchange Agreement") provides customary anti-dilution adjustments
relating to the capital stock and assets of USAi (except to the extent that
dividends or other distributions of USAi stock are accompanied by pro rata
distributions with respect to LLC Shares held by Universal and Liberty, which
the USANi LLC is generally obligated to do pursuant to the Investment
Agreement).
If USAi issues additional USAi securities, USAi is obligated to purchase an
equal number of LLC Shares for the same consideration as received by USAi for
the issued USAi securities. If USAi repurchases or redeems shares of USAi stock,
USAi will sell to the USANi LLC an equal number of LLC Shares for the same
consideration (or for cash, if the USANi LLC cannot provide the same
consideration). The net effect of these provisions is to cause the USANi LLC
generally to hold the proceeds of any USAi equity sales or to fund the costs of
any USAi equity redemptions.
The USANi LLC Exchange Agreement also contains provisions regarding the exchange
or other conversion of LLC Shares in connection with a tender offer, merger or
similar extraordinary
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transaction, which permit Universal and Liberty to participate with respect to
their LLC Shares in such a transaction as if they held USAi stock.
LLC Shares owned by Universal and Liberty are not transferable, except to each
other in connection with transactions permitted by the Stockholders Agreement or
to their respective controlled affiliates or in connection with certain
extraordinary transactions relating to USAi or the USANi LLC.
Covenants
USAi also agreed that, upon the CEO Termination Date or Mr. Diller becoming
Disabled, at the request of Universal and subject to applicable law and the
Spinoff Agreement (as defined below), USAi will distribute those subsidiaries
which engage in broadcasting or other regulated businesses (the "Spinoff
Company") in a distribution to its stockholders (the "Spinoff") as promptly as
practicable on terms and conditions that are reasonably satisfactory to
Universal. Prior to effecting the Spinoff, USAi will enter into ten-year
affiliation agreements with the Spinoff Company that will provide that the
Spinoff Company will broadcast programming produced by USAi on customary terms
and conditions, including arm's-length payment obligations. USAi, Universal and
Liberty are parties to an agreement, dated as of October 19, 1997 (the "Spinoff
Agreement") regarding certain matters relating to the Spinoff and the Spinoff
Company. This agreement is described below, see "-- Spinoff Agreement."
Universal has covenanted that in the event UTV EBITDA (as defined in the
Investment Agreement) for the three-year periods ending on December 31, 1998,
1999 and 2000 (the "Determination Period") is less than $150 million, Universal
will pay USAi the excess of $150 million over UTV EBITDA for the Determination
Period, subject to a maximum of $75 million.
Governance Agreement
General
USAi, Universal, Liberty and Mr. Diller are parties to the Governance Agreement.
This document sets forth certain restrictions on the acquisition of additional
securities of USAi, on the transfer of USAi securities and other conduct
restrictions, in each case, applicable to Universal. In addition, the Governance
Agreement governs Universal's and Liberty's rights to representation on the USAi
Board and Universal's, Liberty's and Mr. Diller's right to approve certain
actions by USAi or any subsidiary of USAi (including the USANi LLC) (the
"Fundamental Changes").
Restrictions on the Acquisition of Additional Voting Securities
The Governance Agreement provides that, for a four-year period commencing on the
closing of the Universal Transaction (the "Standstill Period"), without the
approval of the USAi Board, Universal will not acquire additional beneficial
ownership of USAi common equity other than through the exercise of Universal's
preemptive right to maintain its percentage equity beneficial ownership interest
and will not, except as a result of the exercise of the USAi Share Option,
beneficially own in excess of 48.5% of USAi's common equity or a lesser
percentage to the extent Universal transfers USAi equity securities or fails to
exercise its preemptive right (except, in any case, to the extent caused by
USAi's redemption or purchase of USAi securities). Following expiration of the
Standstill Period, subject to applicable law, Universal may acquire additional
USAi securities to increase its beneficial ownership of stock up to 50.1% of
USAi's outstanding equity securities. In addition, following the first
anniversary of the expiration of the Standstill Period and subject to compliance
with applicable law, Universal can acquire up to 57.5% of USAi's outstanding
equity securities, but not in excess of 1.5% in any 12-month period. Following
the CEO Termination Date or Mr. Diller becoming Disabled, Universal also can
engage in a Permitted Business Combination. The maximum permissible
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ownership percentages set forth in this paragraph exclude any shares Universal
may acquire from Liberty or Mr. Diller pursuant to the Stockholders Agreement.
(These percentages are all based on the Assumptions.)
The Governance Agreement defines a "Permitted Business Combination" to mean (i)
a tender or exchange offer by Universal for all the equity securities of USAi
that is accepted by a majority of USAi's Public Stockholders or (ii) a merger
(other than a merger following a tender or exchange offer complying with (i)
above) involving USAi and Universal that is approved, in addition to any vote
required by law, by a majority of the Public Stockholders, so long as, in either
case, a committee of USAi's directors (excluding directors designated by
Universal and Liberty and any director who has a conflict of interest)
determines that the tender offer, exchange offer or merger, as the case may be,
is fair to the Public Stockholders. "Public Stockholders" is defined as any
stockholder who beneficially owns less than 10% of USAi's outstanding voting
power on an applicable vote or less than 10% of USAi's outstanding equity
securities to be tendered in any applicable tender or exchange offer.
If, during the Standstill Period, Mr. Diller no longer serves as Chief Executive
Officer of USAi (provided that he does not hold a proxy to vote Universal's USAi
equity securities under the Stockholders Agreement) or becomes disabled, the
Standstill Period will be deemed expired and the transfer restrictions
summarized below will terminate. The date that is the later of the date that Mr.
Diller no longer serves as Chief Executive Officer and such date that Mr. Diller
no longer holds the Universal proxy under the Stockholders Agreement is referred
to as the "CEO Termination Date." In addition, the restrictions described above
generally terminate:
- if any person or group (other than Universal) beneficially owns more than
one-third of USAi's equity securities (excluding any securities acquired
from Universal, Liberty or Mr. Diller in accordance with the Stockholders
Agreement so long as Universal was offered (and did not accept) a
reasonable opportunity to buy such equity securities or from USAi); or
- if any person or group (other than USAi or Universal) commences a tender
or exchange offer for more than a majority of USAi's outstanding equity
securities, which is not recommended against by the USAi Board. In the
case of such an offer by Liberty in breach of its standstill obligations
under the Stockholders Agreement, this provision applies only if
Universal is unsuccessful after using good faith efforts in enforcing its
standstill with Liberty.
"Disabled," when used in the Governance Agreement or the Stockholders Agreement,
means a disability after the expiration of 180 consecutive days which is
determined by a designated physician to be total and permanent (i.e., a mental
or physical incapacity that prevents Mr. Diller from managing the business
affairs of USAi) and which continues after 90 days following receipt of notice
from USAi that a disability has occurred.
Transfer Restrictions
The Governance Agreement also restricts, until the earlier of the CEO
Termination Date or Mr. Diller becoming Disabled, Universal's ability to
transfer USAi securities to another party by providing that during the
Standstill Period and subject to the Stockholders Agreement that further
restricts Universal's ability to transfer USAi securities, Universal may only
transfer USAi securities in limited circumstances, including as follows:
- in a widely dispersed public offering pursuant to registration rights to
be granted to Universal or a pro rata distribution to Universal's
stockholders (which, in the case of Seagram, must be to its public
stockholders);
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- in a sale in accordance with Rule 144 under the Securities Act, except
generally not to a transferee who would beneficially own more than 5% of
the USAi equity following such purchase;
- in a tender or exchange offer that is not rejected by the USAi Board or
to USAi in connection with a self-tender offer;
- in transfers of up to 5% in the aggregate to any institutional or
financial investors, not exercisable on more than two occasions in any
six-month period;
- in pledges in connection with bona fide financings with a financial
institution; and
- in transfers to Liberty, Mr. Diller or any controlled affiliate of
Universal that signs the Governance Agreement.
At any time that Universal beneficially owns at least 20% of USAi's equity
securities, any transfers by Universal, other than the transfers permitted
during the Standstill Period, will be subject to a right of first refusal in
favor of USAi which right is secondary to the right of first refusal of Mr.
Diller (to the extent applicable) provided in the Stockholders Agreement.
In addition, the Governance Agreement provides that LLC Shares cannot be
transferred by Universal or Liberty to non-affiliates, other than to each other.
Accordingly, prior to a permitted transfer, any LLC Shares intended to be
transferred by either Universal or Liberty generally must first be exchanged
into USAi securities. The Stockholders Agreement further provides that, as long
as the CEO Termination Date has not occurred and Mr. Diller is not Disabled,
Universal or Liberty, as the case may be, must first offer Mr. Diller (or his
designee) the opportunity to exchange shares of Class B Common Stock owned by
the transferring party for shares of Common Stock. If Mr. Diller (or his
designee) does not exchange such shares (or if the CEO Termination Date has
occurred or Mr. Diller is Disabled), any shares of Class B Common Stock to be
transferred by Universal must first be exchanged into shares of Common Stock
unless the transferee agrees to be bound by the restrictions contained in the
Governance Agreement applicable to Universal to the extent that the transferee
owns 10% or more of the Total Voting Power. Such a transferee would be subject
to the remaining limitations on Universal's acquisition of USAi securities and
conduct restrictions contained to the Governance Agreement. See "-- Stockholders
Agreement -- Transfers of Shares of Class B Common Stock."
Universal Conduct Restrictions
Universal has agreed not to propose to the USAi Board any merger, tender offer
or other business combination involving USAi. Universal also has agreed to
related restrictions on its conduct, such as:
- not seeking to influence the management of USAi, other than as permitted
by the Governance Agreement and the Stockholders Agreement;
- not entering into agreements relating to the voting of USAi securities,
except as permitted by the Governance Agreement and the Stockholders
Agreement;
- generally not initiating or proposing any stockholder proposal in
opposition to the recommendation of the USAi Board; and
- not joining with others (other than Liberty and Mr. Diller pursuant to
the Transaction Agreements) for the purpose of acquiring, holding, voting
or disposing of any USAi securities.
The foregoing restrictions terminate on the earlier of the CEO Termination Date
and such time as Mr. Diller becomes Disabled.
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Representation on the USAi Board
Pursuant to the Governance Agreement, Universal is permitted to designate four
persons, reasonably satisfactory to USAi, to the USAi Board, of whom no more
than one can be a non-affiliate of Universal and generally will have the right
to designate one USAi Board member for each 10% ownership of USAi equity
(including LLC Shares) up to a maximum of four directors.
In addition, pursuant to the Governance Agreement, provided that Liberty's USAi
stock ownership remains at certain levels and subject to applicable law, Liberty
has the right to designate up to two directors at such time as Liberty is no
longer prohibited from having representation on the USAi Board. Pursuant to FCC
law and regulations, Liberty is not currently permitted to have a designee on
the USAi Board. The USANi LLC operating agreement provides that, subject to the
same ownership thresholds, Liberty is permitted to designate two (or one)
directors on the Board of Directors of the USANi LLC, to the extent that Liberty
is not permitted to designate directors of USAi. The other members of the Board
of Directors of USANi LLC are the USAi directors.
Fundamental Changes
USAi has agreed that neither USAi nor any subsidiary of USAi (including the
USANi LLC) will effect a Fundamental Change without the prior approval of
Universal, Liberty and Mr. Diller (each, a "Stockholder") so long as such
Stockholders beneficially own certain minimum amounts of USAi securities. The
Fundamental Changes are as follows:
- Any transaction not in the ordinary course of business, launching new or
additional channels or engaging in any new field of business which will
result in or is reasonably likely to result in such Stockholder being
required under law to divest itself of all or any part of its USAi
securities, LLC Shares or any material assets or render any such
ownership illegal or subject such Stockholder to any fines, penalties or
material additional restrictions or limitations.
- Any combination of the following, in any case, in one transaction or a
series of transactions during a six-month period, with a value of 10% or
more of the market value of USAi's outstanding equity securities at the
time of such transaction (assuming that all LLC Shares and Additional
Liberty Shares are converted or exchanged into USAi securities):
-- acquiring or disposing of any assets or business, provided that the
matters contemplated by the Investment Agreement including with
respect to the Spinoff (conducted in accordance with the Investment
Agreement) will not require the prior approval of Liberty;
-- granting or issuing any debt or equity securities of USAi or any of
its subsidiaries (including the USANi LLC) other than as contemplated
by the Investment Agreement;
-- redeeming, repurchasing or reacquiring any debt or equity securities
of USAi or any of its subsidiaries (including the USANi LLC) other
than as contemplated by the Investment Agreement and agreements
relating to the Additional Liberty Shares; or
-- incurring any indebtedness;
- For a five-year period following the closing of the Universal
Transaction, disposing of any interest in USA Networks or, other than in
the ordinary course of business, its assets, provided that matters set
forth in this bullet point will constitute a Fundamental Change only with
respect to Mr. Diller and Universal and will not require the approval of
Liberty.
- Disposing of or issuing any LLC Shares except as contemplated by the
Investment Agreement or pledges in connection with financings.
- Voluntarily commencing any liquidation, dissolution or winding up of USAi
or any material subsidiary (including the USANi LLC).
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- Making any material amendments to the Amended and Restated Certificate of
Incorporation of USAi (the "USAi Certificate") or the Amended and
Restated By-Laws of USAi (the "USAi By-Laws").
- Engaging in any line of business other than media, communications and
entertainment products, services and programming, and electronic
retailing, or other businesses engaged in by USAi on the date of the
Investment Agreement or as contemplated by the Investment Agreement,
provided that neither USAi nor the USANi LLC shall engage in theme park,
arcade or film exhibition businesses so long as Universal is restricted
from competing in such lines of business under non-compete or similar
agreements and such agreements would be applicable to USAi and/or the
USANi LLC, as the case may be, by virtue of Universal's ownership
therein. The matters set forth in the foregoing proviso will constitute a
Fundamental Change only with respect to Mr. Diller and Universal and will
not require the approval of Liberty.
- Settling of any litigation, arbitration or other proceeding which is
other than in the ordinary course of business and which involves any
material restriction on the conduct of business by USAi or such
Stockholder or the continued ownership of assets by USAi or such
Stockholder.
- Engaging in any transaction (other than those contemplated by the
Investment Agreement) between USAi and its affiliates, on the one hand,
and Mr. Diller, Universal or Liberty, and their respective affiliates, on
the other hand, subject to exceptions relating to the size of the
proposed transaction and those transactions which are otherwise on an
arm's-length basis.
- Adopting any stockholder rights plan (or any other plan or arrangement
that could reasonably be expected to disadvantage any stockholder on the
basis of the size or voting power of its shareholding) that would
adversely affect such Stockholder.
- Entering into any agreement with any holder of USAi's equity securities
or LLC Shares in such stockholder's or interest holder's capacity as
such, as the case may be, which grants such stockholder with approval
rights similar in type and magnitude to those set forth in these
Fundamental Changes.
- Entering into any transaction that could reasonably be expected to impede
USAi's ability to engage in the Spinoff or cause it to be taxable.
Registration Rights
The Governance Agreement provides that Universal, Liberty and Mr. Diller are
entitled to customary registration rights (including six, four and two "demand"
rights for Universal, Liberty and Mr. Diller, respectively) relating to the USAi
securities they own.
Stockholders Agreement
General
Universal, Liberty, Mr. Diller, USAi and Seagram are parties to a Stockholders
Agreement, which, governs the ownership, voting, transfer or other disposition
of USAi securities owned by Universal, Liberty and Mr. Diller (and their
respective affiliates) and pursuant to which Mr. Diller exercises voting control
over the equity securities of USAi held by such persons and certain of their
affiliates.
Voting Authority
Pursuant to the Stockholders Agreement, each of Universal and Liberty have
granted to Mr. Diller an irrevocable proxy over all USAi securities owned by
Universal, Liberty and certain of their affiliates for all matters except for a
Fundamental Change, which requires the consent of each of
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Mr. Diller, Universal and Liberty. The proxy will generally remain in effect
until the earlier of the CEO Termination Date or such date that Mr. Diller
becomes Disabled, provided that Mr. Diller continues to beneficially own at
least 5,000,000 shares of Common Stock (including options to acquire shares of
Common Stock, whether or not exercisable).
Universal, Liberty and Mr. Diller have also agreed to vote all USAi securities
over which they have voting control in favor of the respective designees of
Universal and Liberty to the USAi Board.
Mr. Diller has agreed with Universal that, after the CEO Termination Date or
such date that Mr. Diller becomes Disabled, and so long as he beneficially owns
USAi securities representing at least 7.5% of the Total Voting Power (excluding
securities beneficially owned by Universal or Liberty), at Universal's option he
will either vote his shares in his own discretion or in proportion to the vote
of the Public Stockholders.
Liberty Conduct Limitations; Board Representation
Liberty has agreed with Universal that it will not beneficially own
approximately 21% or more of the equity of USAi, which percentage will be
reduced to reflect sales of USAi equity by Liberty or in the event that Liberty
does not exercise its preemptive right pursuant to the Investment Agreement,
provided that if Liberty's initial ownership percentage is less than 20%, such
reduction is calculated as if it were 20%. This restriction terminates upon the
earlier of such time as Liberty beneficially owns less than 5% of the shares of
USAi securities or the date that Universal beneficially owns fewer shares than
Liberty beneficially owns (the "Standstill Termination Date").
Liberty also has agreed not to propose to the USAi Board the acquisition by
Liberty, in a merger, tender offer or other business combination, of the
outstanding USAi securities. Liberty has agreed to related restrictions on its
conduct, such as:
- not seeking to elect directors to the USAi Board or otherwise to
influence the management of USAi, other than as permitted by the
Governance Agreement and the Stockholders Agreement;
- not entering into agreements relating to the voting of USAi securities,
except as permitted by the Stockholders Agreement;
- generally not initiating or proposing any stockholder proposal in
opposition to the recommendation of the USAi Board; and
- not joining with others (other than Universal and Mr. Diller pursuant to
the Transaction Agreements) for the purpose of acquiring, holding, voting
or disposing of any USAi securities.
The foregoing restrictions terminate on the earlier of the termination of
Liberty's obligations under the Stockholders Agreement (when Liberty no longer
beneficially owns at least 5% of the shares of USAi securities) or the
Standstill Termination Date.
Liberty is not permitted to designate for election to the USAi Board more than
two directors, subject to applicable law. This restriction terminates on the
Standstill Termination Date. See "-- Governance Agreement -- Representation on
the USAi Board."
Restrictions on Transfers
The Stockholders Agreement contains a number of provisions that limit or control
the transfer of USAi securities (including LLC Shares) by Universal, Liberty and
Mr. Diller. These provisions generally have the effect of permitting this group
of stockholders to maintain control of a majority of the Total Voting Power.
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Until the earlier of the CEO Termination Date or such date that Mr. Diller
becomes Disabled, neither Liberty nor Mr. Diller can transfer shares of USAi
stock, other than:
- transfers by Mr. Diller to pay taxes relating to certain USAi incentive
compensation and stock options;
- transfers to each party's respective affiliates; and
- certain pledges relating to borrowings.
These restrictions are subject to a number of exceptions, including the
following:
- after August 24, 2000, Liberty or Mr. Diller may generally sell all or
any portion of their USAi stock.
- either stockholder may transfer USAi stock so long as, in the case of Mr.
Diller, Mr. Diller continues to beneficially own at least 1,100,000
shares of USAi stock (including stock options) and, in the case of
Liberty, Liberty continues to beneficially own at least 1,000,000 shares
of USAi stock and, in the case of a transfer of the shares of Class B
Common Stock by certain BDTV Entities (as defined herein) (which together
hold 11,811,702 shares of Class B Common Stock), after such transfer,
Liberty, Universal and Mr. Diller collectively control 50.1% of the Total
Voting Power.
Universal has agreed that, until August 24, 2000, it will not transfer shares of
USAi stock (or convert Class B Common Stock into Common Stock, subject to
certain exceptions) which it acquired in the Universal Transaction.
Rights of First Refusal and Tag-Along Rights
Each of Universal and Mr. Diller have a right of first refusal with respect to
certain sales of USAi securities by the other party. Liberty's rights in this
regard are secondary to any Universal right of first refusal on transfers by Mr.
Diller. Liberty and Mr. Diller each also generally has a right of first refusal
with respect to certain transfers by the other party. In addition, Universal has
a right of first refusal (subject to Mr. Diller not having exercised his right
of first refusal) with respect to sales by Liberty prior to August 24, 2000 of a
number of shares of USAi stock having the aggregate number of votes represented
by the shares of Common Stock and Class B Common Stock received by Universal in
the Universal Transaction. Rights of first refusal may be exercised by the
stockholder or the stockholder's designee, subject to the terms of the
Stockholders Agreement.
In addition, Mr. Diller and Liberty have agreed to grant the other stockholder a
right to "tag along" (i.e., participate on a pro rata basis) on certain sales of
USAi stock by the transferring stockholder. These tag-along rights are subject
to a number of exceptions, including relating to the quantity of shares sold or
the permitted transfers described in the first paragraph above under
"-- Restrictions on Transfers."
In the event that Universal transfers a substantial amount of its USAi stock
(more than 50% of its interest as of the closing of the Universal Transaction or
an amount that results in a third party owning a greater percentage of the USAi
equity than that owned by Universal, Liberty or any other stockholder and which
represents at least 25% of the Total Voting Power), Universal has granted a
tag-along right to each of Liberty and Mr. Diller.
Under the Governance Agreement, transfers of USAi securities by Universal
(whether before or after the CEO Termination Date or such date as Mr. Diller
becomes Disabled) are subject to a right of first refusal in favor of USAi (but
secondary to Mr. Diller's first refusal right), as long as Universal
beneficially owns at least 20% of the total USAi securities. This right of first
refusal does not apply to
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permitted transfers by Universal under the Governance Agreement, which are
permitted prior to the CEO Termination Date. See "-- Governance
Agreement -- Transfer Restrictions."
Put and Call Rights
Universal, Liberty and Mr. Diller have agreed to certain put and call
arrangements, pursuant to which one party has the right to sell (or the other
party has the right to acquire) shares of USAi stock held by another party.
LIBERTY/UNIVERSAL PUT AND CALL RIGHTS. Prior to the CEO Termination Date or
such date as Mr. Diller becomes Disabled, Universal has the right to acquire
substantially all of Liberty's USAi securities in the event that Mr. Diller and
Universal agree to take an action that would constitute a Fundamental Change
described in the second bullet under "Fundamental Changes" above but Liberty
does not provide its consent. In addition, at any time after the CEO Termination
Date or such date as Mr. Diller becomes Disabled, Liberty has the right to
require Universal to purchase substantially all of Liberty's USAi securities,
and Universal has the reciprocal right to elect to acquire such shares.
Universal may effect these acquisitions through a designee. The Stockholders
Agreement sets forth provisions to establish the purchase price and conditions
for these transactions.
Universal also has certain rights and obligations to acquire Liberty's USAi
securities in connection with a Permitted Business Combination, in the event
that Universal using its best efforts cannot provide Liberty with tax-free
consideration in connection with such a transaction. This provision effectively
means that, after such a transaction, Liberty would not own in excess of 20% of
the outstanding equity of the resulting company.
DILLER PUT. Following the CEO Termination Date or such date as Mr. Diller
becomes Disabled (the "Put Event"), Mr. Diller has the right, during the
one-year period following the Put Event, to require Universal to purchase for
cash shares of USAi stock beneficially owned by Mr. Diller and that were
acquired by Mr. Diller from USAi (such as pursuant to the exercise of stock
options). If the Put Event occurs prior to the fourth anniversary of the closing
of the Universal Transaction, the purchase price will be an average purchase
price for the Common Stock for a period following public announcement of the Put
Event. If the Put Event occurs after that four-year period, but Mr. Diller
exercises his put right within 10 business days of the Put Event, the price will
be based on the market price of the Common Stock prior to public announcement of
the Put Event. In all other cases, the price per share received by Mr. Diller
will be an average market price for a period immediately preceding the exercise
of the put.
Mr. Diller's put right must be transferred by Universal in the event that it
sells a certain amount of its USAi securities to a third party. Universal's
obligations with respect to the put terminate at the time that Universal no
longer beneficially owns at least 10% of the USAi equity. Liberty does not have
a tag-along right with respect to the Put Event exercise.
Transfers of Shares of Class B Common Stock
During the term of the Stockholders Agreement, transfers of shares of Class B
Common Stock are generally prohibited (other than to another stockholder party
or between a stockholder and its affiliates). If a stockholder proposes to
transfer these shares, Mr. Diller is entitled to first swap any shares of Common
Stock he owns for such shares and, thereafter, any other non-transferring
stockholder (with Universal's right preceding Liberty's) may similarly swap
shares of Common Stock for shares of Class B Common Stock proposed to be
transferred. To the extent there remain shares of Class B Common Stock that the
selling stockholder would otherwise transfer to a third party, such shares must
be converted into shares of Common Stock prior to the transfer. This restriction
does not apply to, among other transfers, a transfer by Universal after the CEO
Termination Date. Under the Governance Agreement, a transferee of Universal's
shares of Class B Common Stock must agree to
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the conduct and securities ownership restrictions applicable to Universal, if
such transferee would own at least 10% of the Total Voting Power.
BDTV Entity Arrangements
Mr. Diller and Liberty will continue to have substantially similar arrangements
with respect to the voting control and ownership of the equity of the BDTV
Entities, which hold a substantial majority of the Total Voting Power. These
arrangements effectively provide that Mr. Diller controls the voting of USAi
securities held by these entities, other than with respect to Fundamental
Changes, and Liberty retains substantially all of the equity interest in such
entities. If applicable law permits Liberty to hold directly the shares of USAi
stock held by the BDTV Entities, then Liberty may purchase Mr. Diller's nominal
equity interest in these entities for a fixed price, in which case the shares of
USAi stock then held by Liberty would otherwise be subject to the proxy
described above held by Mr. Diller with respect to Liberty's and Universal's
shares of USAi stock pursuant to the Stockholders Agreement.
Termination of Stockholders Agreement
Universal's rights and obligations generally terminate at such time as Universal
no longer beneficially owns at least 10% of the USAi equity.
Mr. Diller's and Liberty's rights and obligations under this agreement generally
terminate (other than with respect to Mr. Diller's put right) at such time as,
in the case of Mr. Diller, he no longer beneficially owns at least 1,100,000
shares of USAi equity securities, and, in the case of Liberty, 1,000,000 shares.
Certain of Liberty's rights and obligations relating to its put/call
arrangements with Universal and its tag-along rights terminate when it no longer
has the right to consent to Fundamental Changes under the Governance Agreement.
See "-- Governance Agreement -- Fundamental Changes." Mr. Diller's rights and
obligations (other than with respect to Mr. Diller's put right) also generally
terminate upon the CEO Termination Date or such date as Mr. Diller becomes
Disabled.
Transferees of USAi securities as permitted by the Stockholders Agreement and
who would beneficially own in excess of 15% of the Total Voting Power are
generally not entitled to any rights of the transferring stockholder under the
agreement but are, for a period of 18 months, subject to the obligations
regarding the election of directors. These transferees must also vote with
respect to Fundamental Changes in the manner agreed upon by the other two
stockholders. In addition, a transferee of Liberty or Mr. Diller who would own
that amount of the Total Voting Power would also be subject, for a period of 18
months, to the limitations on acquisitions of additional USAi securities
summarized above under "-- Liberty Conduct Limitations; Board Representation."
Spinoff Agreement
Universal, Liberty and USAi are parties to the Spinoff Agreement, which
generally provides for interim arrangements relating to management of USAi and
efforts to achieve the Spinoff or a sale of USAi's broadcast stations and, in
the case of a Spinoff, certain arrangements relating to their respective rights
(including preemptive rights) in USAi resulting from the Spinoff. The provisions
of the Spinoff Agreement do not become operative until the earlier of the CEO
Termination Date or such date as Mr. Diller becomes Disabled.
Liberty and Universal have agreed to use their reasonable best efforts to cause
an interim CEO to be appointed, who is mutually acceptable to them and is
independent of Liberty and Universal. If Universal elects, within 60 days of the
CEO Termination Date or such date as Mr. Diller becomes Disabled, to effect a
sale of USAi's broadcast stations, this designated CEO would generally have a
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proxy to vote Liberty's USAi stock, at Universal's option, either in such CEO's
discretion or in the same proportion as the public stockholders, pending
completion of the station divestiture.
If Universal elects to complete the station divestiture, Liberty and Universal
(and USAi) have agreed to use best efforts to cause the divestiture to be
structured as a tax-free distribution to USAi's shareholders (the Spinoff). If a
tax-free Spinoff is not available, USAi has agreed to use its best efforts to
sell the stations, except that if the USAi Board (other than any designees of
Universal or Liberty) concludes that a taxable spinoff, when compared with a
sale, represents a superior alternative, USAi will consummate a taxable spinoff.
Universal has agreed to reimburse Liberty in connection with any such taxable
spinoff in an amount up to $50 million with respect to any actual tax liability
incurred by Liberty in such a transaction.
If Universal makes the election described above, Liberty has agreed not to
transfer, directly or indirectly, any of its Common Stock or Class B Common
Stock for a period of fourteen months after the CEO Termination Date (or such
date as Mr. Diller becomes Disabled) if such transfer would result in Universal
and Liberty ceasing to own at least 50.1% of the outstanding USAi voting power
(as long as Universal has not transferred more than 3% of the outstanding USAi
stock following the closing of the Universal Transaction).
The Spinoff Agreement also contains agreements between Universal and Liberty
regarding the selection of the CEO of the company resulting from the Spinoff,
and provides that the Stockholders Agreement shall continue in effect subject to
its terms with respect to USAi following the Spinoff.
Liberty and Universal have also agreed not to take any action under the Spinoff
Agreement that would cause the loss or termination of USAi's FCC licenses or
cause the FCC to fail to renew those licenses.
USAi has agreed that, so long as (i) Universal beneficially owns at least 40% of
the total equity securities of USAi and no other stockholder owns more than the
amount owned by Universal, or (ii) Liberty and Universal together own at least
50.1% of such equity securities, USAi will use its reasonable best efforts to
enable Universal and Liberty to achieve the purposes of the Spinoff Agreement.
The Spinoff Agreement terminates, with respect to Universal, at the earlier of
the termination of Universal's right to seek a Spinoff under the Investment
Agreement or such time as Universal beneficially owns less than 7.5% of the
voting power of the USAi equity securities. Liberty's rights terminate at the
earlier of the termination generally of Liberty's rights and obligations under
the Stockholders Agreement or when Liberty beneficially owns less than 7.5% of
the voting power of USAi equity securities.
Ancillary Business Agreements
In connection with the Universal Transaction, USAi and Universal have agreed to
various other business relationships relating to Studios USA and the other
businesses of Universal. These agreements cover the following principal areas:
Domestic Television Distribution Agreement
For a period of 15 years following the closing of the Universal transaction,
USAi will generally be the exclusive distributor in the United States of
television programs with respect to which Universal is retaining, or acquires,
distribution rights. This programming includes substantial television product
owned by Universal as part of its television library (such as series no longer
in production, "made for television" movies, animated programs, action
adventures and talk shows). This exclusive relationship is subject to certain
exceptions regarding future extraordinary transactions by Universal and certain
excluded programming. USAi will receive a 10% distribution fee (based on gross
receipts) for
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Universal television library programs and any one-hour programs it distributes
and fees ranging from 5% to 7.5% for other programs.
International Television Distribution Agreement
USANi LLC has granted Universal an exclusive right similar to the rights
described above regarding the distribution outside the United States of
programming owned or controlled by USANi LLC (other than the Home Shopping
Network programming services and similar home shopping programming of USAi).
Universal will generally receive a 10% distribution fee with respect to
distributed USANi LLC programs. Subject to certain exceptions, USAi has
generally agreed that it will not engage in the international programming
distribution business, and Universal has agreed to give first priority to USAi
programming under its output and volume deals with foreign distribution
customers.
International TV Joint Venture
Universal and USAi have agreed to form a 50-50 joint venture to be managed by
Universal which will own, operate and exploit the international development of
USA Network, The Sci-Fi Channel and a new action/suspense channel known as "13th
Street." Under the agreement, unless USAi elects not to participate in such
venture (in which case Universal will acquire USAi's 50% interest (or Sci-Fi
Europe and USA's international business) for an agreed-upon price), which
election the Company expects to be made in the first quarter of 1999, each of
Universal and USAi has agreed to fund up to $100 million in additional capital
contributions. The developed international channels will be managed by
Universal. The international joint venture agreement will also generally, so
long as USAi is a member of the venture, give Universal the option to develop,
as part of the venture, other international channels based on new domestic
channels that USAi develops (other than home shopping channels and local
broadcast stations). See "Business -- International Ventures -- International TV
Channel Joint Venture."
Other Ongoing Business Relationships
USANi and Universal have also agreed that, with respect to television
productions for the major networks produced by Studios USA or USA Networks in
Southern California or Florida, USANi LLC generally will utilize the
preproduction, production and post-production facilities of Universal, at
specified rates.
The parties will enter into various agreements relating to merchandising of
products derived from the Studios USA acquired programs, video distribution of
USANi LLC programs, music publishing and theme park rights. In addition,
Universal has agreed to provide certain services to USANi LLC on a transitional
basis for up to one year following the closing of the Universal Transaction at
specified fees.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Initial Notes were, and the Exchange Notes will be, issued under an
indenture, dated as of November 23, 1998 (the "Indenture"), among the Issuers,
as joint and several obligors, the Guarantors and The Chase Manhattan Bank, as
Trustee (the "Trustee"). The following summary of certain provisions of the
Indenture (which includes the Guarantees) and the Exchange Notes does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture and the Exchange Notes
(including the definitions of certain terms therein and those terms made a part
thereof by the TIA), both of which have been filed as exhibits to the
Registration Statement and are available as set forth under the heading "Where
You Can Find More Information." Capitalized terms used in this Prospectus and
not otherwise defined have the meanings set forth under "-- Certain
Definitions."
TERMS OF THE NOTES
The Initial Notes and the Exchange Notes are limited to $500,000,000 aggregate
principal amount. The Initial Notes and the Exchange Notes mature on November
15, 2005 (such date, the "Stated Maturity Date") and upon surrender will be
repaid at 100% of the principal amount thereof. Principal and interest on the
Exchange Notes are payable in immediately available funds in U.S. dollars, or in
such other coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts.
The Exchange Notes will bear interest at the rate of 6 3/4% per annum from
November 23, 1998 or from the most recent interest payment date to which
interest has been paid or provided for. Interest on the Exchange Notes will be
payable semi-annually on each May 15 and November 15 (each such date, an
"Interest Payment Date"), commencing on May 15, 1999, until the principal amount
has been paid or made available for payment, to Holders of record of the
Exchange Notes at the close of business on the May 1 or November 1, as the case
may be, next preceding such Interest Payment Date. Interest on the Exchange
Notes shall be calculated on the basis of a 360-day year of twelve 30-day
months.
In any case where the date of payment of the principal of or interest on the
Exchange Notes or the date fixed for redemption of the Exchange Notes shall not
be a "Business Day" (as defined below), then payment of principal or interest
need not be made on such date at such place but may be made on the next
succeeding Business Day, with the same force and effect as if made on the
applicable payment date or the date fixed for redemption, and no interest shall
accrue for the period after such date. A "Business Day" shall mean a day which
is not, in New York City, a Saturday, Sunday, a legal holiday or a day on which
banking institutions are authorized or obligated by law to close.
Principal of, premium, if any, and interest on, the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Issuers in the Borough of Manhattan, The City of New York
(which initially shall be the corporate trust office of the Trustee, 450 West
33rd Street, 15th Floor, New York, New York 10001), except that, at the option
of the Issuers, payment of interest may be made by check mailed to the
registered Holders of the Notes at their registered addresses or by wire
transfer to an account located in the United States maintained by the payee.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge will be made for any registration of transfer or exchange of
Initial Notes or Exchange Notes, but the Issuers may require payment of a
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sum sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
OPTIONAL REDEMPTION
The Exchange Notes will be redeemable, in whole or in part, at any time and from
time to time, at the option of the Issuers, at a redemption price equal to the
greater of (i) 100% of the principal amount of the Exchange Notes to be redeemed
and (ii) the sum of the present values of the Remaining Scheduled Payments
thereon, discounted to the redemption date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25
basis points, plus accrued interest thereon to the date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate per annum
equal to the semi-annual equivalent yield to maturity (computed as of the second
Business Day immediately preceding such redemption date) of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security selected
by an Independent Investment Banker that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the Notes. "Independent Investment Banker" means one of the Reference
Treasury Dealers appointed by the Issuers.
"Comparable Treasury Price" means, with respect to any redemption date, (i) the
average of the bid and asked prices for the Comparable Treasury Issue (expressed
in each case as a percentage of its principal amount) on the third Business Day
preceding such redemption date, as set forth in the daily statistical release
(or any successor release) published by the Federal Reserve Bank of New York and
designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or
(ii) if such release (or any successor release) is not published or does not
contain such prices on such Business Day, (a) the average of the Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest of such Reference Treasury Dealer Quotations, or (b) if the Trustee
obtains fewer than four such Reference Treasury Dealer Quotations, the average
of all such Quotations.
"Reference Treasury Dealer" means each of Chase Securities Inc. (and its
successors) and three other nationally recognized investment banking firms that
are Primary Treasury Dealers specified from time to time by the Issuers;
provided, however, that if any of the foregoing shall cease to be a primary U.S.
Government securities dealer (a "Primary Treasury Dealer"), the Issuers shall
substitute therefor another nationally recognized investment banking firm that
is a Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer as of 3:30 p.m., New
York time, on the third Business Day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to each Exchange Note to be
redeemed, the remaining scheduled payments of the principal thereof and interest
thereon that would be due after the related redemption date but for such
redemption; provided, however, that, if such redemption date is not an Interest
Payment Date with respect to such Note, the amount of the next succeeding
scheduled interest payment thereon will be reduced by the amount of interest
accrued thereon to such redemption date.
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Notice of a redemption will be mailed at least 30 days but no more than 60 days
before the redemption date to each Holder of Exchange Notes to be redeemed. If
less than all the Exchange Notes are to be redeemed, the Exchange Notes to be
redeemed shall be selected by the Trustee by such method as the Trustee shall
deem fair and appropriate in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances. Unless the Issuers default
in payment of the redemption price, on and after the redemption date, interest
will cease to accrue on the Exchange Notes or portions thereof called for
redemption.
Except as set forth above, the Exchange Notes will not be redeemable by the
Issuers prior to maturity and will not be entitled to the benefit of any sinking
fund.
RANKING
The Exchange Notes will be unsecured and unsubordinated obligations of the
Issuers and will rank pari passu with all other existing and future unsecured
and unsubordinated obligations of the Issuers (except those obligations
preferred by operation of law). The Guarantees will be unsecured and
unsubordinated obligations of the relevant Guarantor and will rank pari passu
with all other existing and future unsecured and unsubordinated obligations of
such Guarantor (except those obligations preferred by operation of law). The
Exchange Notes and the Guarantees will effectively rank junior to any secured
Indebtedness of the Issuers and the Guarantors to the extent of the assets
securing such Indebtedness.
As of September 30, 1998, on a pro forma basis after giving effect to the
Offering and the application of the net proceeds therefrom and the Exchange
Offer, the Company and USANi LLC would have had approximately $814.3 million and
$762.2 million, respectively, of total consolidated Indebtedness, including
$497.6 million outstanding under the Notes net of discount and approximately
$316.7 million and $264.6 million, respectively, of other unsubordinated
Indebtedness, $31.1 million and $14.6 million, respectively, of which would have
been secured.
GUARANTEES
Each Guarantor will unconditionally guarantee, jointly and severally, to each
Holder and the Trustee, on an unsecured and unsubordinated basis, the full and
prompt payment of principal of, premium, if any, and interest on the Exchange
Notes, and of all other obligations under the Indenture; provided that if for
any reason, the obligations of a Guarantor terminate under the Existing Credit
Agreement (including, without limitation, upon the agreement of the lenders
thereunder or upon the replacement thereof with a credit facility not requiring
such guarantees), such Guarantor will be deemed released from all its
obligations under the Indenture and its Guarantee and such Guarantee will
terminate.
The Indenture provides that the obligations of each Guarantor will be limited to
the maximum amount that, after giving effect to all other contingent and fixed
liabilities of such Guarantor (including, without limitation, any guarantees
under the Existing Credit Agreement) and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, would cause the obligations of
such Guarantor under its Guarantee not to constitute a fraudulent conveyance or
fraudulent transfer under federal or state law.
Each Guarantor may consolidate with or merge into or sell its assets to an
Issuer or another Guarantor without limitation. Each Guarantor may consolidate
with or merge into or sell all or substantially all its assets to a Person other
than the Issuers or another Guarantor (whether or not affiliated with the
Guarantor), except that if the Person surviving any such merger or
consolidation, or the Person to whom such sale is made, is a Subsidiary of
either Issuer, such Subsidiary shall not be a Foreign Subsidiary. Upon the sale
or disposition of a Guarantor (by merger, consolidation, the sale of its Capital
Stock or the sale of all or substantially all of its assets) to a Person
(whether or
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not an Affiliate of the Guarantor) which is not a Subsidiary of either Issuer,
which sale or disposition is otherwise in compliance with the Indenture, such
Guarantor will be deemed released from all its obligations under the Indenture
and its Guarantee and such Guarantee will terminate; provided, however, that any
such termination will occur only to the extent that the obligations of such
Guarantor under the Existing Credit Agreement will also terminate upon such
release, sale or transfer.
CERTAIN COVENANTS
Except as set forth below, neither the Issuers nor any Guarantor are restricted
by the Indenture from Incurring any type of Indebtedness or other obligation,
from paying dividends or making distributions on its Capital Stock or purchasing
or redeeming its Capital Stock. The Indenture does not require the maintenance
of any financial ratios or specified levels of net worth or liquidity. In
addition, the Indenture does not contain any provisions that would require the
Issuers to repurchase or redeem or otherwise modify the terms of any of the
Notes upon a change in control or other events involving either of the Issuers
which may adversely affect the creditworthiness of the Notes.
The Indenture contains covenants including, among others, the following:
LIMITATIONS ON LIENS. The Indenture provides that neither the Issuers nor any
Guarantor will directly or indirectly, Incur, and will not permit any of their
respective Subsidiaries to, directly or indirectly, Incur any Indebtedness
secured by a mortgage, security interest, pledge, lien, charge or other
encumbrance ("mortgages") upon any property or assets (including Capital Stock)
of the Issuers, any Guarantor or any of their respective Subsidiaries or upon
any shares of stock or Indebtedness of any of their respective Subsidiaries
(whether such property, assets, shares or Indebtedness are now existing or owned
or hereafter created or acquired) without in any such case effectively providing
concurrently with the Incurrence of any such secured Indebtedness, or the grant
of a mortgage with respect to any such Indebtedness to be so secured, that the
Notes or, in respect of mortgages on any Guarantor's property or assets, any
Guarantee of such Guarantor (together with, if the Issuers shall so determine,
any other Indebtedness of or guarantee by the Issuers, any Guarantor or any of
their respective Subsidiaries ranking equally with the Notes or the Guarantees),
shall be secured equally and ratably with (or, at the option of the Issuers,
prior to) such secured Indebtedness. The foregoing restriction, however, does
not apply to: (a) mortgages on property, shares of stock or Indebtedness or
other assets of any Person existing at the time such Person becomes a Subsidiary
of an Issuer or any of its Subsidiaries; provided that such mortgage was not
Incurred in anticipation of such Person becoming a Subsidiary; (b) mortgages on
property, shares of stock or Indebtedness existing at the time of acquisition
thereof by an Issuer or a Subsidiary of an Issuer or any of its Subsidiaries
(which may include property previously leased by an Issuer, any Guarantor or any
of their respective Subsidiaries and leasehold interests thereon, provided that
the lease terminates prior to or upon the acquisition) or mortgages thereon to
secure the payment of all or any part of the purchase price thereof, or
mortgages on property, shares of stock or Indebtedness to secure any
Indebtedness for borrowed money Incurred prior to, at the time of, or within 270
days after, the latest of the acquisition thereof, or, in the case of property,
the completion of construction, the completion of improvements or the
commencement of substantial commercial operation of such property for the
purpose of financing all or any part of the purchase price thereof, such
construction or the making of such improvements; (c) mortgages to secure
Indebtedness of a Subsidiary owing to an Issuer or any of its Subsidiaries; (d)
mortgages existing at the date of the initial issuance of the Notes; (e)
mortgages on property of a corporation existing at the time such corporation is
merged into or consolidated with an Issuer or any of its Subsidiaries or at the
time of a sale, lease or other disposition of the properties of a corporation as
an entirety or substantially as an entirety to an Issuer or any of its
Subsidiaries, provided that such mortgage was not Incurred in anticipation of
such merger or consolidation or sale, lease or other disposition; (f) mortgages
created in connection with a
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project financed with, and created to secure, a Nonrecourse Obligation; (g)
mortgages securing the Notes; or (h) extensions, renewals or replacements of any
mortgage referred to in the foregoing clauses (a) through (g) without increase
of the principal of the Indebtedness secured thereby; provided, however, that
any mortgages permitted by any of the foregoing clauses (a) through (g) shall
not extend to or cover any property of the Issuers or any of their respective
Subsidiaries, as the case may be, other than the property specified in such
clauses and improvements thereto.
Notwithstanding the restrictions outlined in the preceding paragraph, the
Issuers and their respective Subsidiaries are permitted to Incur Indebtedness
secured by a mortgage which would otherwise be subject to such restrictions,
without equally and ratably securing the Notes, or in respect of mortgages on
any Guarantors' property or assets, any Guarantee of such Guarantor, provided
that after giving effect thereto, the aggregate amount of all Indebtedness so
secured by mortgages (not including mortgages permitted under clauses (a)
through (h) above) does not exceed 15% of the Consolidated Net Assets of the
Company.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Indenture provides that neither
the Issuers nor any Guarantor will, nor will such Persons permit any of their
respective Subsidiaries to, enter into any Sale/Leaseback Transaction with
respect to any property, whether now owned or hereafter acquired, of an Issuer,
any Guarantor or any of their respective Subsidiaries (except such transactions
(i) entered into prior to the closing of the Offering; (ii) between USANi LLC
and the Company or USANi LLC and any Subsidiary of USANi LLC or the Company or
between the Company and any Subsidiary of USANi LLC or the Company or between
Subsidiaries; (iii) involving leases for no longer than three years; or (iv) in
which the lease for the property or asset is entered into within 270 days after
the later of the date of acquisition, completion of construction or commencement
of full operations of such property or asset), unless (in each case): (a) the
Issuers or such Guarantor or Subsidiary would be entitled to Incur Indebtedness
secured by a mortgage on the property involved in such transaction at least
equal in amount to the Attributable Debt with respect to such Sale/Leaseback
Transaction, without equally and ratably securing the Notes or the Guarantees,
pursuant to the covenant described under "-- Limitation on Liens;" or (b) the
proceeds of the sale of the property to be leased are at least equal to such
property's fair market value (as determined by the Board of Directors of the
Company) and the proceeds are applied within 180 days of the effective date of
such Sale/Leaseback Transaction to the purchase, construction, development or
acquisition of assets or to the repayment of Indebtedness of either of the
Issuers, any Guarantor or any of their respective Subsidiaries.
MERGER, CONSOLIDATION OR SALE OF ASSETS. The Indenture provides that either of
the Issuers may, without the consent of the Holders of any outstanding Notes,
consolidate with or sell, lease or convey all or substantially all of its assets
to, or merge with or into, any other Person, provided that (a) such Issuer shall
be the continuing Person, or the successor Person formed by or resulting from
any such consolidation or merger or which shall have received the transfer of
such assets is organized under the laws of any domestic jurisdiction and
expressly assumes such Issuer's obligations to pay principal of (and premium, if
any) and interest on all of the Notes and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture and
the Guarantees will remain in effect after any such merger or consolidation; (b)
immediately after giving effect to such transaction, no Event of Default under
the Indenture, and no event which, after notice or the lapse of time, or both,
would become such an Event of Default shall have occurred and be continuing; and
(c) an officers' certificate and legal opinion covering certain of such
conditions shall be delivered to the Trustee.
The successor Person will succeed to, and be substituted for, and may exercise
every right and power of, such Issuer under the Indenture, but the predecessor
Issuer in the case of a lease of all or
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substantially all of such Issuer's respective assets will not be released from
the obligation to pay the principal of and interest on the Notes.
FUTURE GUARANTORS. After the closing of the Offering, the Issuers will cause
each Subsidiary created or acquired by either of the Issuers and which becomes
an Existing Credit Agreement Guarantor to execute and deliver to the Trustee a
Guarantee pursuant to which such Subsidiary will unconditionally guarantee, on a
joint and several basis, the full and prompt payment of the principal of,
premium, if any and interest on the Notes on an unsecured and unsubordinated
basis.
DEFAULTS
An Event of Default is defined in the Indenture as: (i) a default in any payment
of interest (including additional interest, if any) on any Note when due, which
continues for 30 days; (ii) a default in the payment of principal of any Note
when due at its Stated Maturity Date, upon optional redemption, upon declaration
or otherwise; (iii) the failure by the Issuers to comply with their other
agreements contained in the Indenture continuing for 90 days after written
notice as provided in the Indenture; (iv)(a) failure to make any payment at
maturity, including any applicable grace period, in respect of Indebtedness in
an amount in excess of $25,000,000 and continuance of such failure or (b) a
default with respect to any Indebtedness, which default results in the
acceleration of Indebtedness in an amount in excess of $25,000,000 without such
Indebtedness having been discharged or such acceleration having been cured,
waived, rescinded or annulled, in the case of (a) or (b) above, for a period of
30 days after written notice thereof to the Issuers by the Trustee or to the
Issuers and the Trustee by the Holders of not less than 25% in principal amount
of outstanding Notes; provided, however, that if any such failure, default or
acceleration referred to in (a) or (b) above shall cease or be cured, waived,
rescinded or annulled, then the Event of Default by reason thereof shall be
deemed likewise to have been cured; (v) any Guarantee ceases to be in full force
and effect (except as contemplated by the terms of the Indenture) or any
Guarantor denies or disaffirms in writing its obligations under the Indenture of
its Guarantee and (vi) certain events in bankruptcy, insolvency or
reorganization involving the Issuers.
The foregoing will constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
If an Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in aggregate principal amount of the outstanding Notes by notice to
the Issuers may declare the principal of and accrued but unpaid interest on all
the Notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Issuers occurs
and is continuing, the principal of and accrued interest on all the Notes will
ipso facto become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders. Under certain circumstances, the
Holders of a majority in aggregate principal amount of the outstanding Notes may
rescind any such acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
shall have offered to the Trustee reasonable indemnity or security against any
loss, liability or expense and then only to the extent required by the terms of
the Indenture. Except to enforce the right to receive payment of principal,
premium (if any) or interest when due, no Holder of Notes may pursue any remedy
with respect to the Indenture or the Notes unless (i) such Holder shall have
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in
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aggregate principal amount of the outstanding Notes shall have requested the
Trustee to pursue the remedy, (iii) such Holders shall have offered the Trustee
reasonable security or indemnity against any loss, liability or expense, (iv)
the Trustee shall not have complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding Notes shall not
have given the Trustee a direction inconsistent with such request within such
60-day period. Subject to certain restrictions, the Holders of a majority in
principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is known
to the Trustee, the Trustee must mail to each Holder of Notes notice of the
Default within 90 days after it is known to the Trustee or written notice of it
is received by the Trustee. Except in the case of a Default in the payment of
principal of, premium (if any) or interest on any Note, the Trustee may withhold
notice if and so long as it in good faith determines that withholding notice is
not opposed to the interests of the Noteholders. In addition, the Issuers are
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Issuers also are required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Issuers are taking or propose to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
(which may include consents obtained in connection with a tender offer or
exchange offer) of the Holders of a majority in principal amount of the Notes
then outstanding and any past Default or compliance with any provisions of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the Notes then outstanding. However, without the
consent of each Holder of an outstanding Note, no amendment may, among other
things, (i) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the rate of or extend the time for
payment of interest on any Note, (iii) reduce the principal of or extend the
Stated Maturity Date of any Note, (iv) reduce the premium payable upon any
redemption of any Note or change the time at which any Note may be redeemed, (v)
make any Note payable in money other than that stated in such Note, (vi) impair
the right of any Holder to receive payment of principal of and interest on such
Holder's Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes, (vii) make
any changes that would affect the ranking for the Notes in a manner adverse to
the Noteholders or (viii) make any change in the amendment provisions which
require each Holder's consent.
Without the consent of any Holder, the Issuers, the Guarantors and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Issuers under the Indenture, to add guarantees or collateral
security with respect to the Notes, to add to the covenants of the Issuers for
the benefit of the Noteholders or to surrender any right or power conferred upon
the Issuers, to make any change that does not adversely affect the rights of any
Holder or to comply with any requirement of the Commission in connection with
the qualification of the Indenture under the TIA.
The consent of the Holders is not necessary under the Indenture to approve the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
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After an amendment under the Indenture becomes effective, the Issuers are
required to mail to the Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect therein,
will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture. Upon
any transfer or exchange, the registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Issuers may require a Holder to pay any taxes required by law or
permitted by the Indenture, including any transfer tax or other similar
governmental charge payable in connection therewith. The Issuers are not
required to transfer or exchange any Note selected for redemption or to transfer
or exchange any Note for a period of 15 days prior to a selection of Notes to be
redeemed. The Notes will be issued in registered form and the registered Holder
of a Note will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Issuers at any time may terminate all of their obligations under the Notes
and the Indenture ("Legal Defeasance"), except for certain obligations,
including those with respect to the Defeasance Trust (as defined below) and
obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent in respect of the Notes. In addition, the Issuers at any time may
terminate their obligations and the obligations of each Guarantor with respect
to the Notes under the covenant described under "-- Certain Covenants" (other
than "Merger, Consolidation and Sale of Assets") and the operation of (iv) and
(v) under "-- Defaults" above ("Covenant Defeasance"). If the Issuers exercise
their Legal Defeasance or Covenant Defeasance option, the Guarantees in effect
at such time will terminate.
The Issuers may exercise their Legal Defeasance option notwithstanding their
prior exercise of their Covenant Defeasance option. If the Issuers exercise
their Legal Defeasance option, payment of the Notes may not be accelerated
because of an Event of Default with respect thereto. If the Issuers exercise
their Covenant Defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clauses (iii) (except for the
covenant described under "-- Certain Covenants -- Merger, Consolidation or Sale
of Assets"), (iv) or (v) under "-- Defaults" above.
In order to exercise either defeasance option, the Issuers must irrevocably
deposit or cause to be deposited in trust (the "Defeasance Trusts") with the
Trustee money or U.S. Government Obligations which, through the scheduled
payment of principal and interest in respect thereof in accordance with their
terms, will provide cash at such times and in such amounts as will be sufficient
to pay principal and interest when due on all the Notes (except lost, stolen or
destroyed Notes which have been replaced or repaid) to maturity or redemption,
as the case may be, and must comply with certain other conditions, including
delivery to the Trustee of an opinion of counsel to the effect that Holders of
the Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance and will be subject to
federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of Legal Defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).
CONCERNING THE TRUSTEE
Chase is to be the Trustee under the Indenture and has been appointed by the
Issuers as Registrar and Paying Agent with regard to the Notes and the Exchange
Agent in connection with the Exchange Offer. Chase is also an agent and lender
under the Existing Credit Agreement. Chase
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Securities Inc., an Initial Purchaser of the Notes, is an affiliate of the
Trustee. See "Plan of Distribution."
The Indenture contains certain limitations on the rights of the Trustee, should
it become a creditor of either of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be governed
by, and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Attributable Debt" when used in connection with a Sale/Leaseback Transaction
shall mean, at the time of determination, the lesser of: (a) the fair value of
the property subject to such Sale/Leaseback Transaction (as determined in good
faith by the Board of Directors of the Company); or (b) the present value of the
total net amount of rent required to be paid under such lease during the
remaining term thereof (including any renewal term or period for which such
lease has been extended), discounted at the rate of interest set forth or
implicit in the terms of such lease or, if not practicable to determine such
rate, the weighted average interest rate per annum borne by the Notes compounded
semi-annually in either case as determined by the principal accounting or
financial officer of the Company. For purposes of the foregoing definition, rent
shall not include amounts required to be paid by the lessee, whether or not
designated as rent or additional rent, on account of or contingent upon
maintenance and repairs, insurance, taxes, assessments, water rates and similar
charges. In the case of any lease which is terminable by the lessee upon the
payment of a penalty, such net amount shall be the lesser of the net amount
determined assuming termination upon the first date such lease may be terminated
(in which case the net amount shall also include the amount of the penalty, but
no rent shall be considered as required to be paid under such lease subsequent
to the first date upon which it may be so terminated) or the net amount
determined assuming no such termination.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any preferred stock,
partnership interests and limited liability company membership interests, but
excluding any debt securities convertible into such equity.
"Consolidated Net Assets" means, as to the Company, as of any particular time
the aggregate amount of assets of the Company and its consolidated Subsidiaries
at the end of the most recently completed fiscal quarter after deducting
therefrom, to the extent otherwise included, all current liabilities except for
(i) notes and loans payable, (ii) current maturities of long-term debt and (iii)
current maturities of obligations under capital leases, all as set forth on the
consolidated balance sheet of the Company and its consolidated Subsidiaries as
of the end of such fiscal quarter and computed in accordance with GAAP.
"Control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by
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contract or otherwise. A Person shall be deemed to Control another Person if
such Person (i) is an officer or director of such other Person or (ii) directly
or indirectly owns or controls 10% or more of such other Person's capital stock.
"Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any event which is, or after notice or passage of time or both
would be, an Event of Default.
"Existing Credit Agreement" means (i) the credit agreement, dated as of February
12, 1998, as may be amended from time to time, among the Company, USANi LLC, as
borrower, the lenders party thereto, Chase, as administrative agent and
collateral agent, and Bank of America National Trust & Savings Association and
The Bank of New York, as co-documentation agents, and (ii) any renewal,
extension, refunding, replacement or refinancing thereof.
"Existing Credit Agreement Guarantor" means every Subsidiary of either of the
Issuers that is a guarantor under the Existing Credit Agreement from time to
time; provided that, to the extent any or all of such Subsidiaries cease to be
guarantors under the Existing Credit Agreement, such Subsidiaries shall cease to
be "Existing Credit Agreement Guarantors."
"Foreign Subsidiary" means any Subsidiary that is organized under the laws of a
jurisdiction other than the United States of America or any state thereof or the
District of Columbia.
"GAAP" means generally accepted accounting principles in the United States of
America, in effect from time to time.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "guarantee" will not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a corresponding meaning.
"Guarantee" means, individually, any guarantee of payment of the Notes by a
Guarantor pursuant to the terms of the Indenture, and, collectively, all such
Guarantees. Each such Guarantee will be in the form prescribed in the Indenture.
"Guarantor" means each Subsidiary of either of the Issuers (except for (i) USANi
LLC, (ii) Foreign Subsidiaries and (iii) any other Subsidiary that is not an
Existing Credit Agreement Guarantor) and any other Person that becomes an
Existing Credit Agreement Guarantor; provided that, to the extent that any or
all of such Subsidiaries cease to be Existing Credit Agreement Guarantors, such
Subsidiaries shall cease to be "Guarantors."
"Holder" or "Noteholder" means the Person in whose name a Note is registered on
the Registrar's books.
"Incur" means issue, assume, guarantee, incur or otherwise become liable for.
"Indebtedness" means, with respect to any Person, obligations (other than
Non-Recourse Obligations, the Notes or the Guarantees) of such Person for
borrowed money or evidenced by bonds, debentures, notes or similar instruments.
"Nonrecourse Obligation" means indebtedness or other obligations substantially
related to (i) the acquisition of assets not previously owned by the Issuers,
any Guarantor or any of their respective Subsidiaries or (ii) the financing of a
project involving the development or expansion of properties of
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the Issuers, any Guarantor or any of their respective Subsidiaries, as to which
the obligee with respect to such indebtedness or obligation has no recourse to
the Issuers, any Guarantor or any of their respective Subsidiaries or any assets
of the Issuers, any Guarantor or any of their respective Subsidiaries other than
the assets which were acquired with the proceeds of such transaction or the
project financed with the proceeds of such transaction (and the proceeds
thereof).
"Officer" means any of the Chairman of the Board, Chief Executive Officer, the
President, the Vice Chairman, any Vice President, the Treasurer, the Chief
Financial Officer or the Secretary of either of the Issuers.
"Officer's Certificate" means a certificate signed by an Officer.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Sale/Leaseback Transaction" means an arrangement relating to property now owned
or hereafter acquired whereby either of the Issuers or any of their respective
Subsidiaries transfers such property to a Person (other than either of the
Issuers or any of their respective Subsidiaries) and either of the Issuers or
any of their respective Subsidiaries leases it from such Person.
"Subsidiary" shall mean, with respect to any Person (the "parent") at any date,
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date, otherwise
Controlled (within the meaning of the first sentence of the definition of
"Control"), by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent.
"TIA" means the Trust Indenture Act of 1939, as amended.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes will be issued in the form of one or more registered notes in
global form (the "Global Exchange Notes"). The Global Exchange Notes will be
deposited with, or on behalf of, DTC and registered in the name of Cede & Co.,
as nominee of DTC. Except as set forth below, the Global Exchange Notes may be
transferred, in whole and not in part, only to DTC or another nominee of DTC.
Investors may hold their beneficial interests in the Global Exchange Notes
directly through DTC if they have an account with DTC or indirectly through
organizations which have accounts with DTC.
Exchange Notes that are issued as described below under "-- Certificated Notes"
will be issued in definitive form. Upon the transfer of an Exchange Note in
definitive form, such Exchange Note will, unless the Global Exchange Notes have
previously been exchanged for Notes in definitive form, be exchanged for an
interest in a Global Exchange Note representing the principal amount of Notes
being transferred.
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DTC has advised the Issuers that it is (i) a limited-purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York Banking Law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, as amended, and (v) a "clearing agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participants (collectively, the "Participants") and to facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Investors who are not
Participants may beneficially own securities held by or on behalf of DTC only
through Participants or Indirect Participants.
Upon the issuance of the Global Exchange Notes in exchange for the Initial Notes
pursuant to the Exchange Offer, DTC will credit, on its internal system, the
respective principal amounts of the individual beneficial interests represented
by such Global Exchange Notes to the accounts of the persons who surrendered
Initial Notes for exchange. Ownership of beneficial interests in the Global
Exchange Notes will be limited to participants or persons who hold interests
through participants. Ownership of beneficial interests in the Global Exchange
Notes will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Investors may hold their interests in the
Global Exchange Notes directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system. The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to transfer or pledge beneficial
interests in the Global Exchange Notes.
So long as DTC or its nominee is the registered owner of the Global Exchange
Notes, DTC or such nominee, as the case may be, will be considered the sole
legal owner or Holder of the Notes represented by the Global Note for all
purposes of such Exchange Notes and the Indenture. Except as provided below,
owners of beneficial interests in Global Notes will not be entitled to have the
Notes represented by such Global Exchange Notes registered in their names, will
not receive or be entitled to receive physical delivery of certificated Exchange
Notes, and will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee thereunder. Accordingly, each
Holder owning a beneficial interest in a Global Exchange Note must rely on the
procedures of DTC and, if such Holder is not a Participant or an Indirect
Participant, on the procedures of the Participant through which such Holder owns
its interest, to exercise any rights of a Holder of Exchange Notes under the
Indenture or such Global Exchange Note. The Issuers understand that under
existing industry practice, in the event that the Issuers request any action of
Holders of Notes, or a Holder that is an owner of a beneficial interest in a
Global Exchange Note desires to take any action that DTC, as the Holder of such
Global Exchange Note, is entitled to take, DTC would authorize the Participants
to take such action and the Participants would authorize Holders owning through
such Participants to take such action or would otherwise act upon the
instruction of such Holders. Neither the Issuers nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Exchange Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such Exchange Notes.
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Payment of principal of and interest on Exchange Notes represented by the Global
Exchange Note registered in the name of and held by DTC or its nominee will be
made to DTC or its nominee, as the case may be, as the registered owner and
holder of the Global Exchange Notes.
The Issuers expect that DTC or its nominee, upon receipt of any payment of
principal of or interest on the Global Exchange Notes, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Exchange Notes as shown on the
records of DTC or its nominee. The Issuers also expect that payments by
participants to owners of beneficial interests in the Global Exchange Notes held
through such participants will be governed by standing instructions and
customary practices and will be the responsibility of such participants. The
Issuers will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Exchange Notes for any Exchange Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between DTC and
its participants or the relationship between such participants and the owners of
beneficial interests in the Global Exchange Notes owning through such
participants.
Unless and until it is exchanged in whole or in part for certificated Exchange
Notes in definitive form, each Global Exchange Note may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Notes among participants of DTC,
it is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Trustee nor the
Issuers will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED NOTES
If (i) the Issuers notify the Trustee in writing that DTC is no longer willing
or able to act as a depositary or DTC ceases to be registered as a clearing
agency under the Exchange Act and a successor depositary is not appointed within
90 days of such notice or cessation, (ii) the Issuers, at their option, notify
the Trustee in writing that they elect to cause the issuance of Exchange Notes
in definitive form under the Indenture or (iii) upon the occurrence of certain
other events as provided in the Indenture, then, upon surrender by DTC of the
Global Exchange Notes, Certificated Exchange Notes will be issued to each person
that DTC identifies as the beneficial owner of the Exchange Notes represented by
the Global Exchange Notes. Upon any such issuance, the Trustee is required to
register such Certificated Exchange Notes in the name of such person or persons
(or the nominee of any thereof) and cause the same to be delivered thereto.
Neither the Issuers nor the Trustee shall be liable for any delay by DTC or any
Participant or Indirect Participant in identifying the beneficial owners of the
related Exchange Notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the Exchange Notes to be issued).
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The Registration Statement of which this Prospectus is a part constitutes the
registration statement for the Exchange Offer which is the subject of the
Registration Rights Agreement dated as of November 23, 1998 (the "Registration
Rights Agreement"), among the Issuers, the Guarantors and
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the Initial Purchasers, for the benefit of the holders of the Initial Notes.
Holders of Exchange Notes are not entitled to any registration rights with
respect to the Exchange Notes.
The Registration Rights Agreement sets forth certain circumstances under which
the Issuers are required to file a shelf registration statement (the "Shelf
Registration Statement") with the Commission in lieu of a registration
statement. The Issuers will, in the event a Shelf Registration Statement is
filed, among other things, provide to each holder for whom such Shelf
Registration Statement was filed copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Initial Notes or the Exchange
Notes, as the case may be. A holder selling such Initial Notes or Exchange Notes
pursuant to the Shelf Registration Statement generally would be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations).
If (i) by March 23, 1999, neither the Registration Statement nor the Shelf
Registration Statement has been filed with the Commission; (ii) by April 22,
1999, neither the Registration Statement nor the Shelf Registration Statement is
declared effective; (iii) by May 22, 1999, the Exchange Offer is not
consummated, or (iv) after the Shelf Registration Statement is declared
effective, such Registration Statement thereafter ceases to be effective (at any
time the Issuers are obligated to maintain the effectiveness thereof) without
being succeeded by an additional Registration Statement filed and declared
effective (each such event referred to in clause (i) through (iv) being referred
to herein as a "Registration Default"), additional cash interest will accrue on
the Initial Notes and the Exchange Notes at the rate of 0.25% per annum (the
"Additional Interest") from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured, calculated on the principal amount of
such Notes as of the date on which such interest is payable. Such interest is
payable in addition to any other interest payable from time to time with respect
to the Notes.
If the Issuers effect the Exchange Offer, they will be entitled to close the
Exchange Offer 20 business days after the commencement thereof provided that
they have accepted all Initial Notes theretofore validly tendered and not
withdrawn in accordance with the terms of the Exchange Offer. Upon consummation
of the Exchange Offer, holders of Initial Notes will not be entitled to any
increase in the interest rate thereon or any further registration rights under
the Registration Rights Agreement, except under limited circumstances. See
"Description of the Exchange Notes."
The summary herein of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus constitutes a part.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the principal United States federal
income tax consequences to holders of Initial Notes who exchange their Initial
Notes for Exchange Notes pursuant to the Exchange Offer. This discussion is
based on currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing, temporary and proposed Treasury regulations
promulgated thereunder, and administrative and judicial interpretations thereof,
all as in effect or proposed on the date hereof and all of which are subject to
change, possibly with retroactive effect, or different interpretations. This
discussion is limited to holders of Initial Notes who hold the Notes as
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capital assets, within the meaning of section 1221 of the Code. Moreover, this
discussion if for general information only and does not address all of the tax
consequences that may be relevant to holders of Initial Notes and Exchange Notes
in light of their personal circumstances or to certain types of holders of
Initial Notes and Exchange Notes (such as certain financial institutions,
insurance companies, tax-exempt entities, dealers in securities or persons who
have hedged the risk of owning a Note). In addition, this discussion does not
address any tax consequences arising under the laws of any state, locality or
foreign jurisdiction, or any estate or gift tax considerations.
EXCHANGE OFFER
The exchange of Initial Notes for Exchange Notes pursuant to the Exchange Offer
should not be treated as an exchange or other taxable event for United States
Federal income tax purposes. Accordingly, there should be no United States
Federal income tax consequences to holders who exchange Initial Notes for
Exchange Notes pursuant to the Exchange Offer and any such holder should have
the same adjusted tax basis and holding period in the Exchange Notes as it had
in the Initial Notes immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Initial Notes
where such Initial Notes were acquired as a result of market-making activities
or other trading activities. The Issuers have agreed that for a period of 90
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
The Issuers will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other holder of Exchange Notes. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Issuers will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Issuers have agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the
Initial Notes) other than commissions or concessions of any brokers or dealers
and will indemnify the holders of the Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon for
the Issuers and the Guarantors by Howard, Smith & Levin LLP, New York, New York.
EXPERTS
The consolidated financial statements of USAi as of December 31, 1997 and 1996
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years then ended in this Prospectus have been audited by
Ernst & Young LLP, independent auditors, as stated in their report appearing in
the documents herein. The consolidated statements of operations, stockholders'
equity and cash flows of the Company and subsidiaries for the period September
1, 1995 through December 31, 1995 and for the year ended August 31, 1995 in this
Prospectus have been audited by Deloitte & Touche LLP, independent certified
public accountants, as stated in their report appearing in the documents herein
and given upon the authority of said firm as experts in accounting and auditing.
The consolidated balance sheet of Ticketmaster Group, Inc. and subsidiaries as
of January 31, 1998 and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year ended January 31, 1998,
incorporated by reference in this Prospectus, have been audited by Ernst & Young
LLP, independent auditors, as stated in their report appearing in the documents
incorporated by reference herein. The consolidated financial statements of
Ticketmaster Group, Inc. and subsidiaries as of January 31, 1997 and for each of
the years in the two-year period ended January 31, 1997, have been incorporated
by reference herein and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The combined balance sheets of Universal Television Group as of June 30, 1997
and 1996 and the related combined statements of operations and cash flows for
each of the three years in the period ended June 30, 1997 included in this
Prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The combined balance sheets of USA Networks as of December 31, 1996 and 1995 and
the related combined statements of income, cash flows, and changes in partners'
equity for each of the two years in the period ended December 31, 1996 included
in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. The combined statements of
income, cash flows and changes in partners' equity of USA Networks for the year
ended December 31, 1994, in this Prospectus, have been audited by KPMG LLP,
independent accountants, as stated in their report appearing in the documents
herein.
The consolidated financial statements of Home Shopping Network, Inc. as of
December 31, 1997 and 1996 and the related consolidated statements of
operations, shareholders' equity and cash flows for the year ended December 31,
1997 in this Prospectus have been audited by Ernst & Young LLP, independent
auditors, as stated in their report appearing in the documents herein.
The consolidated statements of operations, shareholders' equity and cash flows
of Home Shopping Network, Inc. and subsidiaries for the two-year period ended
December 31, 1996 included herein and elsewhere in this Prospectus have been
included herein and elsewhere in this Prospectus in reliance upon the report of
KPMG LLP, independent certified public accountants, included herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of USANi LLC as of December 31, 1997 and
1996 and the related consolidated statements of operations, members' equity and
cash flows for the year ended December 31, 1997 in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
appearing in the documents herein.
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INDEX TO FINANCIAL STATEMENTS
PAGE
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
OF USAi, HOLDCO, AND USANi LLC............................ F-3
USA Networks, Inc. Unaudited Pro Forma Combined Condensed
Balance Sheet as of September 30, 1998.................... F-4
USA Networks, Inc. Unaudited Pro Forma Combined Condensed
Statement of Operations for the Nine Months Ended
September 30, 1998........................................ F-5
USA Networks, Inc. Unaudited Pro Forma Combined Condensed
Statement of Operations for the Year Ended December 31,
1997...................................................... F-6
Holdco Unaudited Pro Forma Combined Condensed Balance Sheet
as of September 30, 1998.................................. F-7
Holdco Unaudited Pro Forma Combined Condensed Statement of
Operations for the Nine Months Ended September 30, 1998... F-8
Holdco Unaudited Pro Forma Combined Condensed Statement of
Operations for the Year Ended December 31, 1997........... F-9
USANi LLC Unaudited Pro Forma Combined Condensed Balance
Sheet as of September 30, 1998............................ F-10
USANi LLC Unaudited Pro Forma Combined Condensed Statement
of Operations for the Nine Months Ended September 30,
1998...................................................... F-11
USANi LLC Unaudited Pro Forma Combined Condensed Statement
of Operations for the Year Ended December 31, 1997........ F-12
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements................................................ F-13
UNAUDITED PRO FORMA ADJUSTED COMBINED CONDENSED FINANCIAL
STATEMENTS OF TICKETMASTER GROUP, INC.....................
Unaudited Pro Forma Adjusted Combined Condensed Statement of
Operations for the Year Ended January 31, 1998............ F-15
Notes to Unaudited Pro Forma Adjusted Combined Condensed
Financial Statements...................................... F-16
USA NETWORKS, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-17
Independent Auditors' Report................................ F-18
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, the Four Months Ended
December 31, 1995, and the Year Ended August 31, 1995..... F-19
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-20
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996, the Four Months Ended
December 31, 1995, and the Year Ended August 31, 1995..... F-22
Consolidated Statements of Cash Flow for the Years Ended
December 31, 1997, 1996, the Four Months Ended
December 31, 1995, and the Year Ended August 31, 1995..... F-23
Notes to Consolidated Financial Statements.................. F-24
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1998 and 1997 and the
Nine Months Ended September 30, 1998 and 1997
(Unaudited)............................................... F-46
Condensed Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997 (Unaudited).................... F-47
Condensed Consolidated Statement of Stockholders' Equity for
the Nine Months Ended September 30, 1998 (Unaudited)...... F-49
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 (Unaudited)...... F-50
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-51
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES ("HOLDCO")
Report of Independent Auditors.............................. F-62
Independent Auditors' Report................................ F-63
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-64
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-65
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. F-67
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-68
F-1
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Notes to Consolidated Financial Statements.................. F-69
Condensed Consolidated Statements of Operations for the Nine
Months Ended September 30, 1998 and 1997 (Unaudited)...... F-82
Condensed Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997 (Unaudited).................... F-83
Condensed Consolidated Statement of Stockholders' Equity for
the Nine Months Ended September 30, 1998 (Unaudited)...... F-85
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 (Unaudited)...... F-86
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-87
USANi LLC AND SUBSIDIARIES (INCLUDING PREDECESSOR COMPANY)
Report of Independent Auditors.............................. F-94
Consolidated Statement of Operations for the Year Ended
December 31, 1997......................................... F-95
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-96
Consolidated Statement of Members' Equity for the Year Ended
December 31, 1997......................................... F-98
Consolidated Statement of Cash Flows for the Year Ended
December 31, 1997......................................... F-99
Notes to Consolidated Financial Statements.................. F-100
Condensed Consolidated Statements of Operations for the Nine
Months Ended September 30, 1998 and 1997 (Unaudited)...... F-111
Condensed Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997 (Unaudited).................... F-112
Condensed Consolidated Statement of Members' Equity for the
Nine Months Ended September 30, 1998 (Unaudited).......... F-114
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 (Unaudited)...... F-115
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-116
USA NETWORKS
Report of Independent Accountants........................... F-123
Independent Auditors' Report................................ F-124
Combined Balance Sheets as of December 31, 1996 and 1995.... F-125
Combined Statements of Income for the Years Ended December
31, 1996, 1995, and 1994.................................. F-126
Combined Statements of Cash Flows for the Years Ended 1996,
1995, and 1994............................................ F-127
Combined Statements of Changes in Partners' Equity for the
Years Ended 1996, 1995, and 1994.......................... F-128
Notes to Combined Financial Statements...................... F-129
UNIVERSAL TELEVISION GROUP
Report of Independent Accountants........................... F-137
Combined Balance Sheets as of June 30, 1997 and 1996........ F-138
Combined Statements of Operations for the Years Ended June
30, 1997, 1996 and for the period July 1, 1994 to June 4,
1995...................................................... F-139
Combined Statements of Cash Flows for the Years Ended June
30, 1997, 1996 and for the period July 1, 1994 to June 4,
1995...................................................... F-140
Notes to Combined Financial Statements...................... F-141
F-2
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
OF USAi, HOLDCO AND USANi LLC
The following unaudited pro forma combined condensed financial statements (the
"Condensed Statements") have been prepared to give effect to the Notes Offering,
the Exchange Offer, USAi's merger with Ticketmaster, including the effects of
acquisitions made by Ticketmaster Group, Inc. ("Ticketmaster") during its fiscal
year ended January 31, 1998, the Universal Transaction through which USAi
acquired USA Networks ("Networks") and Studios USA, USAi's investment in, and
the subsequent merger of Ticketmaster's online business with, CitySearch, and
the sale of SF Broadcasting (collectively the "Transactions") as if all such
transactions had occurred on January 1, 1997. The purchase method of accounting
was used to give effect to all Transactions.
The Condensed Statements reflect certain assumptions regarding the Transactions
and are based on the historical consolidated financial statements of the
respective entities. The Condensed Statements, including the notes thereto, are
qualified in their entirety by reference to, and should be read in conjunction
with, the audited and unaudited financial statements, including the notes
thereto, of USAi, Holdco, USANi LLC, CitySearch, Ticketmaster, USA Networks and
Studios USA, all of which are either included in this Registration Statement or
incorporated by reference.
The USAi, Holdco and USANi LLC pro forma combined condensed balance sheets as of
September 30, 1998 give effect to the Notes Offering and the Exchange Offer as
if they had occurred on September 30, 1998.
The USAi pro forma combined condensed statement of operations for the nine
months ended September 30, 1998 gives effect to the Transactions as if they had
occurred on January 1, 1998.
The USAi pro forma combined condensed statement of operations for the year ended
December 31, 1997 reflects the audited consolidated statement of operations of
USAi combined with the unaudited pro forma results of Ticketmaster for the year
ended January 31, 1998 (including the pro forma effects of certain acquisitions
of Ticketmaster) less amounts reflected in the USAi historical statements of
operations for the year ended December 31, 1997, and also reflects the unaudited
pro forma results of Studios USA (including the pro forma effects of its
acquisition of Networks), and the audited results of CitySearch for the year
ended December 31, 1997 and gives effect to the Transactions as if they had
occurred on January 1, 1997.
The Holdco and USANi LLC pro forma combined condensed statement of operations
for nine months ended September 30, 1998 and for the year ended December 31,
1997 give effect to the Universal Transaction as if it had occurred on January
1, 1998 and January 1, 1997, respectively.
As a result of the Universal, Ticketmaster and CitySearch transactions, USAi,
Holdco, and USANi LLC, where applicable, are evaluating the fair value of assets
acquired and liabilities assumed, specifically including television program
rights, commitments to produce or purchase television programming, contractual
commitments to provide ticketing services and other contractual commitments.
Using this information, USAi, Holdco, and USANi LLC, where applicable will make
a final allocation of the excess purchase price, including allocation to the
intangibles other than goodwill. Accordingly, the purchase accounting
information is preliminary and has been made solely for the purpose of
developing such unaudited pro forma combined condensed financial information.
The Condensed Statements are presented for illustrative purposes only and are
not necessarily indicative of the financial position or results of operations
which would have actually been reported had the Notes Offering and Exchange
Offer occurred at September 30, 1998 or had the Transactions occurred as of
January 1, 1998 and 1997, nor are the Condensed Statements necessarily
indicative of future financial position or results of operations.
F-3
157
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
PRO FORMA PRO FORMA
USAI ADJUSTMENTS(A) COMBINED
---- -------------- ---------
(IN THOUSANDS)
ASSETS:
Current Assets:
Cash and short-term investments......................... $ 292,231 $ (6,500) $ 285,731
Accounts and notes receivable, net...................... 286,237 286,237
Inventories, net........................................ 445,425 445,425
Deferred income taxes................................... 37,067 37,067
Other................................................... 27,028 27,028
---------- --------- ----------
Total current assets.................................. 1,087,988 (6,500) 1,081,488
Property, plant and equipment, net...................... 248,741 248,741
Intangible assets including goodwill and broadcast
licenses, net......................................... 6,352,103 6,352,103
Cable distributions fees, net........................... 97,596 97,596
Long-term investments and notes receivable.............. 145,265 145,265
Inventories, net........................................ 202,117 202,117
Deferred income taxes................................... 72,704 72,704
Deferred charges and other.............................. 60,443 1,600 62,043
---------- --------- ----------
Total assets.......................................... $8,266,957 $ (4,900) $8,262,057
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable, accrued and other current
liabilities........................................... $ 663,199 $ $ 663,199
Program liabilities..................................... 275,996 275,996
Deferred revenue........................................ 65,802 65,802
Current portion of long-term debt....................... 68,564 68,564
---------- --------- ----------
Total current liabilities............................. 1,073,561 -- 1,073,561
Long-term debt.......................................... 748,101 497,600 745,701
(500,000)
Other long-term liabilities............................. 52,630 52,630
Program liabilities..................................... 346,563 346,563
Minority interest....................................... 3,589,338 3,589,338
Stockholders' Equity:
Common stock............................................ 1,240 1,240
Common stock -- Class B................................. 312 312
Additional paid-in capital.............................. 2,533,708 2,533,708
Accumulated Deficit..................................... (77,560) (2,500) (80,060)
Unearned compensation................................... (1,691) (1,691)
Unrealized gain in available for sale securities........ 7,476 7,476
Foreign currency translation............................ (1,723) (1,723)
Note receivable from key executive for common stock
issuance.............................................. (4,998) (4,998)
---------- --------- ----------
Total stockholders' equity............................ 2,456,764 (2,500) 2,454,264
---------- --------- ----------
Total liabilities and stockholders' equity............ $8,266,957 $ (4,900) $8,262,057
========== ========= ==========
F-4
158
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNIVERSAL CITYSEARCH PRO FORMA PRO FORMA
USAI TRANSACTION(B) TRANSACTION(C) SF BROADCASTING(D) ADJUSTMENTS COMBINED
---- -------------- -------------- ------------------ ----------- ---------
NET REVENUES:
Networks and television
production..................... 757,305 157,364 -- -- 914,669
Electronic retailing............. 776,418 -- -- -- 776,418
Ticketing operations............. 283,538 -- -- -- 283,538
Internet services................ 14,467 -- 11,317 25,784
Broadcasting and other........... 35,289 -- -- (27,128) 8,161
-------- ------------- ------------- ------------- ------------- --------
Total net revenues............. 1,867,017 157,364 11,317 (27,128) -- 2,008,570
-------- ------------- ------------- ------------- ------------- --------
Operating costs and expenses:
Cost of sales.................... 533,190 -- 10,491 (3,528) -- 540,153
Program costs.................... 412,541 100,478 -- -- (12,795)(f) 500,224
Other costs...................... 597,328 32,994 28,107 (20,510) (4,222)(g) 633,697
Depreciation and amortization.... 163,712 9,110 -- (5,374) 41,939(h) 209,387
-------- ------------- ------------- ------------- ------------- --------
Total operating costs and
expenses..................... 1,706,771 142,582 38,598 (29,412) 24,922 1,883,461
-------- ------------- ------------- ------------- ------------- --------
Operating income............... 160,246 14,782 (27,281) 2,284 (24,922) 125,109
Interest income (expense), net... (82,897) 156 227 3,498 (1,546)(f) (88,548)
(7,986)(i)
Miscellaneous.................... 64,480 (1,039) -- (9,247) -- 54,194
-------- ------------- ------------- ------------- ------------- --------
Earnings before income taxes and
minority interest................ 141,829 13,899 (27,054) (3,465) (34,454) 90,755
Income tax (expense) benefit....... (72,792) (4,729) -- 10,123 3,937(j) (60,468)
2,993(k)
Minority interest.................. (42,996) -- -- (2,740) (12,770)(l) (36,560)
1,952(m)
19,994(n)
-------- ------------- ------------- ------------- ------------- --------
NET EARNINGS (LOSS)................ 26,041 9,170 (27,054) 3,918 (18,348) (6,273)
======== ============= ============= ============= ============= ========
Net earnings (loss) per common
share
Basic............................ 0.19 (0.04)
======== ========
Diluted.......................... 0.14 (0.04)
======== ========
Weighted average shares
outstanding...................... 138,355 150,654(o)
======== ========
Weighted average diluted shares
outstanding...................... 280,242 150,654(o)
======== ========
F-5
159
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNIVERSAL TICKETMASTER CITYSEARCH
USAI TRANSACTION(P) ADJUSTED(E) TRANSACTION(C) SF BROADCASTING(D)
---- -------------- ------------ -------------- ------------------
NET REVENUES:
Networks and television production..... -- 1,107,604 -- -- --
Electronic retailing................... 1,024,249 -- -- -- --
Ticketing operations................... 156,378 -- 205,319 -- --
Internet services...................... 12,811 -- -- 6,184 --
Broadcasting and other................. 68,311 -- -- -- (52,934)
-------- -------- ------------- ------------- -------------
Total net revenues................... 1,261,749 1,107,604 205,319 6,184 (52,934)
-------- -------- ------------- ------------- -------------
Operating costs and expenses:
Cost of sales.......................... 645,299 -- 14,023 9,688 (6,394)
Program costs.......................... -- 700,874 -- -- --
Other costs............................ 424,907 241,725 158,196 33,237 (34,998)
Depreciation and amortization.......... 97,024 54,881 15,394 -- (9,305)
-------- -------- ------------- ------------- -------------
Total operating costs and expenses... 1,167,230 997,480 187,613 42,925 (50,697)
-------- -------- ------------- ------------- -------------
Operating income..................... 94,519 110,124 17,706 (36,741) (2,237)
Interest income (expense), net......... (26,266) 782 (5,770) 223 6,895
Miscellaneous.......................... (11,752) (13,337) (416) -- --
-------- -------- ------------- ------------- -------------
Earnings (loss) before income taxes and
minority interest...................... 56,501 97,569 11,520 (36,518) 4,658
Income tax (expense) benefit............. (41,051) (39,028) (7,112) (8) 1,517
Minority interest........................ (2,389) -- 305 -- (3,260)
-------- -------- ------------- ------------- -------------
NET EARNINGS (LOSS)...................... 13,061 58,541 4,713 (36,526) 2,915
======== ======== ============= ============= =============
Net earnings (loss) per common share
Basic.................................. 0.12
========
Diluted................................ 0.12
========
Weighted average shares outstanding...... 104,780
========
Weighted average diluted shares
outstanding............................ 112,244
========
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
NET REVENUES:
Networks and television production..... 1,107,604
Electronic retailing................... 1,024,249
Ticketing operations................... 361,697
Internet services...................... 18,995
Broadcasting and other................. 15,377
-------- --------
Total net revenues................... -- 2,527,922
-------- --------
Operating costs and expenses:
Cost of sales.......................... -- 662,616
Program costs.......................... (48,195)(f) 652,679
Other costs............................ (24,980)(g) 798,087
Depreciation and amortization.......... 119,629(h) 277,623
-------- --------
Total operating costs and expenses... 46,454 2,391,005
-------- --------
Operating income..................... (46,454) 136,917
Interest income (expense), net......... (11,157)(f) (111,991)
(76,698)(i)
Miscellaneous.......................... -- (25,505)
-------- --------
Earnings (loss) before income taxes and
minority interest...................... (134,309) (579)
Income tax (expense) benefit............. 35,493(j) (48,482)
1,707(k)
Minority interest........................ (57,567)(l) (28,382)
2,389(m)
32,140(n)
-------- --------
NET EARNINGS (LOSS)...................... (120,147) (77,443)
======== ========
Net earnings (loss) per common share
Basic.................................. (0.55)
========
Diluted................................ (0.55)
========
Weighted average shares outstanding...... 142,061(o)
========
Weighted average diluted shares
outstanding............................ 142,061(o)
========
F-6
160
HOLDCO
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
PRO FORMA PRO FORMA
HOLDCO ADJUSTMENTS(A) COMBINED
------ -------------- ---------
(IN THOUSANDS)
ASSETS:
Current Assets:
Cash and short-term investments......................... $ 125,245 $ (6,500) $ 118,745
Accounts and notes receivable, net...................... 230,157 230,157
Inventories, net........................................ 437,797 437,797
Other................................................... 40,896 40,896
---------- --------- ----------
Total current assets.................................. 834,095 (6,500) 827,595
Property, plant and equipment, net...................... 153,035 153,035
Intangible assets including goodwill and broadcast
licenses, net......................................... 5,243,669 5,243,669
Cable distributions fees, net........................... 97,596 97,596
Long-term investments and notes receivable.............. 132,260 132,260
Inventories, net........................................ 197,929 197,929
Advances to USAi and subsidiaries....................... 149,904 149,904
Deferred charges and other.............................. 107,941 1,600 109,541
---------- --------- ----------
Total assets.......................................... $6,916,429 $ (4,900) $6,911,529
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable, accrued and other current
liabilities........................................... $ 393,406 $ $ 393,406
Program liabilities..................................... 275,362 275,362
Deferred revenue........................................ 33,836 33,836
Current portion of long-term debt....................... 60,341 60,341
---------- --------- ----------
Total current liabilities............................. 762,945 -- 762,945
Long-term debt.......................................... 704,266 497,600 701,866
(500,000)
Other long-term liabilities............................. 24,134 24,134
Program liabilities..................................... 346,251 346,251
Minority interest....................................... 3,770,146 3,770,146
Stockholders' Equity:
Common stock............................................ 1,221,408 1,221,408
Additional paid-in capital.............................. 70,755 70,755
Retained earnings....................................... 10,621 (2,500) 8,121
Unearned compensation................................... (1,573) (1,573)
Unrealized gain in available for sale securities........ 7,476 7,476
---------- --------- ----------
Total stockholders' equity............................ 1,308,687 (2,500) 1,306,187
---------- --------- ----------
Total liabilities and stockholders' equity............ $6,916,429 $ (4,900) $6,911,529
========== ========= ==========
F-7
161
HOLDCO
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
UNIVERSAL PRO FORMA PRO FORMA
HOLDCO TRANSACTION(B) ADJUSTMENTS COMBINED
---------- --------------- ----------- ----------
NET REVENUES:
Networks and television
production...................... 757,305 157,364 914,669
Electronic retailing............... 776,417 -- 776,417
Internet services.................. 14,467 -- 14,467
---------- ---------- ---------- ----------
Total net revenues.............. 1,548,189 157,364 -- 1,705,553
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of sales...................... 482,030 -- -- 482,030
Program costs...................... 408,948 100,478 (12,795)(f) 496,631
Other costs........................ 383,387 32,994 (4,222)(g) 412,159
Depreciation and amortization...... 125,952 9,110 4,659(h) 139,721
---------- ---------- ---------- ----------
Total operating costs and
expenses...................... 1,400,317 142,582 (12,358) 1,530,541
---------- ---------- ---------- ----------
Operating income................ 147,872 14,782 12,358 175,012
Interest income (expense), net..... (65,648) 156 (1,546)(f) (75,024)
(7,986)(i)
Miscellaneous...................... (16,273) (1,039) (17,312)
---------- ---------- ---------- ----------
Earnings before income taxes and
minority interest.................. 65,951 13,899 2,826 82,676
Income tax (expense) benefit......... (26,376) (4,729) 3,937(j) (27,168)
Minority interest.................... (42,768) -- (12,770)(l) (55,538)
---------- ---------- ---------- ----------
NET EARNINGS (LOSS).................. (3,193) 9,170 (6,007) (30)
========== ========== ========== ==========
F-8
162
HOLDCO
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
UNIVERSAL PRO FORMA PRO FORMA
HOLDCO TRANSACTION(P) ADJUSTMENTS COMBINED
---------- --------------- ----------- ----------
NET REVENUES:
Networks and television
production....................... -- 1,107,604 -- 1,107,604
Electronic retailing................ 1,024,249 -- -- 1,024,249
Internet services................... 12,811 -- 12,811
---------- ---------- ---------- ----------
Total net revenues............... 1,037,060 1,107,604 -- 2,144,664
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of sales....................... 614,799 -- -- 614,799
Program costs....................... -- 700,874 (48,195)(f) 652,679
Other costs......................... 295,967 241,725 (24,980)(g) 512,712
Depreciation and amortization....... 65,152 54,881 60,480(h) 180,513
---------- ---------- ---------- ----------
Total operating costs and
expenses....................... 975,918 997,480 (12,695) 1,960,703
---------- ---------- ---------- ----------
Operating income................. 61,142 110,124 12,695 183,961
Interest income (expense), net...... (8,044) 782 (11,157)(f) (95,117)
(76,698)(i)
Miscellaneous....................... (11,799) (13,337) -- (25,136)
---------- ---------- ---------- ----------
Earnings before income taxes and
minority interest................... 41,299 97,569 (75,160) 63,708
Income tax (expense) benefit.......... (27,490) (39,028) 35,493(j) (31,025)
Minority interest..................... -- -- (60,561)(l) (60,561)
---------- ---------- ---------- ----------
NET EARNINGS (LOSS)................... 13,809 58,541 (100,228) (27,878)
========== ========== ========== ==========
F-9
163
USANi LLC
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
PRO FORMA PRO FORMA
USANi LLC ADJUSTMENTS (A) COMBINED
--------- --------------- ---------
(IN THOUSANDS)
ASSETS:
Current Assets:
Cash and short-term investments......................... $ 125,245 $ (6,500) $ 118,745
Accounts and notes receivable, net...................... 230,157 230,157
Inventories, net........................................ 437,797 437,797
Other................................................... 40,896 40,896
---------- --------- ----------
Total current assets.................................. 834,095 (6,500) 827,595
Property, plant and equipment, net...................... 153,035 153,035
Intangible assets including goodwill and broadcast
licenses, net......................................... 5,243,669 5,243,669
Cable distributions fees, net........................... 97,596 97,596
Long-term investments and notes receivable.............. 137,673 137,673
Inventories, net........................................ 197,929 197,929
Advances to USAi and subsidiaries....................... 135,605 135,605
Deferred charges and other.............................. 107,941 1,600 109,541
---------- --------- ----------
Total assets.......................................... $6,907,543 $ (4,900) $6,902,643
========== ========= ==========
LIABILITIES AND MEMBERS' EQUITY:
Current Liabilities:
Accounts payable, accrued and other current
liabilities........................................... $ 374,494 $ $ 374,494
Program liabilities..................................... 275,362 275,362
Deferred revenue........................................ 33,836 33,836
Current portion of long-term debt....................... 60,341 60,341
---------- --------- ----------
Total current liabilities............................. 744,033 -- 744,033
Long-term debt.......................................... 704,266 497,600 701,866
(500,000)
Other long-term liabilities............................. 19,983 19,983
Program liabilities..................................... 346,251 346,251
Members' Equity:
Class A................................................. 1,765,272 1,765,272
Class B................................................. 2,771,474 2,771,474
Class C................................................. 466,252 466,252
Retained earnings....................................... 78,696 (2,500) 76,196
Unrealized gain in available for sale securities........ 12,889 12,889
Unearned compensation................................... (1,573) (1,573)
---------- --------- ----------
Total members' equity................................. 5,093,010 (2,500) 5,090,510
---------- --------- ----------
Total liabilities and members' equity................. $6,907,543 $ (4,900) $6,902,643
========== ========= ==========
F-10
164
USANi LLC
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
UNIVERSAL PRO FORMA PRO FORMA
USANi LLC TRANSACTION(B) ADJUSTMENTS COMBINED
---------- --------------- ----------- ----------
NET REVENUES:
Networks and television
production....................... 757,305 157,364 914,669
Electronic retailing................ 776,417 -- 776,417
Internet services................... 14,467 -- 14,467
---------- ---------- ---------- ----------
Total net revenues............... 1,548,189 157,364 -- 1,705,553
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of sales....................... 482,030 -- -- 482,030
Program costs....................... 408,948 100,478 (12,795)(f) 496,631
Other costs......................... 383,387 32,994 (4,222)(g) 412,159
Depreciation and amortization....... 125,952 9,110 4,659(h) 139,721
---------- ---------- ---------- ----------
Total operating costs and
expenses....................... 1,400,317 142,582 (12,358) 1,530,541
---------- ---------- ---------- ----------
Operating income................. 147,872 14,782 12,358 175,012
Interest income (expense), net...... (64,767) 156 (1,546)(f) (74,143)
(7,986)(i)
Miscellaneous....................... (16,273) (1,039) -- (17,312)
---------- ---------- ---------- ----------
Earnings before income taxes.......... 66,832 13,899 2,826 83,557
Income tax (expense) benefit.......... (4,646) (4,729) 4,201(j) (5,174)
---------- ---------- ---------- ----------
NET EARNINGS.......................... 62,186 9,170 7,027 78,383
========== ========== ========== ==========
F-11
165
USANi LLC
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
USANi LLC
(PREDECESSOR UNIVERSAL PRO FORMA PRO FORMA
COMPANY) TRANSACTION(P) ADJUSTMENTS COMBINED
------------- --------------- ----------- ----------
NET REVENUES:
Networks and television
production....................... -- 1,107,604 -- 1,107,604
Electronic retailing................ 1,024,249 -- 1,024,249
Internet services................... 12,811 -- 12,811
---------- ---------- ---------- ----------
Total net revenues............... 1,037,060 1,107,604 -- 2,144,664
---------- ---------- ---------- ----------
Operating costs and expenses:
Cost of sales....................... 614,799 -- -- 614,799
Program costs....................... -- 700,874 (48,195)(f) 652,679
Other costs......................... 295,967 241,725 (24,980)(g) 512,712
Depreciation and amortization....... 65,152 54,881 60,480(h) 180,513
---------- ---------- ---------- ----------
Total operating costs and
expenses....................... 975,918 997,480 (12,695) 1,960,703
---------- ---------- ---------- ----------
Operating income................. 61,142 110,124 12,695 183,961
Interest income (expense), net...... (2,780) 782 (11,157)(f) (89,853)
(76,698)(i)
Miscellaneous....................... (11,799) (13,337) -- (25,136)
---------- ---------- ---------- ----------
Earnings before income taxes.......... 46,563 97,569 (75,160) 68,972
Income tax (expense) benefit.......... (30,308) (39,028) 35,704(j) (3,324)
30,308(q)
---------- ---------- ---------- ----------
NET EARNINGS.......................... 16,255 58,541 (9,148) 65,648
========== ========== ========== ==========
F-12
166
USA NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(a) Reflects the net proceeds from the Notes Offering of $493.5 million
(including costs of the Notes Offering), which in conjunction with
available cash was used to repay $500.0 million of the Tranche A Term Loan.
In connection with the repayment, $2.5 million of deferred costs were
written off.
(b) Reflects the results of operations for the applicable period for Networks
and Studios USA, which were acquired in the Universal Transaction on
February 12, 1998.
(c) Reflects the results of operations of CitySearch, the assets of which were
acquired on September 28, 1998.
(d) Reflects the results of operations of SF Broadcasting, a subsidiary of
USAi, the assets of which were sold on July 16, 1998.
(e) Reflects the pro forma adjustments to USAi's historical results of
operations necessary to reflect a full year of pro forma operations of
Ticketmaster. The historical results include Ticketmaster operations since
the date of USAi's acquisition of a controlling interest in July 1997. See
separate Ticketmaster Group, Inc. Unaudited Pro Forma Adjusted Combined
Condensed Statement of Operations for the year ended January 31, 1998 and
the notes thereto included herein.
(f) Universal - Reflects adjustments to programming cost for fair value
adjustments and the effects of imputed interest related to long term
program commitments.
(g) Universal - Represents certain corporate overhead allocated from Universal
to Networks and Studios USA which are no longer being charged.
(h) Universal, Ticketmaster, CitySearch - Reflects additional amortization
expense resulting from the increase in intangible assets. The unallocated
excess of acquisition costs over net assets acquired has been preliminarily
allocated to goodwill, which is being amortized from 5 to 40 years. Shorter
lives were assigned to Internet related businesses (Ticketmaster Online and
CitySearch). In connection with finalizing the purchase price allocation,
USAi, Holdco and USANi LLC, where applicable, are currently evaluating the
fair value of assets acquired and liabilities assumed, specifically
including television program rights, commitments to produce or purchase
television programming, contractual commitments to provide ticketing
services and other contractual commitments. Using this information, USAi,
Holdco and USANi LLC, where applicable, will make a final allocation of the
excess purchase price, including allocation to the intangibles other than
goodwill. Accordingly, the purchase accounting information is preliminary.
The following table summarizes the preliminary goodwill resulting from the
three acquisitions.
UNIVERSAL TICKETMASTER CITYSEARCH
TRANSACTION MERGER MERGER
----------- ------------ ----------
(000S)
Purchase price, including cash consideration and
stock, and transaction costs...................... $4,115,531 425,005 163,162
Net assets acquired................................. (42,189) (42,695) 2,517
---------- -------- --------
Unallocated excess of acquisition cost over net
assets acquired................................... $4,157,720 $467,700 $160,645
========== ======== ========
(i) Universal, Notes Offering and the Exchange Offer - Reflects the incremental
interest expense at an average blended rate of 7.2% resulting from the net
increase in borrowings incurred in connection with the Notes Offering, the
Exchange Offer and Universal Transaction. The 7.2%
F-13
167
USA NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
represents the estimated average interest rate USAi incurred under the
Notes and the new credit agreement used to finance the cash portion of the
Universal Transaction.
Note that the adjustment reflects interest savings on assumed debt
reduction of $206 million at an interest rate of 7.2% as a result of the
exercise of Universal's mandatory preemptive right related to the shares
issued in the Ticketmaster Merger.
An interest rate variance of 1/8% would cause a corresponding change in
interest expense of $0.2 million and $1.3 million for the nine months ended
September 30, 1998 and the year ended December 31, 1997, respectively.
(j) Reflects the income tax effect of the pro forma adjustments, excluding
permanent differences between book amounts and tax amounts, utilizing a
statutory federal rate of 35% and an estimated state and local tax rate.
(k) Represents income tax benefit of the CitySearch Merger, as taxable income
of Ticketmaster Online is offset by tax losses of CitySearch.
(l) Reflects net adjustment to record Universal's and Liberty's minority
interest in the pro forma pre-tax results of operations of USANi LLC.
(m) Reflects the elimination of Ticketmaster minority interest recorded in the
historical USAi operations.
(n) Reflects net adjustment to minority interest in the pro forma after-tax
results of TMCS.
(o) For the nine months ended September 30, 1998, basic pro forma net earnings
(loss) per common share adjusts the 138,355,000 USAi historical basic
weighted average shares by 2,085,000 shares, which reflects the incremental
impact of the shares issued in connection with the Universal Transaction
and 10,214,000 shares, which reflects the incremental impact of shares
issued in the Ticketmaster Merger (excluding shares issuable (i) to USAi,
(ii) upon exercise of Ticketmaster Options, and (iii) upon exercise of
Universal's and Liberty's preemptive rights). For the year ended December
31, 1997, basic pro forma net earnings (loss) per common share adjusts the
104,780,000 USAi historical weighted average shares by 7,814,000 shares,
which reflects the incremental impact of the shares issued in connection
with USAi's July 1997 investment in Ticketmaster, 15,967,000 shares issued
in connection with the Ticketmaster Merger, and 13,500,000 shares issued in
connection with the Universal Transaction, as if the respective shares were
outstanding for the entire period.
Note that on a pro forma basis all Common Stock equivalents are
anti-dilutive.
(p) Reflects the results of operations for the applicable period for Networks
and Studios USA, which were acquired in the Universal Transaction on
February 12, 1998. See separate Universal Transaction Unaudited Pro Forma
Adjusted Combined Condensed Statement of Operations and notes thereto
contained in the USAi Form 8-K dated May 19, 1998.
(q) Represents elimination of USANi LLC's predecessor company income tax
expense to reflect the limited liability company structure.
F-14
168
TICKETMASTER GROUP, INC.
UNAUDITED PRO FORMA ADJUSTED COMBINED
CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1998
(IN THOUSANDS)
TICKETMASTER TICKETMASTER USAI
TICKETMASTER ACQUIRED PRO FORMA PRO FORMA PRO FORMA TICKETMASTER
HISTORICAL BUSINESSES ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
------------ ---------- ------------ ------------ ----------- ------------
REVENUES:
Ticketing operations............ $295,419 $20,796 $ (79)(1) $316,136 $(156,378)(5) $159,758
Concession control systems...... 30,036 30,036 30,036
Publications.................... 13,067 13,067 13,067
Merchandising................... 2,458 2,458 2,458
-------- ------- ------- -------- --------- --------
340,980 20,796 (79) 361,697 (156,378) 205,319
-------- ------- ------- -------- --------- --------
Operating costs, expenses and
other items:
Cost of sales................... 185,907 10,839 (79)(1) 196,667 (182,644)(5) 14,023
Other costs..................... 101,075 5,434 106,509 51,687(5) 158,196
Depreciation and amortization... 24,473 984 924(2) 26,381 (10,987)(5) 15,394
-------- ------- ------- -------- --------- --------
311,455 17,257 845 329,557 (141,944) 187,613
-------- ------- ------- -------- --------- --------
Operating profit................ 29,525 3,539 (924) 32,140 (14,434) 17,706
Interest income (expense),
net.......................... (9,560) 45 (690)(3) (10,205) 4,435(5) (5,770)
Other expenses, net............. -- -- -- -- (416)(5) (416)
-------- ------- ------- -------- --------- --------
Income (loss) before income taxes
and minority interest........... 19,965 3,584 (1,614) 21,935 (10,415) 11,520
Income tax (expense) benefit...... (11,883) (484) (291)(4) (12,658) 5,546(5) (7,112)
Minority interest................. 65 240 305 305
-------- ------- ------- -------- --------- --------
NET EARNINGS...................... $ 8,147 $ 3,340 $(1,905) $ 9,582 $ (4,869) $ 4,713
======== ======= ======= ======== ========= ========
(See notes on following page)
F-15
169
TICKETMASTER GROUP, INC.
NOTES TO UNAUDITED PRO FORMA ADJUSTED
COMBINED CONDENSED FINANCIAL STATEMENTS
(1) Represents the elimination of license fees paid by Canada to Ticketmaster
during the year.
(2) Represents amortization arising from the purchased user agreements and
excess purchase price paid for the net assets of a joint venture partner's
50% equity interest in Ticketmaster-Northwest and Synchro Systems Limited,
joint venture partners' 67% equity interest in Ticketmaster-Southeast and a
licensee's 100% equity interest in the Canadian licensee. The purchased user
agreements are being amortized using a discounted cash flow method through
the expiration date of the underlying contracts, generally ranging from 3 to
10 years. The cost in excess of net assets acquired is being amortized over
a 30-year period.
(3) Represents the interest expense resulting from additional borrowings under
Ticketmaster's credit agreement incurred by Ticketmaster as if the
acquisitions had taken place on February 1, 1997, at rates of interest
incurred by Ticketmaster during the year, approximately 7.0%.
(4) Represents the related income tax effect of the pro forma adjustments
utilizing a statutory federal rate of 35% and a statutory rate for state and
foreign taxes based on the rate in the applicable jurisdiction.
(5) Represents elimination of amounts reflected in USAi 1997 historical results
of operations and certain reclassifications to conform to USAi presentation.
USAi acquired a controlling interest in Ticketmaster in July 1997.
F-16
170
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
USA Networks, Inc.
We have audited the accompanying consolidated balance sheets of USA Networks,
Inc. (formerly HSN, Inc.) as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. Our audits also included the financial statement schedule
listed in the Index at Item 21(b). These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of USA
Networks, Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
March 13, 1998 except for note W, as to which
the date is January 11, 1999
F-17
171
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
USA Networks, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of USA Networks, Inc. (formerly HSN, Inc.
and Silver King Communications, Inc.) and subsidiaries for the period September
1, 1995 through December 31, 1995 and for the year ended August 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 21(b). These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations of USA Networks, Inc. and
subsidiaries and their cash flows for the period September 1, 1995 through
December 31, 1995, and for the year ended August 31, 1995 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Tampa, Florida
July 2, 1996
F-18
172
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED YEAR ENDED
---------------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- --------------------------------------------------------------------------------------------------
(In thousands, except per share data)
NET REVENUES
Home Shopping............................. $1,037,060 $ 30,588 $ -- $ --
Ticketmaster.............................. 156,378 -- -- --
Broadcasting.............................. 54,138 43,359 15,061 44,563
Other..................................... 14,173 1,225 919 3,355
---------- -------- ------- -------
Total net revenues................ 1,261,749 75,172 15,980 47,918
---------- -------- ------- -------
Operating costs and expenses:
Cost of sales............................. 645,299 20,974 193 614
Selling and marketing..................... 217,358 4,951 -- --
General and administrative................ 129,700 28,254 9,163 24,394
Depreciation and amortization............. 97,024 15,486 4,701 14,674
Engineering and programming............... 77,849 1,812 -- --
Other..................................... -- 83 2,603 --
---------- -------- ------- -------
Total operating costs and
expenses........................ 1,167,230 71,560 16,660 39,682
---------- -------- ------- -------
Operating profit (loss)........... 94,519 3,612 (680) 8,236
Other income (expense):
Interest income........................... 5,313 3,238 888 3,410
Interest expense.......................... (31,579) (11,841) (3,463) (10,963)
Miscellaneous............................. (11,752) 44 -- 570
---------- -------- ------- -------
(38,018) (8,559) (2,575) (6,983)
---------- -------- ------- -------
Earnings (loss) before income taxes and
minority interest......................... 56,501 (4,947) (3,255) 1,253
Income tax (expense) benefit................ (41,051) (1,872) 373 (1,138)
Minority interest........................... (2,389) 280 -- --
---------- -------- ------- -------
NET EARNINGS (LOSS)............... $ 13,061 $ (6,539) $(2,882) $ 115
========== ======== ======= =======
Basic earnings (loss) per common share...... $ .12 $ (.30) $ (.15) $ .01
========== ======== ======= =======
Diluted earnings (loss) per common share.... $ .12 $ (.30) $ (.15) $ .01
========== ======== ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-19
173
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------
1997 1996
- ----------------------------------------------------------------------------------------
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 116,036 $ 42,606
Accounts and notes receivable (net of an allowance for
doubtful accounts of $3,588 and $2,679, respectively)..... 96,867 56,832
Inventories, net............................................ 151,100 100,527
Deferred income taxes....................................... 39,956 40,842
Other current assets, net................................... 16,723 7,791
---------- ----------
Total current assets.............................. 420,682 248,598
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 145,701 95,472
Buildings and leasehold improvements........................ 83,851 63,739
Furniture and other equipment............................... 39,498 20,414
---------- ----------
269,050 179,625
Less accumulated depreciation and amortization.... 120,793 73,959
---------- ----------
148,257 105,666
Land........................................................ 16,602 14,944
Projects in progress........................................ 15,262 1,365
---------- ----------
180,121 121,975
OTHER ASSETS
Intangible assets, net...................................... 1,862,128 1,545,947
Cable distribution fees, net ($46,459, and $40,892 to
related parties, respectively)............................ 111,292 113,594
Long-term investments and notes receivable ($8,353 and
$7,220 in related parties, respectively).................. 59,780 47,862
Deferred income taxes....................................... 3,541 1,926
Deferred charges and other, net............................. 33,252 36,330
---------- ----------
2,069,993 1,745,659
---------- ----------
$2,670,796 $2,116,232
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-20
174
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
- ----------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------
1997 1996
- ----------------------------------------------------------------------------------------
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 12,918 $ 42,906
Accounts payable............................................ 185,101 95,421
Programming fees ($19,091 and $9,051 to related parties,
respectively)............................................. 43,553 40,717
Other accrued liabilities................................... 118,169 93,998
---------- ----------
Total current liabilities......................... 359,741 273,042
LONG-TERM OBLIGATIONS (net of current maturities)........... 448,346 271,430
OTHER LONG-TERM LIABILITIES, net............................ 43,132 56,875
MINORITY INTEREST........................................... 372,223 356,136
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value; authorized 15,000,000
shares; no shares issued or outstanding................... -- --
Common stock -- $.01 par value; authorized 800,000,000
shares; issued and outstanding 87,430,586 and 71,985,806
shares, respectively...................................... 874 720
Class B -- convertible common stock -- $.01 par value;
authorized, 200,000,000 shares; issued and outstanding,
24,455,294 and 20,450,112 shares, respectively............ 244 204
Additional paid-in capital.................................. 1,558,037 1,284,815
Accumulated deficit......................................... (103,601) (116,662)
Unearned compensation....................................... (3,202) (5,330)
Note receivable from key executive for common stock
issuance.................................................. (4,998) (4,998)
---------- ----------
1,447,354 1,158,749
---------- ----------
$2,670,796 $2,116,232
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-21
175
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
NOTE
RECEIVABLE
FROM KEY
EXECUTIVE
CLASS B FOR
CONVERTIBLE ADDITIONAL COMMON
COMMON COMMON PAID-IN ACCUMULATED UNEARNED STOCK
STOCK STOCK CAPITAL DEFICIT COMPENSATION ISSUANCE TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
BALANCE AT AUGUST 31, 1994............. $130 $ 48 $ 109,792 $(107,356) $ -- $ -- $ 2,614
Issuance of common stock upon exercise
of stock options...................... -- -- 180 -- -- -- 180
Unearned compensation related to grant
of stock options to key executive..... -- -- 3,973 -- (3,973) -- --
Amortization of unearned compensation
related to grant of stock options to
key executive......................... -- -- -- -- 20 -- 20
Income tax benefit related to stock
options exercised..................... -- -- 421 -- -- -- 421
Issuance of common stock to key
executive............................. 8 -- 9,992 -- -- (4,998) 5,002
Value of common stock in excess of key
executive's purchase price............ -- -- 926 -- -- -- 926
Net earnings for year ended August 31,
1995.................................. -- -- -- 115 -- -- 115
---- ---- ---------- --------- ------- ------- ----------
BALANCE AT AUGUST 31, 1995............. 138 48 125,284 (107,241) (3,953) (4,998) 9,278
Issuance of common stock upon exercise
of stock options...................... 2 -- 186 -- -- -- 188
Amortization of unearned compensation
related to grant of stock options to
key executive......................... -- -- -- -- 332 -- 332
Income tax benefit related to stock
options exercised..................... -- -- 555 -- -- -- 555
Net loss for four month period ended
December 31, 1995..................... -- -- -- (2,882) -- -- (2,882)
---- ---- ---------- --------- ------- ------- ----------
BALANCE AT DECEMBER 31, 1995........... 140 48 126,025 (110,123) (3,621) (4,998) 7,471
Issuance of common stock upon exercise
of stock options...................... 2 -- 1,154 -- -- -- 1,156
Amortization of unearned compensation
related to grant of stock options to
key executive......................... -- -- -- -- 1,028 -- 1,028
Income tax benefit related to stock
options exercised..................... -- -- 841 -- -- -- 841
Issuance of common stock related to the
Home Shopping Merger.................. 494 156 1,044,162 -- -- -- 1,044,812
Issuance of common stock related to the
Savoy Merger.......................... 84 -- 112,633 -- -- -- 112,717
Unearned compensation related to
employee equity participation plan.... -- -- -- -- (2,737) -- (2,737)
Net loss for year ended December 31,
1996.................................. -- -- -- (6,539) -- -- (6,539)
---- ---- ---------- --------- ------- ------- ----------
BALANCE AT DECEMBER 31, 1996........... 720 204 1,284,815 (116,662) (5,330) (4,998) 1,158,749
Issuance of common stock upon exercise
of stock options...................... 10 -- 7,217 -- -- -- 7,227
Income tax benefit related to stock
options exercised..................... -- -- 3,372 -- -- -- 3,372
Issuance of stock in connection with
Ticketmaster Transaction.............. 144 40 262,633 -- -- -- 262,817
Amortization of unearned compensation
related to grant of stock options to
key executive......................... -- -- -- -- 995 -- 995
Expense related to executive stock
award program and stock options....... -- -- -- -- 113 -- 113
Expense related to employee equity
participation plan.................... -- -- -- -- 1,020 -- 1,020
Net earnings for year ended December
31, 1997.............................. -- -- -- 13,061 -- -- 13,061
---- ---- ---------- --------- ------- ------- ----------
BALANCE AT DECEMBER 31, 1997........... $874 $244 $1,558,037 $(103,601) $(3,202) $(4,998) $1,447,354
==== ==== ========== ========= ======= ======= ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-22
176
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
- --------------------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED YEAR ENDED
------------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings (loss)....................................... $ 13,061 $ (6,539) $(2,882) $ 115
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 77,679 18,672 4,701 14,674
Deferred income taxes................................... 22,474 418 (710) 219
Amortization of cable distribution fees................. 19,261 -- -- --
Equity in losses of unconsolidated affiliates........... 12,007 367 -- --
Non-cash interest expense............................... 4,218 -- 288 820
Inventory carrying adjustment........................... (8,059) (420) -- --
Amortization of unearned compensation................... 2,128 1,028 332 20
Provision for losses on accounts and notes receivable... 96 23 51 179
(Gain) loss on retirement or sale of fixed assets....... (60) (34) 603 (111)
Minority interest....................................... 2,389 (280) -- --
Non-cash compensation to key executive.................. -- -- -- 926
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable............ (7,107) 511 (841) (2)
(Increase) decrease in inventories.................... (37,443) 9,949 -- --
(Increase) decrease in other current assets........... 988 1,332 (229) (397)
Decrease in accounts payable.......................... (7,371) (11,910) -- --
Increase (decrease) in accrued liabilities............ (35,859) (1,149) 1,269 999
Increase in cable distribution fees..................... (16,912) -- -- --
Decrease in deferred charges and other.................. 6,183 -- -- --
-------- -------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 47,673 11,968 2,582 17,442
-------- -------- ------- --------
Cash flows from investing activities:
Capital expenditures...................................... (45,869) (1,143) (163) (1,703)
Increase in long-term investments and notes receivable
........................................................ (39,844) (8,369) (653) (2,855)
Capital contributions received............................ 9,000 -- -- --
Proceeds from long-term notes receivable.................. 6,048 4,086 999 2,868
Proceeds from sale of fixed assets........................ 2,354 2,345 66 254
(Increase) decrease in other non-current assets........... -- 2,089 -- (260)
Payment for acquisitions, net of cash acquired............ (7,633) -- -- --
Payment of merger costs................................... (6,349) (1,630) -- --
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES........................................ (82,293) (2,622) 249 (1,696)
-------- -------- ------- --------
Cash flows from financing activities:
Principal payments on long-term obligations............... (385,329) (39,763) (6,089) (10,475)
Proceeds from issuance of common stock.................... 7,227 1,156 188 5,182
Payment of capitalized bank fees.......................... -- -- -- (283)
Proceeds from debt refinancing............................ 393,949 -- -- --
Distribution to minority shareholders..................... 2,540 -- -- --
Cash acquired in merger................................... 89,663 52,727 -- --
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES........................................ 108,050 14,120 (5,901) (5,576)
-------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 73,430 23,466 (3,070) 10,170
Cash and cash equivalents at beginning of period............ 42,606 19,140 22,210 12,040
-------- -------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $116,036 $ 42,606 $19,140 $ 22,210
======== ======== ======= ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-23
177
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ORGANIZATION
USA Networks, Inc., formerly HSN, Inc. and prior to that Silver King
Communications, Inc. (the "Company" or "USAi") is a holding company, the
subsidiaries of which are engaged in diversified media and electronic commerce
businesses. As of December 31, 1997, the Company's principal businesses were
electronic retailing, ticketing operations and television broadcasting. The
consolidated financial statements include the operations of Ticketmaster Group,
Inc. and subsidiaries ("Ticketmaster"), Savoy Pictures Entertainment, Inc. and
subsidiaries ("Savoy") and Home Shopping Network, Inc. and subsidiaries ("Home
Shopping") from the dates of their acquisitions, as discussed in Note C.
On February 12, 1998, the Company acquired certain assets from Universal
Studios, Inc. (the "Universal Transaction"), increased its authorized common
stock and Class B common stock and changed its name to USA Networks, Inc. See
Note V.
On February 20, 1998, the Company declared and on March 26, 1998, paid, a
two-for-one stock dividend as discussed in Note V. All share data and earnings
per share amounts presented have been adjusted to reflect this dividend.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all wholly-owned and majority owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
Investments in which the Company owns a 20%, but not in excess of 50%, interest
and where it can exercise significant influence over the operations of the
investee, are accounted for using the equity method. All other investments are
accounted for using the cost method. The Company periodically evaluates the
recoverability of investments recorded under the cost method and recognizes
losses if a decline in value is determined to be other than temporary.
REVENUES
Revenues from Home Shopping primarily consist of merchandise sales and are
reduced by incentive discounts and sales returns to arrive at net sales.
Revenues are recorded for credit card sales upon transaction authorization, and
for check sales upon receipt of customer payment, which does not vary
significantly from the time goods are shipped. Home Shopping's sales policy
allows merchandise to be returned at the customer's discretion within 30 days of
the date of delivery. Allowances for returned merchandise and other adjustments
are provided based upon past experience.
Revenue from Ticketmaster primarily consists of revenue from ticketing
operations which is recognized as tickets are sold.
Prior to December 20, 1996, television broadcasting revenue was principally
derived from the broadcasting of Home Shopping programming. The Company was
compensated by Home Shopping based on an applicable hourly affiliation rate per
station and, upon reaching certain sales levels, commissions on net sales.
Revenue was recognized as services were provided or when additional commissions
were earned. Subsequent to the Mergers, as discussed in Note C, these
intercompany revenues and expenses are eliminated in consolidation.
Revenues from all other sources are recognized either upon delivery or when the
service is provided.
F-24
178
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash and
short-term investments. Short-term investments consist primarily of U.S.
Treasury Securities, U.S. Government agencies and certificates of deposit with
original maturities of less than 91 days.
INVENTORIES, NET
Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out method. Cost includes freight, certain warehouse
costs and other allocable overhead. Market is determined on the basis of net
realizable value, giving consideration to obsolescence and other factors.
Inventories are presented net of an inventory carrying adjustment of $21.1
million and $27.9 million at December 31, 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including significant improvements, are recorded
at cost. Repairs and maintenance and any gains or losses on dispositions are
included in operations.
Depreciation and amortization is provided for on a straight-line basis to
allocate the cost of depreciable assets to operations over their estimated
service lives.
- ---------------------------------------------------------------------------------
DEPRECIATION/
ASSET CATEGORY AMORTIZATION PERIOD
- ---------------------------------------------------------------------------------
Computer and broadcast equipment............................ 3 to 13 Years
Buildings................................................... 30 to 40 Years
Leasehold improvements...................................... 4 to 20 Years
Furniture and other equipment............................... 3 to 10 Years
Depreciation and amortization expense on property, plant and equipment was $26.2
million, $4.3 million, $1.6 million, and $5.3 million for the years ended
December 31, 1997 and 1996, the four months ended December 31, 1995 and the year
ended August 31, 1995, respectively.
LONG-LIVED ASSETS INCLUDING INTANGIBLES
The Company's accounting policy regarding the assessment of the recoverability
of the carrying value of long-lived assets, including property, plant and
equipment, goodwill and other intangibles is to review the carrying value of the
assets if the facts and circumstances suggest that they may be impaired. If this
review indicates that the carrying value will not be recoverable, as determined
based on the undiscounted future cash flows of the Company, the carrying value
is reduced to its estimated fair value.
CABLE DISTRIBUTION FEES
Cable distribution fees relate to upfront fees paid in connection with long term
cable contracts for carriage of Home Shopping's programming. These fees are
amortized to expense on a straight line basis over the terms of the respective
contracts, with original terms from 5 to 15 years. Amortization expense for
cable distribution fees was $19.3 million for the year ended December 31, 1997
and was not significant for the 11 days ending December 31, 1996.
INCOME TAXES
Under Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes", deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
F-25
179
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled.
EARNINGS (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" during the fourth quarter of 1997. In accordance with the
Statement, all prior period earnings per share amounts have been restated.
Basic earnings per share ("Basic EPS") excludes dilution and is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share ("Diluted EPS") reflects the
potential dilution that could occur if stock options and other commitments to
issue common stock were exercised resulting in the issuance of common stock that
then shared in the earnings of the Company.
STOCK-BASED COMPENSATION
The Company is subject to Statement of Financial Accounting Standards No. 123
"Accounting and Disclosure of Stock-Based Compensation" ("SFAS 123"). As allowed
by SFAS 123, the Company accounts for stock-based compensation in accordance
with APB 25, "Accounting for Stock Issued to Employees." In cases where exercise
prices are less than fair value as of the grant date, compensation is recognized
over the vesting period.
Unaudited pro forma financial information, assuming that the Company had adopted
the measurement standards of SFAS 123, is included in Note N.
MINORITY INTEREST
Minority interest represents the ownership interests of third parties in the net
assets and results of operations of certain consolidated subsidiaries.
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.
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 and notes include the inventory carrying adjustment, sales return
accrual, allowance for doubtful accounts, recoverability of intangibles and
other long-lived assets, and various other operating allowances and accruals.
RECENTLY ISSUED PRONOUNCEMENTS
During fiscal 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") were issued. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of financial statements. The Company
will adopt SFAS 130 as of the first quarter of 1998. SFAS 131 requires
disclosure of financial and descriptive information about an entity's reportable
operating segments under the "management approach" as defined in the Statement.
The Company will adopt SFAS 131 as of December 31,
F-26
180
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998. The impact of adoption of these standards on the Company's financial
statements is not expected to be material.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the 1997 presentation.
NOTE C -- BUSINESS ACQUISITIONS
In the third quarter of 1997, the Company acquired a controlling interest in
Ticketmaster through the issuance of the Company's common stock to Paul G. Allen
and purchases of Ticketmaster shares in the open market. In connection with the
issuance of new shares to Mr. Allen, the Company also issued shares of the
Company's Class B common stock in accordance with Liberty Media Corporation's
contingent right to receive such shares as part of the Home Shopping Merger in
1996.
The Ticketmaster Transaction has been accounted for using the purchase method of
accounting. The acquisition price of $210.0 million, including expenses, was
preliminarily allocated to the assets and liabilities of Ticketmaster based on
respective values at the acquisition date. The fair market values of the assets
and liabilities acquired are summarized below, along with the excess of the
purchase price over the fair value of net assets, which has preliminarily been
assigned to goodwill and other intangibles:
- ----------------------------------------------------------------------------
TICKETMASTER
- ----------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $140,000
Non-current assets.......................................... 179,000
Goodwill and other intangibles.............................. 190,000
Current liabilities......................................... 130,000
Non-current liabilities, including minority interest........ 169,000
On March 20, 1998, the Company entered into a merger agreement with Ticketmaster
to acquire the remaining interest in Ticketmaster. See Note V.
SAVOY MERGER
On December 19, 1996, USAi consummated the merger with Savoy ("Savoy Merger") by
issuing 8,411,740 shares of USAi common stock in exchange for each share of
outstanding Savoy common stock at a .28 conversion ratio, adjusted for the March
1998 stock dividend.
HOME SHOPPING MERGER
On December 20, 1996, USAi consummated the merger with Home Shopping (the "Home
Shopping Merger") by issuing shares of USAi Common Stock at a ratio of .90 of a
share of USAi Common Stock and 1.08 shares of USAi Class B Common Stock for each
share of Home Shopping Common Stock and Home Shopping Class B Common Stock,
adjusted for the March 1998 stock dividend, respectively. As a result,
49,331,302 shares of USAi Common Stock and 15,618,222 shares of USAi Class B
Common Stock were issued.
Upon consummation of the Home Shopping Merger, and because the Home Shopping
Class B Common Stock was entitled to ten votes per share on matters on which
both classes of common
F-27
181
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock vote together as a single class, the Company owned 80.1% of the equity and
90.8% of the voting power of Home Shopping, and Liberty HSN owned 19.9% of the
equity and 9.2% of the voting power of Home Shopping. Liberty HSN is an
indirect, wholly-owned subsidiary of Liberty, which, in turn, is a subsidiary of
Tele-Communications, Inc. ("TCI").
The Mergers have been accounted for using the purchase method of accounting. The
purchase price, including expenses, for the Savoy Merger and the Home Shopping
Merger, which were $113.4 million and $1.2 billion, respectively, have been
allocated to the assets and liabilities acquired based on their respective fair
values at the dates of purchase. The fair value of the assets and liabilities
acquired are summarized below, along with the excess of the purchase price,
including expenses, over the fair value of net assets, which has been assigned
to goodwill and broadcast licenses:
- --------------------------------------------------------------------------------------
SAVOY HOME SHOPPING
- --------------------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $ 36,000 $ 192,000
Non-current assets.......................................... 64,400 257,000
Goodwill and broadcast licenses............................. 307,100 1,197,000
Current liabilities......................................... 63,700 198,000
Non-current liabilities..................................... 230,400 227,000
The following unaudited pro forma condensed consolidated financial information
for the years ended December 31, 1997 and 1996, is presented to show the results
of the Company for the full periods, as if the Ticketmaster Transaction,
including significant acquisitions by Ticketmaster, and the Mergers occurred at
the beginning of the years presented. The pro forma results include certain
adjustments, including increased amortization related to goodwill and other
intangibles, the reduction of cable and broadcast fees for fair value
adjustments related to purchase accounting and the elimination of intercompany
revenues and expenses, and are not necessarily indicative of what the results
would have been had the Ticketmaster Transaction and the Mergers actually
occurred on the aforementioned dates.
- ------------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
- ------------------------------------------------------------------------------------------
(In thousands, except per
share data)
Net revenues................................................ $1,454,521 $1,392,629
Net earnings (loss)......................................... 10,773 (19,099)
Basic earnings (loss) per common share...................... $ .10 $ (.17)
========== ==========
Diluted earnings (loss) per common share.................... $ .09 $ (.17)
========== ==========
F-28
182
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method and include the
following:
- ------------------------------------------------------------------------------------------
DECEMBER 31,
----------------------------
1997 1996
- ------------------------------------------------------------------------------------------
(In thousands)
Intangible Assets, net:
Goodwill.................................................. $1,520,221 $1,193,322
Broadcast licenses........................................ 312,248 350,118
Purchased user agreements................................. 28,029 --
Other..................................................... 1,630 2,507
---------- ----------
$1,862,128 $1,545,947
========== ==========
Goodwill primarily relates to the excess of purchase price over the fair value
of assets acquired in the Ticketmaster Transaction and the Mergers, as discussed
in Note C, and is net of accumulated amortization of $46.9 million and $4.1
million at December 31, 1997 and 1996, respectively. Goodwill is generally
amortized over 40 years.
Broadcast licenses represent the costs of acquiring FCC licenses related to
broadcast operations and is net of accumulated amortization of $41.3 million and
$21.5 million as of December 31, 1997 and 1996, respectively. Broadcast licenses
are generally amortized over 40 years.
Purchased user agreements represent the cost of acquiring venue contracts, are
net of accumulated amortization of $3.9 million at December 31, 1997 and are
amortized over the contract terms, generally 2 to 10 years.
Other intangibles are net of accumulated amortization of $67.0 million and $72.3
million as of December 31, 1997 and 1996, respectively, and are generally
amortized over 3 to 10 years.
NOTE E -- LONG-TERM INVESTMENTS AND NOTES RECEIVABLE
Investments accounted for under the equity method include the following; a 29%
interest in both Home Order Television GmbH & Co. KG ("HOT") and its general
partner (collectively the "HOT Interest") and a 30% interest in Jupiter Shop
Channel Co. Ltd. ("Shop Channel"). At December 31, 1997 and 1996, the Company's
net investment in these ventures was $15.6 million and $11.1 million,
respectively. The HOT Interest is subject to certain restrictions and other
provisions regarding transferability.
The Company also includes in equity investments at December 31, 1997, $6.6
million in investments in unconsolidated affiliate companies and joint ventures
of Ticketmaster. Ticketmaster is the managing general partner of each joint
venture.
The Company has other investments accounted for under the cost method totaling
$25.7 million and $19.0 million at December 31, 1997 and 1996, respectively.
The Company has notes receivable of $11.9 million and $17.7 million net of the
current portion of $4.5 million and $3.6 million at December 31, 1997 and 1996,
respectively. Certain notes receivable are collateralized by stock pledges and
security interests in all of the tangible and intangible assets in the investee
companies to the full extent permitted by law.
NOTE F -- DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets primarily consist of the film library and
broadcast rights acquired in connection with the acquisition of Savoy; satellite
and other deposits acquired in connection with the
F-29
183
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition of Home Shopping; and deferred financing costs. Deferred charges and
other assets are net of accumulated amortization of $2.4 million and $4.3
million as of December 31, 1997 and December 31, 1996, respectively.
NOTE G -- LONG-TERM OBLIGATIONS
- ---------------------------------------------------------------------------------
DECEMBER 31,
-------------------
1997 1996
- ---------------------------------------------------------------------------------
(In thousands)
Unsecured $275,000,000 Revolving Credit Facility ("HSNi
Facility"); with a $35,000,000 sub-limit for import
letters of credit, entered into on May 1, 1997, which
matures on May 1, 2002. At the Company's option, the
interest rate on borrowings is tied to the London
Interbank Offered Rate ("LIBOR") or the Alternate Base
Rate ("ABR"), plus an applicable margin. The interest rate
was 6.51% at December 31,1997, and ranged from 6.16% to
8.50% during 1997......................................... $100,000 $ --
Unsecured $100,000,000 5 7/8% Convertible Subordinated
Debentures (the "Home Shopping Debentures") due March 1,
2006 convertible into USAi Common Stock at a conversion
price of $13.34 per share................................. 106,338 107,007
Secured SF Broadcast Facility (the "SF Broadcast Facility");
payable in 20 consecutive quarterly installments
commencing on September 30, 1997. At the Company's option,
the interest rate on borrowings is tied to LIBOR or ABR,
plus an applicable margin. The interest rate was 8.095% at
December 31, 1997 and ranged from 7.82% to 8.10% during
1997...................................................... 69,844 92,500
Unsecured $37,782,000 7% Convertible Subordinated Debentures
("Savoy Debentures") due July 1, 2003 convertible into
USAi Common Stock at a conversion price of $66.43 per
share..................................................... 32,915 32,331
Secured Revolving Credit Facility ("Ticketmaster Facility"),
which matures in December 1999. The interest rate is tied
to LIBOR, plus an applicable margin. The interest rate was
6.98% at December 31, 1997 and ranged from 6.63% from
7.31% during 1997......................................... 134,000 --
Term loan, collateralized by a building of Ticketmaster,
principal and interest payable monthly, maturing April 25,
2007; interest rate is 9.2%............................... 8,953 --
Term loan, collateralized by substantially all of the assets
of a Ticketmaster subsidiary, interest and principal
payable monthly, maturing on June 30, 1999. At the
Company's option, the interest rate is tied to LIBOR or
the prime rate, plus an applicable margin. At December 31,
1997, the interest rate was 8.63%......................... 7,500 --
Secured Senior Term Loan -- Tranche A; payable in quarterly
installments and maturing July 31, 2000. At the Company's
option, the interest rate is tied to LIBOR or ABR, plus an
applicable margin......................................... -- 34,704
Secured Senior Term Loan -- Tranche B; payable in quarterly
installments and maturing July 31, 2002. At the Company's
option, the interest rate is tied to LIBOR or ABR, plus an
applicable margin......................................... -- 33,968
12% Convertible Senior Subordinated Note due February 28,
1997, convertible into USAi Common Stock at a conversion
price of $46.43........................................... -- 12,500
Other long-term obligations................................. 1,714 1,326
-------- --------
Total long-term obligations................................. 461,264 314,336
F-30
184
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------------------------------------------------------------------------
DECEMBER 31,
-------------------
1997 1996
- ---------------------------------------------------------------------------------
(In thousands)
Less current maturities..................................... 12,918 42,906
-------- --------
Long-term obligations, net of current maturities............ $448,346 $271,430
======== ========
The Home Shopping Debentures were all converted by the holders into shares of
USAi Common Stock on or prior to March 1, 1998. See Note V.
The SF Broadcast Facility, which expires on June 30, 2002, is secured by
substantially all assets of SF Broadcasting. Restrictions contained in the SF
Broadcast Facility include, but are not limited to, limitations on additional
indebtedness, payment of dividends and the maintenance of various financial
covenants and ratios. Savoy and Fox each made a capital contribution of $19.5
million in 1996 which was used to repay borrowings under the SF Broadcast
Facility.
At December 31, 1997, $160.6 million was available for borrowing under the HSNi
Facility after taking into account outstanding letters of credit. The Company
paid a commitment fee of .1875% on the unused portion of the HSNi Facility. In
connection with the Universal Transaction, the Company entered into a new
facility as discussed in Note V, which replaced the HSNi Facility.
The Savoy Debentures are redeemable at the option of the Company at varying
percentages of the principal amount each year, ranging from 105.25% to 100.75%,
plus applicable interest. In connection with the Savoy Merger, USAi became a
joint and several obligor with respect to the Savoy Debentures.
The Ticketmaster Facility and term loans are subject to certain restrictive
covenants relating to among other things, net worth, cash flows and capital
expenditures. Ticketmaster was in compliance with its restrictive covenants or
has obtained necessary waivers at December 31, 1997. Ticketmaster's credit
agreements impose restrictions on the payment of dividends. At December 31,
1997, $27.0 million was available to Ticketmaster for borrowing under the
Ticketmaster Facility. Maximum available borrowings under this facility will
decrease to $150.0 million at December 31, 1998.
Aggregate contractual maturities of long-term obligations are as follows:
- ----------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
- ----------------------------------------------------------------------------
(In thousands)
1998........................................................ $ 12,918
1999........................................................ 156,801
2000........................................................ 15,956
2001........................................................ 18,203
2002........................................................ 109,835
Thereafter.................................................. 146,080
--------
$459,793
========
F-31
185
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- INCOME TAXES
A reconciliation of total income tax expense (benefit) to the amounts computed
by applying the statutory federal income tax rate to earnings (loss) before
income taxes is shown as follows:
- -----------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS YEAR
DECEMBER 31, ENDED ENDED
----------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- -----------------------------------------------------------------------------------------------------
(In thousands)
Income tax expense (benefit) at the federal statutory
rate of 35% in 1997 and 34% for prior periods....... $19,776 $(1,682) $(1,107) $ 426
Amortization of goodwill and other intangibles........ 13,690 548 61 192
Dividends received deduction.......................... -- -- -- (110)
State income taxes, net of effect of federal tax
benefit............................................. 2,896 581 22 558
Non-deductible portion of executive compensation...... -- 1,385 426 321
Increase (decrease) in valuation allowance for
deferred tax assets................................. 5,471 966 264 (212)
Other, net............................................ (782) 74 (39) (37)
------- ------- ------- ------
Income tax expense (benefit).......................... $41,051 $ 1,872 $ (373) $1,138
======= ======= ======= ======
The components of income tax expense (benefit) are as follows:
- -----------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS YEAR
DECEMBER 31, ENDED ENDED
----------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- -----------------------------------------------------------------------------------------------------
(In thousands)
Current income tax expense:
Federal............................................. $21,603 $ 602 $ 104 $ 110
State............................................... 3,029 852 233 809
Foreign............................................. 919 -- -- --
------- ------- ------- ------
Current income tax expense.................. 25,551 1,454 337 919
------- ------- ------- ------
Deferred income tax expense (benefit):
Inventory costing................................... 11,902 (479) -- --
Provision for accrued liabilities................... 1,702 609 (691) --
Depreciation for financial statements in excess of
tax.............................................. 1,339 (276) (201) (608)
Amortization of goodwill and other broadcast related
intangibles...................................... 5,671 (52) (1) 3
Net operating loss carryover........................ (2,889) (1,561) (412) 845
Increase (decrease) in valuation allowance for
deferred tax assets.............................. (1,306) 1,305 264 (212)
Other, net.......................................... (919) 872 331 191
------- ------- ------- ------
Deferred income tax expense (benefit)....... 15,500 418 (710) 219
------- ------- ------- ------
Total income tax expense (benefit).......... $41,051 $ 1,872 $ (373) $1,138
======= ======= ======= ======
F-32
186
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of cumulative temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996, are presented below. The valuation allowance
represents items for which it is more likely than not that the tax benefit will
not be realized.
- -----------------------------------------------------------------------------------
DECEMBER 31,
---------------------
1997 1996
- -----------------------------------------------------------------------------------
(In thousands)
Current deferred tax assets:
Net federal operating loss carryforward................... $ 46,291 $ 85,929
Inventory costing......................................... 16,398 30,102
Provision for accrued expenses............................ 6,883 11,310
Amortization of broadcast related intangibles............. 7,995 8,767
Investments in affiliates................................. 2,982 --
Other..................................................... 25,604 17,694
-------- ---------
Total current deferred tax assets................. 106,153 153,802
Less valuation allowance.......................... (66,197) (112,960)
-------- ---------
Net current deferred tax assets................... $ 39,956 $ 40,842
======== =========
Non-current deferred tax assets (liabilities):
Broadcast and cable fee contracts......................... $ 11,787 $ 17,010
Depreciation for tax in excess of financial statements.... (10,450) (8,704)
Amortization of FCC licenses and broadcast related
intangibles............................................ (17,847) (17,734)
Investment in subsidiaries................................ 6,320 --
Other..................................................... 17,068 13,095
-------- ---------
Total non-current deferred tax assets............. 6,878 3,667
Less valuation allowance.......................... (3,337) (1,741)
-------- ---------
Net non-current deferred tax assets............... $ 3,541 $ 1,926
======== =========
The Company recognized income tax deductions related to the issuance of common
stock pursuant to the exercise of stock options for which no compensation
expense was recorded for accounting purposes. The related income tax benefits of
$3.4 million, $.8 million, $.6 million and $.4 million for the years ended
December 31, 1997 and 1996, the four months ended December 31, 1995 and the year
ended August 31, 1995, respectively, were recorded as increases to additional
paid-in capital.
At December 31, 1997 and 1996, the Company has net operating loss carryforwards
("NOL") for federal income tax purposes of $133.3 million and $225.0 million,
respectively, which are available to offset future federal taxable income, if
any, through 2012. Approximately $99.3 million of the NOL as of December 31,
1997, are pre-acquisition losses which are subject to certain tax loss
limitations. Accordingly, the Company has established a valuation allowance for
those pre-acquisition losses. Recognition of these tax benefits in the future
periods would be applied as a reduction of goodwill related to the acquisition.
During 1997, the Internal Revenue Service ("IRS") completed the examination of
Home Shopping's federal income tax returns for fiscal years 1992 through 1994
and assessed Home Shopping additional income tax plus interest. Home Shopping
filed a protest with the IRS regarding the assessment. The protest is currently
pending review by the IRS Appeals Office. Management believes the ultimate
resolution of any tax audits will not have a significant impact on the Company's
consolidated financial statements.
F-33
187
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- COMMITMENTS AND CONTINGENCIES
The Company leases satellite transponders, computers, warehouse and office
space, as well as broadcast and production facilities, equipment and services
used in connection with its operations under various operating leases and
contracts, many of which contain escalation clauses.
Future minimum payments under non-cancellable agreements are as follows:
- ----------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
- ----------------------------------------------------------------------------
(In thousands)
1998........................................................ $ 38,670
1999........................................................ 36,411
2000........................................................ 34,235
2001........................................................ 34,031
2002........................................................ 25,138
Thereafter.................................................. 24,482
--------
$192,967
========
Expenses charged to operations under these agreements were $37.7 million, $2.9
million, $.8 million, and $2.7 million for the years ended December 31, 1997 and
1996, the four months ended December 31, 1995, and the year ended August 31,
1995, respectively.
The Company is required to provide funding, from time to time, for the
operations of its investments in joint ventures accounted for under the equity
method.
NOTE J -- EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of Basic and Diluted EPS. All
share numbers have been adjusted to reflect the Company's two-for-one stock
split to holders of record as of the close of business on March 12, 1998:
- -------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED YEAR ENDED
------------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- -------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net earnings (loss)............................ $ 13,061 $(6,539) $(2,882) $ 115
Weighted average shares........................ 104,780 21,572 18,790 18,290
Effect of dilutive securities:
Stock options............................. 7,464 -- -- 166
-------- ------- ------- -------
Adjusted weighted average shares............... 112,244 21,572 18,790 18,456
======== ======= ======= =======
Basic earnings (loss) per share................ $ .12 $ (.30) $ (.15) $ .01
======== ======= ======= =======
Diluted earnings (loss) per share.............. $ .12 $ (.30) $ (.15) $ .01
======== ======= ======= =======
The effect of the Convertible Debentures is excluded from the computation of
Diluted EPS as their effect is antidilutive.
NOTE K -- STOCKHOLDERS' EQUITY
Share numbers and prices reflect the Company's two-for-one stock split to
holders of record as of the close of business on March 12, 1998.
F-34
188
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DESCRIPTION OF COMMON STOCK AND CLASS B -- CONVERTIBLE COMMON STOCK
Holders of USAi Common Stock have the right to elect, and the holders of USAi
Class B Common Stock have no vote on, 25% of the entire Board of Directors,
rounded upward to the nearest whole number of directors. As to the election of
the remaining directors, the holders of USAi Class B Common Stock are entitled
to 10 votes for each USAi Class B Common Stock share, and the holders of the
USAi Common Stock are entitled to one vote per share. There are no cumulative
voting rights.
The holders of both classes of the Company's common stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available for the payment of dividends. In the
event of the liquidation, dissolution or winding up of the Company, the holders
of both classes of common stock are entitled to share ratably in all assets of
the Company remaining after provision for payment of liabilities. USAi Class B
Common Stock is convertible at the option of the holder into USAi Common Stock
on a share-for-share basis. Upon conversion, the USAi Class B Common Stock will
be retired and not subject to reissue.
NOTE RECEIVABLE FROM KEY EXECUTIVE FOR COMMON STOCK ISSUANCE
In August 1995, Mr. Barry Diller became Chairman of the Board and Chief
Executive Officer of the Company. In connection with Mr. Diller's employment,
the Company agreed to sell Mr. Diller 883,976 shares of USAi Common Stock
("Diller Shares") at $11.313 per share for cash and a non-recourse promissory
note in the amount of $5.0 million, secured by approximately 530,000 shares of
USAi Common Stock. The promissory note is due on the earlier of (i) the
termination of Mr. Diller's employment, or (ii) September 5, 2007. The Company
recognized $926,138 of compensation expense, with a corresponding increase in
additional paid-in capital, related to the issuance of the Diller Shares. The
compensation expense resulted from the difference in the per share fair market
value of USAi Common Stock and the per share purchase price.
STOCKHOLDERS' AGREEMENT
Mr. Diller, Chairman of the Board and Chief Executive Officer of the Company,
through BDTV, INC., BDTV II, INC., BDTV III, INC., BDTV IV, INC., his own
holdings and pursuant to the Stockholders Agreement, with Universal, Liberty,
the Company and Seagram (the "Stockholders Agreement"), has the right to vote
approximately 8% or 8,217,236 shares of USAi's outstanding common stock, and
approximately 97% or 31,181,726 shares of USAi's outstanding Class B Common
Stock. Each share of Class B Common Stock is entitled to ten votes per share
with respect to matters on which Common and Class B stockholders vote as a
single class. As a result, Mr. Diller controls 76% of the outstanding total
voting power of the Company. Mr. Diller, subject to the Stockholders Agreement,
is effectively able to control the outcome of nearly all matters submitted to a
vote of the Company's stockholders. Liberty HSN holds substantially all of the
economic interest in, and Mr. Diller holds all of the voting power in, the
shares of USAi stock held by the BDTV entities listed above.
In connection with option plans, pending acquisitions and other matters,
244,184,256 shares were reserved.
F-35
189
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- LITIGATION
In the ordinary course of business, the Company is engaged in various lawsuits,
including certain class action lawsuits initiated in connection with the Home
Shopping Merger and the Ticketmaster Transaction. In the opinion of management,
the ultimate outcome of the various lawsuits should not have a material impact
on the liquidity, results of operations or financial condition of the Company.
NOTE M -- BENEFIT PLANS
The Company offers various plans pursuant to Section 401(k) of the Internal
Revenue Code (the "Plans") covering substantially all full-time employees who
are not party to collective bargaining agreements. The Company's share of the
matching employer contributions is set at the discretion of the Board of
Directors or the applicable committee thereof.
In connection with the Home Shopping Merger, the Company has adopted the Home
Shopping Network, Inc. Employee Equity Participation Plan (the "Equity Plan").
The Equity Plan covers all Home Shopping employees who have completed one year
and at least 1,000 hours of service, are at least 21 years of age, are not
highly compensated as defined in the Equity Plan agreement, and did not hold
options to purchase shares of Home Shopping Common Stock. The Board of Directors
has not made any additional grants under the Equity Plan for any period
subsequent to June 30, 1995.
NOTE N -- STOCK OPTION PLANS
The Company has granted options to purchase common stock under various stock
option plans. In connection with the Mergers, the Company assumed and converted
Home Shopping and Savoy options into options to acquire USAi Common Stock based
on the respective merger exchange ratios, as described in Note C, including
corresponding adjustments to the option exercise price. The following describes
the stock option plans. Share numbers, prices and earnings per share reflect the
Company's two-for-one stock split to holders of record at the close of business
on March 12, 1998.
The Company has outstanding options to employees or consultants of the Company
under several plans (the "Plans") which provide for the grant of options to
purchase the Company's common stock at not less than fair market value on the
date of the grant. The options under the Plans vest ratably, generally over a
range of three to five years from the date of grant and generally expire not
more than 10 years from the date of grant. Three of the Plans have options
available for future grants.
The Company also has outstanding options to outside directors under one plan
(the "Directors Plan") which provides for the grant of options to purchase the
Company's common stock at not less than fair market value on the date of the
grant. The options under the Directors Plan vest ratably, generally over three
years from the date of grant and expire not more than 10 years from the date of
grant.
F-36
190
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of changes in outstanding options under the stock option plans
following the Company's two-for-one stock split, is as follows:
- -------------------------------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------- AUGUST 31,
1997 1996 1995 1995
--------------- --------------- -------------- --------------
PRICE PRICE PRICE PRICE
SHARES RANGE SHARES RANGE SHARES RANGE SHARES RANGE
- -------------------------------------------------------------------------------------------------------
(Shares in thousands)
Outstanding at beginning of
period.......................... 22,872 $ 1-74 4,538 $ 1-16 4,594 $1-13 690 $ 1-9
Granted or issued in connection
with mergers................. 11,580 $10-19 18,580 $ 4-74 20 $ 16 4,062 $5-13
Exercised....................... (968) $ 1-16 (238) $ 1-10 (76) $ 1-9 (66) $ 1-9
Cancelled....................... (548) $ 5-74 (8) $11-13 -- -- (92) $ 1
------ ------ ----- -----
OUTSTANDING AT END OF PERIOD...... 32,936 $ 1-74 22,872 $ 1-74 4,538 $1-16 4,594 $ 1-9
====== ====== ===== =====
Options exercisable............... 10,840 6,650 1,228 386
====== ====== ===== =====
Available for grant............... 12,192 3,432 2,079 2,099
====== ====== ===== =====
The weighted average exercise prices during the year ended December 31, 1997,
were $18.77, $7.40 and $14.69 for options granted, exercised and cancelled,
respectively. The weighted average fair value of options granted during the year
was $11.81.
The weighted average exercise prices during the year ended December 31, 1996,
were $10.76, $4.56 and $12.09 for options granted or issued in connection with
the Mergers, options exercised and options cancelled, respectively. The weighted
average fair value of options granted during the year was $7.92.
- --------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ----------------------------------
WEIGHTED WEIGHTED WEIGHTED
OUTSTANDING AT AVERAGE REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF EXERCISE PRICE DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICE
- --------------------------------------------------------------------------------------------------------------------
(In thousands) (In thousands)
$1.00 to $5.00......... 170 3.3 $ 3.12 170 $ 3.12
$5.01 to $10.00........ 14,430 7.9 9.42 7,305 9.40
$10.01 to $15.00....... 5,622 7.8 11.50 2,401 11.56
$15.01 to $20.00....... 12,629 9.5 18.63 879 15.64
Over $20.00............ 85 4.3 44.57 85 44.57
------ ------
32,936 8.4 13.36 10,840 10.56
====== ======
In August 1995, in connection with Mr. Diller's employment, the Company granted
Mr. Diller an option (the "Diller Option") to acquire 3,791,694 shares of common
stock at an exercise price of $11.31 per share. In connection with granting the
Diller Option, the Company recorded unearned compensation of $4.0 million offset
by a $4.0 million increase to additional paid-in capital. The unearned
compensation resulted from the difference in the exercise price and fair market
value of the common stock at the date of grant and is being amortized over the
four year vesting period of the options.
Pro forma information regarding net income and earnings per share is required by
Statement 123. The information is determined as if the Company had accounted for
its employee stock options granted subsequent to December 31, 1994 under the
fair market value method. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the
F-37
191
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
following weighted-average assumptions for 1997 and the periods prior to 1997:
risk-free interest rates of 5.5% and 6.4%, respectively; a dividend yield of
zero; a volatility factor of .713 based on the expected market price of USAi
Common Stock based on historical trends; and a weighted-average expected life of
the options of five years.
The Black-Scholes option valuation model was developed for use in estimating the
fair market value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair market value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
- -----------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
------------------ DECEMBER 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------
Pro forma net loss.......................................... $(4,871) $(21,225) $(6,007)
Pro forma basic and diluted loss per share.................. $ (.05) $ (.98) $ (.32)
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
NOTE O -- STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
- ----------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED YEAR ENDED
---------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- ----------------------------------------------------------------------------------------------------
(In thousands)
CASH PAID DURING THE PERIOD FOR:
Interest............................................ $26,798 $8,939 $3,200 $10,000
Income tax payments................................. 21,453 458 100 1,500
Income tax refund................................... 5,822 -- -- --
Supplemental information of non-cash investing and financing activities:
- - During July 1997, the Company acquired an interest in Ticketmaster by issuing
stock as discussed in Note C.
- - During December 1996, the Company acquired Savoy and Home Shopping by issuing
stock as discussed in Note C.
- - During August 1995, in connection with the retention of the Chairman and Chief
Executive Officer, the Company issued 441,988 shares of USAi Common Stock to
its Chairman and Chief Executive Officer in exchange for $2,000 in cash and a
note receivable of $5.0 million.
F-38
192
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- RELATED PARTY TRANSACTIONS
As of December 31, 1997, the Company was involved in several agreements with
related parties as follows:
The Company, through its Home Shopping subsidiary, is a partner in Shop Channel,
an entity in which TCI, through a subsidiary, has an indirect ownership
interest. In the ordinary course of business, Home Shopping has sold inventory
to Shop Channel and recorded receivables of $.8 million and $.7 million for
those sales and other services provided at December 31, 1997 and 1996,
respectively. The Company's net investment in Shop Channel was $2.5 million and
$.5 million at December 31, 1997 and 1996, respectively.
The Company has a secured, non-recourse note receivable of $5.0 million from its
Chairman and Chief Executive Officer. See Note K.
The Company entered into a lease agreement with an entity owned by the Chairman
of the Board and Chief Executive Officer of the Company providing for the use of
an aircraft for corporate purposes. The lease has a five-year term and is
terminable by either party on thirty days' notice. In 1997, the Company paid a
total of $2.7 million related to the use of the aircraft.
Prior to the Home Shopping Merger, as discussed in Note C, the Company had
affiliation agreements with Home Shopping for which the Company recorded revenue
of $43.1 million, $14.3 million and $42.5 million for the year ended December
31, 1996, the four months ended December 31, 1995 and the year ended August 31,
1995, respectively. As a result of the Home Shopping Merger, these revenues are
eliminated in consolidation for periods subsequent to the Home Shopping Merger.
In the normal course of business, Home Shopping enters into agreements with the
operators of cable television systems and operators of broadcast television
stations for the carriage of Home Shopping programming. Home Shopping has
entered into agreements with a number of cable operators that are affiliates of
TCI. These long-term contracts provide for a minimum subscriber guarantee and
incentive payments based on the number of subscribers. Cash paid by Home
Shopping to TCI and certain of its affiliates under these contracts for cable
commissions and advertising was $9.6 million, $11.9 million and $.8 million for
calendar years 1997 and 1996 and the 11 days subsequent to the Home Shopping
Merger, respectively.
As of December 31, 1997, SKTV, Inc. a wholly-owned subsidiary of the Company,
owned a 33.4% membership interest in Blackstar. Home Shopping currently
maintains broadcast affiliation agreements with stations for which Blackstar is
the parent company. Home Shopping recorded affiliation payments of $4.8 million,
$4.7 million and $.1 million relating to those stations, for calendar years 1997
and 1996 and the 11 days subsequent to the Home Shopping Merger, respectively.
Subsequent to December 31, 1997, Blackstar and the Company entered into a series
of transactions affecting these broadcast stations. See Note V.
F-39
193
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE Q -- QUARTERLY RESULTS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
- ------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
YEAR ENDED DECEMBER 31, 1997
Net revenues................................. $390,257 $326,256 $265,685 $279,551
Operating profit............................. 27,695 22,685 20,730 23,409
Net earnings................................. 3,303 3,516 2,472 3,770
Basic earnings per common share(b)........... .03 .03 .03 .04
Diluted earnings per common share............ .03 .03 .02 .04
YEAR ENDED DECEMBER 31, 1996
Net revenues................................. $ 41,923(a) $ 11,213 $ 10,924 $ 11,112
Operating profit (loss)...................... (1,369)(a) 1,774 1,580 1,627
Net (loss)................................... (5,110)(a) (371) (452) (606)
Basic and diluted (loss) per common
share(b).................................. (.17)(a) (.02) (.03) (.03)
- ---------------
(a) The operating results from the fourth quarter 1996 reflect the impact of the
Mergers discussed in Note C.
(b) Per common shares amounts for the quarters do not add to the annual amount
because of differences in the average common shares outstanding during each
period.
NOTE R -- SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, four months ended December 31, 1995 and
the year ended August 31, 1995, net revenue from a significant customer, Home
Shopping, accounted for 57.3%, 89.5% and 88.7%, respectively, of the Company's
net revenue. As a result of the Mergers described in Note C, Home Shopping
became a subsidiary of the Company and such revenues are eliminated in
consolidation.
NOTE S -- INDUSTRY SEGMENTS
For the year ended December 31, 1997, the Company operated principally in three
industry segments; retailing, ticketing operations, and broadcasting. The
retailing segment consists of Home Shopping, which primarily includes the sale
of merchandise through electronic retailing. The ticketing operations segment
provides automated ticketing services primarily in the United States. The
broadcasting segment includes the operations of 12 broadcast television stations
(including one television satellite station), which currently transmit Home
Shopping programming and six broadcast television stations (including two
television satellite stations) which are Fox affiliates.
F-40
194
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- -------------------------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31, FOUR MONTHS YEAR ENDED
----------------------- ENDED AUGUST 31,
1997 1996 DECEMBER 31, 1995 1995
- -------------------------------------------------------------------------------------------------------
(In thousands)
Revenue
Retailing.................................. $1,037,060 $ 30,588 $ -- $ --
Ticketing operations....................... 156,378 -- -- --
Broadcasting............................... 54,138 43,359 15,061 44,563
Other...................................... 14,173 1,225 919 3,355
---------- ---------- -------- --------
$1,261,749 $ 75,172 $ 15,980 $ 47,918
========== ========== ======== ========
Operating profit (loss)
Retailing.................................. $ 98,825 $ (522) $ -- $ --
Ticketing operations....................... 12,241 -- -- --
Broadcasting............................... (8,997) 4,175 30 9,368
Other...................................... (7,550) (41) (710) (1,132)
---------- ---------- -------- --------
$ 94,519 $ 3,612 $ (680) $ 8,236
========== ========== ======== ========
Assets
Retailing.................................. $1,663,509 $1,628,818 $ -- $ --
Ticketing operations....................... 518,273 -- -- --
Broadcasting............................... 365,384 355,926 135,082 140,563
Other...................................... 123,630 131,488 1,588 2,354
---------- ---------- -------- --------
$2,670,796 $2,116,232 $136,670 $142,917
========== ========== ======== ========
Depreciation and amortization
Retailing.................................. $ 65,152 $ 1,871 $ -- $ --
Ticketing operations....................... 13,180 -- -- --
Broadcasting............................... 15,838 13,187 4,531 13,833
Other...................................... 2,854 428 170 841
---------- ---------- -------- --------
$ 97,024 $ 15,486 $ 4,701 $ 14,674
========== ========== ======== ========
Capital expenditures
Retailing.................................. $ 27,812 $ 447 $ -- $ --
Ticketing operations....................... 7,788 -- -- --
Broadcasting............................... 8,262 696 163 998
Other...................................... 2,007 -- -- 705
---------- ---------- -------- --------
$ 45,869 $ 1,143 $ 163 $ 1,703
========== ========== ======== ========
The Company operates principally within the United States. In 1997, broadcasting
revenue was principally derived from the Fox affiliates. Prior to 1997,
broadcasting revenue was principally derived from the broadcasting of Home
Shopping programming.
NOTE T -- FINANCIAL INSTRUMENTS
The additional disclosure below of the estimated fair value of financial
instruments was made in accordance with the requirements of Statements of
Financial Accounting Standards No. 107. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies when available. The carrying value of all
current assets and current liabilities approximates fair value due to their
short-term nature.
F-41
195
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------
(In thousands)
Cash and cash equivalents.................... $ 116,036 $ 116,036 $ 42,606 $ 42,606
Long-term investments........................ 47,926 47,926 30,121 30,121
Long-term obligations........................ (461,264) (461,264) (314,336) (314,336)
NOTE U -- 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.
- ---------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
SUMMARY CONSOLIDATED -----------------------------------
STATEMENTS OF OPERATIONS 1997 1996 1995
- ---------------------------------------------------------------------------------------------
(In thousands)
Net sales............................................... $67,107 $ 117,951 $ 92,599
Cost of sales........................................... 65,200 254,009 164,464
Operating income/(loss)................................. 1,907 (136,058) (71,865)
Net income/(loss)....................................... (5,972) (156,074) (73,744)
- ----------------------------------------------------------------------------------
DECEMBER 31,
SUMMARY CONSOLIDATED --------------------
BALANCE SHEETS 1997 1996
- ----------------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $ 31,898 $ 61,901
Non-current assets.......................................... 289,381 302,195
Current liabilities......................................... 32,836 60,716
Non-current liabilities..................................... 110,470 124,198
Minority interest........................................... 119,427 112,717
NOTE V -- SUBSEQUENT EVENTS (UNAUDITED)
On January 23, 1998, the Company gave notice that it elected to redeem on March
1, 1998, at a redemption price of 104.7% of the principal amount, all of the
outstanding Home Shopping Debentures. The Home Shopping Debentures were all
converted by the holders into shares of USAi Common Stock on or prior to March
1, 1998.
On January 28, 1998, the Company consummated the sale of its Baltimore station
for $80.0 million.
On February 11, 1998, at the Annual Meeting of Stockholders of the Company, the
stockholders approved an increase in the authorized shares of USAi common stock
from 150,000,000 shares to 800,000,000 shares and USAi Class B common stock from
30,000,000 shares to 200,000,000 shares.
On February 12, 1998, the Company completed its previously announced acquisition
of USA Networks and USA Networks Studios from Universal, an entity controlled by
The Seagram Company Ltd. ("Seagram"). The consideration paid to Universal
included a cash payment of approximately $1.63 billion, a portion of which
($300.0 million) has been deferred until no later than June 30, 1998, and an
interest in the Company through shares of USAi Common Stock and USAi Class B
Common Stock and shares of a newly formed limited liability company which are
exchangeable into shares of USAi Common Stock and USAi Class B Common Stock.
F-42
196
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 12, 1998, the Company, and certain of its subsidiaries, including
USANi LLC as borrower, entered into a new $1.6 billion credit facility (the "New
Facility") with a $40.0 million sub-limit for letters of credit. The New
Facility was used to finance the Universal Transaction and to refinance the HSNi
Facility. The New Facility consists of a $600.0 million revolving credit
facility, a $750.0 million "Tranche A Term Loan" and a $250.0 million "Tranche B
Term Loan". The revolving credit facility and Tranche A Term Loan mature on
December 31, 2002 and the Tranche B Term Loan matures on December 31, 2003. The
New Facility is guaranteed by, and secured by stock in, substantially all of the
Company's material subsidiaries. The interest rate on borrowings under the New
Facility is tied to an alternate base rate or the London InterBank Rate, in each
case, plus an applicable margin. As of March 13, 1998, there was $1.4 billion in
outstanding borrowings under the New Facility and $151.7 million was available
for borrowing after taking into account outstanding letters of credit.
On February 20, 1998, the Board of Directors declared a two-for-one stock split
of the Company's Common Stock and Class B Common Stock, payable in the form of a
dividend to stockholders of record as of the close of business on March 12,
1998. The 100% stock dividend was paid on March 26, 1998.
In February 1998, the Company entered into a letter of intent to acquire the
remaining outstanding interest in Blackstar for $17.0 million. In March 1998,
Blackstar agreed to sell a television broadcasting station in Salem, Oregon for
$30.0 million. Home Shopping agreed to terminate its affiliation agreement with
the Salem, Oregon station, as well as affiliation agreements with two other
stations, for the payment of $15.0 million. In March 1998, the Company acquired
the assets of Television Station WNGM-TV; Athens, Georgia for $50.0 million,
plus working capital.
On March 20, 1998, the Company and Ticketmaster entered into a merger agreement
regarding the acquisition by the Company in a tax-free merger of the remaining
Ticketmaster common stock for .563 of a share of USAi Common Stock. (1.126
shares after giving effect to Company's two-for-one stock split as of March 12,
1998). The merger agreement was entered into based upon the recommendation of
the Special Committee of the Ticketmaster Board that had been appointed to
consider USAi's merger proposal in October 1997. Consummation of the merger is
subject to customary conditions, including the approval of the merger by
Ticketmaster's shareholders. The Company expects that the merger will be
completed in the third quarter of 1998. Based on the number of shares of
Ticketmaster Common Stock outstanding as of March 9, 1998, USAi expects to issue
approximately 15.4 million shares of Common Stock to Ticketmaster stockholders
in connection with the proposed merger. Universal and Liberty have certain
preemptive rights which will be exercisable if the merger with Ticketmaster is
consummated.
The Company has guaranteed the principal payments of approximately $11.6 million
for the year ended December 31, 1998 in the event that SF Broadcasting is unable
to meet these obligations.
NOTE W -- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
On November 23, 1998, the Company completed an offering of $500.0 million 6 3/4%
Senior Notes due 2005 (the "Notes" or "Notes Offering"). Interest is payable on
the Notes on May 15 and November 15 of each year, commencing May 15, 1999.
The Company is a holding company that has no operating assets or operations.
Certain of the Company's indirectly owned subsidiaries are held by Home Shopping
through USANi LLC. USANi
F-43
197
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LLC is a co-obligor of the Notes and Home Shopping is a guarantor. Substantially
all of the significant subsidiaries of Home Shopping, USANi LLC and
substantially all of the significant wholly owned subsidiaries of the Company
(principally subsidiaries engaged in the broadcasting and ticketing operations)
have jointly and severally guaranteed the Company's and USANi LLC's indebtedness
(the "Guarantors") under the Notes. Certain subsidiaries of the Company, Home
Shopping and USANi LLC (the "Non-Guarantor Subsidiaries") do not guarantee such
indebtedness.
Except for Holdco which is not wholly owned, full financial statements of the
Guarantors have not been included because, pursuant to their respective
guarantees, the Guarantors are jointly and severally liable with respect to the
Notes. Management does not believe that the information contained in separate
full financial statements of wholly owned Guarantors would be material to
investors. The following are summarized statements setting forth certain
financial information concerning the Guarantor and Non-Guarantor Subsidiaries as
of and for the year ended December 31, 1997 (in thousands).
- ----------------------------------------------------------------------------------------------------------
NON-GUARANTOR USAi
USAi GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------
Current assets................... $ 2,869 $ 265,930 $ 151,883 $ -- $ 420,682
Property and equipment net....... 2,306 117,159 60,656 -- 180,121
Goodwill and other intangible
assets, net.................... 56,641 1,424,257 381,230 -- 1,862,128
Investment in subsidiaries....... 1,363,310 -- -- (1,363,310) --
Other assets..................... 21,699 212,069 34,218 (60,121) 207,865
----------- ---------- --------- ----------- -----------
Total assets................... $ 1,446,825 $2,019,415 $ 627,987 $(1,423,431) $ 2,670,796
=========== ========== ========= =========== ===========
Current liabilities.............. $ (3,935) $ 216,143 $ 147,533 $ -- $ 359,741
Long-term debt, less current
portion........................ -- 229,546 218,800 -- 448,346
Other liabilities................ (10,900) 43,346 6,738 3,948 43,132
Minority interest................ -- 270,455 101,768 -- 372,223
Interdivisional equity........... -- 977,810 113,400 (1,091,210) --
Stockholders' equity............. 1,461,660 282,115 39,748 (336,169) 1,447,354
----------- ---------- --------- ----------- -----------
Total liabilities and
shareholders' equity........ $ 1,446,825 $2,019,415 $ 627,987 $(1,423,431) $ 2,670,796
=========== ========== ========= =========== ===========
Revenue.......................... $ -- $1,032,513 $ 229,236 $ -- $ 1,261,749
Operating expenses............... (8,338) (948,385) (210,507) -- (1,167,230)
Interest expense, net............ (129) (11,260) (14,877) -- (26,266)
Other income (expense), net...... 56,574 (11,825) 439 (56,940) (11,752)
Minority interest................ -- (2,994) 605 -- (2,389)
Provision for income taxes....... (41,051) -- -- -- (41,051)
----------- ---------- --------- ----------- -----------
Net (loss) income................ $ 7,056 $ 58,049 $ 4,896 $ (56,940) $ 13,061
=========== ========== ========= =========== ===========
Cash flows from operations....... $ (8,338) $ 31,058 $ 24,953 $ -- $ 47,673
Cash flows used in investing
activities..................... (30,064) (51,998) (231) -- (82,293)
Cash flows from financing
activities..................... 38,444 105,124 (35,518) -- 108,050
Cash at the beginning of the
period......................... -- 19,574 23,032 -- 42,606
----------- ---------- --------- ----------- -----------
Cash at the end of the period.... $ 42 $ 103,758 $ 12,236 $ -- $ 116,036
=========== ========== ========= =========== ===========
F-44
198
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are summarized statements setting forth certain financial
information concerning the Guarantors and Non-Guarantor Subsidiaries as of and
for the year ended December 31, 1996 (in thousands).
- ----------------------------------------------------------------------------------------------------------
NON-GUARANTOR USAi
USAi GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------
Current assets.................... $ -- $ 191,245 $ 57,353 $ -- $ 248,598
Property and equipment net........ -- 101,477 20,498 -- 121,975
Goodwill and other intangible
assets, net..................... -- 1,239,790 306,157 -- 1,545,947
Investment in subsidiaries........ 1,091,308 (2,074) 2,074 (1,091,308) --
Other assets...................... -- 161,188 38,524 -- 199,712
---------- ---------- -------- ----------- ----------
Total assets.................... $1,091,308 $1,691,626 $424,606 $(1,091,308) $2,116,232
========== ========== ======== =========== ==========
Current liabilities............... $ 1,872 $ 206,727 $ 64,443 $ -- $ 273,042
Long-term debt, less current
portion......................... -- 166,227 105,203 -- 271,430
Other liabilities................. -- 34,449 22,426 -- 56,875
Intercompany...................... 4,398 (4,398) -- -- --
Minority interest................. -- 242,895 113,241 -- 356,136
Interdivisional equity............ -- 977,810 113,400 (1,091,210) --
Stockholders' equity.............. 1,085,038 67,916 5,893 (98) 1,158,749
---------- ---------- -------- ----------- ----------
Total liabilities and
shareholders' equity......... $1,091,308 $1,691,626 $424,606 $(1,091,308) $2,116,232
========== ========== ======== =========== ==========
Revenue........................... $ -- $ 72,434 $ 2,738 $ -- $ 75,172
Operating expenses................ -- (68,021) (3,539) -- (71,560)
Interest expense, net............. -- (9,024) 421 -- (8,603)
Other income (expense), net....... (4,667) (5) 49 4,667 44
Minority interest................. -- 165 115 -- 280
Provision for income taxes........ (1,872) -- -- -- (1,872)
---------- ---------- -------- ----------- ----------
Net (loss) income................. $ (6,539) $ (4,451) $ (216) $ 4,667 $ (6,539)
========== ========== ======== =========== ==========
Cash flows from operations........ $ (1,872) $ 19,480 $ (5,640) -- $ 11,968
Cash flows used in investing
activities...................... -- 12,462 (15,084) -- (2,622)
Cash flows from financing
activities...................... 1,872 (14,031) 26,279 -- 14,120
Cash at the beginning of the
period.......................... -- 6,476 12,664 -- 19,140
---------- ---------- -------- ----------- ----------
Cash at the end of the period..... $ -- $ 24,387 $ 18,219 $ -- $ 42,606
========== ========== ======== =========== ==========
For the four months ended December 31, 1995 and the year ended August 31, 1995,
substantially all of the Company's assets, liabilities and operations guarantee
the Notes and, therefore, no summarized statements setting forth certain
financial information concerning the Guarantor and Non-Guarantor Subsidiaries
for these periods are presented.
F-45
199
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------
(In thousands, except per share data)
NET REVENUES
Networks and television production........ $281,302 $ -- $ 757,305 $ --
Electronic retailing...................... 261,183 236,706 776,418 743,893
Ticketing operations...................... 89,134 67,331 283,538 67,331
Internet services......................... 5,934 3,330 14,467 8,511
Broadcasting and other.................... 2,961 18,889 35,289 51,758
-------- -------- ---------- --------
Total net revenues................ $640,514 $326,256 $1,867,017 $871,493
-------- -------- ---------- --------
Operating costs and expenses:
Cost of sales............................. 192,531 156,041 533,190 464,159
Program costs............................. 153,618 -- 412,541 --
Other costs............................... 185,758 121,827 597,328 273,316
Depreciation and amortization............. 58,605 25,703 163,712 67,194
-------- -------- ---------- --------
Total operating costs and
expenses........................ 590,512 303,571 1,706,771 804,669
-------- -------- ---------- --------
Operating income.................. 50,002 22,685 160,246 66,824
-------- -------- ---------- --------
Other income (expense):
Interest income........................... 4,097 1,460 11,807 3,973
Interest expense.......................... (25,875) (8,611) (94,704) (22,101)
Gain on disposition of broadcast
stations............................... 9,247 -- 84,187 --
Miscellaneous............................. (3,452) (3,023) (19,707) (9,283)
-------- -------- ---------- --------
(15,983) (10,174) (18,417) (27,411)
-------- -------- ---------- --------
Earnings before income taxes and minority
interest.................................. 34,019 12,511 141,829 39,413
Income tax expense.......................... (16,619) (9,078) (72,792) (29,753)
Minority interest........................... (22,249) 83 (42,996) 98
-------- -------- ---------- --------
NET EARNINGS (LOSS)......................... $ (4,849) $ 3,516 $ 26,041 $ 9,758
======== ======== ========== ========
Net earnings (loss) per common share........
Basic.................................. $ (.03) $ .03 $ .19 $ .10
======== ======== ========== ========
Diluted................................ $ (.03) $ .03 $ .14 $ .09
======== ======== ========== ========
Weighted average shares outstanding......... 155,017 110,020 138,355 102,016
======== ======== ========== ========
Weighted average diluted shares
outstanding............................... 155,017 118,994 280,242 108,174
======== ======== ========== ========
The accompanying notes are an integral part of these statements.
F-46
200
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
- -------------------------------------------------------------------------------------------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents................................... $ 292,231 $ 116,036
Accounts and notes receivable, net.......................... 286,237 96,867
Inventories, net............................................ 445,425 151,100
Deferred income taxes....................................... 37,067 39,956
Other current assets, net................................... 27,028 16,723
---------- ----------
Total current assets.............................. 1,087,988 420,682
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 203,240 145,701
Buildings and leasehold improvements........................ 94,179 83,851
Furniture and other equipment............................... 68,009 39,498
---------- ----------
365,428 269,050
Less accumulated depreciation and amortization............ (152,238) (120,793)
---------- ----------
213,190 148,257
Land........................................................ 15,944 16,602
Projects in progress........................................ 19,607 15,262
---------- ----------
248,741 180,121
OTHER ASSETS
Intangible assets, net...................................... 6,352,103 1,862,128
Cable distribution fees, net ($41,765 and $46,459,
respectively, to related parties)......................... 97,596 111,292
Long-term investments ($3,068 and $7,510, respectively, in
related parties........................................... 66,364 47,926
Notes and accounts receivable, net of current portion
($4,695 and $843, respectively, from related parties)..... 78,901 11,854
Inventories, net............................................ 202,117 --
Deferred income taxes....................................... 72,704 3,541
Deferred charges and other, net............................. 60,443 33,252
---------- ----------
$8,266,957 $2,670,796
========== ==========
The accompanying notes are an integral part of these statements.
F-47
201
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- -------------------------------------------------------------------------------------------
(In thousands)
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 68,564 $ 12,918
Accounts payable, trade..................................... 165,576 111,214
Accounts payable, client accounts........................... 84,664 73,887
Obligations for program rights and film costs............... 275,996 --
Cable distribution fees payable ($18,578 and $19,091,
respectively, to related parties)......................... 28,862 43,553
Deferred gain on CitySearch Transaction..................... 65,802 --
Other accrued liabilities................................... 384,097 118,169
---------- ----------
Total current liabilities......................... 1,073,561 359,741
LONG-TERM OBLIGATIONS (net of current maturities)........... 748,101 448,346
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 346,563 --
OTHER LONG-TERM LIABILITIES................................. 52,630 43,132
MINORITY INTEREST........................................... 3,589,338 372,223
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value; authorized 15,000,000
shares; no shares issued and outstanding.................. -- --
Common stock -- $.01 par value; authorized 800,000,000
shares; issued and outstanding 123,994,918; and 87,430,586
shares, respectively...................................... 1,240 874
Class B -- convertible common stock -- $.01 par value;
authorized, 200,000,000 shares; issued and outstanding,
31,181,726; and 24,455,294 shares, respectively........... 312 244
Additional paid-in capital.................................. 2,533,708 1,558,037
Accumulated deficit......................................... (77,560) (103,601)
Unrealized gain in available for sale securities............ 7,476 --
Foreign currency translation................................ (1,723) --
Unearned compensation....................................... (1,691) (3,202)
Note receivable from key executive for common stock
issuance.................................................. (4,998) (4,998)
---------- ----------
Total stockholders' equity........................ 2,456,764 1,447,354
---------- ----------
$8,266,957 $2,670,796
========== ==========
The accompanying notes are an integral part of these statements.
F-48
202
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
CLASS B
CONVERTIBLE ADDITIONAL FOREIGN
COMMON COMMON PAID-IN ACCUMULATED UNREALIZED CURRENCY
TOTAL STOCK STOCK CAPITAL DEFICIT GAINS TRANSLATION
- --------------------------------------------------------------------------------------------------------------------------
(In thousands)
BALANCE AT JANUARY 1, 1998....... $1,447,354 $ 874 $244 $1,558,037 $(103,601) $ -- $ --
Comprehensive Income:
Net earnings for the nine months
ended September 30, 1998...... 26,041 -- -- -- 26,041 -- --
Increase in unrealized gains in
available for sale
securities.................... 7,476 -- -- -- -- 7,476 --
Foreign currency translation.... (1,723) -- -- -- -- -- (1,723)
----------
Comprehensive income........ 31,794
----------
Issuance of common stock upon
exercise of stock options....... 5,388 5 -- 5,383 -- -- --
Income tax benefit related to
stock options exercised......... 2,381 -- -- 2,381 -- -- --
Issuance of stock in connection
with Universal Transaction...... 302,154 71 76 302,007 -- -- --
Issuance of stock in connection
with Ticketmaster tax-free
merger.......................... 467,035 160 -- 466,875 -- -- --
Issuance of stock in connection
with conversion of debentures... 199,147 122 -- 199,025 -- -- --
Conversion of Class B Convertible
Common Stock to Common Stock.... -- 8 (8) -- -- -- --
Amortization of unearned
compensation related to stock
options and equity participation
plans........................... 1,511 -- -- -- -- -- --
---------- ------ ---- ---------- --------- ------- -------
BALANCE AT SEPTEMBER 30, 1998.... $2,456,764 $1,240 $312 $2,533,708 $ (77,560) $ 7,476 $(1,723)
========== ====== ==== ========== ========= ======= =======
NOTE
RECEIVABLE
FROM KEY
EXECUTIVE
FOR
COMMON
UNEARNED STOCK
COMPENSATION ISSUANCE
BALANCE AT JANUARY 1, 1998....... $(3,202) $(4,998)
Comprehensive Income:
Net earnings for the nine months
ended September 30, 1998...... -- --
Increase in unrealized gains in
available for sale
securities.................... -- --
Foreign currency translation.... -- --
Comprehensive income........
Issuance of common stock upon
exercise of stock options....... -- --
Income tax benefit related to
stock options exercised......... -- --
Issuance of stock in connection
with Universal Transaction...... -- --
Issuance of stock in connection
with Ticketmaster tax-free
merger.......................... -- --
Issuance of stock in connection
with conversion of debentures... -- --
Conversion of Class B Convertible
Common Stock to Common Stock.... -- --
Amortization of unearned
compensation related to stock
options and equity participation
plans........................... 1,511 --
------- -------
BALANCE AT SEPTEMBER 30, 1998.... $(1,691) $(4,998)
======= =======
The accompanying notes are an integral part of these statements.
F-49
203
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ----------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
- ----------------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings................................................ $ 26,041 $ 9,758
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 147,829 52,798
Amortization of cable distribution fees................... 15,883 14,327
Amortization of program rights and film costs............. 358,688 --
Payment for program rights and film costs................. (335,001) --
Deferred income taxes..................................... 9,309 15,462
Equity in losses of unconsolidated affiliates............. 16,104 9,257
Gain on disposition of broadcast stations and other
assets................................................. (84,187) --
Minority interest......................................... 42,996 (98)
Non-cash stock compensation............................... 3,892 1,623
Non-cash interest......................................... 4,800 3,163
Changes in current assets and liabilities:
Accounts receivable.................................... (112,685) (13,521)
Inventories............................................ (86,067) (49,310)
Accounts payable....................................... 67,191 23,636
Accrued liabilities.................................... 57,712 (36,115)
Other, net................................................ 14,226 (13,377)
----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 146,731 17,603
----------- ---------
Cash flows from investing activities:
Acquisition of Universal Transaction, net of cash
acquired............................................... (1,297,233) --
Acquisitions, net of cash acquired........................ (85,555) --
Capital expenditures...................................... (64,240) (30,601)
Increase in long-term investments......................... (25,631) (14,786)
Proceeds from long-term notes receivable.................. (2,997) 5,635
Proceeds from disposition of broadcast stations........... 356,769 --
Payment of merger and financing costs..................... (29,972) (6,349)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES............. (1,148,859) (46,101)
----------- ---------
Cash flows from financing activities:
Borrowings................................................ 1,641,380 231,142
Principal payments on long-term obligations............... (1,198,565) (243,784)
Cash acquired in the Ticketmaster Transaction............. -- 89,663
Cash acquired in the CitySearch Transaction............... 7,877 --
Redemption of minority interest in SF Broadcasting........ (81,664) --
Proceeds from issuance of common stock and LLC shares..... 811,018 14,992
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 1,180,046 92,013
----------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (1,723) --
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 176,195 63,515
Cash and cash equivalents at beginning of period............ 116,036 42,606
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 292,231 $ 106,121
=========== =========
The accompanying notes are an integral part of these statements.
F-50
204
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- COMPANY HISTORY AND BASIS OF PRESENTATION
COMPANY HISTORY
USA Networks, Inc. (the "Company" or "USAi"), formerly known as HSN, Inc., is a
holding company, the subsidiaries of which are engaged in diversified media and
electronic commerce businesses.
In December 1996, the Company consummated mergers with each of Home Shopping
Network, Inc. ("Home Shopping") and Savoy Pictures Entertainment, Inc. ("Savoy")
(the "Mergers"). In July 1997, the Company acquired a controlling interest in
Ticketmaster Group, Inc. ("Ticketmaster"). On June 24, 1998, the Company
completed its acquisition of Ticketmaster in a tax-free merger, pursuant to
which each outstanding share of Ticketmaster common stock not owned by the
Company was exchanged for 1.126 shares of common stock, par value $.01 per
share, of USAi ("Common Stock"). The acquisition of the controlling interest and
the tax-free merger are referred to as the "Ticketmaster Transaction".
On February 12, 1998, the Company acquired USA Networks, a New York general
partnership, consisting of cable television networks USA Network and The Sci-Fi
Channel ("Networks"), as well as the domestic television production and
distribution businesses of Universal Studios ("Studios USA") from Universal
Studios, Inc. ("Universal"), an entity controlled by The Seagram Company Ltd.
("Seagram"), and the Company changed its name to USA Networks, Inc. (the
"Universal Transaction") -- See Note C.
Following the Universal Transaction, the Company engages in five principal areas
of business:
- NETWORKS AND TELEVISION PRODUCTION, which includes Networks and Studios
USA. Networks operates the USA Network and The Sci-Fi Channel cable
networks and Studios USA produces and distributes television programming.
- ELECTRONIC RETAILING, consisting primarily of the Home Shopping Network
and America's Store, which are engaged in the electronic retailing
business.
- TICKETING OPERATIONS, which primarily represents Ticketmaster, the
leading provider of automated ticketing services in the U.S.
- INTERNET SERVICES, which represents the Company's on-line retailing
networks business.
- BROADCASTING, which owns and operates television stations.
BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements of the Company are
unaudited and should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto for the year ended December 31, 1997.
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.
The Condensed Consolidated Financial Statements include the operations of
Networks and Studios USA from the date of acquisition on February 12, 1998.
F-51
205
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Certain amounts in the Condensed Consolidated Financial Statements for the
quarter and nine months ended September 30, 1997 have been reclassified to
conform to the 1998 presentation.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 for a summary of significant accounting policies.
CONSOLIDATION
The Condensed Consolidated Financial Statements include the accounts of the
Company and all wholly-owned and voting-controlled subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Investments in which the Company owns a 20%, but less than a controlling voting
interest and where it can exercise significant influence over the operations of
the investee, are accounted for using the equity method. All other investments
are accounted for using the cost method. The Company periodically evaluates the
recoverability of investments recorded under the cost method and recognizes
losses if a decline in value is determined to be other than temporary.
REVENUE RECOGNITION
Networks and Television Production
Television production revenues are recognized as completed episodes are
delivered. Generally, television programs are first licensed for network
exhibition and foreign syndication, and subsequently for domestic syndication,
cable television and home video. Certain television programs are produced and/or
distributed directly for initial exhibition by local television stations,
advertiser-supported cable television, pay television and/or home video.
Television production advertising revenues (i.e., sales of advertising time
received by Studios USA in lieu of cash fees for the licensing of program
broadcast rights to a broadcast station ("barter syndication")) are recognized
upon both the commencement of the license period of the program and the sale of
advertising time pursuant to non-cancelable agreements, provided that the
program is available for its first broadcast. Foreign minimum guaranteed amounts
are recognized as revenues on the date of the license agreement, provided the
program is available for exhibition.
Networks advertising revenue is recognized in the period in which the
advertising commercials are aired on cable networks. Provisions are recorded
against advertising revenues for audience under deliveries ("makegoods").
Affiliate fees are recognized in the period during which the programming is
provided.
EARNINGS PER SHARE
Basic earnings per share ("Basic EPS") excludes dilution and is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share ("Diluted EPS") reflects the
potential dilution that could occur if stock options and other commitments to
issue common stock were exercised resulting in the issuance of common stock that
would share in the earnings of the Company.
F-52
206
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The new rules
establish standards for the reporting of comprehensive income and its components
in financial statements. Comprehensive income consists of net income and other
gains and losses affecting stockholders' equity that, under generally accepted
accounting principles, are excluded from net income. For the Company, such items
consist of unrealized gains and losses on marketable equity investments and
foreign currency translation gains and losses. The adoption of SFAS 130 did not
have a material effect on the Company's primary financial statements, but did
affect the presentation of the accompanying Condensed Consolidated Statement of
Stockholders' Equity.
FILM COSTS
Film costs consist of direct production costs and production overhead, less
accumulated amortization. Development roster (and related costs) and abandoned
story and development costs are charged to production overhead. Film costs are
stated at the lower of unamortized cost or estimated net realizable value on a
production-by-production basis.
Generally, the estimated ultimate costs of completed television productions are
amortized, and participation expenses are accrued, for each production in the
proportion that current period revenue recognized bears to the estimated future
revenue to be received from all sources. Amortization and accruals are made
under the individual film forecast method. Estimated ultimate revenues and costs
are reviewed quarterly and revisions to amortization rates or write-downs to net
realizable value are made as required.
Film costs, net of amortization, classified as current assets include the
portion of unamortized costs of television program productions allocated to
network, first run syndication and initial international distribution markets.
The allocated portion of released film costs expected to be recovered from
secondary markets or other exploitation is reported as a noncurrent asset. Other
costs relating to television productions, such as television program development
costs, in-process productions and the television program library, are classified
as noncurrent assets.
PROGRAM RIGHTS
License agreements for program material are accounted for as a purchase of
program rights. The asset related to the program rights acquired and the
liability for the obligation incurred are recorded at their net present value
when the license period begins and the program is available for its initial
broadcast. The asset is amortized primarily based on the estimated number of
airings. Amortization is computed generally on the straight-line basis as
programs air; however, when management estimates that the first airing of a
program has more value than subsequent airings, an accelerated method of
amortization is used. Other costs related to programming, which include program
assembly, commercial integration and other costs, are expensed as incurred.
Management periodically reviews the carrying value of program rights and records
write-offs, as warranted, based on changes in programming usage.
F-53
207
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes thereto.
Actual results could differ from those estimates.
Significant estimates underlying the accompanying Condensed Consolidated
Financial Statements and Notes include the inventory carrying adjustment, sales
return accrual, allowance for doubtful accounts, recoverability of intangibles
and other long-lived assets, management's forecast of anticipated revenues from
the distribution of television product in order to evaluate the ultimate
recoverability of film inventory and amortization of program usage.
RECENTLY ISSUED PRONOUNCEMENTS
During fiscal 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") was issued. SFAS 131 requires disclosure of financial and descriptive
information about an entity's reportable operating segments under the
"management approach" as defined in the Statement. The Company will adopt SFAS
131 as of December 31, 1998. The impact of adoption of this standard on the
Company's financial statements is not expected to be material.
NOTE C -- BUSINESS ACQUISITIONS
UNIVERSAL TRANSACTION
In connection with the Universal Transaction, USAi paid Universal approximately
$4.1 billion in the form of a cash payment of approximately $1.6 billion, a
portion of which ($300 million plus interest) was deferred until no later than
June 30, 1998, and an effective 45.8% interest in the Company through shares of
common stock, par value $.01 per share, of the Company (the "Common Stock") and
Class B common stock, par value $.01 per share, of the Company (the "Class B
Common Stock"), and shares ("LLC Shares") of a newly formed limited liability
company ("USANi LLC") which are exchangeable (subject to regulatory
restrictions) into shares of Common Stock and Class B Common Stock. At the
closing of the Universal Transaction, USAi contributed its Home Shopping
business to USANi LLC, a subsidiary of USAi. Simultaneously with this
transaction, the remaining 1,178,322 shares of Class B Common Stock,
contingently issuable to Liberty Media Corporation ("Liberty") in connection
with the Mergers, were issued.
The Investment Agreement, as amended and restated as of December 18, 1997, among
the Company, Home Shopping, Universal and Liberty (the "Investment Agreement"),
relating to the Universal Transaction also contemplated that, on or prior to
June 30, 1998, the Company and Liberty, a subsidiary of Tele-Communications,
Inc. ("TCI"), would complete a transaction involving a $300 million cash
investment, plus an interest factor, by Liberty in the Company through the
purchase of Common Stock or LLC Shares. The transaction closed on June 30, 1998
with Liberty making a cash payment of $308.5 million in exchange for 15,000,000
LLC shares.
The Universal Transaction has been accounted for using the purchase method of
accounting. The purchase price of $4.1 billion including expenses, has been
preliminarily allocated to the assets acquired and liabilities assumed based on
their respective fair values at the date of purchase. The fair value of the
assets acquired and liabilities assumed are summarized below, along with the
excess of the purchase price, including expenses, over the fair value of net
assets, which has been assigned to goodwill.
F-54
208
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $ 431,955
Non-current assets.......................................... 329,549
Goodwill.................................................... 4,157,720
Current liabilities......................................... 408,254
Non-current liabilities..................................... 395,439
TICKETMASTER TRANSACTION
In connection with the Ticketmaster tax-free merger, the Company issued
15,967,200 shares of USAi Common Stock to the public shareholders of
Ticketmaster and converted 3.6 million options to acquire Ticketmaster common
stock into options to acquire USAi Common Stock for a total consideration of
$467.7 million, which has been preliminarily allocated to intangible assets.
CITYSEARCH TRANSACTION
On September 28, 1998, pursuant to an Amended and Restated Agreement and Plan of
Reorganization among CitySearch, Inc. ("CitySearch"), the Company, Ticketmaster
and certain of its subsidiaries, the Company merged the online ticketing
operations of Ticketmaster ("Ticketmaster Online") into a subsidiary of
CitySearch, a publisher of local city guides on the Web (the "CitySearch
Merger"), to create Ticketmaster Online-CitySearch, Inc. ("TMCS"). The Company
had acquired Ticketmaster Online as part of the Ticketmaster Transaction and has
preliminarily allocated to Ticketmaster Online a total of $154.8 million of the
goodwill resulting from the Company's acquisition of Ticketmaster. The
CitySearch Merger was accounted for using the "reverse purchase" method of
accounting, pursuant to which Ticketmaster Online was treated as the acquiring
entity for accounting purposes, and the portion of the assets and liabilities of
CitySearch acquired were recorded at their respective fair values under the
purchase method of accounting.
Prior to the CitySearch Merger, the Company owned approximately 11.8% of
CitySearch, which it had purchased for total consideration of $23.0 million.
Pursuant to the CitySearch Merger, the Company acquired 50.7% of CitySearch in
exchange for an effective 35.2% interest in Ticketmaster Online. The total
purchase price for the acquisition of the additional CitySearch interest was
approximately $120.9 million, substantially all of which was allocated to
goodwill which will be amortized over three years.
In connection with the CitySearch Merger, on October 2, 1998, the Company
commenced a Tender Offer to acquire from other TMCS stockholders up to 2,924,339
shares of TMCS common stock. The Company purchased 1,997,502 TMCS shares
pursuant to the Tender Offer, which was completed on November 3, 1998,
representing an additional 3.1% interest in CitySearch, for total consideration
of $17.3 million. Following the completion of the Tender Offer, the Company
beneficially owns approximately 67.9% of TMCS outstanding shares. The CitySearch
Merger and Tender Offer are referred to as the "CitySearch Transaction".
In connection with the CitySearch Transaction, the Company recorded a deferred
gain of $65.8 million by exchanging a 35.2% interest in Ticketmaster Online with
a basis of $55.1 million for a 50.7% interest in CitySearch, which had a fair
value of $120.9 million. The gain was deferred because the stockholders of
CitySearch have various put options on their TMCS stock to USAi, which put
options terminate upon the completion of a qualified initial public offering, as
defined. This gain will be recognized at the time of the completion of the TMCS
initial public offering.
F-55
209
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The following unaudited pro forma condensed consolidated financial information
for the three month and nine month periods ended September 30, 1998 and 1997, is
presented to show the results of the Company, as if the Universal Transaction,
the Ticketmaster Transaction, the CitySearch Transaction and the sale of the SF
Broadcasting televisions stations (See Note J) all occurred at the beginning of
the periods presented. The pro forma results include certain adjustments,
including increased amortization related to goodwill, the reduction of
programming costs for fair value adjustments related to purchase accounting and
the elimination of intercompany revenues and expenses, and are not necessarily
indicative of what the results would have been had those transactions actually
occurred on the aforementioned dates.
- --------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net revenues..................................... $643,247 $600,364 $2,008,570 $1,816,386
Net earnings (loss).............................. $(19,734) $(20,061) $ (6,273) $ (71,035)
======== ======== ========== ==========
Basic earnings (loss) per common share........... $ (.13) $ (.13) $ (.04) $ (.53)
======== ======== ========== ==========
Diluted earnings (loss) per common share......... $ (.13) $ (.13) $ (.04) $ (.53)
======== ======== ========== ==========
NOTE D -- CREDIT FACILITIES AND CONVERTIBLE SUBORDINATED DEBENTURES
On February 12, 1998, the Company, and certain of its subsidiaries, including
USANi LLC as borrower, entered into a new $1.6 billion credit facility (the "New
Facility") with a $40.0 million sub-limit for letters of credit. The New
Facility was used to finance the Universal Transaction and to refinance the
Company's existing facility. The New Facility consists of a $600.0 million
revolving credit facility, a $750.0 million Tranche A Term Loan and a $250.0
million Tranche B Term Loan. On August 5, 1998, the Company repaid the Tranche B
Term Loan in its entirety. The revolving credit facility and the Tranche A Term
Loan mature on December 31, 2002. The New Facility is guaranteed by, and secured
by stock in, substantially all of the Company's material subsidiaries. The
interest rate on borrowings under the New Facility is tied to an alternate base
rate or the London InterBank Rate, in each case, plus an applicable margin. The
interest rate under the New Facility was 6.62% at September 30, 1998. As of
September 30, 1998, there was $750.0 million in outstanding borrowings under the
New Facility and $599.9 million was available for borrowing after taking into
account outstanding letters of credit.
On November 23, 1998, the Company completed an offering of $500.0 million 6 3/4%
Senior Notes due 2005, the net proceeds of which, together with cash on hand,
were used to repay a portion of the Tranche A Term Loan. See Note K.
As of March 1, 1998, the 5 7/8% Convertible Subordinated Debentures were
converted into 7,499,022 shares of Common Stock.
In connection with the acquisition of the remaining interest in Ticketmaster as
of June 24, 1998, the Company repaid all amounts outstanding under the
Ticketmaster Credit Agreement using proceeds from the New Facility.
F-56
210
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In connection with the sale of the SF Broadcasting television stations on July
16, 1998, the Company repaid all amounts outstanding under the SF Broadcasting
Credit Facility using proceeds from the sale.
NOTE E -- INCOME TAXES
The Company's effective tax rates of 48.9% and 51.3% for the quarter and nine
months ended September 30, 1998, respectively, are higher than the statutory
rate due primarily to non-deductible goodwill and other acquired intangibles,
losses in non-consolidated foreign joint ventures, and state income taxes.
During the remainder of 1998, the Company's effective tax rate is expected to be
higher than the statutory rate as a result of the items mentioned above.
NOTE F -- CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998:
- ----------------------------------------------------------------------------
(In thousands)
ACQUISITION OF NETWORKS AND STUDIOS USA
Acquisition price.................................... $ 4,115,531
Less: Amount paid in cash............................ (1,300,983)
-----------
Total non-cash consideration......................... $ 2,814,548
===========
Components of non-cash consideration:
Deferred purchase price liability.................... $ 300,000
Issuance of Common Shares and Class B Shares......... 277,898
Issuance of USANi LLC Shares......................... 2,236,650
-----------
$ 2,814,548
===========
Exchange of Minority Interest in USANi LLC for Deferred
Purchase Price Liability, including interest.......... $ 304,636
===========
As of March 1, 1998 the 5 7/8% Convertible Subordinated Debentures were
converted to 7,499,022 shares of Common Stock.
In connection with the Universal Transaction, the Company issued 1,178,322
shares of Class B Common Stock to Liberty, which represented the remaining
contingently issuable shares in connection with the Mergers.
During the nine months ended September 30, 1998, the Company acquired computer
equipment through a capital lease totaling $15.5 million.
In connection with the acquisition of the remaining interest in Ticketmaster,
the Company issued 15,967,200 shares of Common Stock.
In connection with the sale of the SF Broadcasting television stations, as part
of the total consideration, the Company received a note in the amount of $25.0
million. This note was transferred to the minority interest shareholder of SF
Broadcasting as part of the redemption of their interest.
In connection with the CitySearch Transaction, the Company exchanged an
effective 35.2% interest in Ticketmaster Online for a 50.7% interest in
CitySearch.
F-57
211
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE G -- INVENTORIES
- ------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------------------- ---------------------
INVENTORIES CONSIST OF CURRENT NONCURRENT CURRENT NONCURRENT
- ------------------------------------------------------------------------------------------------
(In thousands)
Film costs:
Released, less amortization............... $ 70,140 $ 63,408
In process and unreleased................. 14,609 --
Programming costs, net of amortization...... 178,318 134,521
Merchandise held for sale................... 173,121 -- $151,100 $ --
Other....................................... 9,237 4,188 -- --
-------- -------- -------- --------
Total............................. $445,425 $202,117 $151,100 $ --
======== ======== ======== ========
The Company estimates that approximately 90% of unamortized film costs at
September 30, 1998 will be amortized within the next three years.
NOTE H -- SAVOY SUMMARIZED FINANCIAL INFORMATION (UNAUDITED)
The Company has not presented 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.
- ------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
SUMMARIZED OPERATING INFORMATION 1998 1997
- ------------------------------------------------------------------------------------
(In thousands)
Net revenue............................................ $33,938 $ 50,816
Operating expenses..................................... 36,432 52,063
Operating loss......................................... (2,494) (8,309)
Net earnings(loss)..................................... 35,118 (6,534)
- -----------------------------------------------------------------------------------------------
SEPTEMBER 30,
------------------- DECEMBER 31,
SUMMARY BALANCE SHEET INFORMATION 1998 1997 1997
- -----------------------------------------------------------------------------------------------
(In thousands)
Current assets........................................ $ 29,140 $ 39,777 $ 31,898
Non-current assets.................................... 132,440 289,171 289,381
Current liabilities................................... 9,156 33,563 32,836
Non-current liabilities............................... 55,900 116,360 110,470
Minority interest..................................... -- 119,091 119,427
For the nine months ended September 30, 1998, the Net earnings line includes an
after-tax gain on the sale of the SF Broadcasting television stations totalling
$36.3 million, which has been eliminated in the consolidation of the Company's
financial statements. Amounts include the operations of SF Broadcasting through
July 16, 1998 the date on which the Company sold the SF Broadcasting television
stations -- See Note J.
F-58
212
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE I -- PROGRAM RIGHTS AND FILM COSTS
As of September 30, 1998, the liability for program rights, representing future
payments to be made under program contract agreements amounted to $554.0
million. Annual payments required are $62.2 million for the remainder of 1998,
$176.8 million in 1999, $113.4 million in 2000, $66.9 million in 2001, $49.9
million in 2002 and $84.8 million in 2003 and thereafter. Amounts representing
interest are $24.0 million and the present value of future payments is $530.0
million.
As of September 30, 1998, the liability for film costs amounted to $91.6
million. Annual payments are $68.9 million in 1998 and $22.7 million in 1999.
Unrecorded commitments for program rights consist of programs for which the
license period has not yet begun or the program is not yet available to air. As
of September 30, 1998, the unrecorded commitments amounted to $664.3 million.
Annual commitments are $6.2 million for the remainder of 1998, $79.1 million in
1999, $129.0 million in 2000, $121.4 million in 2001, $104.4 million in 2002 and
$224.2 million in 2003 and thereafter.
NOTE J -- BROADCAST STATION TRANSACTIONS
On January 20, 1998, the Company completed the sale of its Baltimore television
station for $80.0 million resulting in a pre-tax gain of $74.9 million during
the first quarter of 1998.
On June 18, 1998, the Company purchased a television station serving the
Atlanta, Georgia market for $50 million. On June 18, 1998, the Company completed
the acquisition of the remaining equity interest in an entity which owned three
television stations and immediately sold the television station serving
Portland, Oregon. The two remaining stations serve Orlando, Florida and Rapid
City, South Dakota. The Company sold the station serving Rapid City on October
30, 1998.
On July 16, 1998, the Company sold the assets of SF Broadcasting, which owns and
operates four television stations. The total consideration received by SF
Broadcasting was $307 million, of which the Company's share was approximately
$110 million, net of repayment of bank debt outstanding and redemption of
minority interest. No after-tax gain or loss was realized on the disposition of
the SF television stations.
NOTE K -- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
On November 23, 1998, the Company completed an offering of $500.0 million 6 3/4%
Senior Notes due 2005 (the "Notes" and "Notes Offering"). Interest is payable on
the Notes on May 15 and November 15 of each year, commencing May 15, 1999.
The Company is a holding company that has no operating assets or operations.
Certain of the Company's indirectly owned subsidiaries are held by Home Shopping
through USANi LLC. USANi LLC is a co-obligor of the Notes and Home Shopping is a
guarantor. Substantially all of the significant subsidiaries of Home Shopping
and USANi LLC and substantially all of the significant wholly owned subsidiaries
of the Company (principally subsidiaries engaged in the broadcasting and
ticketing operations) have jointly and severally guaranteed the Company's and
USANi LLC's indebtedness (the "Guarantors") under the Notes. Certain
subsidiaries of the Company, Home Shopping and USANi LLC (the "Non-Guarantor
Subsidiaries") do not guarantee such indebtedness.
Except for Holdco which is not wholly owned, full financial statements of the
Guarantors and Non-Guarantor Subsidiaries have not been included because,
pursuant to their respective guarantees, the
F-59
213
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Guarantors are jointly and severally liable with respect to the Notes.
Management does not believe that the information contained in separate full
financial statements of the wholly owned Guarantors or Non-Guarantor
Subsidiaries would be material to investors, except for information of Home
Shopping. The following are summarized unaudited statements setting forth
certain financial information concerning the Guarantors and Non-Guarantor
Subsidiaries as of and for the nine months ended September 30, 1998 (in
thousands).
- --------------------------------------------------------------------------------------------------------
NON-GUARANTOR USAi
USAi GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- --------------------------------------------------------------------------------------------------------
Current assets.................. $ 681 $ 992,972 $237,605 $ (143,270) $ 1,087,988
Property and equipment, net..... -- 192,773 55,968 -- 248,741
Goodwill and other intangible
assets, net................... 80,534 5,820,383 451,186 -- 6,352,103
Investment in subsidiaries...... 2,596,858 5,862,694 -- (8,459,552) --
Other assets.................... 3,104 573,790 34,709 (33,478) 578,125
---------- ----------- -------- ----------- -----------
Total assets............... $2,681,177 $13,442,612 $779,468 $(8,636,300) $ 8,266,957
========== =========== ======== =========== ===========
Current liabilities............. $ 49,193 $ 1,002,661 $255,773 $ (234,066) $ 1,073,561
Long-term debt, less current
portion....................... -- 593,156 43,865 111,080 748,101
Other liabilities............... 133,421 624,346 25,587 (384,161) 399,193
Minority interest............... -- 3,529,220 60,118 -- 3,589,338
Interdivisional equity.......... -- 6,536,327 19,716 (6,556,043) --
Stockholders' equity............ 2,498,563 1,156,902 374,409 (1,573,110) 2,456,764
---------- ----------- -------- ----------- -----------
Total liabilities and
shareholders' equity..... $2,681,177 $13,442,612 $779,468 $(8,636,300) $ 8,266,957
========== =========== ======== =========== ===========
Revenue......................... $ -- $ 1,554,627 $312,390 $ -- $ 1,867,017
Operating expenses.............. (4,634) (1,412,672) (289,465) -- (1,706,771)
Interest expense, net........... (5,113) (68,151) (9,633) -- (82,897)
Gain on disposition of broadcast
stations...................... -- 74,940 9,247 -- 84,187
Other income (expense), net..... 88,221 (11,260) (5,015) (91,653) (19,707)
Minority interest............... -- (45,507) 2,511 -- (42,996)
Provision for income taxes...... (52,433) (4,959) (15,400) -- (72,792)
---------- ----------- -------- ----------- -----------
Net (loss) income............... $ 26,041 $ 87,018 $ 4,635 $ (91,653) $ 26,041
========== =========== ======== =========== ===========
Cash flows from operations...... $ (6,005) $ 28,725 $ 24,953 $ -- $ 47,673
Cash flows used in investing
activities.................... (30,064) (51,998) (231) -- (82,293)
Cash flows from financing
activities.................... 36,111 107,457 (35,518) -- 108,050
Cash at the beginning of the
period........................ -- 19,574 23,032 -- 42,606
---------- ----------- -------- ----------- -----------
Cash at the end of the period... $ 42 $ 103,758 $ 12,236 $ -- $ 116,036
========== =========== ======== =========== ===========
F-60
214
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The following are summarized unaudited statements setting forth certain
financial information concerning the Guarantors and Non-Guarantor Subsidiaries
for the nine months ended September 30, 1997 (in thousands).
- ------------------------------------------------------------------------------------------------------------
NON-GUARANTOR USAi
USAi GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------
Revenue................................ $ -- $ 744,966 $126,527 $ -- $871,493
Operating expenses..................... (6,418) (679,099) (119,152) -- 804,669
Interest expense, net.................. (27) (8,629) (9,472) -- (18,128)
Other income (expense), net............ (295) (9,422) 434 -- (9,283)
Minority interest...................... -- (2,390) 2,488 -- 98
Provision for income taxes............. (29,753) -- -- -- (29,753)
-------- --------- -------- ------- --------
Net (loss) income...................... $(36,493) $ 45,426 $ 825 $ -- $ 9,758
======== ========= ======== ======= ========
Cash flows from operations............. $ (6,418) $ 16,533 $ 7,488 $ -- $ 17,603
Cash flows used in investing
activities........................... (8,373) (56,689) 18,961 -- (46,101)
Cash flows from financing activities... 14,833 109,674 (32,494) -- 92,013
Cash at the beginning of the period.... -- 19,574 23,032 -- 42,606
-------- --------- -------- ------- --------
Cash at the end of the period.......... $ 42 $ 89,092 $ 16,987 $ -- $106,121
======== ========= ======== ======= ========
F-61
215
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Home Shopping Network, Inc.
We have audited the accompanying consolidated balance sheets of Home Shopping
Network, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 21(b). These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Home
Shopping Network, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
March 13, 1998 except for note Q, as to which
the date is January 11, 1999
F-62
216
INDEPENDENT AUDITORS' REPORT
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
The Board of Directors
Home Shopping Network, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity (prior to the change in capitalization due to the Home
Shopping Merger discussed in Note A) and cash flows of Home Shopping Network,
Inc. for each of the years in the two year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Home Shopping Network, Inc. and subsidiaries for each of the years in the two
year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
St. Petersburg, Florida
February 25, 1997
F-63
217
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(PREDECESSOR COMPANY)
------------------------
(In thousands)
NET REVENUES......................................... $1,037,060 $1,014,705 $ 919,796
Operating costs and expenses:
Cost related to revenues........................... 614,799 625,697 602,849
Selling and marketing.............................. 134,101 146,897 167,063
Engineering and programming........................ 81,028 94,598 98,216
General and administrative......................... 80,838 70,244 77,087
Other charges...................................... -- 2,600 16,007
Depreciation and amortization...................... 65,152 33,483 38,854
---------- ---------- ----------
Total operating costs and expenses......... 975,918 973,519 1,000,076
---------- ---------- ----------
Operating income/(loss).................... 61,142 41,186 (80,280)
Other Income (expense)
Interest income.................................... 1,684 1,826 1,961
Interest expense................................... (9,728) (9,918) (10,077)
Miscellaneous...................................... (11,799) (1,937) (426)
Litigation settlements............................. -- 2,105 (6,383)
---------- ---------- ----------
(19,843) (7,924) (14,925)
---------- ---------- ----------
Earnings before income taxes and minority interest... 41,299 33,262 (95,205)
Income tax (expense)/benefit......................... (27,490) (12,641) 33,322
Minority interest.................................... -- (1) --
---------- ---------- ----------
NET EARNINGS/(LOSS).................................. $ 13,809 $ 20,620 $ (61,883)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-64
218
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------
DECEMBER 31,
------------------------
1997 1996
---------- ----------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents................................... $ 23,022 $ 16,274
Accounts and notes receivable, net of allowance of $2,177
and $2,291, respectively.................................. 39,044 33,868
Related party receivables................................... -- 4,713
Inventories, net............................................ 145,975 100,527
Deferred income taxes....................................... 24,975 26,941
Other current assets, net................................... 3,838 5,396
---------- ----------
Total current assets.............................. 236,854 187,719
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 26,398 12,348
Buildings and leasehold improvements........................ 40,898 41,494
Furniture and other equipment............................... 16,525 16,264
---------- ----------
83,821 70,106
Less accumulated depreciation and amortization............ 12,479 437
---------- ----------
71,342 69,669
Land........................................................ 10,111 10,877
Projects in progress........................................ 10,617 980
---------- ----------
92,070 81,526
OTHER ASSETS
Intangible assets, net...................................... 1,169,570 1,190,903
Cable distribution fees, net ($46,459 and $40,892,
respectively, to related parties)......................... 111,292 113,594
Deferred income taxes....................................... 32,579 38,763
Long-term investments and receivables ($8,353 and $10,536,
respectively, in related parties)......................... 16,174 24,981
Other non current assets.................................... 4,969 7,622
---------- ----------
$1,663,508 $1,645,108
========== ==========
The accompanying notes are an integral part of these financial statements.
F-65
219
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------
DECEMBER 31,
------------------------
1997 1996
---------- ----------
(In thousands)
CURRENT LIABILITIES
Current maturities of long-term debt........................ $ 270 $ 250
Accounts payable............................................ 80,105 65,266
Investment subscription payable............................. -- 10,000
Cable distribution fees payable ($19,091 and $9,051,
respectively, to related parties)......................... 43,553 40,716
Sales returns............................................... 12,579 11,672
Income tax payable.......................................... 6,169 8,267
Other accrued liabilities................................... 50,309 48,400
---------- ----------
Total current liabilities......................... 192,985 184,571
LONG-TERM DEBT (net of current maturities).................. 106,628 107,567
OTHER LONG-TERM LIABILITIES................................. 33,678 61,084
DUE TO PARENT............................................... 25,813 2,423
SHAREHOLDERS' EQUITY
Common stock................................................ 1,221,408 1,221,408
Additional paid-in capital.................................. 70,755 70,755
Retained earnings........................................... 13,814 5
Unearned compensation....................................... (1,573) (2,705)
---------- ----------
Total stockholders' equity........................ 1,304,404 1,289,463
---------- ----------
$1,663,508 $1,645,108
========== ==========
The accompanying notes are an integral part of these financial statements.
F-66
220
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B
CONVERTIBLE ADDITIONAL UNEARNED
COMMON COMMON PAID-IN RETAINED TREASURY COMPENSATION
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
PREDECESSOR COMPANY
BALANCE AT JANUARY 1, 1995............ $ 776 $200 $167,463 $ 69,560 $(27,136) $(4,420) $ 206,443
Issuance of common stock upon exercise
of stock options...................... 1 -- 902 -- -- -- 903
Income tax benefit related to executive
stock award program and stock options
exercised............................. -- -- 596 -- -- -- 596
Expense related to employee equity
participation plan.................... -- -- -- -- -- 1,020 1,020
Expense related to executive stock award
program............................... -- -- -- -- -- 795 795
Unearned compensation related to
employee equity participation plan.... -- -- -- -- -- (1,264) (1,264)
Unearned compensation related to
executive stock award program and
stock options granted................. -- -- 96 -- -- (63) 33
Purchases of treasury stock, at cost.... -- -- -- -- (21,582) -- (21,582)
Net loss for the year ended December 31,
1995.................................. -- -- -- (61,883) -- -- (61,883)
---------- ---- -------- -------- -------- ------- ----------
PREDECESSOR COMPANY
BALANCE AT DECEMBER 31, 1995.......... 777 200 169,057 7,677 (48,718) (3,932) 125,061
Issuance of common stock upon exercise
of stock options...................... 17 -- 18,058 -- -- -- 18,075
Income tax benefit related to executive
stock award program, stock options
exercised and employee equity
participation plan.................... -- -- 1,591 -- -- -- 1,591
Expense related to employee equity
participation plan.................... -- -- -- -- -- 1,020 1,020
Expense related to executive stock award
program and stock options............. -- -- -- -- -- 207 207
Net earnings for the year ended December
31, 1996.............................. -- -- -- 20,620 -- -- 20,620
---------- ---- -------- -------- -------- ------- ----------
Equity of Predecessor Company as of
December 31, 1996 prior to change in
capitalization due to Home Shopping
Merger................................ 794 200 188,706 28,297 (48,718) (2,705) 166,574
========== ==== ======== ======== ======== ======= ==========
Initial capitalization of Company due to
Home Shopping Merger.................. 1,221,408 -- 70,755 5 -- (2,705) 1,285,463
---------- ---- -------- -------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1996............ 1,221,408 -- 70,755 5 -- (2,705) 1,289,463
---------- ---- -------- -------- -------- ------- ----------
Expense related to employee equity
participation plan.................... -- -- -- -- -- 1,020 1,020
Expense related to executive stock award
program and stock options............. -- -- -- -- -- 112 112
Net earnings for the year ended December
31, 1997.............................. -- -- -- 13,809 -- -- 13,809
---------- ---- -------- -------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1997............ $1,221,408 $ -- $ 70,755 $ 13,814 $ -- $(1,573) $1,304,404
========== ==== ======== ======== ======== ======= ==========
The accompanying notes are an integral part of these statements.
F-67
221
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---- ---- ----
(PREDECESSOR COMPANY)
----------------------
(In thousands)
Cash flows from operating activities:
Net earnings (loss)....................................... $ 13,809 $ 20,620 $ (61,883)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 45,222 16,562 26,162
Amortization of cable distribution fees................. 19,261 17,095 12,692
Deferred income taxes................................... 13,202 20,675 (32,310)
Equity in (earnings) losses of unconsolidated
affiliates............................................ 12,492 5,607 302
Inventory carrying value adjustment..................... (8,059) (5,400) 14,468
Non-cash interest expense............................... 4,218 -- --
Gain on sale of controlling interest in joint venture... -- (1,948) --
Loss on sale of assets.................................. (57) 1,797 6,040
Common stock and change in Stock Appreciation Rights
issued for services provided.......................... 1,132 1,227 1,911
Provision for losses on accounts and notes receivable... 114 624 440
Minority interest....................................... -- 1 --
Change in current assets and liabilities:
(Increase) decrease in accounts and notes
receivable......................................... (5,290) (15,408) 12,576
(Increase) decrease in inventories.................... (37,389) 6,437 1,635
(Increase) decrease in other current assets........... 1,558 2,753 3,572
Increase (decrease) in accounts payable............... 14,839 (19,031) 9,362
Increase (decrease) in accrued liabilities and income
taxes payable...................................... 3,555 3,041 (24,303)
Increase in cable distribution fees..................... (16,959) (31,529) (43,874)
Increase (decrease) deferred and other.................. (27,580) -- --
Stock purchases for employee benefit plan............... -- -- (1,264)
---------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... 34,068 23,123 (74,474)
---------- --------- ---------
Cash flows from investing activities:
Increase in net long-term investments..................... (26,979) (6,645) (4,000)
Capital expenditures...................................... (27,742) (5,381) (13,004)
Cash received from sale of controlling interest in joint
venture................................................. -- 4,924 --
Increase in other non-current assets...................... 1,860 (3,289) (920)
Advances on notes receivable.............................. -- (1,000) --
Proceeds from sale of assets.............................. 2,277 636 8,727
Proceeds from long-term notes receivable.................. 793 48 3,169
Increase in intangible assets............................. -- (26) (2,378)
---------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.............. (49,791) (10,733) (8,406)
---------- --------- ---------
Cash flows from financing activities:
Principal payments on long-term obligations............... (919) (146,555) (11,816)
Net proceeds from issuance of Convertible Subordinated
Debentures.............................................. -- 97,200 --
Proceeds from issuance of common stock.................... -- 18,075 903
Borrowings from secured credit facility................... -- 10,000 120,000
Intercompany liabilities.................................. 23,390 -- --
Payments for purchases of treasury stock.................. -- -- (34,691)
---------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES....................................... 22,471 (21,280) 74,396
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 6,748 (8,890) (8,484)
Cash and cash equivalents at beginning of year............ 16,274 25,164 33,648
---------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 23,022 $ 16,274 $ 25,164
========== ========= =========
The accompanying notes are an integral part of these statements.
F-68
222
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ORGANIZATION AND BASIS OF PRESENTATION
Home Shopping Network, Inc. (the "Company", "Holdco" or "Home Shopping") is a
holding company, the subsidiaries of which conduct the day-to-day operations of
the Company's various business activities. The Company's primary business is
electronic retailing which is conducted principally by Home Shopping Network
Club ("HSN"), a wholly-owned subsidiary of the Company. On December 20, 1996,
the Company became a subsidiary of USA Networks, Inc. ("USAi"), formerly known
as HSN, Inc., as a result of a merger (the "Home Shopping Merger").
The accompanying consolidated balance sheets as of December 31, 1997 and 1996
and the consolidated statement of operations, cash flows and stockholders'
equity for the year ended December 31, 1997 are prepared to reflect the
acquisition of Home Shopping by USAi. The consolidated statements of operations,
cash flows and stockholders' equity for the years ended December 31, 1996 and
1995 are prepared based on the predecessor company's basis of accounting.
HOME SHOPPING MERGER
On December 20, 1996, the Company consummated the Home Shopping Merger whereby
its shareholders received shares of USAi Common Stock at a ratio of .90 of a
share of USAi Common Stock and 1.08 shares of USAi Class B Common Stock for each
share of Home Shopping Common Stock and Home Shopping Class B Common Stock,
adjusted for the March 1998 stock dividend (See Note Q), respectively. As a
result, 49,331,302 shares of USAi Common Stock and 15,618,222 shares of USAi
Class B Common Stock were received.
Upon consummation of the Home Shopping Merger, and because the Home Shopping
Class B Common Stock is entitled to ten votes per share on matters on which both
classes of common stock vote together as a single class, USAi owned 80.1% of the
equity and 90.8% of the voting power of Home Shopping, and Liberty HSN owned
19.9% of the equity and 9.2% of the voting power of Home Shopping. Liberty HSN
is an indirect, wholly-owned subsidiary of Liberty Media Corporation
("Liberty"), which, in turn, is a subsidiary of Tele-Communications, Inc.
("TCI").
The Home Shopping Merger has been accounting for using the purchase method of
accounting. The assets and liabilities of Home Shopping were adjusted as of
December 31, 1996 to reflect their respective fair values and the excess of the
purchase price, including expenses, over the fair value of net assets, was
assigned to goodwill. For the period from December 20, 1996 to December 31,
1996, Home Shopping results of operations included net revenues of $30.6 million
and net earnings of $.3 million. See Note C.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the Company
consistently applied in the preparation of the accompanying consolidated
financial statements.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all wholly-owned and voting-controlled subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Investments in which the Company owns a 20%, but not in excess of 50%, interest
and where it can exercise significant influence over the operations of the
investee, are accounted for using the equity
F-69
223
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method. All other investments are accounted for using the cost method. The
Company periodically evaluates the recoverability of investments recorded under
the cost method and recognizes losses if a decline in value is determined to be
other than temporary.
REVENUES
Revenues primarily consist of merchandise sales and are reduced by incentive
discounts and sales returns to arrive at net sales. Revenues are recorded for
credit card sales upon transaction authorization, and for check sales upon
receipt of customer payment, which does not vary significantly from the time
goods are shipped. Home Shopping's sales policy allows merchandise to be
returned at the customer's discretion within 30 days of the date of delivery.
Allowances for returned merchandise and other adjustments are provided based
upon past experience.
Revenues from all other sources are recognized either upon delivery or when the
service is provided.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash and
short-term investments. Short-term investments consist primarily of U.S.
Treasury Securities, U.S. Government agencies and certificates of deposit with
original maturities of less than 91 days.
INVENTORIES, NET
Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out method. Cost includes freight, certain warehouse
costs and other allocable overhead. Market is determined on the basis of net
realizable value, giving consideration to obsolescence and other factors.
Inventories are presented net of an inventory carrying adjustment of $19.8
million and $27.9 million at December 31, 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including significant improvements, are recorded
at cost. Repairs and maintenance and any gains or losses on dispositions are
included in operations.
Depreciation and amortization is provided for on a straight-line basis to
allocate the cost of depreciable assets to operations over their estimated
service lives.
- ---------------------------------------------------------------------------------
DEPRECIATION/
ASSET CATEGORY AMORTIZATION PERIOD
- ---------------------------------------------------------------------------------
Computer and broadcast equipment............................ 3 to 13 Years
Buildings................................................... 30 to 40 Years
Leasehold improvements...................................... 4 to 20 Years
Furniture and other equipment............................... 3 to 10 Years
Depreciation and amortization expense on property, plant and equipment was $15.3
million, $14.6 million and $20.5 million for the years ended December 31, 1997,
1996 and 1995, respectively.
LONG-LIVED ASSETS INCLUDING INTANGIBLES
The Company's accounting policy regarding the assessment of the recoverability
of the carrying value of long-lived assets, including property, plant and
equipment, goodwill and other intangibles is to review the carrying value of the
assets if the facts and circumstances suggest that they may be
F-70
224
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
impaired. If this review indicates that the carrying value will not be
recoverable, as determined based on the undiscounted future cash flows of the
Company, the carrying value is reduced to its estimated fair value.
CABLE DISTRIBUTION FEES
Cable distribution fees relate to upfront fees paid in connection with long term
cable contracts for carriage of Home Shopping's programming. These fees are
amortized to expense on a straight line basis over the terms of the respective
contracts, with original terms from 5 to 15 years. Amortization expense for
cable distribution fees was $19.3 million, $17.1 million and $12.7 million for
the years ended December 31, 1997, 1996 and 1995, respectively.
ADVERTISING COSTS
Advertising costs are expensed in the period incurred.
INCOME TAXES
Under Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes", deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled.
STOCK-BASED COMPENSATION
The Company is subject to Statement of Financial Accounting Standards No. 123
"Accounting and Disclosure of Stock-Based Compensation" ("SFAS 123"). As allowed
by SFAS 123, the Company accounts for stock-based compensation in accordance
with APB 25, "Accounting for Stock Issued to Employees." In cases where exercise
prices are less than fair value as of the grant date, compensation is recognized
over the vesting period.
Unaudited pro forma financial information, assuming that the Company had adopted
the measurement standards of SFAS 123, is included in Note M.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes thereto.
Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial
statements and notes include the inventory carrying adjustment, sales return
accrual, allowance for doubtful accounts, recoverability of intangibles and
other long-lived assets, and various other operating allowances and accruals.
RECENTLY ISSUED PRONOUNCEMENTS
During fiscal 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") were issued. SFAS 130 establishes standards
for reporting and display of comprehensive income and its
F-71
225
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
components (revenues, expenses, gains and losses) in a full set of financial
statements. The Company will adopt SFAS 130 as of the first quarter of 1998.
SFAS 131 requires disclosure of financial and descriptive information about an
entity's reportable operating segments under the "management approach" as
defined in the Statement. The Company will adopt SFAS 131 as of December 31,
1998. The impact of adoption of these standards on the Company's financial
statements is not expected to be material.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the 1997 presentation.
NOTE C -- HOME SHOPPING MERGER
The Home Shopping Merger has been accounted for using the purchase method of
accounting. The purchase price, including expenses, of $1.2 billion has been
allocated to the assets and liabilities acquired based on their respective fair
values at the date of purchase. The fair value of the assets and liabilities
acquired are summarized below, along with the excess of the purchase price,
including expenses, over the fair value of net assets, which has been assigned
to goodwill:
- ---------------------------------------------------------------------------
HOME SHOPPING
- ---------------------------------------------------------------------------
(In
thousands)
Current assets.............................................. $ 192,000
Non-current assets.......................................... 257,000
Goodwill.................................................... 1,197,000
Current liabilities......................................... 198,000
Non-current liabilities..................................... 227,000
Goodwill is amortized using the straight-line method over 40 years.
The following unaudited pro forma condensed financial information for the year
ended December 31, 1996, is presented to show the results of the Company for the
full period, as if the Home Shopping Merger occurred at the beginning of the
year presented. The pro forma results include certain adjustments, including
increased amortization related to goodwill, the reduction of cable and broadcast
fees for fair value adjustments related to purchase accounting and the
elimination of intercompany revenues and expenses, and are not necessarily
indicative of what the results would have been had the Home Shopping Merger
actually occurred on January 1, 1996.
- --------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
1996
- --------------------------------------------------------------------------
(In
thousands)
Net revenues................................................ $1,014,705
Net earnings................................................ 2,669
NOTE D -- INTANGIBLE ASSETS
Intangible assets represents goodwill which is amortized using the straight-line
method over 40 years.
Goodwill primarily relates to the Company's acquisition by USAi and represents
the excess of purchase price over the fair value of assets acquired and is net
of accumulated amortization of $38.4 million and $4.1 million at December 31,
1997 and 1996, respectively.
F-72
226
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LONG-TERM INVESTMENTS AND NOTES RECEIVABLE
Investments accounted for under the equity method include the following; a 29%
interest in both Home Order Television GmbH & Co. KG ("HOT") and its general
partner (collectively the "HOT Interest") and a 30% interest in Jupiter Shop
Channel Co. Ltd. ("Shop Channel"). At December 31, 1997 and 1996, the Company's
net investment in these ventures were $15.6 million and $11.1 million,
respectively. The HOT interest is subject to certain restrictions and other
provisions regarding transferability.
The Company has other investments accounted for under the cost method totaling
$.6 million at December 31, 1997 and 1996, respectively.
The Company has notes receivable of $.8 million and $1.6 million net of the
current portion of $.2 million at December 31, 1997 and 1996, respectively.
Certain notes receivable are collateralized by stock pledges and security
interests in all of the tangible and intangible assets in the investee companies
to the full extent permitted by law.
NOTE F -- LONG-TERM OBLIGATIONS
- ---------------------------------------------------------------------------------
DECEMBER 31,
-------------------
1997 1996
- ---------------------------------------------------------------------------------
(In thousands)
Unsecured $100,000,000 5 7/8% Convertible Subordinated
Debentures (the "Home Shopping Debentures") due March 1,
2006 convertible into USAi Common Stock at a conversion
price of $13.34 per share................................. $106,338 $107,007
Other long-term obligations................................. 560 810
-------- --------
Total long-term obligations................................. 106,898 107,817
Less current maturities..................................... (270) (250)
-------- --------
Long-term obligations, net of current maturities............ $106,628 $107,567
======== ========
The Home Shopping Debentures were all converted by the holders into shares of
USAi Common Stock on or prior to March 1, 1998. See Note Q.
F-73
227
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- INCOME TAXES
In connection with the Home Shopping Merger on December 20, 1996, Home Shopping
became a subsidiary of USAi and began to be included in the consolidated federal
tax returns of USAi. Federal income tax expense from December 20, 1996
represents an allocation of income tax expense from USAi, calculated as if Home
Shopping was a separate filer for federal tax purposes.
A reconciliation of total income tax expense to the amounts computed by applying
the statutory federal income tax rate to earnings (loss) before income taxes is
shown as follows:
- -------------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------
(In thousands)
Income tax expense (benefit) at the federal statutory rate
of 35%.................................................... $14,454 $ 11,641 $(33,322)
Amortization of goodwill and other intangibles.............. 10,916 612 1,629
State income taxes, net of effect of federal tax benefit.... 723 1,209 (1,778)
Non-deductible portion of executive compensation............ -- -- (688)
Other, net.................................................. 1,397 (821) 837
------- -------- --------
Income tax expense (benefit)................................ $27,490 $ 12,641 $(33,322)
======= ======== ========
The components of income tax expense are as follows:
- -------------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
-----------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------
(In thousands)
Current income tax expense:
Federal................................................... $12,795 $ (8,703) $ (1,023)
State..................................................... 1,112 669 11
------- -------- --------
Current income tax expense........................ 13,907 (8,034) (1,012)
------- -------- --------
Deferred income tax expense (benefit):
Inventory costing......................................... 3,446 545 (4,421)
Provision for accrued liabilities......................... 1,030 (83) (1,407)
Depreciation for financial statements in (excess of) less
than tax............................................... 1,590 (552) (2,207)
Amortization of goodwill and other intangibles............ 5,223 (2,748) (1,775)
Net operating loss carryover.............................. 1,561 21,928 (23,489)
(Decrease) increase in valuation allowance for deferred
tax assets............................................. 1,320 506 240
Other, net................................................ (587) 1,079 749
------- -------- --------
Deferred income tax expense (benefit)............. 13,583 20,675 $(32,310)
------- -------- --------
Total income tax expense (benefit)................ $27,490 $ 12,641 $(33,322)
======= ======== ========
F-74
228
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of cumulative temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996, are presented below. The valuation allowance
represents items for which it is more likely than not that the tax benefit will
not be realized.
- -----------------------------------------------------------------------------------
DECEMBER 31,
---------------------
1997 1996
- -----------------------------------------------------------------------------------
(In thousands)
Current deferred tax assets:
Inventory costing......................................... $ 6,348 $ 9,794
Provision for accrued expenses............................ 6,074 5,265
Other..................................................... 12,553 11,882
-------- ---------
Total current deferred tax assets................. $ 24,975 $ 26,941
======== =========
Non-current deferred tax assets (liabilities):
Broadcast and cable fee contracts......................... $ 19,833 $ 22,063
Other..................................................... 22,254 23,298
-------- ---------
Total non-current deferred tax assets............. 42,087 45,361
Less valuation allowance.......................... (3,061) (1,741)
-------- ---------
Net non-current deferred tax assets............... $ 39,026 $ 43,620
Deferred tax liabilities:
Depreciation for tax in excess of financial statements.... (6,447) (4,857)
-------- ---------
Net non-current deferred tax assets............... $ 32,579 $ 38,763
======== =========
At December 31, 1996, the Company had net operating loss carryforwards ("NOL")
for federal income tax purposes of $8.6 million, which were available to offset
future federal taxable income, if any, through 2012. At December 31, 1997, there
were no remaining NOL's.
During 1997, the Internal Revenue Service ("IRS") completed the examination of
Home Shopping's federal income tax returns for fiscal years 1992 through 1994
and assessed Home Shopping additional income tax plus interest. Home Shopping
filed a protest with the IRS regarding the assessment. The protest is currently
pending review by the IRS Appeals Office. Management believes the ultimate
resolution of any tax audits will not have a significant impact on the Company's
consolidated financial statements.
F-75
229
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company leases satellite transponders, computers, warehouse and office
space, as well as broadcast and production facilities, equipment and services
used in connection with its operations under various operating leases and
contracts, many of which contain escalation clauses.
Future minimum payments under non-cancellable agreements are as follows:
- ----------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
- ----------------------------------------------------------------------------
(In thousands)
1998........................................................ $ 28,925
1999........................................................ 27,583
2000........................................................ 27,665
2001........................................................ 28,589
2002........................................................ 21,318
Thereafter.................................................. 6,683
--------
$140,763
========
Expenses charged to operations under these agreements were $20.0 million, $14.2
million, and $13.3 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company is required to provide funding, from time to time, for the
operations of its investments in joint ventures accounted for under the equity
method.
NOTE I -- OTHER CHARGES
During 1996 and 1995, the Company recorded total net pre-tax special charges of
$2.2 million and $42.3 million respectively, as detailed below.
The $2.6 million of other charges in 1996 related to work force reductions and
certain other expenses associated with the closings of three outlet stores and
one fulfillment center.
During 1995, in connection with new management's sales and merchandising
philosophy, an overall analysis of the Company's inventory was conducted and it
was determined that certain merchandise was not compatible with this new
philosophy. As a result, such merchandise was liquidated through means other
than the Company's normal retailing channels. Accordingly, management increased
the Company's inventory carrying adjustment by $12.1 million to $33.3 million at
December 31, 1995, to reflect the net realizable value of the Company's
inventory.
During 1995, the Company recorded $11.9 million in other charges. These
consisted of severance pay of $4 million related to a reduction in work force,
$4.8 million of payments to certain executives as provided for under their
employment agreements in connection with the termination of their employment and
the write-off of certain equipment maintenance and contractual fees totaling
$1.8 million related to service contracts which the Company no longer utilizes.
In addition, the Company recorded a write-down of inventory totaling $1.3
million to net realizable value based on the disposition of Ortho-Vent's assets.
An additional $2.4 million, related to name lists of Ortho-Vent were written off
and included in depreciation and amortization in 1995.
During 1995, the Company recorded charges of $4.1 million covering employee and
other costs related to the closing of its fulfillment center in Reno, Nevada.
The facility was closed by June 30,
F-76
230
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995. During the years ended December 31, 1997, 1996 and 1995, payments totaling
$1.2 million, $.8 million and $1.2 million, respectively, were made related to
this charge.
Interest expense in 1995 included $.8 million of bank fees related to the Credit
Facility which were amortized based on the Company's intent to seek refinancing
of this debt prior to its contractual maturity. For the year ended December 31,
1996, miscellaneous expense included $1.7 million related to the write-down of
fulfillment center equipment. Miscellaneous expense in 1995 included the write-
down of computer equipment no longer in use with a net book value of $4.7
million.
Estimated costs related to pending and settled litigation for the year ended
December 31, 1995 totaled $6.4 million. In 1996, actual settlement costs related
to the pending matters were less than the original estimate, resulting in a
credit of $2.1 million.
NOTE J -- LITIGATION
In the ordinary course of business, the Company is engaged in various lawsuits.
In the opinion of management, the ultimate outcome of the various lawsuits
should not have a material impact on the liquidity, results of operations or
financial condition of the Company.
NOTE K -- BENEFIT PLANS
The Company offers various plans pursuant to Section 401(k) of the Internal
Revenue Code (the "Plans") covering substantially all full-time employees who
are not party to collective bargaining agreements. The Company's share of the
matching employer contributions is set at the discretion of the Board of
Directors or the applicable committee thereof.
In 1994 the Company adopted the Home Shopping Network, Inc. Employee Equity
Participation Plan (the "Equity Plan"). The Equity Plan covers all Home Shopping
employees who have completed one year and at least 1,000 hours of service, are
at least 21 years of age, are not highly compensated as defined in the Equity
Plan agreement, and did not hold options to purchase shares of Home Shopping
Common Stock. The Board of Directors has not made any additional grants under
the Equity Plan for any period subsequent to June 30, 1995.
NOTE L -- STOCK OPTION PLANS
In connection with the Home Shopping Merger, the options granted by the Company
under various stock option plans were converted at the date of the merger to
options in USAi.
USAi has various stock option plans (the "Plans") under which options to
purchase USAi Common Stock (at not less than fair market value on the date of
the grant) may be granted to employees of the Company. The options under the
Plans vest ratably, generally over a range of three to five years from the date
of grant and generally expire not more than 10 years from the date of grant.
Three of the Plans have options available for future grants.
USAi also has outstanding options to outside directors under one plan (the
"Directors Plan") which provides for the grant of options to purchase USAi
Common Stock at not less than fair market value on the date of the grant. The
options under the Directors Plan vest ratably, generally over three years from
the date of grant and expire not more than 10 years from the date of grant.
F-77
231
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of changes in outstanding USAi options under the stock option plans
with respect to employees and/or directors of the Company is as follows:
DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995
---------------- -------------------- --------------------
PRICE PRICE PRICE
SHARES RANGE SHARES RANGE SHARES RANGE
------- ------ ------ ----------- ------ -----------
Outstanding at beginning of
period...................... 16,299 $ 1-74 18,142 $3.61-16.39 4,359 $3.61-16.39
Granted or issued in
connection with
mergers.................. 11,580 $10-19 501 $7.09-15.98 14,612 $7.50-11.53
Exercised................... (968) $ 1-16 (1,482) $4.12-13.06 (149) $ 3.61-9.44
Cancelled................... (548) $ 5-74 (862) $4.90-16.39 (680) $4.90-16.26
Options held by employees
and outside directors of
USAi..................... 6,573 $ 1-16 -- -- -- $ --
------ ------ ------
Outstanding at end of
period........................ 32,936 $ 1-74 16,299 $ 1-16.39 18,142 $3.61-16.39
------ ------ ------
------ ------ ------
Options exercisable........... 10,840 4,650 2,372
------ ------ ------
------ ------ ------
Available for grant........... 12,192 2,174 3,332
------ ------ ------
------ ------ ------
The weighted average exercise prices during the year ended December 31, 1997 was
$18.77, $7.40 and $14.69 for options granted, exercised and cancelled,
respectively. The weighted average fair value of options granted during the year
was $11.81.
The weighted average exercise prices during the year ended December 31, 1996,
were $10.79, $10.98 and $11.01 for options granted, exercised and cancelled,
respectively. The weighted average fair value of options granted during the year
was $21.46.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
OUTSTANDING AT WEIGHTED WEIGHTED EXERCISABLE AT WEIGHTED
DECEMBER 31, AVERAGE REMAINING AVERAGE DECEMBER 31, AVERAGE
RANGE OF EXERCISE PRICE 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
- ----------------------- -------------- ----------------- -------------- -------------- --------------
(in
(in thousands) thousands)
$1.00 to $5.00............... 170 3.3 $ 3.12 170 $ 3.12
$5.01 to $10.00.............. 14,430 7.9 9.42 7,305 9.40
$10.01 to $15.00............. 5,622 7.8 11.50 2,401 11.56
$15.01 to $20.00............. 12,629 9.5 18.63 879 15.64
Over $20.00.................. 85 4.3 44.57 85 44.57
------ ------
32,936 8.4 13.36 10,840 10.56
====== ======
USAi has not issued options to any of the Company's employees and/or directors
with an exercise price below fair market value. Accordingly, in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees", no compensation cost has been charged to the Company by USAi.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The information is determined as if the Company has accounted for
its employee stock options granted subsequent to December 31, 1994 under the
fair market value method for the Transferred Employees and Directors. The fair
value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions for
1997 and periods prior to 1997: risk-free interest rate of 5.5% and 6.4%,
respectively; a dividend yield of zero; a
F-78
232
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
volatility factor of .713 and .0057, respectively, based on the expected market
price of USAi Common Stock based on historical trends; and a weighted-average
expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating the
fair market value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair market value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
YEARS ENDED DECEMBER 31,
------------------------
1997
----
(in thousands)
Pro forma net earnings (loss).......... $(3,583)
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years.
NOTE M -- STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
- ------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------
(In thousands)
CASH PAID DURING THE PERIOD FOR:
Interest.................................................. $5,875 $ 9,118 $ 6,896
Income tax payments....................................... 6,339 1,017 1,707
Income tax refund......................................... 5,732 14,648 11,258
NOTE N -- RELATED PARTY TRANSACTIONS
Due to Parent as of December 31, 1997 generally represents net amounts
transferred to Home Shopping from USAi to fund operations and other related
items.
Certain corporate overhead costs were allocated to the Company in 1997 based
upon the management estimation of the fair value of those services. Amounts
charged in 1997 were $7.4 million.
As of December 31, 1997, the Company was involved in several agreements with
related parties as follows:
The Company is a partner in Shop Channel, an entity in which TCI, through a
subsidiary, has an indirect ownership interest. In the ordinary course of
business, Home Shopping has sold inventory to Shop Channel and recorded
receivables of $.8 million and $.7 million for those sales and other services
provided at December 31, 1997 and 1996, respectively. The Company's net
investment in Shop Channel was $2.5 million and $.5 million at December 31, 1997
and 1996, respectively.
F-79
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the normal course of business, the Company enters into agreements with the
operators of cable television systems and operators of broadcast television
stations for the carriage of Home Shopping programming. The Company has entered
into agreements with a number of cable operators that are affiliates of TCI.
These long-term contracts provide for a minimum subscriber guarantee and
incentive payments based on the number of subscribers. Cash paid by the Company
to TCI and certain of its affiliates under these contracts for cable commissions
and advertising was $9.4 million, $7.9 million and $7.2 million for calendar
years 1997, 1996, and 1995, respectively.
Home Shopping has affiliation agreements with SilverKing Broadcasting ("SKC"), a
wholly owned subsidiary of USAi, which provide for SKC's broadcast television
stations to air Home Shopping's programming on a full-time basis. Expense
related to affiliation agreements with SKC for the years ended December 31,
1997, 1996 and 1995 was $41.7 million, $41.6 million and $41.3 million
respectively.
As of December 31, 1997, SKTV, Inc. a wholly-owned subsidiary of USAi, the
Company parent, owned a 33.4% membership interest in Blackstar. The Company
currently maintains broadcast affiliation agreements with stations for which
Blackstar is the parent company. The Company recorded affiliation payments of
$4.8 million and $4.7 million for calendar years 1997 and 1996.
NOTE O -- FINANCIAL INSTRUMENTS
The additional disclosure below of the estimated fair value of financial
instruments was made in accordance with the requirements of Statements of
Financial Accounting Standards No. 107. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies when available. The carrying value of all
current assets and current liabilities approximates fair value due to their
short-term nature.
- -----------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------
(In thousands)
Cash and cash equivalents......................... $ 23,022 $ 23,022 $ 16,274 $ 16,274
Long-term investments............................. 21,143 21,143 24,981 31,202
Long-term debt.................................... 106,628 106,628 107,567 107,567
NOTE P -- SUBSEQUENT EVENTS (UNAUDITED)
On January 23, 1998, Home Shopping gave notice that it elected to redeem on
March 1, 1998, at a redemption price of 104.7% of the principal amount, all of
the outstanding Home Shopping Debentures. The Home Shopping Debentures were all
converted by the holders into shares of USAi Common Stock on or prior to March
1, 1998.
USANi LLC ("USANi LLC"), a Delaware limited liability company, was formed on
February 12, 1998 and is a subsidiary of Home Shopping. At its formation, USAi
and Home Shopping contributed substantially all of the operating assets and
liabilities of Home Shopping to USANi LLC in exchange for Class A shares in
USANi LLC.
On February 12, 1998, USANi LLC acquired USA Networks, a New York general
partnership, consisting of cable television networks, USA Network and The Sci-Fi
Channel ("Networks"), as well as the domestic television production and
distribution businesses of Universal Studios ("Studios
F-80
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USA") from Universal Studios, Inc. ("Universal"), an entity controlled by The
Seagram Company Ltd. ("Seagram") (the "Universal Transaction").
In connection with the Universal Transaction, USANi LLC paid Universal
approximately $4.1 billion in the form of a cash payment of approximately $1.6
billion, a portion of which ($300 million plus interest) was deferred until no
later than June 30, 1998, and an effective 45.8% interest in USAi through shares
of common stock, par value $.01 per share, of USAi (the "USAi Common Stock") and
Class B common stock, par value $.01 per share, of USAi (the "USAi Class B
Common Stock"), and Class B USANi LLC Shares exchangeable (subject to regulatory
restrictions) into shares of USAi Common Stock and USAi Class B Common Stock.
The Investment Agreement, as amended and restated as of December 18, 1997, among
USAi, Home Shopping, Universal and Liberty (the "Investment Agreement"),
relating to the Universal Transaction also contemplated that, on or prior to
June 30, 1998, USANi LLC and Liberty, would complete a transaction involving a
$300 million cash investment, plus an interest factor, by Liberty in USAi and/or
USANi LLC through the purchase of USAi Common Stock or Class C USANi LLC Shares.
The transaction closed on June 30, 1998 with Liberty making a cash payment of
$308.5 million in exchange for 15,000,000 Class C USANi LLC Shares.
On February 12, 1998, USAi, and certain of its subsidiaries, including USANi LLC
as borrower, entered into a new $1.6 billion credit facility (the "New
Facility") with a $40.0 million sub-limit for letters of credit. The New
Facility was used to finance the Universal Transaction and to refinance USAi
debt. The New Facility consists of a $600.0 million revolving credit facility, a
$750.0 million "Tranche A Term Loan" and a $250.0 million "Tranche B Term Loan".
On August 5, 1998, USANi LLC repaid the Tranche B Term Loan in its entirety. On
November 23, 1998, USANi LLC repaid $500.0 million of the Tranche A Term Loan.
The revolving credit facility and Tranche A Term Loan mature on December 31,
2002. The New Facility is guaranteed by, and secured by stock in, substantially
all of the USAi's material subsidiaries. The interest rate on borrowings under
the New Facility is tied to an alternate base rate or the London InterBank Rate,
in each case, plus an applicable margin.
In February 1998, USAi entered into a letter of intent to acquire the remaining
outstanding interest in Blackstar for $17.0 million. In March 1998, Blackstar
agreed to sell a television broadcasting station in Salem, Oregon for $30.0
million. Home Shopping agreed to terminate its affiliation agreement with the
Salem, Oregon station, as well as affiliation agreements with two other
stations, for the payment of $15.0 million.
NOTE Q -- GUARANTEE OF NOTES
USAi issued $500.0 million 6 3/4% Senior Notes due 2005 (the "Notes"). USANi LLC
is a co-obligor of the Notes. Home Shopping is a guarantor of the Notes.
Substantially all of the significant subsidiaries of USANi LLC and substantially
all of the significant wholly owned subsidiaries of USAi (principally
subsidiaries engaged in the broadcasting and ticketing operations) have jointly
and severally guaranteed USAi's indebtedness. Certain subsidiaries of USANi LLC
do not guarantee the indebtedness.
F-81
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1998 1997
---- ----
(In thousands)
NET REVENUES
Networks and television production........................ $ 757,305 $--
Electronic retailing...................................... 776,417 743,893
Internet services......................................... 14,467 8,511
---------- --------
Total net revenues................................ 1,548,189 752,404
---------- --------
Operating costs and expenses:
Cost related to revenues.................................. 482,030 444,035
Program costs............................................. 408,948 --
Other costs............................................... 383,387 214,058
Depreciation and amortization............................. 125,952 48,516
---------- --------
Total operating costs and expenses................ 1,400,317 706,609
---------- --------
Operating income.................................. 147,872 45,795
---------- --------
Other income (expense):
Interest income........................................... 12,874 1,342
Interest expense.......................................... (78,522) (7,360)
Miscellaneous............................................. (16,273) (9,299)
---------- --------
(81,921) (15,317)
Earnings before income taxes and minority interest.......... 65,951 30,478
Income tax expense.......................................... (26,376) (20,115)
Minority interest........................................... (42,768) --
---------- --------
NET EARNINGS (LOSS)......................................... $ (3,193) $ 10,363
========== ========
The accompanying notes are an integral part of these statements.
F-82
236
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ---------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents................................. $ 125,245 $ 23,022
Accounts and notes receivable, net of allowance of $14,819
and $2,177, respectively................................ 230,157 39,044
Inventories, net.......................................... 437,797 145,975
Other current assets, net................................. 40,896 28,813
---------- ----------
Total current assets............................ 834,095 236,854
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment.......................... 65,321 26,398
Buildings and leasehold improvements...................... 52,032 40,898
Furniture and other equipment............................. 44,161 16,525
---------- ----------
161,514 83,821
Less accumulated depreciation and amortization.......... (34,769) (12,479)
---------- ----------
126,745 71,342
Land...................................................... 10,123 10,111
Projects in progress...................................... 16,167 10,617
---------- ----------
153,035 92,070
OTHER ASSETS
Intangible assets, net.................................... 5,243,669 1,169,570
Cable distribution fees, net ($41,765 and $46,459,
respectively, to related parties)....................... 97,596 111,292
Long-term investments and receivables ($7,763 and $8,353,
respectively, in related parties)....................... 132,260 21,143
Inventories, net.......................................... 197,929 --
Advances to USAi and subsidiaries......................... 149,904 --
Deferred charges and other, net........................... 107,941 32,579
---------- ----------
$6,916,429 $1,663,508
========== ==========
The accompanying notes are an integral part of these statements.
F-83
237
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- ----------
(In thousands)
CURRENT LIABILITIES
Current maturities of long-term debt........................ $ 60,341 $ 270
Accounts payable............................................ 140,971 80,105
Obligations for program rights and film costs............... 275,362 --
Cable distribution fees payable ($18,578 and $19,091,
respectively, to related parties)......................... 28,862 43,553
Obligation for makegoods.................................... 36,464 --
Deferred revenue............................................ 33,836 --
Other accrued liabilities................................... 187,109 69,057
---------- ----------
Total current liabilities......................... 762,945 192,985
LONG-TERM DEBT (net of current maturities).................. 704,266 106,628
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 346,251 --
OTHER LONG-TERM LIABILITIES................................. 24,134 33,678
DUE TO PARENT............................................... -- 25,813
MINORITY INTEREST........................................... 3,770,146 --
STOCKHOLDERS' EQUITY
Common Stock................................................ 1,221,408 1,221,408
Additional paid-in capital.................................. 70,755 70,755
Retained earnings........................................... 10,621 13,814
Unearned compensation....................................... (1,573) (1,573)
Unrealized gain............................................. 7,476 --
---------- ----------
Total stockholders' equity........................ 1,308,687 1,304,404
---------- ----------
$6,916,429 $1,663,508
========== ==========
The accompanying notes are an integral part of these statements.
F-84
238
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED UNEARNED UNREALIZED
TOTAL STOCK CAPITAL EARNINGS COMPENSATION GAINS
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
BALANCE AT JANUARY 1, 1998................. $1,304,404 $1,221,408 $ 70,755 $ 13,814 $(1,573) --
Comprehensive Income:
Net loss for the
nine months ended September 30, 1998... (3,193) -- -- (3,193) -- --
Increase in unrealized gains in available
for sale securities.................... 7,476 -- -- -- -- $ 7,476
----------
Comprehensive income................. 4,283
----------
---------- ---------- -------- ------- -------
----------
BALANCE AT SEPTEMBER 30, 1998.............. $1,308,687 $1,221,408 $ 70,755 $ 10,621 $(1,573) $ 7,476
========== ========== ========== ======== ======= =======
The accompanying notes are an integral part of these statements.
F-85
239
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
---- ----
(In thousands)
Cash flows from operating activities:
Net earnings (loss)......................................... $ (3,193) $ 10,363
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 109,872 33,635
Amortization of cable distribution fees................... 15,883 14,375
Amortization of program rights and film costs............. 356,219 --
Deferred income taxes..................................... (1,152) 8,929
Equity in losses of unconsolidated affiliates............. 16,097 9,638
Minority interest......................................... 42,768 2,390
Non-cash interest......................................... 4,800 3,164
Changes in current assets and liabilities:
Accounts receivable.................................... (82,380) (1,520)
Inventories............................................ (72,526) (49,584)
Accounts payable....................................... 39,633 31,535
Accrued liabilities.................................... 63,515 (43,374)
Payment for program rights and film costs................. (335,005) --
Other, net................................................ (33,811) (3,826)
---------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 120,720 15,725
---------- --------
Cash flows from investing activities:
Acquisition of Universal Transaction, net of cash
acquired............................................... (1,297,233) --
Capital expenditures, net................................. (34,468) (21,246)
Increase in long-term investments......................... (22,542) (13,048)
Payment of merger and financing costs..................... (20,855) --
Other, net................................................ (4,065) (211)
---------- --------
NET CASH USED IN INVESTING ACTIVITIES............. (1,379,163) (34,505)
---------- --------
Cash flows from financing activities:
Advances (to)/from USAi................................... (185,227) 14,784
Borrowings................................................ 1,741,380 --
Principal payments on long-term obligations............... (990,512) --
Proceeds from issuance of LLC Shares...................... 795,025 --
---------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 1,360,666 14,784
---------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 102,223 (3,996)
Cash and cash equivalents at beginning of period.......... 23,022 16,274
---------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 125,245 $ 12,278
========== ========
The accompanying notes are an integral part of these statements.
F-86
240
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- COMPANY FORMATION, BUSINESS AND BASIS OF PRESENTATION
COMPANY FORMATION
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.
("USAi"), formerly known as HSN, Inc., and became a subsidiary of USAi.
On February 12, 1998, USAi acquired USA Networks, a New York general
partnership, consisting of cable television networks, USA Network and The Sci-Fi
Channel ("Networks"), as well as the domestic television production and
distribution businesses of Universal Studios ("Studios USA") from Universal
Studios, Inc. ("Universal"), an entity controlled by The Seagram Company Ltd.
("Seagram") (the "Universal Transaction") -- See Note C.
In connection with the Universal Transaction, the Company formed a new
subsidiary, USANi LLC, and contributed the operating assets of the Home Shopping
Network services ("HSN") to USANi LLC. Furthermore, USAi contributed Networks
and Studios USA to USANi LLC on February 12, 1998.
In connection with the Universal Transaction, USAi paid Universal approximately
$4.1 billion in the form of a cash payment of approximately $1.6 billion, a
portion of which ($300 million plus interest) was deferred until no later than
June 30, 1998, and an effective 45.8% interest in USAi through shares of common
stock, par value $.01 per share, of USAi (the "USAi Common Stock") and Class B
common stock, par value $.01 per share, of USAi (the "USAi Class B Common
Stock"), and Class B LLC Shares exchangeable (subject to regulatory
restrictions) into shares of USAi Common Stock and USAi Class B Common Stock.
The Investment Agreement, as amended and restated as of December 18, 1997, among
USAi, Home Shopping, Universal and Liberty Media Corporation ("Liberty") (the
"Investment Agreement"), relating to the Universal Transaction also contemplated
that, on or prior to June 30, 1998, the Company and Liberty, a subsidiary of
Tele-Communications, Inc. ("TCI"), would complete a transaction involving a $300
million cash investment, plus an interest factor, by Liberty in USAi and/or the
Company through the purchase of USAi Common Stock or Class C LLC Shares. The
transaction closed on June 30, 1998 with Liberty making a cash payment of $308.5
million in exchange for 15,000,000 Class C LLC Shares.
COMPANY BUSINESS
The Company is a holding company, the subsidiaries of which are engaged in
diversified media and electronic commerce businesses.
The three principal areas of business are:
- NETWORKS AND TELEVISION PRODUCTION, which includes Networks and Studios
USA. Networks operates the USA Network and The Sci-Fi Channel cable
networks and Studios USA produces and distributes television programming.
- ELECTRONIC RETAILING, which consists primarily of the Home Shopping
Network and America's Store which are engaged in the electronic retailing
business.
- INTERNET SERVICES, which represents the Company's on-line retailing
networks business.
F-87
241
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements of the Company are
unaudited and should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto for the year ended December 31, 1997.
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.
The Condensed Consolidated Financial Statements include the operations of
Networks and Studios USA from the date of acquisition on February 12, 1998.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and
all wholly-owned and voting-controlled subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Investments in which the Company owns a 20%, but less than a controlling voting
interest and where it can exercise significant influence over the operations of
the investee, are accounted for using the equity method. All other investments
are accounted for using the cost method. The Company periodically evaluates the
recoverability of investments recorded under the cost method and recognizes
losses if a decline in value is determined to be other than temporary.
REVENUE RECOGNITION
Networks and Television Production
Television Production revenues are recognized as completed episodes are
delivered. Generally, television programs are first licensed for network
exhibition and foreign syndication, and subsequently for domestic syndication,
cable television and home video. Certain television programs are produced and/or
distributed directly for initial exhibition by local television stations,
advertiser-supported cable television, pay television and/or home video.
Television Production advertising revenues (i.e., sales of advertising time
received by Studios USA in lieu of cash fees for the licensing of program
broadcast rights to a broadcast station ("barter syndication")) are recognized
upon both the commencement of the license period of the program and the sale of
advertising time pursuant to non-cancellable agreements, provided that the
program is available for its first broadcast. Foreign minimum guaranteed amounts
are recognized as revenues on the date of the license agreement, provided the
program is available for exhibition.
Networks advertising revenue is recognized in the period in which the
advertising commercials are aired on cable networks. Provisions are recorded
against advertising revenues for audience under deliveries ("makegoods").
Affiliate fees are recognized in the period during which the programming is
provided.
F-88
242
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
FILM COSTS
Film costs consist of direct production costs and production overhead, less
accumulated amortization. Development roster (and related costs) and abandoned
story and development costs are charged to production overhead. Film costs are
stated at the lower of unamortized cost or estimated net realizable value on a
production-by-production basis.
Generally, the estimated ultimate costs of completed television productions are
amortized, and participation expenses are accrued, for each production in the
proportion that current period revenue recognized bears to the estimated future
revenue to be received from all sources. Amortization and accruals are made
under the individual film forecast method. Estimated ultimate revenues and costs
are reviewed quarterly and revisions to amortization rates or write-downs to net
realizable value are made as required.
Film costs, net of amortization, classified as current assets include the
portion of unamortized costs of television program productions allocated to
network, first-run syndication and initial international distribution markets.
The allocated portion of released film costs expected to be recovered from
secondary markets or other exploitation is reported as a noncurrent asset. Other
costs relating to television productions, such as television program development
costs, in-process productions and the television program library, are classified
as noncurrent assets.
PROGRAM RIGHTS
License agreements for program material are accounted for as a purchase of
program rights. The asset related to the program rights acquired and the
liability for the obligation incurred are recorded at their net present value
when the license period begins and the program is available for its initial
broadcast. The asset is amortized primarily based on the estimated number of
airings. Amortization is computed generally on the straight-line basis as
programs air; however, when management estimates that the first airing of a
program has more value than subsequent airings, an accelerated method of
amortization is used. Other costs related to programming, which include program
assembly, commercial integration and other costs, are expensed as incurred.
Management periodically reviews the carrying value of program rights and records
write-offs, as warranted, based on changes in programming usage.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The new rules
establish standards for the reporting of comprehensive income and its components
in financial statements. Comprehensive income consists of net income and other
gains and losses affecting members' equity that, under generally accepted
accounting principles, are excluded from net income. For the Company, such items
consist of unrealized gains and losses on marketable equity investments.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes thereto.
Actual results could differ from those estimates.
F-89
243
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Significant estimates underlying the accompanying Consolidated Financial
Statements and Notes include the inventory carrying adjustment, sales return
accrual, allowance for doubtful accounts, recoverability of intangibles and
other long-lived assets, management's forecast of anticipated revenues from the
distribution of television product in order to evaluate the ultimate
recoverability of film inventory and amortization of program usage.
RECENTLY ISSUED PRONOUNCEMENTS
During fiscal 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") was issued. SFAS 131 requires disclosure of financial and descriptive
information about an entity's reportable operating segments under the
"management approach" as defined in the Statement. The Company will adopt SFAS
131 as of December 31, 1998. The impact of adoption of this standard on the
Company's financial statements is not expected to be material.
NOTE C -- BUSINESS ACQUISITIONS
The Universal Transaction has been accounted for using the purchase method of
accounting. The purchase price of approximately $4.1 billion including expenses,
has been preliminarily allocated to the assets acquired and liabilities assumed
based on their respective fair values at the date of purchase. The fair value of
the assets acquired and liabilities assumed are summarized below, along with the
excess of the purchase price, including expenses, over the fair value of net
assets, which has been assigned to goodwill.
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $ 431,955
Non-current assets.......................................... 329,549
Goodwill.................................................... 4,157,720
Current liabilities......................................... 408,254
Non-current liabilities..................................... 395,439
The following unaudited pro forma consolidated financial information for the
nine months ended September 30, 1998 and 1997, is presented to reflect the
results of the Company as if the Universal Transaction occurred at the beginning
of each of the periods presented. The pro forma results include certain
adjustments, including increased amortization related to goodwill, the reduction
of programming costs for fair value adjustments related to purchase accounting
and the elimination of intercompany revenues and expenses, and are not
necessarily indicative of what the results would have been had the Universal
Transaction actually occurred on the aforementioned dates.
- ---------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------
(In thousands)
Net revenues................................................ $1,705,553 $1,530,115
Net earnings (loss)......................................... (30) (28,562)
F-90
244
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE D -- CREDIT FACILITY
On February 12, 1998, the Company entered into a new $1.6 billion credit
facility (the "New Facility") with a $40.0 million sub-limit for letters of
credit. The New Facility was used to finance the Universal Transaction and to
refinance USAi's existing revolving credit facility. The New Facility consists
of a $600.0 million revolving credit facility, a $750.0 million Tranche A Term
Loan and a $250.0 million Tranche B Term Loan. On August 5, 1998, the Company
repaid the Tranche B Term Loan in its entirety. The revolving credit facility
and Tranche A Term Loan mature on December 31, 2002. The New Facility is
guaranteed by substantially all of USAi's material subsidiaries. The interest
rate on borrowings under the New Facility is tied to an alternate base rate or
the London InterBank Rate, in each case, plus an applicable margin. The interest
rate under the New Facility was 6.62% at September 30, 1998. As of September 30,
1998, there was $750.0 million in outstanding borrowings under the New Facility
and $599.9 million was available for borrowing after taking into account
outstanding letters of credit.
NOTE E -- CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998:
- ----------------------------------------------------------------------------
(In thousands)
ACQUISITION OF NETWORKS AND STUDIOS USA
Acquisition price.................................... $ 4,115,531
Less: Amount paid in cash............................ (1,300,983)
-----------
Total non-cash consideration......................... $ 2,814,548
===========
Components of non-cash consideration:
Deferred purchase price liability.................... $ 300,000
Issuance of USAi Common Shares and USAi Class B
Shares.............................................. 277,898
Issuance of LLC Shares............................... 2,236,650
-----------
$ 2,814,548
===========
Exchange of Class B LLC Shares for Deferred Purchase
Price Liability....................................... $ 304,636
===========
During the period ended September 30, 1998, the Company acquired computer
equipment through a capital lease totaling $15.5 million.
As of March 1, 1998 the 5 7/8% Convertible Subordinated Debentures were
converted to 7,499,022 shares of USAi common stock.
F-91
245
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE F -- INVENTORIES
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
---------------------- ----------------------
INVENTORIES CONSIST OF CURRENT NONCURRENT CURRENT NONCURRENT
- ---------------------------------------------------------------------------------------------
(In thousands)
Film costs:
Released, less amortization........... $ 70,140 $ 63,408
In process and unreleased............. 14,609 --
Programming rights, net of amortization.... 178,318 134,521
Merchandise held for sale.................. 173,121 -- $145,975 $ --
Other...................................... 1,609
-------- -------- -------- --------
Total............................ $437,797 $197,929 $145,975 $ --
======== ======== ======== ========
The Company estimates that approximately 90% of unamortized film costs
(including amounts allocated under purchase accounting) at September 30, 1998
will be amortized within the next three years.
NOTE G -- PROGRAM RIGHTS AND FILM COSTS
As of September 30, 1998, the liability for program rights, representing future
payments to be made under program contract agreements amounted to $554.0
million. Annual payments required are $62.2 million for the remainder of 1998,
$176.8 million in 1999, $113.4 million in 2000, $66.9 million in 2001, $49.9
million in 2002 and $84.8 million in 2003 and thereafter. Amounts representing
interest are $250.3 million and the present value of future payments is $530.0
million.
As of September 30, 1998, the liability for film costs amounted to $91.6
million. Annual payments are $68.9 million in 1998 and $22.7 million in 1999.
Unrecorded commitments for program rights consist of programs for which the
license period has not yet begun or the program is not yet available to air. As
of September 30, 1998, the unrecorded commitments amounted to $664.3 million.
Annual commitments are $6.2 million for the remainder of 1998, $79.1 million in
1999, $129.0 million in 2000, $121.4 million in 2001, $104.4 million in 2002 and
$224.2 million in 2003 and thereafter.
NOTE H -- TRANSACTIONS WITH USAi AND SUBSIDIARIES
Advances to USAi and subsidiaries as of September 30, 1998 generally represent
net amounts transferred from the Company to USAi and its subsidiaries to fund
operations and other related items. Pursuant to the Investment Agreement, all
excess cash held at USAi and subsidiaries is transferred to the Company no less
frequently than monthly and the Company may transfer funds to USAi to satisfy
obligations of USAi and its subsidiaries. Under the Investment Agreement,
transfers of cash are evidenced by a demand note and accrue interest at the
Company's borrowing rate under the New Facility.
During the period ended September 30, 1998, net transfers totaling approximately
$172.0 million were made to repay USAi's existing revolving credit facility,
repay Ticketmaster's existing bank credit facility, fund a promissory note made
by USAi and fund the operations of USAi's broadcast operation, offset by
proceeds from the sale of SF Broadcasting and USAi's Baltimore television
F-92
246
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
station. The interest income earned on the net transfers for the period ended
September 30, 1998 was approximately $6.5 million.
In accordance with the Investment Agreement, certain transfers of funds between
the Company and USAi are not evidenced by a demand note and do not accrue
interest, primarily relating to the establishment of the operations of the
Company and to equity contributions.
USAi issued $500.0 million 6 3/4% Senior Notes (the "Notes") due 2005. Home
Shopping is a guarantor of the Notes. USANi LLC is a co-obligor of the Notes.
Substantially all of the significant subsidiaries of USANi LLC and substantially
all of the significant wholly owned subsidiaries of USAi (principally
subsidiaries engaged in the broadcasting and ticketing operations) have jointly
and severally guaranteed USAi's indebtedness. Certain subsidiaries of USANi LLC
do not guarantee the indebtedness.
F-93
247
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
USANi LLC
We have audited the accompanying consolidated balance sheets of USANi LLC and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, members' equity and cash flows for the year ended
December 31, 1997. Our audits also included the financial statement schedule
listed in the Index at Item 21(b). These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of USANi
LLC and subsidiaries at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
March 13, 1998 except for note O, as to which
the date is January 11, 1999
F-94
248
USANi LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
1997
---------------
(In thousands)
NET REVENUES................................................ $1,037,060
Operating costs and expenses:
Cost related to revenues.................................. 614,799
Selling and marketing..................................... 134,101
Engineering and programming............................... 81,028
General and administrative................................ 80,838
Other charges............................................. --
Depreciation and amortization............................. 65,152
----------
Total operating costs and expenses................ 975,918
----------
Operating income.................................. 61,142
Other income (expense):
Interest income........................................... 1,684
Interest expense.......................................... (4,464)
Miscellaneous............................................. (11,799)
Litigation settlements.................................... --
----------
(14,579)
----------
Earnings (loss) before income taxes......................... 46,563
Income tax (expense)/benefit................................ (30,308)
----------
NET EARNINGS (LOSS)......................................... $ 16,255
==========
The accompanying notes are an integral part of these financial statements.
F-95
249
USANi LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
DECEMBER 31,
------------------------
1997 1996
---------- ----------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents................................... $ 23,022 $ 16,274
Accounts and notes receivable, net of allowance of $2,177
and $2,291, respectively.................................. 39,044 33,868
Related party receivables................................... -- 4,713
Inventories, net............................................ 145,975 100,527
Deferred income taxes....................................... 24,975 26,941
Other current assets, net................................... 3,838 5,396
---------- ----------
Total current assets................................. 236,854 187,719
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 26,398 12,348
Buildings and leasehold improvements........................ 40,898 41,494
Furniture and other equipment............................... 16,525 16,264
---------- ----------
83,821 70,106
Less accumulated depreciation and amortization............ 12,479 437
---------- ----------
71,342 69,669
Land........................................................ 10,111 10,877
Projects in progress........................................ 10,617 980
---------- ----------
92,070 81,526
OTHER ASSETS
Intangible assets, net 1,163,597 1,184,930
Cable distribution fees, net ($46,459 and $40,892
respectively, to related parties)......................... 111,292 113,594
Advances to USAi............................................ -- 905
Long-term investments and receivables ($8,353 and $10,536
respectively in related parties).......................... 16,174 24,981
Deferred income taxes....................................... 28,919 35,103
Deferred charges and other, net............................. 4,969 7,622
---------- ----------
$1,653,875 $1,636,380
========== ==========
The accompanying notes are an integral part of these statements.
F-96
250
USANi LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
- --------------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY
- --------------------------------------------------------------------------------------
DECEMBER 31,
------------------------
1997 1996
---------- ----------
(In thousands)
CURRENT LIABILITIES
Accounts payable............................................ $ 80,105 $ 65,266
Investment subscription payable............................. -- 10,000
Cable distribution fees payable ($19,091 and $9,051,
respectively, to related parties)......................... 43,553 40,716
Other accrued liabilities................................... 71,875 68,339
---------- ----------
Total current liabilities......................... 195,533 184,321
OTHER LONG-TERM LIABILITIES................................. 33,678 61,084
ADVANCES FROM USAi.......................................... 16,302 --
MEMBERS' EQUITY
Members' equity............................................. 1,393,425 1,393,425
Retained earnings........................................... 16,510 255
Unearned compensation....................................... (1,573) (2,705)
---------- ----------
Total members' equity............................. 1,408,362 1,390,975
---------- ----------
$1,653,875 $1,636,380
========== ==========
The accompanying notes are an integral part of these statements.
F-97
251
USANi LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B
CONVERTIBLE ADDITIONAL UNEARNED
COMMON COMMON MEMBERS' PAID-IN RETAINED TREASURY COMPENSATION
STOCK STOCK EQUITY CAPITAL EARNINGS STOCK TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
INITIAL CAPITALIZATION OF
COMPANY DUE TO HOME
SHOPPING MERGER AS OF
DECEMBER 31, 1996.......... -- -- $1,393,425 -- $ 255 -- $(2,705) $1,390,975
-------- ---- ---------- -------- ------- -------- ------- ----------
Net earnings for the twelve
months ended December 31,
1997....................... -- -- -- -- 16,255 -- -- 16,255
Expense related to employee
equity participation plan.. -- -- -- -- -- -- 1,020 1,020
Expense related to executive
stock award program and
stock options.............. -- -- -- -- -- -- 112 112
-------- ---- ---------- -------- ------- -------- ------- ----------
BALANCE AT DECEMBER 31,
1997....................... -- -- $1,393,425 -- $16,510 -- $(1,573) $1,408,362
======== ==== ========== ======== ======= ======== ======= ==========
The accompanying notes are an integral part of these statements.
F-98
252
USANi LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 1997
-----------------
(In thousands)
Cash flows from operating activities:
Net earnings................................................ $ 16,255
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 45,222
Amortization of cable distribution fees................... 19,261
Deferred income taxes..................................... 13,202
Equity in losses of unconsolidated affiliates............. 12,492
Inventory carrying value adjustments...................... (8,059)
Gain on sale of controlling interest in joint venture..... --
(Gain)/Loss on sale of assets............................. (57)
Common stock and change in Stock Appreciation Rights
issued for services provided........................... 1,132
Provision for losses on accounts and notes receivables.... 114
Changes in current assets and liabilities:
Increase (decrease) in accounts receivable............. (5,290)
Increase (decrease) in inventories..................... (37,389)
Increase (decrease) in other current assets............ 1,558
(Increase) decrease in accounts payable................ 14,839
Increase (decrease) in accrued liabilities and income
taxes payable......................................... 6,373
(Increase) in cable distribution fees..................... (16,959)
(Increase) decrease in deferred and other................. (22,457)
Stock purchases for employee benefit plan................. --
----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... 40,237
----------
Cash flows from investing activities:
Capital expenditures, net................................. (27,742)
Increase in long-term investments......................... (26,979)
Increase in other non-current assets...................... 1,860
Advances on notes receivable.............................. --
Cash received from sale of controlling interest in joint
venture................................................ --
Proceeds from sale of assets.............................. 2,277
Proceeds from long-term notes receivable.................. 793
Increase in intangible assets............................. --
----------
NET CASH USED IN INVESTING ACTIVITIES............. (49,791)
----------
Cash flows from financing activities:
Intercompany liabilities.................................. 16,302
Borrowings from secured credit facility................... --
Principal payments on long-term obligations............... --
Net proceeds from issuance of Convertible Subordinated
Debentures............................................. --
Proceeds from issuance of common stock.................... --
Payments for purchase of treasury stock................... --
----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES....................................... 16,302
----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 6,748
Cash and cash equivalents at beginning of period.......... 16,274
----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 23,022
==========
The accompanying notes are an integral part of these statements.
F-99
253
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- COMPANY FORMATION, BUSINESS AND BASIS OF PRESENTATION
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"), which is a subsidiary of USA Networks, Inc. ("USAi"),
formerly known as HSN, Inc. At its formation, USAi and Home Shopping contributed
substantially all of the operating assets and liabilities of Home Shopping to
the Company in exchange for Class A shares in the Company.
The contribution of the operating assets and liabilities of Home Shopping was
treated similar to accounting for a pooling-of-interest for business
combinations, due to the common ownership of Home Shopping and USANi LLC. The
assets and liabilities were contributed at USAi's historic basis and are
presented as if USANi LLC was formed on December 31, 1996.
On December 20, 1996, the Company became a subsidiary of USAi as a result of a
merger (the "Home Shopping Merger").
The Home Shopping Merger has been accounted for using the purchase method of
accounting. The assets and liabilities of Home Shopping in the accompanying
balance sheets were adjusted as of December 31, 1996 to reflect their respective
fair values and the excess of the purchase price, including expenses, over the
fair value of net assets, was assigned to goodwill.
Given that equity interests in limited liability companies are not in the form
of common stock, earnings per share data is not presented.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the Company
consistently applied in the preparation of the accompanying consolidated
financial statements.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all wholly-owned and voting controlled subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Investments in which the Company owns a 20%, but not in excess of 50%, interest
and where it can exercise significant influence over the operations of the
investee, are accounted for using the equity method. All other investments are
accounted for using the cost method. The Company periodically evaluates the
recoverability of investments recorded under the cost method and recognizes
losses if a decline in value is determined to be other than temporary.
REVENUES
Revenues primarily consist of merchandise sales and are reduced by incentive
discounts and sales returns to arrive at net sales. Revenues are recorded for
credit card sales upon transaction authorization, and for check sales upon
receipt of customer payment, which does not vary significantly from the time
goods are shipped. Home Shopping's sales policy allows merchandise to be
returned at the customer's discretion within 30 days of the date of delivery.
Allowances for returned merchandise and other adjustments are provided based
upon past experience.
Revenues from all other sources are recognized either upon delivery or when the
service is provided.
F-100
254
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash and
short-term investments. Short-term investments consist primarily of U.S.
Treasury Securities, U.S. Government agencies and certificates of deposit with
original maturities of less than 91 days.
INVENTORIES, NET
Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out method. Cost includes freight, certain warehouse
costs and other allocable overhead. Market is determined on the basis of net
realizable value, giving consideration to obsolescence and other factors.
Inventories are presented net of an inventory carrying adjustment of $19.8
million and $27.9 million at December 31, 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including significant improvements, are recorded
at cost. Repairs and maintenance and any gains or losses on dispositions are
included in operations.
Depreciation and amortization is provided for on a straight-line basis to
allocate the cost of depreciable assets to operations over their estimated
service lives.
- ---------------------------------------------------------------------------------
DEPRECIATION/
ASSET CATEGORY AMORTIZATION PERIOD
- ---------------------------------------------------------------------------------
Computer and broadcast equipment............................ 3 to 13 Years
Buildings................................................... 30 to 40 Years
Leasehold improvements...................................... 4 to 20 Years
Furniture and other equipment............................... 3 to 10 Years
Depreciation and amortization expense on property, plant and equipment was $15.3
million for the year ended December 31, 1997.
LONG-LIVED ASSETS INCLUDING INTANGIBLES
The Company's accounting policy regarding the assessment of the recoverability
of the carrying value of long-lived assets, including property, plant and
equipment, goodwill and other intangibles is to review the carrying value of the
assets if the facts and circumstances suggest that they may be impaired. If this
review indicates that the carrying value will not be recoverable, as determined
based on the undiscounted future cash flows of the Company, the carrying value
is reduced to its estimated fair value.
CABLE DISTRIBUTION FEES
Cable distribution fees relate to upfront fees paid in connection with long term
cable contracts for carriage of Home Shopping's programming. These fees are
amortized to expense on a straight line basis over the terms of the respective
contracts, with original terms from 5 to 15 years. Amortization expense for
cable distribution fees was $19.3 million for the year ended December 31, 1997.
ADVERTISING
Advertising costs are expensed in the period incurred.
INCOME TAXES
Under Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes", deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
F-101
255
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled.
STOCK-BASED COMPENSATION
The Company is subject to Statement of Financial Accounting Standards No. 123
"Accounting and Disclosure of Stock-Based Compensation" ("SFAS 123"). As allowed
by SFAS 123, the Company accounts for stock-based compensation in accordance
with APB 25, "Accounting for Stock Issued to Employees." In cases where exercise
prices are less than fair value as of the grant date, compensation is recognized
over the vesting period.
Unaudited pro forma financial information, assuming that the Company had adopted
the measurement standards of SFAS 123, is included in Note N.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes thereto.
Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial
statements and notes include the inventory carrying adjustment, sales return
accrual, allowance for doubtful accounts, recoverability of intangibles and
other long-lived assets, and various other operating allowances and accruals.
RECENTLY ISSUED PRONOUNCEMENTS
During fiscal 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") were issued. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of financial statements. The Company
will adopt SFAS 130 as of the first quarter of 1998. SFAS 131 requires
disclosure of financial and descriptive information about an entity's reportable
operating segments under the "management approach" as defined in the Statement.
The Company will adopt SFAS 131 as of December 31, 1998. The impact of adoption
of these standards on the Company's financial statements is not expected to be
material.
NOTE C -- HOME SHOPPING MERGER
The Home Shopping Merger has been accounted for using the purchase method of
accounting. The purchase price, including expenses, of $1.2 billion has been
allocated to the assets and liabilities acquired based on their respective fair
values at the date of purchase. The fair value of the assets and
F-102
256
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities assumed are summarized below, along with the excess of the purchase
price, including expenses, over the fair value of net assets, which has been
assigned to goodwill:
- ---------------------------------------------------------------------------
HOME SHOPPING
- ---------------------------------------------------------------------------
(In
thousands)
Current assets.............................................. $ 192,000
Non-current assets.......................................... 257,000
Goodwill.................................................... 1,197,000
Current liabilities......................................... 198,000
Non-current liabilities..................................... 227,000
Goodwill is amortized using the straight-line method over 40 years.
NOTE D -- INTANGIBLE ASSETS
Intangible assets represents goodwill which is amortized using the straight-line
method over 40 years.
Goodwill primarily relates to the Company's acquisition by USAi and represents
the excess of purchase price over the fair value of assets acquired and is net
of accumulated amortization of $38.4 million and $4.1 million at December 31,
1997 and 1996, respectively.
NOTE E -- LONG-TERM INVESTMENTS AND NOTES RECEIVABLE
Investments accounted for under the equity method include the following; a 29%
interest in both Home Order Television GmbH & Co. KG ("HOT") and its general
partner (collectively the "HOT Interest") and a 30% interest in Jupiter Shop
Channel Co. Ltd. ("Shop Channel"). At December 31, 1997, the Company's net
investment in these ventures were $15.6 million. The HOT Interest is subject to
certain restrictions and other provisions regarding transferability.
The Company has other investments accounted for under the cost method totaling
$.6 million and $13.9 million at December 31, 1997 and 1996, respectively.
The Company has notes receivable of $.8 million and $1.6 million net of the
current portion of $.2 million at December 31, 1997 and 1996, respectively.
Certain notes receivable are collateralized by stock pledges and security
interests in all of the tangible and intangible assets in the investee companies
to the full extent permitted by law.
NOTE F -- INCOME TAXES
The Company was formed as a limited liability company on February 12, 1998 and
is treated as a partnership for income tax purposes. As such, the individual LLC
members are subject to federal and state taxes based on their allocated portion
of income and expenses and the Company is not subject to Federal and state
income taxation. However, for the years ended December 31, 1997 the Company and
its predecessor were subject to Federal and state taxation.
F-103
257
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of total income tax expense to the amounts computed by applying
the statutory federal income tax rate to earnings (loss) before income taxes is
shown as follows:
- ----------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
1997
- ----------------------------------------------------------------------------
(In thousands)
Income tax expense (benefit) at the federal statutory rate
of 35%.................................................... $16,297
Amortization of goodwill and other intangibles.............. 10,916
State income taxes, net of effect of federal tax benefit.... 1,064
Non-deductible portion of executive compensation............ --
Other, net.................................................. 2,031
-------
Income tax expense (benefit)................................ $30,308
=======
The components of income tax expense are as follows:
- ----------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
1997
- ----------------------------------------------------------------------------
(In thousands)
Current income tax expense:
Federal................................................... $15,088
State..................................................... 1,637
-------
Current income tax expense........................ 16,725
-------
Deferred income tax expense (benefit):
Inventory costing......................................... 3,446
Provision for accrued liabilities......................... 1,030
Depreciation for financial statements in (excess of) less
than tax............................................... 1,590
Amortization of goodwill and other intangibles............ 5,223
Net operating loss carryover.............................. 1,561
(Decrease) increase in valuation allowance for deferred
tax assets............................................. 1,320
Other, net................................................ (587)
-------
Deferred income tax expense (benefit)............. 13,583
-------
Total income tax expense (benefit)................ $30,308
=======
F-104
258
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of cumulative temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996, respectively, are presented below. The valuation
allowance represents items for which it is more likely than not that the tax
benefit will not be realized.
- -------------------------------------------------------------------------------
DECEMBER 31,
-----------------
1997 1996
- -------------------------------------------------------------------------------
(In thousands)
Current deferred tax assets:
Inventory costing......................................... $ 6,348 $ 9,794
Provision for accrued expenses............................ 6,074 5,265
Other..................................................... 12,553 11,882
------- -------
Total current deferred tax assets................. $24,975 $26,941
======= =======
Non-current deferred tax assets (liabilities):
Broadcast and cable fee contracts......................... $19,833 $22,063
Other..................................................... 22,254 19,638
------- -------
Total non-current deferred tax assets............. 42,087 41,701
Less valuation allowance.......................... (3,061) (1,741)
------- -------
Net non-current deferred tax assets............... $39,026 $39,960
Deferred tax liabilities:
Depreciation for tax in excess of financial statements.... (6,447) (4,857)
------- -------
Net non-current deferred tax assets............... $32,579 $35,103
======= =======
At December 31, 1997, there were no remaining NOL's.
During 1997, the Internal Revenue Service ("IRS") completed the examination of
Home Shopping's federal income tax returns for fiscal years 1992 through 1994
and assessed Home Shopping additional income tax plus interest. Home Shopping
filed a protest with the IRS regarding the assessment. The protest is currently
pending review by the IRS Appeals Office. Management believes the ultimate
resolution of any tax audits will not have a significant impact on the Company's
consolidated financial statements.
NOTE G -- COMMITMENTS AND CONTINGENCIES
The Company leases satellite transponders, computers, warehouse and office
space, as well as broadcast and production facilities, equipment and services
used in connection with its operations under various operating leases and
contracts, many of which contain escalation clauses.
F-105
259
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under non-cancellable agreements are as follows:
- ----------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
- ----------------------------------------------------------------------------
(In thousands)
1998........................................................ $ 28,925
1999........................................................ 27,583
2000........................................................ 27,665
2001........................................................ 28,589
2002........................................................ 21,318
Thereafter.................................................. 6,683
--------
$140,763
========
Expenses charged to operations under these agreements were $20.0 million for the
year ended December 31, 1997.
The Company is required to provide funding, from time to time, for the
operations of its investments in joint ventures accounted for under the equity
method.
Estimated costs related to pending and settled litigation for the year ended
December 31, 1995 totaled $6.4 million. In 1996, actual settlement costs related
to the pending matters were less than the original estimate, resulting in a
credit of $2.1 million.
NOTE H -- LITIGATION
In the ordinary course of business, the Company is engaged in various lawsuits.
In the opinion of management, the ultimate outcome of the various lawsuits
should not have a material impact on the liquidity, results of operations or
financial condition of the Company.
NOTE I -- BENEFIT PLANS
The Company offers various plans pursuant to Section 401(k) of the Internal
Revenue Code (the "Plans") covering substantially all full-time employees who
are not party to collective bargaining agreements. The Company's share of the
matching employer contributions is set at the discretion of the Board of
Directors or the applicable committee thereof.
The Company adopted the Home Shopping Network, Inc. Employee Equity
Participation Plan (the "Equity Plan") in 1994. The Equity Plan covers all Home
Shopping employees who have completed one year and at least 1,000 hours of
service, are at least 21 years of age, are not highly compensated as defined in
the Equity Plan agreement, and did not hold options to purchase shares of Home
Shopping Common Stock. The Board of Directors has not made any additional grants
under the Equity Plan for any period subsequent to June 30, 1995.
F-106
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USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
- ----------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
1997
- ----------------------------------------------------------------------------
(In thousands)
CASH PAID DURING THE PERIOD FOR:
Interest.................................................. $5,875
Income tax payments....................................... 6,339
Income tax refund......................................... 5,732
NOTE K -- RELATED PARTY TRANSACTIONS
Certain corporate overhead costs were allocated to the Company based upon
managements estimation of the fair value of these services. Amounts charged in
1997 were $7.4 million.
As of December 31, 1997, the Company was involved in several agreements with
related parties as follows:
The Company is a partner in Shop Channel, an entity in which TCI, through a
subsidiary, has an indirect ownership interest. In the ordinary course of
business, Home Shopping has sold inventory to Shop Channel and recorded
receivables of $.8 million and $.7 million for those sales and other services
provided at December 31, 1997 and 1996, respectively. The Company's net
investment in Shop Channel was $2.5 million and $.5 million at December 31, 1997
and 1996, respectively.
In the normal course of business, the Company enters into agreements with the
operators of cable television systems and operators of broadcast television
stations for the carriage of Home Shopping programming. The Company has entered
into agreements with a number of cable operators that are affiliates of TCI.
These long-term contracts provide for a minimum subscriber guarantee and
incentive payments based on the number of subscribers. Cash paid by the Company
to TCI and certain of its affiliates under these contracts for cable commissions
and advertising was $9.4 million, $7.9 million for calendar year 1997.
Home Shopping has affiliation agreements with SilverKing Broadcasting ("SKC") a
wholly owned subsidiary which provide for SKC's broadcast television stations to
air Home Shopping's programming on a full-time basis. Expense related to
affiliation agreements with SKC for the year ended December 31, 1997 was $41.7
million.
As of December 31, 1997, SKTV, Inc. a wholly-owned subsidiary of USAi, the
Company's parent, owned a 33.4% membership interest in Blackstar. The Company
currently maintains broadcast affiliation agreements with stations for which
Blackstar is the parent company. The Company recorded affiliation payments of
$4.8 million for calendar year 1997.
NOTE L -- STOCK OPTION PLANS
In connection with the Home Shopping Merger, the options granted by the Company
under various stock option plans were converted at the date of the merger to
options in USAi.
The following is a discussion of the USAi Stock Option Plans which relate to
employees who provide services to the Company.
USAi has various stock option plans (the "Plans") under which options to
purchase USAi Common Stock (at not less than fair market value on the date of
the grant) may be granted to employees of
F-107
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USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company. The options under the Plans vest ratably, generally over a range of
three to five years from the date of grant and generally expire not more than 10
years from the date of grant. Three of the Plans have options available for
future grants.
USAi also has outstanding options to outside directors under one plan (the
"Directors Plan") which provides for the grant of options to purchase USAi
Common Stock at not less than fair market value on the date of the grant. The
options under the Directors Plan vest ratably, generally over three years from
the date of grant and expire not more than 10 years from the date of grant.
A summary of changes in outstanding options under the stock option plans with
respect to employees and/or directors of the Company is as follows:
DECEMBER 31,
-----------------
1997
-----------------
PRICE
SHARES RANGE
------- ------
Outstanding at beginning of period.......................... 16,299 $ 1-74
Granted or issued in connection with mergers.............. 11,580 $10-19
Exercised................................................. (968) $ 1-16
Cancelled................................................. (548) $ 5-74
Options transferred to employees and outside directors of
USAi................................................... 6,573 $ 1-16
------
Outstanding at end of period................................ 32,936 $ 1-74
------
------
Options exercisable......................................... 10,840
------
------
Available for grant......................................... 12,192
------
------
The weighted average exercise prices during the year ended December 31, 1997 was
$18.77, $7.40 and $14.69 for options granted, exercised and cancelled,
respectively. The weighted average fair value of options granted during the year
was $11.81.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
OUTSTANDING AT WEIGHTED WEIGHTED EXERCISABLE AT WEIGHTED
DECEMBER 31, AVERAGE REMAINING AVERAGE DECEMBER 31, AVERAGE
RANGE OF EXERCISE PRICE 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
- ----------------------- -------------- ----------------- -------------- -------------- --------------
(in
(in thousands) thousands)
$1.00 to $5.00............... 170 3.3 $ 3.12 170 $ 3.12
$5.01 to $10.00.............. 14,430 7.9 9.42 7,305 9.40
$10.01 to $15.00............. 5,622 7.8 11.50 2,401 11.56
$15.01 to $20.00............. 12,629 9.5 18.63 879 15.64
Over $20.00.................. 85 4.3 44.57 85 44.57
------ ------
32,936 8.4 13.36 10,840 10.56
====== ======
USAi has not issued options to any of the Company's employees and/or directors
with an exercise price below fair market value. Accordingly, in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees", no compensation cost has been charged to the Company by USAi.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The information is determined as if the Company has accounted for
its employee stock options granted subsequent to December 31, 1994 under the
fair market value method for the Transferred Employees and Directors. The fair
value for these options was estimated at the date of grant using a Black-
F-108
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USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scholes option pricing model with the following weighted-average assumptions for
1997 and periods prior to 1997: risk-free interest rate of 5.5% and 6.4%,
respectively; a dividend yield of zero; a volatility factor of .713 and .0057,
respectively, based on the expected market price of USAi Common Stock based on
historical trends; and a weighted-average expected life of the options of five
years.
The Black-Scholes option valuation model was developed for use in estimating the
fair market value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair market value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
YEARS ENDED
DECEMBER 31,
1997
------------
(in
thousands)
Pro forma net earnings (loss)............................... $(1,677)
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years.
NOTE M -- FINANCIAL INSTRUMENTS
The additional disclosure below of the estimated fair value of financial
instruments was made in accordance with the requirements of Statements of
Financial Accounting Standards No. 107. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies when available. The carrying value of all
current assets and current liabilities approximates fair value due to their
short-term nature.
DECEMBER 31, 1997
--------------------
- ----------------------------------------------------------------------------------
CARRYING FAIR
AMOUNT VALUE
- ----------------------------------------------------------------------------------
(In thousands)
Cash and cash equivalents................................... $ 23,022 $ 23,022
Long-term investments....................................... 16,174 16,174
NOTE N -- SUBSEQUENT EVENTS (UNAUDITED)
On February 12, 1998, USANi LLC acquired USA Networks, a New York general
partnership, consisting of cable television networks, USA Network and The Sci-Fi
Channel ("Networks"), as well as the domestic television production and
distribution businesses of Universal Studios ("Studios USA") from Universal
Studios, Inc. ("Universal"), an entity controlled by The Seagram Company Ltd.
("Seagram") (the "Universal Transaction").
In connection with the Universal Transaction, USANi LLC paid Universal
approximately $4.1 billion in the form of a cash payment of approximately $1.6
billion, a portion of which ($300 million plus interest) was deferred until no
later than June 30, 1998, and an effective 45.8% interest in USAi
F-109
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USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
through shares of common stock, par value $.01 per share, of USAi (the "USAi
Common Stock") and Class B common stock, par value $.01 per share, of USAi (the
"USAi Class B Common Stock"), and Class B USANi LLC Shares exchangeable (subject
to regulatory restrictions) into shares of USAi Common Stock and USAi Class B
Common Stock.
The Investment Agreement, as amended and restated as of December 18, 1997, among
USAi, Home Shopping, Universal and Liberty Media Corporation ("Liberty") (the
"Investment Agreement"), relating to the Universal Transaction also contemplated
that, on or prior to June 30, 1998, USANi LLC and Liberty, a subsidiary of
Tele-Communications, Inc. ("TCI"), would complete a transaction involving a $300
million cash investment, plus an interest factor, by Liberty in USAi and/or
USANi LLC through the purchase of USAi Common Stock or Class C USANi LLC Shares.
The transaction closed on June 30, 1998 with Liberty making a cash payment of
$308.5 million in exchange for 15,000,000 Class C USANi LLC Shares.
On February 12, 1998, USAi, and certain of its subsidiaries, including USANi LLC
as borrower, entered into a new $1.6 billion credit facility (the "New
Facility") with a $40.0 million sub-limit for letters of credit. The New
Facility was used to finance the Universal Transaction and to refinance USAi
debt. The New Facility consists of a $600.0 million revolving credit facility, a
$750.0 million "Tranche A Term Loan" and a $250.0 million "Tranche B Term Loan".
On August 5, 1998, USAi repaid the Tranche B Term Loan in its entirety. On
November 23, 1998, USAi repaid $500.0 million of the Tranche A Term Loan. The
revolving credit facility and Tranche A Term Loan mature on December 31, 2002.
The New Facility is guaranteed by, and secured by stock in, substantially all of
the USAi's material subsidiaries. The interest rate on borrowings under the New
Facility is tied to an alternate base rate or the London InterBank Rate, in each
case, plus an applicable margin.
In February 1998, USAi entered into a letter of intent to acquire the remaining
outstanding interest in Blackstar for $17.0 million. In March 1998, Blackstar
agreed to sell a television broadcasting station in Salem, Oregon for $30.0
million. Home Shopping agreed to terminate its affiliation agreement with the
Salem, Oregon station, as well as affiliation agreements with two other
stations, for the payment of $15.0 million.
NOTE O -- NOTES OFFERING AND GUARANTEES
On November 23, 1998, the Company issued $500.0 million 6 3/4% Senior Notes due
2005 (the "Notes" and "Notes Offering") with USAi, as joint and several
co-obligors. The Notes are jointly and severally guaranteed by substantially all
subsidiaries of the Company and certain wholly and non-wholly owned subsidiaries
of USAi, including Home Shopping.
Full financial statements of the Guarantors have not been included because,
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to the Notes. Management does not believe that the
information contained in full financial statements of the Guarantors would be
material to investors. See the USAi December 31, 1997 financial statements for
summarized statements setting forth certain financial information concerning
Guarantor and Non-Guarantor Subsidiaries.
F-110
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USANi LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1998 1997
---- ----
(In thousands)
NET REVENUES
Networks and television production........................ $ 757,305 $--
Electronic retailing...................................... 776,417 743,893
Internet services......................................... 14,467 8,511
---------- --------
Total net revenues................................ 1,548,189 752,404
---------- --------
Operating costs and expenses:
Cost related to revenues.................................. 482,030 444,035
Program costs............................................. 408,948 --
Other costs............................................... 383,387 214,058
Depreciation and amortization............................. 125,952 48,516
---------- --------
Total operating costs and expenses................ 1,400,317 706,609
---------- --------
Operating income.................................. 147,872 45,795
---------- --------
Other income (expense):
Interest income........................................... 12,874 1,342
Interest expense.......................................... (77,641) (3,425)
Miscellaneous............................................. (16,273) (9,299)
---------- --------
(81,040) (11,382)
---------- --------
Earnings before income taxes................................ 66,832 $ 34,413
Income tax expense.......................................... (4,646) (23,082)
---------- --------
NET EARNINGS................................................ $ 62,186 $ 11,331
========== ========
The accompanying notes are an integral part of these statements.
F-111
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USANi LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ---------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents................................. $ 125,245 $ 23,022
Accounts and notes receivable, net of allowance of $14,819
and $2,177, respectively................................ 230,157 39,044
Inventories, net.......................................... 437,797 145,975
Other current assets, net................................. 40,896 28,813
---------- ----------
Total current assets............................ 834,095 236,854
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment.......................... 65,321 26,398
Buildings and leasehold improvements...................... 52,032 40,898
Furniture and other equipment............................. 44,161 16,525
---------- ----------
161,514 83,821
Less accumulated depreciation and amortization.......... (34,769) (12,479)
---------- ----------
126,745 71,342
Land...................................................... 10,123 10,111
Projects in progress...................................... 16,167 10,617
---------- ----------
153,035 92,070
OTHER ASSETS
Intangible assets, net.................................... 5,243,669 1,163,597
Cable distribution fees, net ($41,765 and $46,459,
respectively, to related parties)....................... 97,596 111,292
Long-term investments and receivables ($7,763 and $8,353,
respectively, in related parties)....................... 137,673 16,174
Inventories, net.......................................... 197,929 --
Advances to USAi and subsidiaries......................... 135,605 --
Deferred charges and other, net........................... 107,941 33,888
---------- ----------
$6,907,543 $1,653,875
========== ==========
The accompanying notes are an integral part of these statements.
F-112
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USANi LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ----------------------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY
- ----------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------- ----------
(In thousands)
CURRENT LIABILITIES
Current maturities of long-term debt........................ $ 60,341 $ --
Accounts payable............................................ 140,971 80,105
Obligations for program rights and film costs............... 275,362 --
Cable distribution fees payable ($18,578 and $19,091,
respectively, to related parties)......................... 28,862 43,553
Obligation for makegoods.................................... 36,464 --
Deferred revenue............................................ 33,836 --
Other accrued liabilities................................... 168,197 71,875
---------- ----------
Total current liabilities......................... 744,033 195,533
LONG-TERM DEBT (net of current maturities).................. 704,266 --
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 346,251 --
OTHER LONG-TERM LIABILITIES................................. 19,983 33,678
ADVANCES FROM USAi.......................................... -- 16,302
MEMBERS' EQUITY
Class A (125,508,399 Shares)................................ 1,765,272 1,393,425
Class B (135,395,543 Shares)................................ 2,771,474 --
Class C (22,887,354 Shares)................................. 466,252 --
Retained earnings........................................... 78,696 16,510
Unrealized gain on available for sale securities............ 12,889 --
Unearned compensation....................................... (1,573) (1,573)
---------- ----------
Total members' equity............................. 5,093,010 1,408,362
---------- ----------
$6,907,543 $1,653,875
========== ==========
The accompanying notes are an integral part of these statements.
F-113
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USANi LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF MEMBERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
LLC LLC LLC RETAINED UNREALIZED UNEARNED
TOTAL SHARES SHARES SHARES EARNINGS GAINS COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
CONTRIBUTION OF EQUITY EFFECTIVE AT
JANUARY 1, 1998.................. $1,408,362 $1,393,425 -- -- $ 16,510 -- $(1,573)
Comprehensive Income:
Net earnings for the nine months
ended September 30, 1998....... 62,186 -- -- -- 62,186 -- --
Increase in unrealized gains in
available for sale
securities..................... 12,889 -- -- -- -- 12,889 --
----------
Comprehensive
income.................... 75,075
----------
LLC Shares issued on February 12,
1998 in connection with Universal
Transaction...................... 2,514,548 277,898 2,236,650 -- -- -- --
Other LLC Shares issued............ 1,095,025 93,949 534,824 466,252 -- -- --
---------- ---------- ---------- -------- -------- ------- -------
BALANCE AT SEPTEMBER 30, 1998...... $5,093,010 $1,765,272 $2,771,474 $466,252 $ 78,696 $12,889 $(1,573)
========== ========== ========== ======== ======== ======= =======
The accompanying notes are an integral part of these statements.
F-114
268
USANi LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
---- ----
(In thousands)
Cash flows from operating activities:
Net earnings................................................ $ 62,186 $11,331
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 109,872 33,635
Amortization of cable distribution fees................... 15,883 14,375
Amortization of program rights and film costs............. 356,219 --
Deferred income taxes..................................... -- 8,929
Equity in losses of unconsolidated affiliates............. 16,097 9,638
Non-cash interest expense................................. 4,800 --
Changes in current assets and liabilities:
Accounts receivable.................................... (82,380) (1,520)
Inventories............................................ (72,526) (49,584)
Accounts payable....................................... 39,633 31,535
Accrued liabilities.................................... 41,785 (44,342)
Payment for program rights and film costs................. (335,005) --
Other, net................................................ (35,844) 1,728
----------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 120,720 15,725
----------- -------
Cash flows from investing activities:
Acquisition of Universal Transaction, net of cash
acquired............................................... (1,297,233) --
Capital expenditures, net................................. (34,468) (21,246)
Increase in long-term investments......................... (22,542) (13,048)
Payment of merger and financing costs..................... (20,855) --
Other, net................................................ (4,065) (211)
----------- -------
NET CASH USED IN INVESTING ACTIVITIES............. (1,379,163) (34,505)
----------- -------
Cash flows from financing activities:
Advances (to)/from USAi................................... (185,227) 14,784
Borrowings................................................ 1,741,380 --
Principal payments on long-term obligations............... (990,512) --
Proceeds from issuance of LLC Shares...................... 795,025 --
----------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 1,360,666 14,784
----------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 102,223 (3,996)
Cash and cash equivalents at beginning of period.......... 23,022 16,274
----------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 125,245 $12,278
=========== =======
The accompanying notes are an integral part of these statements.
F-115
269
USANi LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- COMPANY FORMATION, BUSINESS 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"), which is a subsidiary of USA Networks, Inc. formerly known as
HSN, Inc. ("USAi"). At its formation, USAi and Home Shopping contributed
substantially all of the operating assets and liabilities of Home Shopping to
the Company in exchange for Class A LLC Shares in the Company.
On February 12, 1998, the Company acquired USA Networks, a New York general
partnership, consisting of cable television networks, USA Network and The Sci-Fi
Channel ("Networks"), as well as the domestic television production and
distribution businesses of Universal Studios ("Studios USA") from Universal
Studios, Inc. ("Universal"), an entity controlled by The Seagram Company Ltd.
("Seagram") (the "Universal Transaction") -- See Note C.
In connection with the Universal Transaction, the Company paid Universal
approximately $4.1 billion in the form of a cash payment of approximately $1.6
billion, a portion of which ($300 million plus interest) was deferred until no
later than June 30, 1998, and an effective 45.8% interest in USAi through shares
of common stock, par value $.01 per share, of USAi (the "USAi Common Stock") and
Class B common stock, par value $.01 per share, of USAi (the "USAi Class B
Common Stock"), and Class B LLC Shares exchangeable (subject to regulatory
restrictions) into shares of USAi Common Stock and USAi Class B Common Stock.
The Investment Agreement, as amended and restated as of December 18, 1997, among
USAi, Home Shopping, Universal and Liberty Media Corporation ("Liberty") (the
"Investment Agreement"), relating to the Universal Transaction also contemplated
that, on or prior to June 30, 1998, the Company and Liberty, a subsidiary of
Tele-Communications, Inc. ("TCI"), would complete a transaction involving a $300
million cash investment, plus an interest factor, by Liberty in USAi and/or the
Company through the purchase of USAi Common Stock or Class C LLC Shares. The
transaction closed on June 30, 1998 with Liberty making a cash payment of $308.5
million in exchange for 15,000,000 Class C LLC Shares.
COMPANY BUSINESS
The Company is a holding company, the subsidiaries of which are engaged in
diversified media and electronic commerce businesses.
The three principal areas of business are:
- NETWORKS AND TELEVISION PRODUCTION, which includes Networks and Studios
USA. Networks operates the USA Network and The Sci-Fi Channel cable
networks and Studios USA produces and distributes television programming.
- ELECTRONIC RETAILING, which consists primarily of the Home Shopping
Network and America's Store which are engaged in the electronic retailing
business.
- INTERNET SERVICES, which represents the Company's on-line retailing
networks business.
BASIS OF PRESENTATION
The contribution of assets by USAi and Home Shopping to the Company was
accounted for in the accompanying consolidated financial statements in a manner
similar to the pooling-of-interests for
F-116
270
USANi LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
business combinations due to the common ownership of Home Shopping and USANi
LLC. Accordingly, the assets and liabilities were transferred to the LLC at Home
Shopping's historical cost.
The interim Condensed Consolidated Financial Statements of the Company are
unaudited and should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto for the year ended December 31, 1997.
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.
The Condensed Consolidated Financial Statements include the operations of
Networks and Studios USA from the date of acquisition on February 12, 1998.
Given that equity interests in limited liability companies are not in the form
of common stock, earnings per share data is not presented.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and
all wholly-owned and voting-controlled subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Investments in which the Company owns a 20%, but less than a controlling voting
interest and where it can exercise significant influence over the operations of
the investee, are accounted for using the equity method. All other investments
are accounted for using the cost method. The Company periodically evaluates the
recoverability of investments recorded under the cost method and recognizes
losses if a decline in value is determined to be other than temporary.
REVENUE RECOGNITION
Networks and Television Production
Television Production revenues are recognized as completed episodes are
delivered. Generally, television programs are first licensed for network
exhibition and foreign syndication, and subsequently for domestic syndication,
cable television and home video. Certain television programs are produced and/or
distributed directly for initial exhibition by local television stations,
advertiser-supported cable television, pay television and/or home video.
Television Production advertising revenues (i.e., sales of advertising time
received by Studios USA in lieu of cash fees for the licensing of program
broadcast rights to a broadcast station ("barter syndication")) are recognized
upon both the commencement of the license period of the program and the sale of
advertising time pursuant to non-cancellable agreements, provided that the
program is available for its first broadcast. Foreign minimum guaranteed amounts
are recognized as revenues on the date of the license agreement, provided the
program is available for exhibition.
F-117
271
USANi LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Networks advertising revenue is recognized in the period in which the
advertising commercials are aired on cable networks. Provisions are recorded
against advertising revenues for audience under deliveries ("makegoods").
Affiliate fees are recognized in the period during which the programming is
provided.
FILM COSTS
Film costs consist of direct production costs and production overhead, less
accumulated amortization. Development roster (and related costs) and abandoned
story and development costs are charged to production overhead. Film costs are
stated at the lower of unamortized cost or estimated net realizable value on a
production-by-production basis.
Generally, the estimated ultimate costs of completed television productions are
amortized, and participation expenses are accrued, for each production in the
proportion that current period revenue recognized bears to the estimated future
revenue to be received from all sources. Amortization and accruals are made
under the individual film forecast method. Estimated ultimate revenues and costs
are reviewed quarterly and revisions to amortization rates or write-downs to net
realizable value are made as required.
Film costs, net of amortization, classified as current assets include the
portion of unamortized costs of television program productions allocated to
network, first-run syndication and initial international distribution markets.
The allocated portion of released film costs expected to be recovered from
secondary markets or other exploitation is reported as a noncurrent asset. Other
costs relating to television productions, such as television program development
costs, in-process productions and the television program library, are classified
as noncurrent assets.
PROGRAM RIGHTS
License agreements for program material are accounted for as a purchase of
program rights. The asset related to the program rights acquired and the
liability for the obligation incurred are recorded at their net present value
when the license period begins and the program is available for its initial
broadcast. The asset is amortized primarily based on the estimated number of
airings. Amortization is computed generally on the straight-line basis as
programs air; however, when management estimates that the first airing of a
program has more value than subsequent airings, an accelerated method of
amortization is used. Other costs related to programming, which include program
assembly, commercial integration and other costs, are expensed as incurred.
Management periodically reviews the carrying value of program rights and records
write-offs, as warranted, based on changes in programming usage.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The new rules
establish standards for the reporting of comprehensive income and its components
in financial statements. Comprehensive income consists of net income and other
gains and losses affecting members' equity that, under generally accepted
accounting principles, are excluded from net income. For the Company, such items
consist of unrealized gains and losses on marketable equity investments.
F-118
272
USANi LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes thereto.
Actual results could differ from those estimates.
Significant estimates underlying the accompanying Consolidated Financial
Statements and Notes include the inventory carrying adjustment, sales return
accrual, allowance for doubtful accounts, recoverability of intangibles and
other long-lived assets, management's forecast of anticipated revenues from the
distribution of television product in order to evaluate the ultimate
recoverability of film inventory and amortization of program usage.
RECENTLY ISSUED PRONOUNCEMENTS
During fiscal 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") was issued. SFAS 131 requires disclosure of financial and descriptive
information about an entity's reportable operating segments under the
"management approach" as defined in the Statement. The Company will adopt SFAS
131 as of December 31, 1998. The impact of adoption of this standard on the
Company's financial statements is not expected to be material.
NOTE C -- BUSINESS ACQUISITIONS
The Universal Transaction has been accounted for using the purchase method of
accounting. The purchase price of approximately $4.1 billion including expenses,
has been preliminarily allocated to the assets acquired and liabilities assumed
based on their respective fair values at the date of purchase. The fair value of
the assets acquired and liabilities assumed are summarized below, along with the
excess of the purchase price, including expenses, over the fair value of net
assets, which has been assigned to goodwill.
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $ 431,955
Non-current assets.......................................... 329,549
Goodwill.................................................... 4,157,720
Current liabilities......................................... 408,254
Non-current liabilities..................................... 395,439
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USANi LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The following unaudited pro forma consolidated financial information for the
nine months ended September 30, 1998 and 1997, is presented to reflect the
results of the Company as if the Universal Transaction occurred at the beginning
of each of the periods presented. The pro forma results include certain
adjustments, including increased amortization related to goodwill, the reduction
of programming costs for fair value adjustments related to purchase accounting
and the elimination of intercompany revenues and expenses, and are not
necessarily indicative of what the results would have been had the Universal
Transaction actually occurred on the aforementioned dates.
- ---------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------
(In thousands)
Net revenues................................................ $1,705,553 $1,530,115
Net earnings................................................ 78,383 17,881
NOTE D -- MEMBERS' EQUITY
In connection with the Universal Transaction, the Company was formed through the
authorization and issuance of three classes of shares, Class A LLC Shares, Class
B LLC Shares and Class C LLC Shares. In return for LLC Shares (i) USAi (and
certain of its subsidiaries) contributed its assets and liabilities related to
its Electronic retailing and Internet services businesses and (ii) Universal
(and certain of its subsidiaries) contributed Networks and Studios USA. On June
30, 1998, and in connection with the Universal Transaction, Liberty purchased
15,000,000 LLC Shares for $308.5 million. USAi, Universal and Liberty (and their
respective subsidiaries) are collectively referred to herein as the "Members".
In connection with various equity transactions at USAi, Universal completed its
mandatory purchase obligation in exchange for total consideration of $539.5
million in the form of $234.8 million in cash and $304.5 million applied against
the deferred purchase obligations (including accrued interest.)
Liberty exercised certain of its preemptive rights and acquired 4,697,450 shares
of USAi Common Stock in exchange for $93.9 million. USAi contributed $93.9
million to the LLC in exchange for 4,697,450 Class A LLC Shares. In addition,
Liberty exercised certain of its preemptive rights and acquired 7,887,354 Class
C LLC in exchange for $157.7 million in cash.
Each of the classes of the LLC Shares are identical in all material respects.
The business and affairs of the Company are managed by Mr. Barry Diller and USAi
in accordance with the Governance Agreement among USAi, Universal, Liberty and
Mr. Diller.
By various methods, Universal and Liberty hold the right, from time to time, to
exchange Class B LLC Shares and Class C LLC Shares of the Company for either
USAi Common Stock or USAi Class B Common Stock.
NOTE E -- CREDIT FACILITY
On February 12, 1998, the Company entered into a new $1.6 billion credit
facility (the "New Facility") with a $40.0 million sub-limit for letters of
credit. The New Facility was used to finance the Universal Transaction and to
refinance USAi's existing revolving credit facility. The New Facility consists
of a $600.0 million revolving credit facility, a $750.0 million Tranche A Term
Loan and a $250.0 million Tranche B Term Loan. On August 5, 1998, the Company
repaid the Tranche B Term Loan in its entirety. The revolving credit facility
and Tranche A Term Loan mature on December 31,
F-120
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USANi LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
2002. The New Facility is guaranteed by substantially all of USAi's material
subsidiaries. The interest rate on borrowings under the New Facility is tied to
an alternate base rate or the London InterBank Rate, in each case, plus an
applicable margin. The interest rate under the New Facility was 6.62% at
September 30, 1998. As of September 30, 1998, there was $750.0 million in
outstanding borrowings under the New Facility and $599.9 million was available
for borrowing after taking into account outstanding letters of credit.
NOTE F -- CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998:
- ----------------------------------------------------------------------------
(In thousands)
ACQUISITION OF NETWORKS AND STUDIOS USA
Acquisition price.................................... $ 4,115,531
Less: Amount paid in cash............................ (1,300,983)
-----------
Total non-cash consideration......................... $ 2,814,548
===========
Components of non-cash consideration:
Deferred purchase price liability.................... $ 300,000
Issuance of USAi Common Shares and USAi Class B
Shares.............................................. 277,898
Issuance of USANi LLC Shares......................... 2,236,650
-----------
$ 2,814,548
===========
Exchange of Class B USANi LLC Shares for Deferred
Purchase Price Liability.............................. $ 304,636
===========
During the period ended September 30, 1998, the Company acquired computer
equipment through a capital lease totaling $15.5 million.
NOTE G -- INVENTORIES
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
---------------------- ----------------------
INVENTORIES CONSIST OF CURRENT NONCURRENT CURRENT NONCURRENT
- ---------------------------------------------------------------------------------------------
(In thousands)
Film costs:
Released, less amortization........... $ 70,140 $ 63,408
In process and unreleased............. 14,609 --
Programming rights, net of amortization.... 178,318 134,521
Merchandise held for sale.................. 173,121 -- $145,975 $ --
Other...................................... 1,609
-------- -------- -------- --------
Total............................ $437,797 $197,929 $145,975 $ --
======== ======== ======== ========
The Company estimates that approximately 90% of unamortized film costs
(including amounts allocated under purchase accounting) at September 30, 1998
will be amortized within the next three years.
F-121
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USANi LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE H -- PROGRAM RIGHTS AND FILM COSTS
As of September 30, 1998, the liability for program rights, representing future
payments to be made under program contract agreements amounted to $554.0
million. Annual payments required are $62.2 million for the remainder of 1998,
$176.8 million in 1999, $113.4 million in 2000, $66.9 million in 2001, $49.9
million in 2002 and $84.8 million in 2003 and thereafter. Amounts representing
interest are $250.3 million and the present value of future payments is $530.0
million.
As of September 30, 1998, the liability for film costs amounted to $91.6
million. Annual payments are $68.9 million in 1998 and $22.7 million in 1999.
Unrecorded commitments for program rights consist of programs for which the
license period has not yet begun or the program is not yet available to air. As
of September 30, 1998, the unrecorded commitments amounted to $664.3 million.
Annual commitments are $6.2 million for the remainder of 1998, $79.1 million in
1999, $129.0 million in 2000, $121.4 million in 2001, $104.4 million in 2002 and
$224.2 million in 2003 and thereafter.
NOTE I -- TRANSACTIONS WITH USAi AND SUBSIDIARIES
Advances to USAi and subsidiaries as of September 30, 1998 generally represent
net amounts transferred from the Company to USAi and its subsidiaries to fund
operations and other related items. Pursuant to the Investment Agreement, all
excess cash held at USAi and subsidiaries is transferred to the Company no less
frequently than monthly and the Company may transfer funds to USAi to satisfy
obligations of USAi and its subsidiaries. Under the Investment Agreement,
transfers of cash are evidenced by a demand note and accrue interest at the
Company's borrowing rate under the New Facility.
During the period ended September 30, 1998, net transfers totaling approximately
$172.0 million were made to repay Home Shopping's existing revolving credit
facility, repay Ticketmaster's existing bank credit facility, fund a promissory
note made by USAi and fund the operations of USAi's broadcast operation, offset
by proceeds from the sale of SF Broadcasting and USAi's Baltimore television
station. The interest incurred on the net transfers for the period ended
September 30, 1998 was approximately $6.5 million.
In accordance with the Investment Agreement, certain transfers of funds between
the Company and USAi are not evidenced by a demand note and do not accrue
interest, primarily relating to the establishment of the operations of the
Company.
NOTE J -- NOTES OFFERING AND GUARANTEES
On November 23, 1998, the Company issued $500.0 million 6 3/4% Senior Notes due
2005 (the "Notes" and "Notes Offering") with USAi, as joint and several
co-obligors. The Notes are jointly and severally guaranteed by substantially all
subsidiaries of the Company and certain wholly and non-wholly owned subsidiaries
of USAi, including Home Shopping.
Full financial statements of the Guarantors have not been included because,
pursuant to their respective guarantees, the Guarantors are jointly and
severally liable with respect to the Notes. Management does not believe that the
information contained in full financial statements of the Guarantors would be
material to investors. See the USAi December 31, 1997 financial statements for
summarized statements setting forth certain financial information concerning
Guarantor and Non-Guarantor Subsidiaries.
F-122
276
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of USA Networks
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of cash flows, and of changes in partners' equity
present fairly, in all material respects, the financial position of USA Networks
at December 31, 1996 and 1995, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
February 21, 1997
F-123
277
INDEPENDENT AUDITORS' REPORT
The Partners
USA Networks:
We have audited the accompanying combined statements of income, cash flows and
changes in partners' equity of USA Networks for the year ended December 31,
1994. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
USA Networks for the year ended December 31, 1994 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
New York, New York
February 24, 1995
F-124
278
USA NETWORKS
COMBINED BALANCE SHEETS
(in thousands)
DECEMBER 31,
----------------------------------
1996 1995
--------------- ---------------
ASSETS
Current assets
Cash and cash equivalents.............................. $ 4,153 $ 10,087
Trade accounts receivable, less allowance of $9,114
and $20,626 in 1996 and 1995, respectively........... 123,211 113,128
Program rights......................................... 197,235 167,764
Prepaid expenses and other current assets.............. 7,528 5,122
--------------- ---------------
Total current assets.............................. 332,127 296,101
Program rights.............................................. 145,985 158,240
Equipment and improvements, net............................. 33,122 33,570
Goodwill, net of accumulated amortization of $10,342
and $9,257 in 1996 and 1995, respectively................. 33,064 34,150
Other noncurrent assets..................................... 11,647 3,798
--------------- ---------------
$ 555,945 $ 525,859
=============== ===============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Trade accounts payable................................. $ 8,870 $ 14,397
Short-term borrowings.................................. 3,700 --
Accrued liabilities.................................... 78,360 52,214
Program rights......................................... 59,907 49,561
Program rights-related party........................... 111,456 107,629
--------------- ---------------
Total current liabilities......................... 262,293 223,801
Commitments and contingent liabilities (Notes 10 and 15).... -- --
Program rights.............................................. 25,211 43,495
Program rights-related party................................ 111,364 137,249
Other noncurrent liabilities................................ 7,323 3,823
Partners' equity............................................ 149,754 117,491
--------------- ---------------
$ 555,945 $ 525,859
=============== ===============
The accompanying notes are an integral part of these combined financial
statements.
F-125
279
USA NETWORKS
COMBINED STATEMENTS OF INCOME
(in thousands)
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Revenues
Advertising, net of agency commissions........... $ 358,455 $ 322,739 $ 277,364
Affiliate fees................................... 299,377 243,714 179,057
Other income..................................... 8,640 3,528 1,350
--------------- --------------- ---------------
666,472 569,981 457,771
--------------- --------------- ---------------
Costs and expenses
Program.......................................... 202,146 132,861 143,260
Program-related party............................ 156,767 172,005 143,351
Broadcast
Operating...................................... 19,035 15,128 13,392
Affiliate relations, marketing and research.... 80,091 58,405 46,906
Selling, general and administrative.............. 52,464 45,600 39,010
Depreciation..................................... 6,647 6,243 5,305
Amortization of goodwill and Sci-Fi investment... 1,930 1,930 1,929
--------------- --------------- ---------------
519,080 432,172 393,153
--------------- --------------- ---------------
Operating income............................ 147,392 137,809 64,618
Interest income....................................... 827 1,191 766
Taxes................................................. 2,661 3,363 483
--------------- --------------- ---------------
Net income.................................. $ 145,558 $ 135,637 $ 64,901
=============== =============== ===============
The accompanying notes are an integral part of these combined financial
statements.
F-126
280
USA NETWORKS
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Cash flows from operating activities
Net income....................................... $ 145,558 $ 135,637 $ 64,901
Adjustments to reconcile net income to net cash
provided by operations:
Amortization of program rights................. 160,194 104,074 118,757
Amortization of program rights-related party... 156,767 172,005 143,351
Increase (decrease) in makegoods............... 20,182 (3,769) (3,800)
Depreciation................................... 6,647 6,243 5,305
Amortization of goodwill and Sci-Fi
investment.................................. 1,930 1,930 1,929
Provision for affiliate rate reserve........... 2,694 8,447 19,573
Provision for bad debts and other noncash
charges..................................... 5,100 4,887 3,259
Change in operating assets and liabilities
Acquisition of program rights.................. (161,805) (68,898) (135,264)
Acquisition of program rights-related party.... (172,372) (174,525) (125,284)
(Decrease) increase in liability for program
rights...................................... (29,996) (29,171) 21,815
Increase in accounts receivable................ (13,961) (34,463) (31,498)
Increase in prepaid expenses and other
assets...................................... (3,447) (2,015) (1,129)
(Decrease) increase in accounts payable........ (5,527) 6,265 1,247
Increase (decrease) in accrued liabilities and
other noncurrent liabilities................ 4,179 9,078 (1,731)
--------------- --------------- ---------------
Net cash provided by operating activities... 116,143 135,725 81,431
--------------- --------------- ---------------
Cash flows from investing activities
Investment in available for sale securities...... (1,479) -- --
Investment in USA Brazil......................... (2,025) -- --
Purchase of equipment............................ (6,221) (2,971) (4,970)
Payments for satellite transponder............... -- -- (4,375)
--------------- --------------- ---------------
Net cash used in investing activities.......... (9,725) (2,971) (9,345)
--------------- --------------- ---------------
Cash flows from financing activities
Distribution to Partners......................... (116,000) (130,100) (72,000)
Increase in short-term borrowings................ 3,700 -- --
Charge on behalf of Partners - for prior years'
NYC UBT........................................ -- (2,560) --
--------------- --------------- ---------------
Net cash used in financing activities....... (112,300) (132,660) (72,000)
--------------- --------------- ---------------
Effect of exchange rate changes on cash............... (52) (21) --
--------------- --------------- ---------------
(Decrease) increase in cash and cash
equivalents.................................... (5,934) 73 86
Cash and cash equivalents at beginning of year........ 10,087 10,014 9,928
--------------- --------------- ---------------
Cash and cash equivalents at end of year.............. $ 4,153 $ 10,087 $ 10,014
=============== =============== ===============
Supplemental disclosures of cash flow information:
Taxes paid....................................... $ 4,525 $ -- $ 401
=============== =============== ===============
The accompanying notes are an integral part of these combined financial
statements.
F-127
281
USA NETWORKS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
(in thousands)
BALANCE AT DECEMBER 31, 1993................................ $ 121,552
Equity cash distributions................................... (72,000)
Net income for the year..................................... 64,901
---------------
BALANCE AT DECEMBER 31, 1994................................ $ 114,453
Equity cash distributions................................... (130,100)
NYC UBT..................................................... (2,560)
Translation adjustment...................................... 61
Net income for the year..................................... 135,637
---------------
BALANCE AT DECEMBER 31, 1995................................ $ 117,491
Equity cash distributions................................... (116,000)
Unrealized holding gain..................................... 1,998
Translation adjustment...................................... 707
Net income for the year..................................... 145,558
---------------
BALANCE AT DECEMBER 31, 1996................................ $ 149,754
===============
The accompanying notes are an integral part of these combined financial
statements.
F-128
282
USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION
USA Networks ("USAN") and its related entity, Sci-Fi Channel Europe, L.L.C.
("Sci-Fi Europe") (collectively, "Combined USAN") operates three advertiser
supported 24-hour cable television networks -- USA Network, Sci-Fi Channel and
Sci-Fi Europe. USAN operates in the United States and Latin America and Sci-Fi
Europe operates in Northern Europe. USAN, consisting of USA Network and Sci-Fi
Channel, is a general partnership in which the partners share profits and losses
equally. The general partners are Eighth Century Corporation, a wholly owned
indirect subsidiary of Viacom Inc. ("Viacom," 50%) and Universal Studios, Inc.
and its wholly owned subsidiary Universal City Studios, Inc. (collectively,
"Universal," 50%). Sci-Fi Europe, which was launched November 1, 1995, is a
limited liability company with the same ownership structure as USAN.
2. PRESENTATION AND BASIS OF COMBINATION
The accompanying combined financial statements include the accounts of USAN and
Sci-Fi Europe, which are related through common ownership and common management.
All significant intercompany transactions and balances have been eliminated.
3. SIGNIFICANT ACCOUNTING POLICIES
Program rights
License agreements for program material are accounted for as a purchase of
program rights. The asset related to the program rights acquired and the
liability for the obligation incurred are recorded at the gross amount when the
license period begins and the program is available for its initial broadcast.
The asset is amortized primarily based on the estimated number of airings.
Amortization is computed generally on the straight-line basis as programs air;
however, when management estimates that the first airing of a program has more
value than subsequent airings, an accelerated method of amortization is used.
Other costs related to programming, which include program assembly, commercial
integration and other costs, are expensed as incurred. Management periodically
reviews the carrying value of program rights and records write-offs, as
warranted, based on changes in programming usage. Certain programs which have
been written-off may air in future periods as a result of changes in
programming.
Equipment and improvements
Equipment and improvements are reported at cost. Depreciation is recorded using
the straight-line basis over the estimated useful lives of the assets.
Amortization of leasehold improvements is recorded over the shorter of the
estimated useful lives or the term of the related leases.
Cash equivalents
Cash equivalents consist of overnight Eurodollar time deposits and government
repurchase agreements with original maturities of three months or less.
Foreign Currency Translation
The operations of all foreign entities are principally measured in local
currencies. Assets and liabilities are translated into U.S. dollars using
exchange rates in effect at the end of each reporting period. Revenues and
expenses are translated at the average exchange rates prevailing during the
period.
F-129
283
USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Adjustments resulting from translating the financial statements of foreign
entities into U.S. dollars are recorded in Partners' equity.
Goodwill
Goodwill represents the excess of the purchase price paid over the partnership
equity interest acquired from a withdrawing partner and is amortized on the
straight-line basis over 40 years. On an annual basis, management reviews the
recoverability of goodwill. The measurement of possible impairment is based
primarily on the ability to recover the balance of the goodwill from expected
future operating cash flows on an undiscounted basis. In management's opinion,
no such impairment exists as of December 31, 1996 or 1995.
Short Term Borrowings
Combined USAN has a $15 million revolving line of credit with the Bank of New
York to borrow funds at current money market rates of interest. The December 31,
1996 outstanding balance was repaid in early January 1997.
Revenue recognition
Advertising revenue is recognized in the period in which the advertising
commercials are aired. Provisions are recorded against advertising revenues for
audience under deliveries ("makegoods"). Affiliate fees are recognized in the
period during which the programming is provided.
Income taxes
USAN and Sci-Fi Europe are partnerships and, accordingly, no provision is made
for federal and state income taxes. Combined USAN provides for New York City
Unincorporated Business Taxes ("NYC UBT") and certain foreign withholding taxes.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair value of financial instruments
The carrying amounts of Combined USAN's cash and cash equivalents, accounts
receivable, prepaid expenses and other assets, accounts payable, short-term
borrowings and accrued liabilities approximate fair value because of the
short-term maturity of such financial instruments.
4. NEW YORK CITY UNINCORPORATED BUSINESS TAXES
The obligation for NYC UBT for years 1992 and prior has been cleared with the
taxing authorities. The obligation for NYC UBT for years prior to 1991 has been
assumed by the general partners. NYC UBT for 1990 has been audited by the taxing
authorities; since these obligations were directly assumed by the partners, the
related obligation of $2,560,000 was charged to Partners' equity in 1995. NYC
UBT were not provided for in 1994 due primarily to utilization of carryforward
losses and a claim for refund of approximately $900,000 for 1992 NYC UBT.
F-130
284
USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
5. EQUIPMENT AND IMPROVEMENTS
A summary of equipment and improvements is as follows:
DECEMBER 31,
------------------------------
ASSET LIVES 1996 1995
----------- ------------- -------------
(IN THOUSANDS)
Transponders................................... 10 $ 31,725 $ 31,725
Leasehold improvements......................... 5* 17,541 15,607
Office furniture, computers and other.......... 5 12,111 9,742
Production and transmission equipment.......... 5 7,034 5,116
------------- -------------
68,411 62,190
Accumulated depreciation and
amortization............................ (35,289) (28,620)
------------- -------------
$ 33,122 $ 33,570
============= =============
- ---------------
* Leasehold improvements are amortized over the lesser of the terms of the
respective leases or 5 years.
6. PROGRAM RIGHTS
As of December 31, 1996, Combined USAN's liability for program rights which
represents future payments to be made under program contract agreements amounted
to $307,938,000. Annual payments required are $171,364,000 in 1997, $85,650,000
in 1998, $30,849,000 in 1999, $13,292,000 in 2000 and $6,783,000 in 2001. The
fair value of program rights payable is estimated as the present value of the
future payments calculated using the borrowing rate currently available to
Combined USAN. Such amount is approximately $279,872,000.
7. LEASES
Combined USAN leases office space, editing/broadcasting facilities and equipment
under noncancelable operating leases. These leases provide for fixed rentals
and, in some cases, additional amounts based on inflation. Rent expense under
these leases amounted to $12,913,580, $9,963,000 and $10,760,000 in 1996, 1995
and 1994, respectively.
As of December 31, 1996, future minimum annual payments under noncancelable
operating leases with terms of one year or more are $13,987,000 in 1997,
$14,402,000 in 1998, $12,169,000 in 1999, $10,770,000 in 2000, and $10,799,000
in 2001 and $36,400,000, thereafter.
8. EMPLOYEE BENEFIT PLANS
Combined USAN has a defined contribution pension, profit sharing and 401(k) plan
which covers substantially all employees. The 401(k) feature of the plan
provides for voluntary contributions by employees, which are partially matched
by Combined USAN. Expense under the defined contribution, profit-sharing and
401(k) plan for 1996, 1995 and 1994 was $2,739,000, $2,722,000 and $2,114,000,
respectively.
Combined USAN also maintains nonqualified executive and nonexecutive
supplemental benefit plans for certain key executive officers and employees.
During 1996, 1995 and 1994, the annual expenses under these plans were
approximately $996,000, $564,000 and $412,000, respectively. The liability for
the supplemental benefit plans was approximately $3,812,000 and $2,519,000 as of
December 31, 1996 and 1995, respectively, and is included in other noncurrent
liabilities in the accompanying
F-131
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USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
balance sheet. This liability is funded by Combined USAN-owned life insurance
policies which are recorded in the accompanying balance sheet at a cash
surrender value of approximately $2,826,000 and $1,158,000 as of December 31,
1996 and 1995, respectively.
Combined USAN has employment agreements with certain key executive officers.
With regard to the deferred compensation portion of these agreements, the annual
expenses were approximately $1,901,000, $942,000 and $805,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. The liability for deferred
compensation was $2,638,000 and $3,417,000 at December 31, 1996 and 1995,
respectively.
9. ACCRUED LIABILITIES
A summary of accrued liabilities is as follows:
DECEMBER 31,
-----------------
1996 1995
------- -------
(IN THOUSANDS)
Makegood accrual.......................................... $33,922 $16,478
Marketing accrual......................................... 12,982 8,679
Royalty accrual........................................... 7,836 6,063
Deferred revenue.......................................... 7,823 5,639
Other..................................................... 15,797 15,355
------- -------
$78,360 $52,214
======= =======
10. UNRECORDED COMMITMENTS
Combined USAN's unrecorded commitments for program rights consist of programs
for which the license period has not yet begun or the program is not yet
available to air. At December 31, 1996, the unrecorded commitments amounted to
$650,853,000. Annual commitments are $112,600,000 in 1997, $106,717,000 in 1998,
$112,909,000 in 1999, $101,196,000 in 2000, $69,402,000 in 2001 and
$148,029,000, thereafter.
In connection with the 1992 acquisition of Sci-Fi Channel, certain contingent
amounts will be payable 90 days after the first full calendar year that the net
revenues of Sci-Fi Channel and Sci-Fi Europe combined exceed the following
amounts:
REQUIRED
REVENUES PAYMENTS
-------- --------
(IN THOUSANDS)
$75,000 $ 2,500
100,000 5,000
150,000 7,500
For the years ended December 31, 1996, 1995 and 1994, Sci-Fi Channel and Sci-Fi
Europe, collectively, had net revenues of $87,626,000, $48,600,000 and
$22,607,000, respectively. Combined USAN will pay $2,500,000 to the former owner
of Sci-Fi Channel during March 1997 in accordance with the Sci-Fi Channel
acquisition agreement.
USAN has a licensing agreement with a Latin American partnership consisting of
Multivision of Mexico and Produfe of Argentina to supply programming for a
24-hour Spanish language, general entertainment network in Latin America
(excluding Brazil). Each Latin American partner has agreed
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USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
to carry and distribute the network in its own and contiguous countries.
Advertising and affiliate revenues will be shared between USAN and the Latin
American partners. USAN's costs are limited to programming rights and New York
overhead costs.
11. RELATED PARTY TRANSACTIONS
A summary of related party program transactions between Combined USAN and Viacom
and Universal are as follows:
VIACOM UNIVERSAL TOTAL
--------------- --------------- ---------------
(IN THOUSANDS)
Program acquisitions..................... 1996 $ 107,813 $ 64,559 $ 172,372
1995 76,242 98,283 174,525
1994 34,017 91,267 125,284
Programming expense...................... 1996 63,377 93,390 156,767
1995 67,329 104,676 172,005
1994 69,137 74,214 143,351
Liability for program rights at
year-end............................... 1996* 97,194 125,626 222,820
1995 69,926 174,952 244,878
Unrecorded program commitments........... 1996* 139,643 163,826 303,469
1995 163,084 128,953 292,037
- ---------------
* Such amounts have been included in notes 6 and 10.
The Company leases transmission and uplink facilities from related parties under
noncancelable operating leases. Rent expense under leases with related parties
totaled $1,275,000, $217,000 and $0 in 1996, 1995 and 1994, respectively.
Future minimum annual payments under noncancelable operating leases with related
parties are $1,033,000 in 1997, $1,062,000 in 1998, $1,085,000 in 1999,
$1,098,000 in 2000, $991,000 in 2001, and $3,553,000, thereafter.
Universal negotiated the business terms on Combined USAN's behalf for the
license of certain programming. The purchase price was funded by an
interest-free loan from Universal to Combined USAN, of which $16 million was
advanced as of December 31, 1994 to fund contemporaneous payments to the program
licensor. The payments to Universal are being made in the ordinary course of
Combined USAN's business and as such this has been reflected as an agreement to
purchase programming rights. The remaining balance of $7,333,334, which is
included in the liabilities for program rights and unrecorded program
commitments, will be paid to Universal in equal installments of $3,666,667 in
1997 and 1998.
12. AFFILIATION AGREEMENTS
Affiliation contracts with certain major multiple cable system operators expired
in recent years. USAN is currently negotiating rate increases as well as other
contractual terms with the respective affiliates. In 1996, USAN received a
settlement from one of its affiliates related to rate discrepancies relating to
1996 and prior years. This settlement did not have a material effect on reported
results.
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NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
13. INVESTMENT IN MARKETABLE EQUITY SECURITIES
On April 26, 1996, Combined USAN acquired a common stock investment in CNET,
Inc. ("CNET"). This investment amounts to approximately $3,477,000 as of
December 31, 1996 and is accounted for as available for sale securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
On July 1, 1996, Combined USAN and CNET amended a previous programming agreement
whereby Combined USAN licenses the right to air certain CNET programming for a
fee equivalent to the production cost of the programs. In addition, under the
agreement, CNET granted to Combined USAN 516,750 non-transferable warrants to
purchase CNET common stock. Combined USAN earns the right to exercise these
warrants at interim points over the term of the agreement by airing the CNET
programs.
Effective July 1, 1996, Combined USAN became vested in 206,700 of the warrants
granted. The vested portion of the warrants is recorded in the Combined Balance
Sheets at a value amounting to approximately $2,150,000. This value is based on
the market value of CNET stock on the date of the initial public offering (July
2, 1996) less a restricted security discount. In addition, Combined USAN
recorded deferred revenue which is recognized as a reduction in Combined USAN's
programming costs over the term of the agreement. If Combined USAN continues to
air the CNET programming in accordance with the noted agreement, Combined USAN
will become vested in 155,025 warrants on July 1, 1997 and 155,025 warrants on
July 1, 1998.
14. USA BRAZIL
USA Brazil was launched on May 10, 1996 through a joint venture between USAN
(50%) and Globosat (50%), a multi-channel programming company based in Brazil.
USAN's share of USA Brazil's operating loss for the eight months ended December
31, 1996 was approximately $1,800,000.
15. OTHER MATTERS
USAN is involved in continuing disputes regarding the amounts to be paid by it
for the performance of copyrighted music from members of the American Society of
Composers, Authors and Publishers ("ASCAP") and by Broadcast Music, Inc.
("BMI"). The payments to be made to ASCAP will be determined by a federal judge
in a so-called "rate court" proceeding. In the initial phase of the proceeding,
it has been determined that USAN is to pay ASCAP an interim fee of three-tenths
of one percent (0.3%) of its gross revenues. This fee level is subject to
adjustment upward or downward in future rate court proceedings or as the result
of subsequent negotiations for all payments from January 1, 1986. All ASCAP
claims prior to January 1, 1986 have been settled and are final.
On November 1, 1991, USAN and BMI agreed to terms on a license which provided
for payment of a stipulated sum as final payment for all periods prior to and
including December 31, 1989 for the payment of license fees, which are now
final, amounting to three-tenths of one percent (0.3%) of USAN's gross revenues
for the period from January 1, 1990 through June 30, 1992 and for interim fees
of three-tenths of one percent (0.3%) from July 1, 1992 and forward. This
arrangement is terminable by either party upon 30-days notice. In December 1994,
a BMI "rate court" was established under the provisions of BMI's own government
consent decree. The establishment of this rate court could, by the terms of the
BMI license, subject the interim fees to upward or downward
F-134
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USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
adjustment, resulting from a rate determination proceeding before that court
should such a proceeding be initiated.
16. GEOGRAPHIC INFORMATION
The following table sets forth information regarding operating revenues,
operating income or loss, total assets, depreciation and amortization and
capital expenditures by geographic area. Northern Europe represents Sci-Fi
Europe and Latin America includes USA Brazil and the licensing agreement with
the Latin American partnership (Note 10).
YEAR ENDED
DECEMBER 31,
1996
---------------
(IN THOUSANDS)
Operating revenue
United States.......................................... $ 646,298
Northern Europe........................................ 7,997
Latin America.......................................... 3,537
---------------
$ 657,832
===============
Operating income (loss)
United States.......................................... $ 167,548
Northern Europe........................................ (16,965)
Latin America.......................................... (3,191)
---------------
$ 147,392
===============
Total assets
United States.......................................... $ 533,248
Northern Europe........................................ 21,872
Latin America.......................................... 825
---------------
$ 555,945
===============
Depreciation and amortization of goodwill and Sci-Fi
investment
United States.......................................... $ 8,343
Northern Europe........................................ 234
---------------
$ 8,577
===============
Capital Expenditures
United States.......................................... $ 5,530
Northern Europe........................................ 691
---------------
$ 6,221
===============
17. EVENT SUBSEQUENT TO FEBRUARY 21, 1997 (UNAUDITED)
Effective October 21, 1997, Universal acquired Viacom's 50% interest in USAN and
Sci-Fi Europe for $1.7 billion in cash. The acquisition is being accounted for
as a purchase, and Universal has not yet completed its purchase price
allocation. A fair market valuation of assets acquired and liabilities assumed
of Combined USAN will be completed in the near future. The items to be valued
include program assets and liabilities, future commitments to purchase
programming and other contractual commitments. The resulting unallocated
goodwill is expected to be amortized over a 40 year life. Under the acquisition
agreement, Combined USAN is committed to purchase certain programs from Viacom.
The maximum program commitment is estimated at $320 million.
F-135
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USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
On October 19, 1997, HSN, Inc. ("HSNi") agreed to acquire from Universal USAN
and the domestic television production and distribution business of Universal in
exchange for $4.075 billion in value, comprised of a combination of securities
that in effect represent a 45% equity interest in HSNi and up to $1.43 billion
in cash, plus, in certain circumstances, an additional payment in the form of a
cash distribution. A new joint venture will be created consisting mainly of
Sci-Fi Europe and the international operations of USAN and will be equally owned
by HSNi and Universal. In addition, HSNi intends to change its corporate name to
"USA Networks, Inc." This transaction, which is expected to close in the first
quarter of 1998, is subject to customary conditions, including HSNi stockholder
approval.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of Universal Studios, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the financial position of the Universal Television Group at
June 30, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, The Seagram Company Ltd.
acquired an 80% interest in Universal Studios, Inc. on June 5, 1995. As a result
of the application of purchase accounting, the financial statements for the
period ended June 4, 1995 are presented on a different cost basis than
subsequent financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
Century City, California
December 8, 1997
F-137
291
UNIVERSAL TELEVISION GROUP
COMBINED BALANCE SHEETS
(in thousands)
JUNE 30, JUNE 30,
1997 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 18,929 $ 19,046
License fees and other receivables, less allowances.... 190,949 171,923
License fees receivable from Combined USAN............. 40,347 43,108
Program costs, net of amortization..................... 152,226 121,629
Prepaid expenses and other............................. 6,661 4,965
--------- ---------
Total current assets.............................. 409,112 360,671
Program costs, net of amortization.......................... 257,301 236,442
License fees receivable, less allowances.................... 77,247 115,751
License fees receivable from Combined USAN.................. 25,875 35,780
Investment in Combined USAN................................. 794,266 804,834
Goodwill.................................................... 119,587 72,969
Deferred charges and other assets........................... 8,912 10,688
Property, plant and equipment, net.......................... 7,218 4,296
--------- ---------
Total assets...................................... $1,699,518 $1,641,431
========= =========
LIABILITIES AND UNIVERSAL EQUITY INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities............... $ 38,445 $ 30,688
Accrued compensation and participations................ 134,285 96,346
Deferred film revenues................................. 38,452 31,025
Income taxes........................................... 42,000 12,100
--------- ---------
Total current liabilities......................... 253,182 170,159
Accrued compensation and participations..................... 53,750 68,336
Other obligations payable after one year.................... 7,661 18,572
Deferred income taxes, net.................................. 54,100 75,800
Commitments and contingencies (Note 11)..................... -- --
Universal equity investment................................. 1,330,825 1,308,564
--------- ---------
Total liabilities and Universal equity
investment...................................... $1,699,518 $1,641,431
========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-138
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UNIVERSAL TELEVISION GROUP
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
FOR THE
YEAR ENDED JUNE 30, FOR THE PERIOD
-------------------- JULY 1, 1994 TO
1997 1996 JUNE 4, 1995
-------- -------- ---------------
REVENUES
Program licensing................................ $633,429 $696,336 $636,626
Program licensing -- Combined USAN............... 50,911 38,812 73,970
-------- -------- --------
684,340 735,148 710,596
COSTS AND EXPENSES
Program costs.................................... 554,332 560,255 693,146
Selling, general and administrative expenses..... 92,512 78,346 50,644
Depreciation and amortization.................... 13,681 9,945 20,947
-------- -------- --------
OPERATING INCOME (LOSS)............................... 23,815 86,602 (54,141)
NONOPERATING INCOME
Combined USAN pre-tax equity earnings, net of
goodwill amortization.......................... 50,593 52,209 44,431
Interest income, net............................. 1,329 281 634
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES..................... 75,737 139,092 (9,076)
INCOME TAX PROVISION (BENEFIT)........................ 37,000 60,600 (3,100)
-------- -------- --------
NET INCOME (LOSS)..................................... $ 38,737 $ 78,492 $ (5,976)
======== ======== ========
The accompanying notes are an integral part of these combined financial
statements.
F-139
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UNIVERSAL TELEVISION GROUP
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE
YEAR ENDED JUNE 30, FOR THE PERIOD
---------------------- JULY 1, 1994 TO
1997 1996 JUNE 4, 1995
--------- --------- ------------
Cash flows from operating activities:
Net income (loss).............................. $ 38,737 $ 78,492 $ (5,976)
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Additions to program costs..................... (483,271) (515,202) (511,272)
Amortization of program costs.................. 425,010 468,162 567,294
Amortization of goodwill and other assets...... 31,106 25,863 30,293
Depreciation of plant and equipment............ 1,408 1,265 855
Equity in net income of Combined USAN.......... (68,047) (66,579) (53,517)
Distributions received from Combined USAN...... 56,250 64,950 49,600
Decrease (increase) in license fees and other
receivables.................................. 19,478 17,645 (12,665)
Decrease (increase) in license fees receivable
from Combined USAN........................... 12,666 53,952 (42,554)
(Decrease) increase in accounts payable and
other liabilities............................ (3,154) 406 9,485
Increase (decrease) in accrued compensation and
participations............................... 23,353 (39,372) 13,694
Increase (decrease) in deferred film
revenues..................................... 7,427 (4,138) 17,250
Increase (decrease) in current and deferred
income taxes................................. 8,200 48,963 (13,776)
Other changes, net............................. (3,680) 12,333 13,082
--------- --------- ---------
Net cash provided by operating activities........... 65,483 146,740 61,793
--------- --------- ---------
Cash flows from financing activities
Net cash transferred to Universal.............. (15,837) (145,552) (44,566)
--------- --------- ---------
Net cash used in financing activities............... (15,837) (145,552) (44,566)
--------- --------- ---------
Cash flows from investing activities
Property, plant and equipment.................. (4,330) (1,687) (1,621)
Acquisition of assets of Multimedia
Entertainment................................ (49,100) -- --
Loan repayments from Combined USAN............. 3,667 3,667 2,167
Loans to Combined USAN......................... -- -- (6,000)
--------- --------- ---------
Net cash (used) provided by investing activities.... (49,763) 1,980 (5,454)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents.... (117) 3,168 11,773
Cash and cash equivalents at beginning of year...... 19,046 15,878 10,954
--------- --------- ---------
Cash and cash equivalents at end of year............ $ 18,929 $ 19,046 $ 22,727
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid.................................. $ 600 $ 600 $ 800
========= ========= =========
Income taxes paid (net of refunds received).... $ 28,800 $ 10,700 $ 10,200
========= ========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-140
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UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
NOTE 1 -- BASIS OF PRESENTATION
For the purpose of these combined financial statements, Universal Television
Group includes the domestic production and the domestic and international
distribution of television product and 50% of the operations of USA Networks
("USAN") and Sci-Fi Channel Europe, L.L.C. ("Sci-Fi Europe") (collectively,
"Combined USAN"). These assets are owned by Universal Studios, Inc.
("Universal") which is 80% owned by The Seagram Company, Ltd. ("Seagram") and
20% owned by Matsushita Electric Industrial Co., Ltd. ("Matsushita") at June 30,
1997. Subsequently, Seagram increased its ownership of Universal to 84% reducing
Matsushita's ownership to 16%. Pursuant to the terms of an Investment Agreement,
dated as of October 19, 1997, among Universal, HSNi, Inc. ("HSNi"), Home
Shopping Network, Inc. and Liberty Media Corporation ("Liberty"), Universal will
contribute USAN and its domestic television production and distribution business
("UTV") to HSNi.
Universal Television Group's primary source of revenues is from the production,
distribution and licensing of television programs. Universal Television Group's
product is distributed throughout the world with sales and distribution
activities located principally in the United States and Europe. Subsequent to
the proposed transaction between Universal and HSNi, as discussed in Note 15,
UTV's product will be distributed internationally by Universal for a fee. Also,
Universal will pay a fee to UTV for the domestic distribution of television
programs remaining with Universal.
The accompanying combined financial statements and related notes reflect the
carve-out historical results of operations and financial position of the
television business of Universal, as described above. These financial statements
are not necessarily indicative of results that would have occurred if Universal
Television Group had been a separate, stand-alone entity during the periods
presented or of future results of Universal Television Group.
The combined financial statements are presented for the period July 1, 1994
through June 4, 1995 ("1995") and for the fiscal years ended June 30, 1996
("1996") and June 30, 1997 ("1997"). The 1995 financial statements are presented
on a different cost basis than the 1997 and 1996 financial statements, which are
presented on a basis incorporating purchase accounting resulting from Seagram's
acquisition of an 80% interest in Universal on June 5, 1995. As a result, the
combined financial statements presented for the 1995 period are not comparable
to those for subsequent periods presented. The results for the 25-day period
from June 5, 1995 through June 30, 1995 are summarized in Note 14.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of Universal
Television Group and all of its investments of 50% or more owned subsidiaries.
The 50% interest in Combined USAN is accounted for under the equity method. All
significant intercompany transactions with combined entities have been
eliminated.
REVENUE RECOGNITION
Generally, television programs are first licensed for network exhibition and
foreign syndication, and subsequently for domestic syndication, cable television
and home video. Certain television programs are produced and/or distributed
directly for initial exhibition by local television stations, advertiser-
supported cable television, pay television and/or home video. Revenues are
recognized as completed
F-141
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UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
episodes are delivered. Advertising revenues (i.e., sales of advertising time
received by Universal Television Group in lieu of cash fees for the licensing of
program broadcast rights to a broadcast station ("barter syndication")) are
recognized upon both the commencement of the license period of the program and
the sale of advertising time pursuant to non-cancelable agreements, provided
that the program is available for its first broadcast. Foreign minimum
guaranteed amounts or inducement fees are recognized as revenues on the date of
the license agreement, provided the program is available for exhibition.
Deferred revenues consist principally of advance payments received on television
contracts for which the program materials are not yet available for broadcast
exploitation.
PROGRAM COSTS
Program costs consist of direct production costs and production overhead less
accumulated amortization. Development roster and related costs and abandoned
story and development costs are charged to production overhead. Program costs
are stated at the lower of unamortized cost or estimated net realizable value on
a production-by-production basis.
Generally, the estimated ultimate costs of completed television productions are
amortized and participation expenses are accrued for each production in the
proportion that current period revenue recognized by Universal Television Group
bears to the estimated future revenue to be received from all sources, under the
individual film forecast method. Estimated ultimate revenues and costs are
reviewed quarterly and revisions to amortization rates or write-downs to net
realizable value are made as required. Acquired library costs of approximately
$121,900, included in noncurrent program costs at June 30, 1997, resulted from
the acquisition of Universal by Seagram. Acquired library costs are being
amortized on the straight-line basis over a 20 year life.
Program costs, net of amortization, classified as current assets include the
portion of unamortized costs of television program productions allocated to
network, first run syndication and initial international distribution markets.
The allocated portion of released program costs expected to be recovered from
secondary markets or other exploitation is reported as a noncurrent asset. Other
costs relating to television productions, such as television program development
costs, in-process productions and the television program library, are classified
as noncurrent assets.
PROPERTY, PLANT AND EQUIPMENT, NET
Buildings and improvements (lives of 10-40 years) and furniture, fixtures and
equipment (lives of 3-8 years) are recorded at cost and are depreciated on the
straight-line basis. Leasehold improvements are amortized over the lesser of the
terms of the respective leases or the lives of the improvements.
GOODWILL
As a result of the acquisition of Universal by Seagram, goodwill of $75 million
has been allocated to Universal Television Group as of the acquisition date of
June 5, 1995. Additional goodwill of $49 million results from the acquisition of
certain television assets as discussed in Note 3.
The unallocated excess of cost of purchased businesses over the fair value of
assets acquired and the excess of investments in unconsolidated companies over
the underlying equity in tangible net assets acquired are being amortized on the
straight-line basis principally over 40 years from the date of acquisition.
F-142
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UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
It is Universal Television Group's policy to evaluate the recovery of goodwill
if there is an event or change in circumstances which establishes the existence
of impairment indicators and to recognize impairment if it is probable that the
recorded amounts are not recoverable from future undiscounted cash flows
(excluding interest).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and highly liquid temporary investments
that have original maturities of three months or less.
FOREIGN CURRENCY TRANSLATION
For affiliates operating outside the United States, the functional currency is
generally determined to be the local currency. Assets and liabilities are
translated into U.S. dollars using exchange rates in effect at the end of the
reporting period. Revenues and expenses are translated at average exchange rates
prevailing during the period. Adjustments resulting from translating the
financial statements of foreign entities are included as a component of the
Universal equity investment.
INCOME TAXES
Universal Television Group records its income tax provision under the liability
method whereby deferred tax assets and liabilities arise primarily from the
differences between the financial statement and tax bases of assets and
liabilities using presently enacted tax rates.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of financial
statements, and the reported amount of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
NOTE 3 -- ACQUISITIONS
On December 1, 1996, Universal Television Group acquired substantially all of
the domestic assets of talk show syndicator Multimedia Entertainment, Inc.,
which includes Sally Jessy Raphael and The Jerry Springer Show, as well as
library rights to Donahue, from Gannett Broadcasting. The acquisition price was
approximately $49,100 which substantially represented goodwill. Pro forma
financial information has not been provided as amounts are not material to these
financial statements.
F-143
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UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
NOTE 4 -- INVESTMENT IN COMBINED USAN
At June 30, 1997, Universal has 50% ownership interests in USAN and Sci-Fi
Europe, owners and operators of three advertiser-supported 24-hour cable
television networks, USA Network, Sci-Fi Channel and Sci-Fi Europe. Combined
USAN operates mainly in the United States, Latin America and Europe. Summarized
financial information is presented below for Universal's investment in Combined
USAN.
SUMMARIZED BALANCE SHEET INFORMATION -- COMBINED USAN
AS OF JUNE 30,
----------------------
1997 1996
---- ----
Current assets.............................................. $ 306,717 $ 290,399
Noncurrent assets........................................... 196,818 222,538
--------- ---------
Total assets................................................ $ 503,535 $ 512,937
========= =========
Current liabilities......................................... $ 236,367 $ 218,448
Noncurrent liabilities...................................... 115,450 168,904
Equity...................................................... 151,718 125,585
--------- ---------
Total liabilities and equity................................ $ 503,535 $ 512,937
========= =========
Proportionate share of net assets........................... $ 75,859 $ 62,793
========= =========
The difference between the proportionate share of net assets and the Investment
in Combined USAN results principally from goodwill. Also included in the
investment account is a loan receivable from Combined USAN (discussed in Note
13). The goodwill is being amortized on the straight-line basis over a 40 year
life.
SUMMARIZED STATEMENT OF OPERATIONS -- COMBINED USAN
1997 1996 1995
--------- --------- ---------
Revenues................................................... $ 703,445 $ 624,868 $ 473,578
Earnings before interest and taxes......................... 138,193 137,157 108,724
Net income................................................. 136,199 135,717 106,926
NOTE 5 -- INTERNATIONAL OPERATIONS
Net income of fully consolidated foreign subsidiaries was $62,600, $63,800 and
$45,200 for 1997, 1996 and 1995, respectively.
Universal Television Group derived approximately 39% of its consolidated
revenues from markets outside the United States for 1997 compared to 32% for
1996 and 26% for 1995. There is no foreign country in which Universal Television
Group does business that individually contributed significantly to consolidated
revenues.
F-144
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UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
INTERNATIONAL OPERATIONS
1997 1996 1995
--------- --------- -----------------
REVENUES
United States................................... $418,919 $497,629 $ 525,026
Foreign.........................................
Europe..................................... 192,012 147,750 107,094
Other...................................... 73,409 89,769 78,476
--------- --------- -----------------
$684,340 $735,148 $ 710,596
========= ========= =================
OPERATING INCOME (LOSS)
United States................................... $(44,069) $ 15,393 $ (102,527)
Foreign, primarily Europe....................... 67,884 71,209 48,386
--------- --------- -----------------
$ 23,815 $ 86,602 $ (54,141)
========= ========= =================
AS OF JUNE 30,
-----------------------
1997 1996
--------- ---------
IDENTIFIABLE ASSETS
United States................................... $1,637,980 $1,604,663
Foreign, primarily Europe....................... 61,538 36,768
--------- ---------
$1,699,518 $1,641,431
========= =========
NOTE 6 -- INCOME TAXES
Universal Television Group results, including its 50% share of Combined USAN,
are included in the consolidated U.S. federal income tax return of their
ultimate U.S. parent, J.E. Seagram Corp., a wholly owned subsidiary of Seagram,
for the years ended June 30, 1997 and 1996. The tax provisions reflected in the
Combined Statements of Operations have been calculated based on the assumption
that Universal Television Group would have paid U.S. federal, state and foreign
taxes on a separate company basis. The resulting current income tax liability
has been satisfied directly by J.E. Seagram Corp. and is reflected in the
Universal equity investment. Intercompany tax payments/(refunds) amounted to
$12,100 and ($8,600) for 1997 and 1996, respectively.
F-145
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UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
1997 1996 1995
--------- --------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES
Domestic........................................ $ 6,379 $ 66,998 $(59,327)
Foreign......................................... 69,358 72,094 50,251
--------- --------- -----------------
$ 75,737 $139,092 $ (9,076)
========= ========= =================
INCOME TAX PROVISION (BENEFIT)
Current
Federal......................................... $ 41,900 $ 11,500 $ (5,400)
State........................................... 5,600 7,000 (200)
Foreign......................................... 11,200 12,900 8,700
--------- --------- -----------------
58,700 31,400 3,100
Deferred............................................. (21,700) 29,200 (6,200)
--------- --------- -----------------
$ 37,000 $ 60,600 $ (3,100)
========= ========= =================
1997 1996 1995
---- ---- ----
RECONCILIATION OF STATUTORY TO EFFECTIVE TAX RATE
Federal income tax rate................................ 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit................ 4.2 3.7 2.9
Amortization of excess cost and assigned values over
tax basis............................................ 9.6 4.8 --
Other, net............................................. -- 0.1 (3.7)
------- ------- -------
Effective income tax rate.............................. 48.8% 43.6% 34.2%
======= ======= =======
Universal Television Group provides for U.S. federal, state and foreign income
taxes generally at prevailing tax rates based upon the amounts of consolidated
pretax income in the current year.
The deferred income taxes primarily result from the differences created between
the financial statements' carrying amounts and the historical tax bases.
The components of Deferred income taxes, net, are as follows:
AS OF JUNE 30,
--------------------------------------
1997 1996
--------------- ---------------
DEFERRED INCOME TAX LIABILITY
Program costs -- basis and amortization
differences.................................. $ 28,600 $ 20,900
Revenue recognition differences................ 7,200 53,200
Unremitted foreign earnings.................... 22,100 7,100
State taxes.................................... 1,700 2,400
--------------- ---------------
59,600 83,600
--------------- ---------------
DEFERRED INCOME TAX ASSET
Doubtful accounts.............................. (5,500) (7,800)
--------------- ---------------
Deferred income taxes, net..................... $ 54,100 $ 75,800
=============== ===============
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UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
NOTE 7 -- DETAILS OF BALANCE SHEET ACCOUNTS
AS OF JUNE 30,
--------------------------------------
1997 1996
--------------- ---------------
LICENSE FEES AND OTHER RECEIVABLES
Gross receivables
Current................................................ $ 240,457 $ 222,900
Noncurrent............................................. 105,515 154,055
--------------- ---------------
345,972 376,955
Allowance for doubtful accounts............................. (11,554) (10,393)
--------------- ---------------
$ 334,418 $ 366,562
=============== ===============
Universal Television Group has significant receivables from a number of
customers primarily within the United States and Europe.
AS OF JUNE 30,
--------------------------------------
1997 1996
--------------- ---------------
PROGRAM COSTS, NET OF AMORTIZATION
Released............................................... $ 366,896 $ 347,786
In process and unreleased.............................. 42,631 10,285
--------------- ---------------
$ 409,527 $ 358,071
=============== ===============
Unamortized costs related to released television programs aggregated $366,896 at
June 30, 1997. Excluding the acquired library costs, Universal Television Group
currently anticipates that approximately 80% of the unamortized released program
costs will be amortized under the individual film forecast method during the
three years ending June 30, 2000.
F-147
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UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
AS OF JUNE 30,
--------------------------------------
1997 1996
--------------- ---------------
GOODWILL
Goodwill.................................................. $ 127,087 $ 75,000
Accumulated amortization.................................. (7,500) (2,031)
--------------- ---------------
$ 119,587 $ 72,969
=============== ===============
PROPERTY, PLANT AND EQUIPMENT, NET
Land...................................................... $ 267 $ 267
Buildings and leasehold improvements...................... 1,069 204
Furniture, fixtures and equipment......................... 8,367 5,037
--------------- ---------------
9,703 5,508
Accumulated depreciation.................................. (2,485) (1,212)
--------------- ---------------
$ 7,218 $ 4,296
=============== ===============
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable.......................................... $ 10,355 $ 17,278
Accrued expenses.......................................... 25,878 11,741
Other current liabilities................................. 2,212 1,669
--------------- ---------------
$ 38,445 $ 30,688
=============== ===============
ACCRUED COMPENSATION AND PARTICIPATIONS
Compensation.............................................. $ 17,697 $ 11,042
Participations............................................ 170,338 153,640
--------------- ---------------
$ 188,035 $ 164,682
=============== ===============
NOTE 8 -- EMPLOYEE BENEFIT PLANS
Universal Television Group participates in various multi-employer defined
benefit and defined contribution pension plans under union and industry
agreements. These plans include substantially all participating production
employees covered under various collective bargaining agreements. In addition,
Universal Television Group has a defined contribution profit sharing plan
covering certain other domestic employees.
The aggregate expense for all of the Universal Television Group's contributions
to pension, profit sharing, postretirement and postemployment benefit plans was
$1,300, $500 and $400 for 1997, 1996 and 1995, respectively. With the exception
of postretirement and postemployment benefit plans, for which there is no
advanced funding, Universal Television Group funds substantially all costs of
employee plans on an annual basis. The impact on liabilities and expenses
associated with FAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" are immaterial to Universal Television Group's financial
statements.
NOTE 9 -- STOCK OPTION PLANS
Certain Universal Television Group employees are covered under the Universal
employee stock option plans. Options may be granted to purchase the common
shares of Universal's ultimate parent, Seagram, at not less than the fair market
value of the shares on the date of the grant. Currently outstanding options
become exercisable over three to four years from the grant date and expire 10
years after the grant date.
F-148
302
UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
Universal Television Group has adopted FAS 123, "Accounting for Stock-Based
Compensation." In accordance with the provisions of FAS 123, Universal
Television Group applies the provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans and does not recognize compensation expense for its stock-based
compensation plans except to the extent that the exercise price differs from the
fair market value at date of grant. If Universal Television Group elected to
recognize compensation expense based upon the fair value at the grant date for
awards under these plans consistent with the fair value methodology prescribed
by FAS 123, net income would be reduced by $1,661 and $106 for 1997 and 1996,
respectively.
The fair value for these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for the periods 1997 and 1996, respectively: dividend yields of 1.6
and 1.8%; expected volatility of 24 and 22%; risk-free interest rates of 6.7 and
6.0%; and expected life of six years for all periods. The weighted average fair
value of options granted for which the exercise price equals the market price on
the grant date was $11.76 and $8.87 for 1997 and 1996, respectively.
Transactions involving stock options are summarized as follows (per share price
in whole dollars):
WEIGHTED
AVERAGE
OPTIONS EXERCISE
DESCRIPTION OUTSTANDING PRICE
- ----------- ----------- --------
Balance, June 30, 1995..................................... -- $ --
Granted.................................................... 66,220 33.38
Exercised.................................................. -- --
Forfeitures................................................ -- --
------------- -----------
Balance, June 30, 1996..................................... 66,220 33.38
Granted.................................................... 439,530 37.78
Exercised.................................................. -- --
Forfeitures................................................ -- --
------------- -----------
Balance, June 30, 1997..................................... 505,750 $ 37.20
============= ===========
No grants have expired as of June 30, 1997. The following table summarizes
information concerning outstanding and exercisable stock options as of June 30,
1997 (per share price in whole dollars):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- -------- ----------- --------
$30 - $40 505,750 9.52 yrs. $37.20 128,351 $34.54
=========== =========== ======== =========== ========
NOTE 10 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, current receivables, current
accounts payable and accrued liabilities and current accrued compensation and
participations approximate fair value because of the short maturity of those
instruments. The carrying values of long term receivables and accrued
compensation and participations generally approximate fair value.
F-149
303
UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Universal Television Group occupies facilities and rents equipment under
operating lease agreements which expire at various dates through 2006. Total
rent expense was $9,207, $5,211, and $5,350 for 1997, 1996 and 1995,
respectively. In addition to the above, Universal Television Group incurs
intercompany rent expense for use of Universal's studio facilities, which is
discussed in Note 12.
The following schedule summarizes the future minimum rentals under the terms of
the Universal Television Group's leases at June 30, 1997; certain of these
leases also provide for payment of taxes, insurance and maintenance.
LEASE
COMMITMENTS
-----------
1998........................................................ $4,873
1999........................................................ 943
2000........................................................ 552
2001........................................................ 592
2002........................................................ 556
Thereafter.................................................. 1,272
------
$8,788
======
Universal Television Group has commitments of approximately $127,225 at June 30,
1997 for (1) program development and production costs, (2) employment contracts
and (3) the purchase or construction of property, plant and equipment.
Universal Television Group is involved in various other lawsuits, claims and
inquiries. Management and its legal counsel believe that the resolution of these
matters will not have a material adverse effect on the financial position of
Universal Television Group or the results of its operations or cash flows.
NOTE 12 -- UNIVERSAL EQUITY INVESTMENT
An analysis of the Universal equity investment activity is as follows:
1997 1996 1995
--------- --------- ---------
Balance, beginning of period.......................... $1,308,564 $1,374,220 $1,119,033
Net income (loss)..................................... 38,737 78,492 (5,976)
Change in cumulative foreign currency translation
adjustment.......................................... (639) 1,404 2,187
Net cash transfers.................................... (54,186) (180,993) (67,155)
Allocated charges from Universal...................... 38,349 35,441 22,589
--------- --------- ---------
Balance, end of period................................ $1,330,825 $1,308,564 $1,070,678
========= ========= =========
Universal funds the working capital requirements of its businesses based upon a
centralized cash management system. Universal equity investment includes
accumulated equity as well as any payables and receivables due to/from Universal
resulting from cash transfers and other intercompany activity.
NOTE 13 -- RELATED PARTY TRANSACTIONS
Universal and certain of its subsidiaries have provided a variety of services to
Universal Television Group. The principal transactions between Universal and its
subsidiaries and Universal Television
F-150
304
UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
Group are summarized below (see Note 6 for a description of the tax relationship
between Universal and Universal Television Group):
1997 1996 1995
------------- ------------- -------------
Allocations from Universal
Corporate overhead(a).................................. $ 27,522 $ 26,458 $ 14,038
Information technology overhead(b)..................... 4,798 5,151 4,796
Insurance(c)........................................... 3,695 1,973 1,978
Rent(d)................................................ 2,334 1,859 1,777
------------- ------------- -------------
Total allocations........................................... 38,349 35,441 22,589
Other charges from Universal
Production facility usage(e)........................... 19,633 20,032 16,758
Selling, general and administrative(f)................. 8,065 5,679 1,808
------------- ------------- -------------
Total....................................................... $ 66,047 $ 61,152 $ 41,155
============= ============= =============
(a) Includes allocations for certain corporate services, such as executive
management, finance, legal and tax consulting and return preparation. These
costs were allocated based upon certain employee annual compensation costs
and tangible assets of Universal Television Group.
(b) Information technology usage and support costs were allocated based on
usage.
(c) Costs charged for insurance have been based upon Universal's actual costs
and Universal Television Group's proportional payroll, revenues and insured
assets, with adjustments for loss experience.
(d) Rent charged to Universal Television Group has been an allocation of the
actual rent expense, based upon the amount of space occupied by Universal
Television Group in proportion to the total rented space of Universal.
(e) Production at Universal's studio facility is based on fair market rates
applicable to third parties based on similar usage levels.
(f) Selling, general and administrative expenses have been charged by Universal
for the distribution of television product in the home video and pay
television markets and the licensing of television product to merchandisers.
These expenses are allocated based upon revenues.
Allocations from Universal, excluding production facility usage charges, are
included primarily in Selling, general and administrative expenses in the
Combined Statements of Operations. In accordance with FAS 53, "Financial
Reporting by Producers and Distributors of Motion Picture Films," production
facility usage charges are capitalized in program costs in the Combined Balance
Sheets and amortized using the individual film forecast method.
Other services provided by Universal are as follows:
Universal Television Group has participated in Universal's centralized cash
management system. Working capital requirements of Universal Television Group
have been met and the majority of intercompany transactions have been effected
through changes in Universal's equity investment. Universal Television Group has
had no external sources of financing, such as available lines of credit, as
would be necessary to operate as a stand-alone company.
F-151
305
UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
Employees of Universal Television Group have been paid directly by Universal and
some have participated in incentive compensation and other employee plans of
Universal. The salary and related costs, incentive compensation and costs of
other employee plans have been charged to Universal Television Group based upon
actual costs incurred by Universal.
Universal Television Group has been charged for certain payments, principally
professional fees, based on the actual amounts paid by Universal for such
services.
Universal provided an interest-free loan to Combined USAN, of which $5,500 and
$9,167 were outstanding as of June 30, 1997 and 1996, respectively. Payments of
$1,833 are made on April 1st and October 1st of each year with the final payment
due on October 1, 1998. The loan from Universal is reflected as an advance and
included in the Investment in Combined USAN account.
Management believes that the allocation methods as disclosed above were
reasonable in the circumstances.
NOTE 14 -- JUNE 5, 1995 THROUGH JUNE 30, 1995 RESULTS
The results of operations for Universal Television Group for the period June 5,
1995 through June 30, 1995 are as follows:
Revenues
Program licensing........................................ $18,644
Program licensing -- Combined USAN....................... 4,400
-------
23,044
Costs and expenses
Program costs............................................ 14,244
Selling, general and administrative...................... 4,131
Depreciation and amortization............................ 804
-------
Operating income........................................... 3,865
Nonoperating income
Combined USAN pre-tax equity earnings, net of goodwill
amortization.......................................... 5,100
Interest income, net..................................... --
-------
Income before income taxes................................. 8,965
Income tax provision....................................... 3,500
-------
Net income................................................. $ 5,465
=======
F-152
306
UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
The cash flow results for the period June 5, 1995 through June 30, 1995 are as
follows:
Cash flows used in operating activities:
Net income.............................................. $ 5,465
Adjustments to reconcile net income to net cash used by
operations:
Additions to program costs.............................. (30,662)
Amortization of program costs........................... 12,277
Depreciation and amortization........................... 2,096
Equity in net income of Combined USAN................... (6,318)
Distributions received from Combined USAN............... 8,000
Decrease in license fees and other receivables.......... 24,216
Decrease in accounts payable and other liabilities...... (20,985)
Other changes, net...................................... 4,662
--------
Net cash used by operating activities..................... (1,249)
Cash flows used in investing activities:
Net cash transferred from Universal..................... (5,353)
--------
Net cash used by financing activities..................... (5,353)
--------
Cash flows used in financing activities:
Property, plant and equipment........................... (247)
--------
Net cash used by investing activities..................... (247)
--------
Decrease in cash and cash equivalents..................... (6,849)
Cash and cash equivalents at beginning of period.......... 22,727
--------
Cash and cash equivalents at end of period................ $ 15,878
========
Supplemental disclosures of cash flow information:
Interest paid........................................... $ --
========
Income taxes paid (net of refunds received)............. $ --
========
NOTE 15 -- SUBSEQUENT EVENTS
On September 22, 1997, Universal and Viacom Inc. ("Viacom") announced that they
have agreed to resolve all litigation regarding jointly-owned Combined USAN.
Under the terms of the agreement, Universal acquired, on October 21, 1997,
Viacom's 50% interests in USAN, and Sci-Fi Europe, for $1.7 billion in cash. The
acquisition is being accounted for as a purchase, and Universal has not yet
completed its purchase price allocation. A fair market valuation of assets
acquired and liabilities assumed of Combined USAN will be completed in the near
future. The items to be valued include program assets and liabilities, future
program commitments to purchase programming and other contractual commitments.
The resulting unallocated goodwill is expected to be amortized over a 40-year
life.
On October 19, 1997, HSNi agreed to acquire from Universal USAN and UTV in
exchange for $4.075 billion in value, comprised of a combination of securities
that in effect represent a 45% equity interest in HSNi and up to $1.43 billion
in cash, plus, in certain circumstances, an additional payment in the form of a
cash distribution. In addition, HSNi intends to change its corporate name
F-153
307
UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
(in thousands)
to "USA Networks, Inc." This transaction, which is expected to close in the
first quarter of calendar 1998, is subject to customary conditions, including
HSNi stockholder approval.
The Universal assets being contributed include USAN and UTV. A new international
joint venture will be created consisting mainly of Sci-Fi Europe and the
international operations of USAN and will be equally owned by HSNi and
Universal. Universal will retain ownership of its television library and its
international television production and distribution operations.
F-154
308
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation law (the "DGCL") provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation -- a "derivative action"),
if they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceedings, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such action, and the statute requires court approval before
there can be any indemnification where the person seeking indemnification has
been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
charter, by-laws, disinterested director vote, stockholder vote, agreement or
otherwise.
As permitted by Section 145 of the Delaware General Corporation Law, Article
VIII of the Company's Restated Certificate of Incorporation provides:
"Each person who is or was or had agreed to become a director or officer of the
Corporation, or each such person who is or was serving or who had agreed to
serve at the request of the Board of Directors or an officer of the Corporation
as an employee or agent of the Corporation or as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate of such
person), shall be indemnified by the Corporation, in accordance with the By-Laws
of the Corporation, to the full extent permitted from time to time by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) or any other applicable laws as presently or hereinafter in effect.
Without limiting the generality or the effect of the foregoing, the Corporation
may enter into one or more agreements with any person that provide for
indemnification greater or different than that provided in this Article VIII.
Any amendment or repeal of this Article VIII shall not adversely affect any
right or protection existing hereunder immediately prior to such amendment or
repeal."
The Company's Restated Certificate of Incorporation also limits the personal
liability of directors for monetary damages for breach of the director's
fiduciary duty to certain instances.
The Company maintains insurance on behalf of any person who is or was a
director, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Company would have the power to indemnify
him against such liability under provisions of the Company's Restated
Certificate of Incorporation.
II-1
309
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Exchange and Merger, dated as of
August 25, 1996, by and among Silver King Communications,
Inc., House Acquisition Corp., Home Shopping Network, Inc.
and Liberty HSN, Inc., filed as Appendix B to the Company's
Definitive Proxy Statement, dated November 20, 1996, is
incorporated herein by reference.
2.2 Agreement and Plan of Merger by and among Silver King
Communications, Inc., Thames Acquisition Corporation and
Savoy Pictures Entertainment, Inc., as amended and restated
as of August 13, 1996, filed as Appendix A to the Company's
Definitive Proxy Statement, dated November 20, 1996, is
incorporated herein by reference.
2.3 Investment Agreement, dated as of October 19, 1997, among
Universal Studios, Inc., HSN, Inc., Home Shopping Network,
Inc. and Liberty Media Corporation, as amended and restated
as of December 18, 1997, filed as Appendix A to the
Company's Definitive Proxy Statement, dated January 12,
1998, is incorporated herein by reference.
2.4 Amended and Restated Agreement and Plan of Reorganization,
dated as of August 12, 1998, among CitySearch, Inc.,
Tiberius, Inc., USA Networks, Inc., Ticketmaster Group,
Inc., Ticketmaster Corporation and Ticketmaster Multimedia
Holdings, Inc., filed as Exhibit 10 to the Company's Form
10-Q, for the quarter ended September 30, 1998, is
incorporated herein by reference.
2.5 Agreement and Plan of Merger, dated as of March 20, 1998, by
and among USA Networks, Inc., Brick Acquisition Corp. and
Ticketmaster Group, Inc., filed as Exhibit 10.61 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, is incorporated herein by
reference.
3.1 Restated Certificate of Incorporation of the Company filed
as Exhibit 3.1 to the Company's Form 8-K, dated February 23,
1998, is incorporated herein by reference.
3.2 Amended and Restated By-Laws of the Company filed as Exhibit
3.1 to the Company's Form 8-K, dated January 9, 1998, is
incorporated herein by reference.
3.3 Certificate of Formation of USANi LLC.
3.4 Amended and Restated Limited Liability Company Agreement of
USANi LLC filed as Exhibit 10.59 to the Company's Annual
Report on Form 10-K, for the fiscal year ended December 31,
1997, is incorporated herein by reference.
3.5 Certificate of Formation of USANi Sub LLC.
3.6 Limited Liability Company Agreement of USANi Sub LLC.
3.7 Certificate of Incorporation of USAi Sub, Inc.
3.8 By-Laws of USAi Sub, Inc.
3.9 Certificate of Limited Partnership of Home Shopping Club LP.
3.10 Limited Partnership Agreement of Home Shopping Club LP.
3.11 Certificate of Limited Partnership of National Call Center
LP.
3.12 Limited Partnership Agreement of National Call Center LP.
3.13 Certificate of Formation of Internet Shopping Network LLC.
3.14 Limited Liability Company Agreement of Internet Shopping
Network LLC.
3.15 Restated Certificate of Incorporation of Home Shopping
Network, Inc., as amended.
II-2
310
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.16 By-Laws of Home Shopping Network, Inc., filed as Exhibit 3.4
to Home Shopping Network, Inc.'s Annual Report on Form 10-K,
for the fiscal year ended December 31, 1996, is incorporated
herein by reference.
3.17 Certificate of Formation of HSN Capital LLC.
3.18 Limited Liability Company Agreement of HSN Capital LLC.
3.19 Certificate of Formation of HSN Fulfillment LLC.
3.20 Limited Liability Company Agreement of HSN Fulfillment LLC.
3.21 Certificate of Formation of HSN Realty LLC.
3.22 Limited Liability Company Agreement of HSN Realty LLC.
3.23 Certificate of Formation of HSN of Nevada LLC.
3.24 Limited Liability Company Agreement of HSN of Nevada LLC.
3.25 Certificate of Incorporation of New-U Studios Holdings, Inc.
3.26 By-Laws of New-U Studios Holdings, Inc.
3.27 Certificate of Incorporation of HSN Holdings, Inc.
3.28 By-Laws of HSN Holdings, Inc.
3.29 Certificate of Incorporation of USA Networks Holdings, Inc.
3.30 By-Laws of USA Networks Holdings, Inc.
3.31 Certificate of Incorporation of New-U Studios, Inc.
3.32 By-Laws of New-U Studios, Inc.
3.33 Certificate of Formation of HSN General Partner LLC.
3.34 Limited Liability Company Agreement of HSN General Partner
LLC.
3.35 Certificate of Formation of Studios USA LLC (formerly, New-U
Studios LLC), as amended.
3.36 Limited Liability Company Agreement of Studios USA LLC.
3.37 Certificate of Formation of USA Networks Partner LLC.
3.38 Limited Liability Company Agreement of USA Networks Partner
LLC.
3.39 Amended and Restated General Partnership Agreement of USA
Networks (New York General Partnership).*
3.40 Certificate of Formation of Studios USA Television LLC
(formerly, New-U Television LLC), as amended.
3.41 Limited Liability Company Agreement of Studios USA
Television LLC.
3.42 Certificate of Formation of Studios USA First Run Television
LLC (formerly, New-U First Run LLC), as amended.
3.43 Limited Liability Company Agreement of Studios USA First Run
Television LLC.
3.44 Certificate of Formation of Studios USA Pictures LLC
(formerly, New-U Pictures LLC), as amended.
3.45 Limited Liability Company Agreement of Studios USA Pictures
LLC.
3.46 Certificate of Formation of Studios USA Development LLC
(formerly, New-U Development LLC), as amended.
3.47 Limited Liability Company Agreement of Studios USA
Development LLC.
3.48 Certificate of Formation of Studios USA Reality Television
LLC (formerly, New-U Productions LLC), as amended.
II-3
311
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.49 Limited Liability Company Agreement of Studios USA Reality
Television LLC.
3.50 Certificate of Formation of Studios USA Talk Television LLC
(formerly, New-U Talk LLC), as amended.
3.51 Limited Liability Company Agreement of Studios USA Talk
Television LLC.
3.52 Certificate of Formation of Studios USA Pictures Development
LLC (formerly, New-U Pictures Development LLC), as amended.
3.53 Limited Liability Company Agreement of Studios USA Pictures
Development LLC.
3.54 Certificate of Formation of Studios USA Television
Distribution LLC (formerly, New-U Distribution LLC), as
amended.
3.55 Limited Liability Company Agreement of Studios USA
Television Distribution LLC.
3.56 Certificate of Formation of Studios USA Talk Video LLC
(formerly, New-U Talk Video LLC), as amended.
3.57 Limited Liability Company Agreement of Studios USA Talk
Video LLC.
3.58 Certificate of Formation of New-U Pictures Facilities LLC.
3.59 Limited Liability Company Agreement of New-U Pictures
Facilities LLC.
3.60 Certificate of Incorporation of SK Holdings, Inc.
3.61 By-Laws of SK Holdings, Inc.
3.62 Certificate of Incorporation of USA Broadcasting, Inc.
(formerly, SKTV, Inc.), as amended.
3.63 By-Laws of USA Broadcasting, Inc.
3.64 Certificate of Incorporation of USA Station Group of
Houston, Inc. (formerly, Silver King Broadcasting of
Houston, Inc.), as amended.
3.65 By-Laws of USA Station Group of Houston, Inc.
3.66 Certificate of Incorporation of Silver King Capital
Corporation, Inc.
3.67 By-Laws of Silver King Capital Corporation, Inc.
3.68 Certificate of Incorporation of USA Station Group of Dallas,
Inc. (formerly, Silver King Broadcasting of Dallas, Inc.),
as amended.
3.69 By-Laws of USA Station Group of Dallas, Inc.
3.70 Certificate of Incorporation of USA Station Group of
Illinois, Inc. (formerly, Silver King Broadcasting of
Illinois, Inc.), as amended.
3.71 By-Laws of USA Station Group of Illinois, Inc.
3.72 Certificate of Incorporation of USA Station Group of
Massachusetts, Inc. (formerly, Silver King Broadcasting of
Massachusetts, Inc.), as amended.
3.73 By-Laws of USA Station Group of Massachusetts, Inc.
3.74 Certificate of Incorporation of USA Station Group of New
Jersey, Inc. (formerly, Silver King Broadcasting of New
Jersey, Inc.), as amended.
3.75 By-Laws of USA Station Group of New Jersey, Inc.
3.76 Certificate of Incorporation of USA Station Group of Ohio,
Inc. (formerly, Silver King Broadcasting of Ohio, Inc.), as
amended.
3.77 By-Laws of USA Station Group of Ohio, Inc.
3.78 Certificate of Incorporation of USA Station Group of
Vineland, Inc. (formerly, Silver King Broadcasting of
Vineland, Inc.), as amended.
3.79 By-Laws of USA Station Group of Vineland, Inc.
II-4
312
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.80 Certificate of Incorporation of USA Station Group of
Atlanta, Inc. (formerly, Silver King Broadcasting of
Maryland, Inc.), as amended.
3.81 By-Laws of USA Station Group of Atlanta, Inc.
3.82 Certificate of Incorporation of USA Station Group of
Southern California, Inc. (formerly, Silver King
Broadcasting of Southern California, Inc.), as amended.
3.83 By-Laws of USA Station Group of Southern California, Inc.
3.84 Certificate of Incorporation of USA Station Group of
Virginia, Inc. (formerly, Silver King Broadcasting of
Virginia, Inc.), as amended.
3.85 By-Laws of USA Station Group of Virginia, Inc.
3.86 Certificate of Incorporation of USA Station Group of Tampa,
Inc. (formerly, Silver King Broadcasting of Tampa, Inc.), as
amended.
3.87 By-Laws of USA Station Group of Tampa, Inc.
3.88 Certificate of Incorporation of USA Station Group of
Hollywood Florida, Inc. (formerly, Silver King Broadcasting
of Miami, Inc.), as amended.
3.89 By-Laws of USA Station Group of Hollywood Florida, Inc.
3.90 Certificate of Incorporation of Telemation, Inc. (formerly,
HSN Telemation, Inc.), as amended.
3.91 By-Laws of Telemation, Inc.
3.92 Certificate of Incorporation of USA Station Group of
Northern California, Inc. (formerly, Silver King
Broadcasting of Northern California, Inc.), as amended.
3.93 By-Laws of USA Station Group of Northern California, Inc.
3.94 Certificate of Incorporation of USA Station Group, Inc.
(formerly, UHF Investments, Inc.), as amended.
3.95 By-Laws of USA Station Group, Inc.
3.96 Certificate of Incorporation of USA Broadcasting
Productions, Inc. (formerly, Silver King Productions, Inc.),
as amended.
3.97 By-Laws of USA Broadcasting Productions, Inc.
3.98 Certificate of Incorporation of Miami, USA Broadcasting
Station Productions, Inc. (formerly, Silver King Station
Productions of Miami, Inc.), as amended.
3.99 By-Laws of Miami, USA Broadcasting Station Productions, Inc.
3.100 Articles of Incorporation of Miami, USA Broadcasting
Productions, Inc. (formerly, SK Miami Productions, Inc.), as
amended.
3.101 By-Laws of Miami, USA Broadcasting Productions, Inc.
3.102 Certificate of Incorporation of Silver King Investment
Holdings, Inc.
3.103 By-Laws of Silver King Investment Holdings, Inc.
3.104 Certificate of Incorporation of SKC Investments, Inc.
3.105 By-Laws of SKC Investments, Inc.
3.106 Partnership Agreement of USA Station Group Partnership of
Dallas (formerly, SKDA Broadcasting Partnership).
3.107 Partnership Agreement of USA Station Group Partnership of
Houston (formerly, SKHO Broadcasting Partnership).
3.108 Partnership Agreement of USA Station Group Partnership of
Illinois (formerly, SKIL Broadcasting Partnership).
II-5
313
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.109 Partnership Agreement of USA Station Group Partnership of
Massachusetts (formerly, SKMA Broadcasting Partnership).
3.110 Partnership Agreement of USA Station Group Partnership of
New Jersey (formerly, SKNJ Broadcasting Partnership).
3.111 Partnership Agreement of USA Station Group Partnership of
Ohio (formerly, SKOH Broadcasting Partnership).
3.112 Partnership Agreement of USA Station Group Partnership of
Vineland (formerly, SKVI Broadcasting Partnership).
3.113 Partnership Agreement of USA Station Group Partnership of
Atlanta (formerly, SKMD Broadcasting Partnership).
3.114 Amendment of Partnership Agreement of USA Station Group
Partnership of Atlanta.
3.115 Partnership Agreement of USA Station Group Partnership of
Southern California (formerly, SKLA Broadcasting
Partnership).
3.116 Partnership Agreement of USA Station Group Partnership of
Tampa (formerly, SKTA Broadcasting Partnership).
3.117 Partnership Agreement of USA Station Group Partnership of
Hollywood, Florida (formerly, SKFL Broadcasting
Partnership).
3.118 Global Amendment of Partnership Agreements of SK
Broadcasting Partnerships, dated February, 1998.
3.119 Global Amendment of Partnership Agreements of SK
Broadcasting Partnerships, dated April 23, 1998.
3.120 Amended and Restated Articles of Incorporation of
Ticketmaster Group, Inc.
3.121 Amended and Restated By-Laws of Ticketmaster Group, Inc.,
filed as Exhibit 3.2 to Ticketmaster Group's Form S-1,
September 20, 1996, is incorporated herein by reference.
3.122 Articles of Incorporation of Ticketmaster Corporation, as
amended.
3.123 By-Laws of Ticketmaster Corporation, as amended.
4.1 Indenture, dated as of November 23, 1998, among the Company,
USANi LLC, the Guarantors party thereto, and The Chase
Manhattan Bank, as Trustee.
4.2 Form of 6 3/4% Senior Notes due 2005 (included as Exhibit B
to Exhibit 4.1).
4.3 Exchange and Registration Rights Agreement, dated as of
November 23, 1998, among the Company, USANi LLC, the
Guarantors party thereto, and Chase Securities Inc., Bear,
Stearns & Co. Inc., BNY Capital Markets, Inc. and
NationsBanc Montgomery Securities LLC.
4.4 Indenture, dated as of June 25, 1993, for the Savoy 7%
Convertible Subordinated Debentures due July 1, 2003, filed
as Exhibit 4(d) to Savoy's S-1 Registration Statement No.
33-63192, is incorporated herein by reference.
4.5 First Supplemental Indenture, dated as of October 24, 1993,
for the Savoy 7% Convertible Debentures due July 1, 2003,
filed as Exhibit 4(e) to Savoy's S-1 Registration Statement
No. 33-70160, is incorporated herein by reference.
4.6 Second Supplemental Indenture, dated as of December 17,
1993, for the Savoy 7% Convertible Debentures due July 1,
2003, filed as Exhibit 4(e) to Savoy's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, is
incorporated herein by reference.
4.7 Third Supplemental Indenture, dated as of December 19, 1996,
for the Savoy 7% Convertible Debentures due July 1, 2003
filed as Exhibit 4.1 to Savoy's Form 8-K, dated December 19,
1996, is incorporated herein by reference.
II-6
314
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
5 Opinion of Howard, Smith & Levin LLP, regarding the legality
of the securities being issued.*
10.1 Form of Affiliation Agreements between the Company and Home
Shopping, filed as Exhibit 10.2 to the Company's
Registration Statement on Form 10, as amended, is
incorporated herein by reference.
10.2 Form of 1992 Stock Option and Restricted Stock Plan between
the Company and Home Shopping, filed as Exhibit 10.6 to the
Company's Registration Statement on Form 8, as amended, is
incorporated herein by reference.
10.3 Form of Retirement Savings and Employment Stock Ownership
Plan, filed as Exhibit 10.8 to the Company's Registration
Statement on Form 8, as amended, is incorporated herein by
reference.
10.4 Form of Indemnification Agreement, filed as Exhibit 10.10 to
the Company's Registration Statement on Form 10, as amended,
is incorporated herein by reference.
10.5 Form of Loan Agreement, as amended, by and between Silver
King Capital Corporation, Inc. and Roberts Broadcasting
Company of Denver, filed as Exhibit 10.17 to the Company's
Annual Report on Form 10-K, for the fiscal year ended August
31, 1994, is incorporated herein by reference.
10.6 Form of Shareholder Agreement by and among Silver King
Capital Corporation, Inc., Roberts Broadcasting Company of
Denver, Michael V. Roberts and Steven C. Roberts, filed as
Exhibit 10.18 to the Company's Annual Report on Form 10-K,
for the fiscal year ended August 31, 1994, is incorporated
herein by reference.
10.7 Limited Liability Company Agreement, Funding Agreement and
Form of First Amendment to LLC, Registration Rights
Agreement and associated documents between the Company, the
Class A Shareholders of Blackstar Communications, Inc. and
Fox Television Stations, Inc., dated as of June 27, 1995 and
August 18, 1995, filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K, for the fiscal year ended August
31, 1995, are incorporated herein by reference.
10.8 1986 Stock Option Plan for Employees, dated as of August 1,
1986, filed as Exhibit 10.33 to Home Shopping's Form S-1
Registration Statement No. 33-8560, is incorporated herein
by reference.
10.9 First, Second, Third and Fourth Amendments to the 1986 Stock
Option Plan for Employees, filed as Exhibit 10.31 to Home
Shopping's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1993, are incorporated herein by
reference.
10.10 Form of 1990 Executive Stock Award Program, dated as of
October 17, 1990, as amended, filed as Exhibit 10.23 to Home
Shopping's Annual Report on Form 10-K, for the fiscal year
ended August 31, 1991, is incorporated herein by reference.
10.11 Stock Purchase Agreement by and between Home Shopping and
The National Registry Inc., dated as of April 28, 1992,
filed as Exhibit 10.29 to Home Shopping's Annual Report on
Form 10-K, for the fiscal year ended August 31, 1992, is
incorporated herein by reference.
10.12 Home Shopping Network, Inc. Employee Stock Purchase Plan and
Part-Time Employee Stock Purchase Plan, filed as Exhibit
10.30 to Home Shopping's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, is incorporated herein
by reference.
10.13 Home Shopping Network, Inc. Employee Equity Participation
Plan and Agreement and Declaration of Trust, filed as
Exhibit 10.31 to Home Shopping's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1994, is incorporated
herein by reference.
II-7
315
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.14 Home Shopping Network, Inc. 1996 Stock Option Plan for
Employees, filed as Exhibit A to the Home Shopping
Definitive Proxy Statement, dated March 28, 1996, is
incorporated herein by reference.
10.15 Home Shopping Network, Inc. 1996 Stock Option Plan for
Outside Directors, filed as Exhibit B to the Home Shopping
Definitive Proxy Statement, dated March 28, 1996, is
incorporated herein by reference.
10.16 Binding Term Sheet for the Stockholders Agreement, dated as
of August 24, 1995, between Barry Diller and Liberty Media
Corporation and the First Amendment thereto, dated August
25, 1996, filed as Appendix I to the Company's Definitive
Proxy Statement, dated November 20, 1996, are incorporated
herein by reference.
10.17 Exchange Agreement, dated as of December 20, 1996, by and
between the Registrant and Liberty HSN, Inc. filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1996, is incorporated
herein by reference.
10.18 Equity and Bonus Compensation Agreement, dated as of August
24, 1995, between Barry Diller and the Registrant filed as
Exhibit 10.26 to the Company's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1996, is incorporated
herein by reference.
10.19 Silver King Communications, Inc. 1995 Stock Incentive Plan
filed as Appendix G to the Company's Definitive Proxy
Statement, dated November 20, 1996, is incorporated herein
by reference.
10.20 Silver King Communications, Inc. Directors' Stock Option
Plan filed as Appendix H to the Company's Definitive Proxy
Statement, dated November 20, 1996, is incorporated herein
by reference.
10.21 Employment Agreement between Home Shopping and James G.
Held, dated as of November 24, 1995, filed as Exhibit 10.35
to Home Shopping's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, is incorporated herein
by reference.
10.22 Letter Agreement, dated January 28, 1997, between Home
Shopping Network, Inc. and Leo J. Hindery, Jr.
10.23 Letter Agreement, dated April 3, 1996, between Home Shopping
Network, Inc. and Gen. H. Norman Schwarzkopf filed as
Exhibit 10.34 to the Company's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1996, is incorporated
herein by reference.
10.24 Shareholders Agreement, dated December 12, 1996, relating to
Jupiter Shop Channel Co. Ltd. among Jupiter Programming Co.
Ltd., Home Shopping Network, Inc. and Jupiter Shop Channel
Co. Ltd. filed as Exhibit 10.35 to the Company's Annual
Report on Form 10-K, for the fiscal year ended December 31,
1996, is incorporated herein by reference.
10.25 Services and Trademark License Agreement, dated as of
December 12, 1996, between Home Shopping Network, Inc. and
Jupiter Shop Channel Co. Ltd., filed as Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is incorporated herein by
reference.
10.26 Purchase and Sale Agreement among Home Shopping Network
GmbH, Home Shopping Network, Inc., Quelle Schickedanz AG &
Co., Mr. Thomas Kirch and Dr. Georg Kofler, dated as of
January 16, 1997, filed as Exhibit 10.37 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, is incorporated herein by reference.
II-8
316
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.27 Joint Venture Agreement between Quelle Schickedanz AG & Co.,
Home Shopping Network, Inc., Home Shopping Network GmbH, Mr.
Thomas Kirch and Dr. Georg Kofler, filed as Exhibit 5.3 to
the Purchase and Sale Agreement, filed as Exhibit 10.38 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is incorporated herein by
reference.
10.28 License Agreement, dated as of January 1, 1996, between
Ronald A. Katz Technology Licensing, L.P. and Home Shopping
Network, Inc., filed as Exhibit 10.39 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, is incorporated herein by reference.
10.29 Shareholder Agreement, dated as of April 26, 1996, by and
among Channel 66 of Vallejo, California, Inc., Whitehead
Media of California, Inc. and Silver King Capital
Corporation, Inc., filed as Exhibit 10.40 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, is incorporated herein by reference.
10.30 Loan Agreement, dated as of April 26, 1996, by and between
SKC Investments, Inc. and Channel 66 of Vallejo, California,
Inc., filed as Exhibit 10.41 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, is
incorporated herein by reference.
10.31 Joint Venture and License Agreement, dated as of June 12,
1992, between Savoy Pictures Entertainment, Inc. and Home
Box Office, Inc. (confidential treatment for portions
thereof granted), filed as Exhibit 10(a) to Savoy's S-1
Registration Statement No. 33-57956, is incorporated herein
by reference.
10.32 License Agreement, dated as of June 12, 1992, among Savoy
Pictures Entertainment, Inc. and Home Box Office, Inc.
(confidential treatment of portions thereof granted), filed
as Exhibit 10(b) to Savoy's S-1 Registration Statement No.
33-57956, is incorporated herein by reference.
10.33 Warrant Agreement, dated as of March 2, 1992, between Savoy
Pictures Entertainment, Inc. and Allen & Company
Incorporated, filed as Exhibit 10(f) to Savoy's S-1
Registration Statement No. 33-57956, is incorporated herein
by reference.
10.34 Warrant Agreement, dated as of March 2, 1992, between Savoy
Pictures Entertainment, Inc. and GKH Partners, L.P., filed
as Exhibit 10(g) to Savoy's S-1 Registration Statement No.
33-57956, is incorporated herein by reference.
10.35 Warrant Agreement, dated as of April 20, 1994, between Savoy
and GKH Partners, L.P., filed as Exhibit 10.2 to Savoy's
Form 10-Q for the quarter ended March 31, 1994, is
incorporated herein by reference.
10.36 Amended and Restated Stock Option Plan (including form of
Stock Options Agreement) filed as Exhibit 4.1 to Savoy's
Registration Statement No. 33-70740, is incorporated herein
by reference.
10.37 Savoy 1995 Stock Option Plan filed as Exhibit 10(+) to
Savoy's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, is incorporated herein by reference.
10.38 $1,600,000,000 Credit Agreement, dated February 12, 1998,
among the Company, USANi LLC, as Borrower, Various Lenders,
The Chase Manhattan Bank as Administrative Agent,
Syndication Agent and Collateral Agent, and Bank of America
National Trust & Savings Association and The Bank of New
York as Co-Documentation Agents, filed as Exhibit 10.50 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 is incorporated herein by reference.
II-9
317
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.39 First Amendment and Consent, dated as of June 24, 1998, to
the Credit Agreement, dated February 12, 1998, among the
Company, USANi LLC, as Borrower, Various Lenders, The Chase
Manhattan Bank, as Administrative Agent, Syndication Agent
and Collateral Agent, and Bank of America National Trust &
Savings Association and The Bank of New York, as
Co-Documentation Agents.
10.40 Second Amendment, dated as of October 9, 1998, to the Credit
Agreement, dated February 12, 1998, among the Company, USANi
LLC, as Borrower, Various Lenders, The Chase Manhattan Bank,
as Administrative Agent, Syndication Agent and Collateral
Agent, and Bank of America National Trust & Savings
Association and The Bank of New York, as Co-Documentation
Agents.
10.41 Form of Governance Agreement among HSN, Inc., Universal
Studios, Inc., Liberty Media Corporation and Barry Diller,
dated as of October 19, 1997, filed as Appendix B to the
Company's Definitive Proxy Statement, dated January 12,
1998, is incorporated herein by reference.
10.42 Form of Stockholders Agreement among Universal Studios,
Inc., Liberty Media Corporation, Barry Diller, HSN, Inc. and
The Seagram Company Ltd. dated as of October 19, 1997, filed
as Appendix C to the Company's Definitive Proxy Statement,
dated January 12, 1998, is incorporated herein by reference.
10.43 Form of Spinoff Agreement between Liberty Media Corporation
and Universal Studios, Inc. dated as of October 19, 1997,
filed as Appendix D to the Company's Definitive Proxy
Statement, dated January 12, 1998, is incorporated herein by
reference.
10.44 HSN, Inc. 1997 Stock and Annual Incentive Plan filed as
Appendix F to the Company's Definitive Proxy Statement,
dated January 12, 1998, is incorporated herein by reference.
10.45 Employment Agreement between Thomas J. Kuhn and HSN, Inc.
dated February 9, 1998 filed as Exhibit 10.56 to the
Company's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1997 is incorporated herein by reference.
10.46 Employment Agreement between Dara Khosrowshahi and USA
Networks, Inc., dated March 2, 1998, filed as Exhibit 10.57
to the Company's Annual Report on Form 10-K, for the fiscal
year ended December 31, 1997, is incorporated herein by
reference.
10.47 Employment Agreement between Michael P. Durney and USA
Networks, Inc., dated March 30, 1998, filed as Exhibit 10.9
to the Company's 10-Q for the quarter ended March 31, 1998,
is incorporated herein by reference.
10.48 HSN, Inc. Retirement Savings Plan ("Savings Plan"), filed as
Exhibit 10.58 to the Company's Form 10-K for the fiscal year
ended December 31, 1997 is incorporated herein by reference.
10.49 Amendment to the Savings Plan.
10.50 Exchange Agreement, dated as of October 19, 1997, by and
among HSN, Inc. (renamed USA Networks, Inc.), Universal
Studios, Inc. (and certain of its subsidiaries) and Liberty
Media Corporation (and certain of its subsidiaries) filed as
Exhibit 10.60 to the Company's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1997, is incorporated
herein by reference.
10.51 Cooperation, Non-Competition and Confidentiality Agreement
by and between the Company and Fredric D. Rosen, dated as of
March 9, 1998, filed as Exhibit 6 to Amendment No. 4 to the
Company's report on Schedule 13D for Ticketmaster Group,
Inc., dated March 23, 1998, is incorporated herein by
reference.
II-10
318
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.52 License and Services Agreement, dated as of August 12, 1998,
by and between Ticketmaster Corporation, Ticketmaster
Multimedia Holdings, Inc., and USA Networks,
Inc.(confidential treatment for portions thereof granted),
filed as Exhibit 10.29 to Ticketmaster Online-Citisearch,
Inc.'s Form S-1 Registration Statement No. 333-64855, is
incorporated herein by reference.
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges of USAi.
12.2 Statement re: Computation of Ratio of Earnings to Fixed
Charges of Holdco.
12.3 Statement re: Computation of Ratio of Earnings to Fixed
Charges of USANi.
21.1 Subsidiaries of the Company.*
21.2 Subsidiaries of USANi LLC.*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of Deloitte & Touche LLP
23.6 Consent of PricewaterhouseCoopers LLP
23.7 Consent of PricewaterhouseCoopers LLP
23.8 Consent of KPMG LLP
23.9 Consent of KPMG LLP
23.10 Consent of KPMG LLP
23.11 Consent of Counsel (included in Exhibit 5.1).
24.1 Powers of Attorney of the Issuers and the Guarantors
(included in the signature pages hereto).
25.1 Statement of Eligibility of Trustee on Form T-1 related to
the Notes.
27.1 Holdco Financial Data Schedule for the year ended December
31, 1997 (for SEC use only)
27.2 Holdco Financial Data Schedule for the year ended December
31, 1996 (for SEC use only)
27.3 Holdco Financial Data Schedule for the year ended December
31, 1995 (for SEC use only)
27.4 USANi LLC Financial Data Schedule for the year ended
December 31, 1997 (for SEC use only)
27.5 USANi LLC Financial Data Schedule for the year ended
December 31, 1996 (for SEC use only)
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.*
99.4 Form of Letter to Clients.*
99.5 Form of Exchange Agent Agreement.*
- -------------------------
* To be filed by amendment.
II-11
319
(b) Consolidated Financial Statement Schedules
SCHEDULE PAGE
NUMBER NUMBER
- -------- ----------
II -- Valuation and Qualifying Accounts........................ S-1 to S-3
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of a
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail
or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) Insofar as idemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification is against such liabilities (other
than the payment by the registrants of expenses incurred or paid by a
director, officer or controlling person of the registrants in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrants will unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-12
320
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA NETWORKS, INC.
By: /s/ BARRY DILLER
------------------------------------
Name: Barry Diller
Title: Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn with full power to act alone, as his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any subsequent registration statement filed
by the Registrant pursuant to Rule 462(b) of the Securities Act, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ BARRY DILLER Chairman of the Board, January 27, 1999
- --------------------------------------------------- Chief Executive Officer
Barry Diller and Director
/s/ MICHAEL P. DURNEY Vice President and January 27, 1999
- --------------------------------------------------- Controller (Chief
Michael P. Durney Accounting Officer)
/s/ VICTOR A. KAUFMAN Director, Office of the January 27, 1999
- --------------------------------------------------- Chairman and Chief
Victor A. Kaufman Financial Officer
(Principal Financial
Officer)
/s/ PAUL G. ALLEN Director January 27, 1999
- ---------------------------------------------------
Paul G. Allen
/s/ EDGAR BRONFMAN, JR. Director January 27, 1999
- ---------------------------------------------------
Edgar Bronfman, Jr.
II-13
321
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JAMES G. HELD Director January 27, 1999
- ---------------------------------------------------
James G. Held
/s/ DONALD R. KEOUGH Director January 27, 1999
- ---------------------------------------------------
Donald R. Keough
/s/ ROBERT W. MATSCHULLAT Director January 27, 1999
- ---------------------------------------------------
Robert W. Matschullat
/s/ SAMUEL MINZBERG Director January 27, 1999
- ---------------------------------------------------
Samuel Minzberg
/s/ WILLIAM D. SAVOY Director January 27, 1999
- ---------------------------------------------------
William D. Savoy
/s/ H. NORMAN SCHWARZKOPF Director January 27, 1999
- ---------------------------------------------------
H. Norman Schwarzkopf
II-14
322
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USANi LLC
By: /s/ BARRY DILLER
------------------------------------
Name: Barry Diller
Title: Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn with full power to act alone, as his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any subsequent registration statement filed
by the Registrant pursuant to Rule 462(b) of the Securities Act, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ BARRY DILLER Chairman of the Board, January 27, 1999
- --------------------------------------------------- Chief Executive Officer
Barry Diller and Director
/s/ MICHAEL P. DURNEY Vice President and January 27, 1999
- --------------------------------------------------- Controller (Chief
Michael P. Durney Accounting Officer)
/s/ VICTOR A. KAUFMAN Director, Office of the January 27, 1999
- --------------------------------------------------- Chairman and Chief
Victor A. Kaufman Financial Officer
(Principal Financial
Officer)
/s/ PAUL G. ALLEN Director January 27, 1999
- ---------------------------------------------------
Paul G. Allen
/s/ ROBERT R. BENNETT Director January 27, 1999
- ---------------------------------------------------
Robert R. Bennett
II-15
323
SIGNATURE TITLE DATE
--------- ----- ----
/s/ EDGAR BRONFMAN, JR. Director January 27, 1999
- ---------------------------------------------------
Edgar Bronfman, Jr.
/s/ JAMES G. HELD Director January 27, 1999
- ---------------------------------------------------
James G. Held
/s/ LEO J. HINDERY Director January 27, 1999
- ---------------------------------------------------
Leo J. Hindery
/s/ DONALD R. KEOUGH Director January 27, 1999
- ---------------------------------------------------
Donald R. Keough
/s/ JOHN C. MALONE Director January 27, 1999
- ---------------------------------------------------
John C. Malone
/s/ ROBERT W. MATSCHULLAT Director January 27, 1999
- ---------------------------------------------------
Robert W. Matschullat
/s/ SAMUEL MINZBERG Director January 27, 1999
- ---------------------------------------------------
Samuel Minzberg
/s/ WILLIAM D. SAVOY Director January 27, 1999
- ---------------------------------------------------
William D. Savoy
/s/ H. NORMAN SCHWARZKOPF Director January 27, 1999
- ---------------------------------------------------
H. Norman Schwarzkopf
II-16
324
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Petersburg, State of
Florida, on January 27, 1999.
HOME SHOPPING NETWORK, INC.
By: /s/ JAMES G. HELD
------------------------------------
Name: James G. Held
Title: Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JAMES G. HELD Chairman and Chief Executive January 27, 1999
- --------------------------------------------------- Officer
James G. Held
/s/ MARK BOZEK President January 27, 1999
- ---------------------------------------------------
Mark Bozek
/s/ ROBERT ROSENBLATT Executive Vice President, January 27, 1999
- --------------------------------------------------- Chief Financial Officer and
Robert Rosenblatt Treasurer
/s/ BRIAN FELDMAN Vice President and Controller January 27, 1999
- ---------------------------------------------------
Brian Feldman
/s/ JED B. TROSPER Director January 27, 1999
- ---------------------------------------------------
Jed B. Trosper
/s/ JAMES G. GALLAGHER Director January 27, 1999
- ---------------------------------------------------
James G. Gallagher
II-17
325
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USANi SUB LLC
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VICTOR A. KAUFMAN Chief Executive Officer January 27, 1999
- ---------------------------------------------------
Victor A. Kaufman
/s/ THOMAS J. KUHN President January 27, 1999
- ---------------------------------------------------
Thomas J. Kuhn
/s/ MICHAEL P. DURNEY Vice President, Chief January 27, 1999
- --------------------------------------------------- Financial Officer and
Michael P. Durney Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
USANi LLC Member and Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-18
326
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USAi SUB, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VICTOR A. KAUFMAN President January 27, 1999
- ---------------------------------------------------
Victor A. Kaufman
/s/ MICHAEL P. DURNEY Vice President, Treasurer January 27, 1999
- --------------------------------------------------- and Director (Principal
Michael P. Durney Financial Officer and
Principal Accounting
Officer)
/s/ THOMAS J. KUHN Director January 27, 1999
- ---------------------------------------------------
Thomas J. Kuhn
II-19
327
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
HOME SHOPPING CLUB, LP
By: HSN General Partner LLC, as
General Partner
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
HSN General Partner LLC General Partner January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
USANi Sub LLC Limited Partner January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
II-20
328
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
NATIONAL CALL CENTER LP
By: HSN General Partner LLC, as
General Partner
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
HSN General Partner LLC General Partner January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
USANi Sub LLC Limited Partner January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
II-21
329
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
INTERNET SHOPPING NETWORK LLC
By: /s/ JED B TROSPER
------------------------------------
Name: Jed B. Trosper
Title: Secretary and Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JED B. TROSPER Secretary and Treasurer January 27, 1999
- --------------------------------------------------- (Principal Executive
Jed B. Trosper Officer, Principal Financial
Officer and Principal
Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
USANi Sub LLC Member January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
II-22
330
SIGNATURE TITLE DATE
--------- ----- ----
HSN General Partner LLC Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-23
331
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
HSN CAPITAL LLC
By: /s/ JOHN S. TRUE
------------------------------------
Name: John S. True
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN S. TRUE President January 27, 1999
- ---------------------------------------------------
John S. True
/s/ JED B. TROSPER Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Jed B. Trosper Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-24
332
SIGNATURE TITLE DATE
--------- ----- ----
USANi Sub LLC Member January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
HSN General Partner LLC Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-25
333
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
HSN FULFILLMENT LLC
By: /s/ CHARLES M. HOPKINS
------------------------------------
Name: Charles M. Hopkins
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHARLES M. HOPKINS President January 27, 1999
- ---------------------------------------------------
Charles M. Hopkins
/s/ JED B. TROSPER Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Jed B. Trosper Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Senior Vice President and
General Counsel
II-26
334
SIGNATURE TITLE DATE
--------- ----- ----
USANi Sub LLC Member January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
HSN General Partner LLC Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-27
335
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
HSN REALTY LLC
By: /s/ JED B. TROSPER
------------------------------------
Name: Jed B. Trosper
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JED B. TROSPER President January 27, 1999
- ---------------------------------------------------
Jed B. Trosper
/s/ BRIAN J. FELDMAN Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Brian J. Feldman Accounting Officer)
USANi Sub LLC Member and Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
HSN General Partner LLC Member and Manager January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-28
336
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
HSN OF NEVADA LLC
By: /s/ JOHN S. TRUE
------------------------------------
Name: John S. True
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN S. TRUE President January 27, 1999
- ---------------------------------------------------
/s/ JED B. TROSPER Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Jed B. Trosper Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
HSN Capital LLC Member January 27, 1999
By: /s/ JOHN S. TRUE
----------------------------------------------
John S. True, President
II-29
337
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
NEW-U STUDIOS HOLDINGS, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VICTOR A. KAUFMAN Chief Executive Officer January 27, 1999
- ---------------------------------------------------
Victor A. Kaufman
/s/ ROBERT ROSENBLATT Vice President, Chief January 27, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
/s/ BRIAN FELDMAN Vice President and January 27, 1999
- --------------------------------------------------- Controller
Brian Feldman
/s/ JED B. TROSPER Director January 27, 1999
- ---------------------------------------------------
Jed B. Trosper
/s/ JAMES G. GALLAGHER Director January 27, 1999
- ---------------------------------------------------
James G. Gallagher
II-30
338
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
HSN HOLDINGS, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VICTOR A. KAUFMAN Chief Executive Officer January 27, 1999
- ---------------------------------------------------
Victor A. Kaufman
/s/ ROBERT ROSENBLATT Vice President, Chief January 27, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
/s/ BRIAN FELDMAN Vice President and January 27, 1999
- --------------------------------------------------- Controller
Brian Feldman
/s/ JED B. TROSPER Director January 27, 1999
- ---------------------------------------------------
Jed B. Trosper
/s/ JAMES G. GALLAGHER Director January 27, 1999
- ---------------------------------------------------
James G. Gallagher
II-31
339
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA NETWORKS HOLDINGS, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VICTOR A. KAUFMAN Chief Executive Officer January 27, 1999
- ---------------------------------------------------
Victor A. Kaufman
/s/ JAMES G. HELD President January 27, 1999
- ---------------------------------------------------
James G. Held
/s/ ROBERT ROSENBLATT Vice President, Chief January 27, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
/s/ BRIAN FELDMAN Vice President and January 27, 1999
- --------------------------------------------------- Controller
Brian Feldman
/s/ JED B. TROSPER Director January 27, 1999
- ---------------------------------------------------
Jed B. Trosper
/s/ JAMES G. GALLAGHER Director January 27, 1999
- ---------------------------------------------------
James G. Gallagher
II-32
340
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
NEW-U STUDIOS, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VICTOR A. KAUFMAN Chief Executive Officer January 27, 1999
- ---------------------------------------------------
Victor A. Kaufman
/s/ ROBERT ROSENBLATT Vice President, Chief January 27, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
/s/ BRIAN FELDMAN Vice President and Controller January 27, 1999
- ---------------------------------------------------
Brian Feldman
/s/ JED B. TROSPER Director January 27, 1999
- ---------------------------------------------------
Jed B. Trosper
/s/ JAMES G. GALLAGHER Director January 27, 1999
- ---------------------------------------------------
James G. Gallagher
II-33
341
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
HSN GENERAL PARTNER LLC
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VICTOR A. KAUFMAN Chief Executive Officer January 27, 1999
- ---------------------------------------------------
Victor A. Kaufman
/s/ ROBERT ROSENBLATT Vice President, Chief January 27, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-34
342
SIGNATURE TITLE DATE
--------- ----- ----
USANi Sub LLC Member January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
HSN Holdings, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-35
343
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA LLC
By: /s/ ROBERT T. FLEMING
------------------------------------
Name: Robert T. Fleming
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT T. FLEMING President January 27, 1999
- ---------------------------------------------------
Robert T. Fleming
/s/ MELISSA LEFFLER Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Melissa Leffler Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-36
344
SIGNATURE TITLE DATE
--------- ----- ----
USANi Sub LLC Member January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
New-U Studios, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-37
345
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA NETWORKS PARTNER LLC
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VICTOR A. KAUFMAN Chief Executive Officer January 27, 1999
- ---------------------------------------------------
Victor A. Kaufman
/s/ ROBERT ROSENBLATT Vice President, Chief January 27, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
/s/ BRIAN FELDMAN Vice President and Controller January 27, 1999
- ---------------------------------------------------
Brian Feldman
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-38
346
SIGNATURE TITLE DATE
--------- ----- ----
USANi Sub LLC Member January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
USA Networks Holdings, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-39
347
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA NETWORKS (NEW YORK
GENERAL PARTNERSHIP)
By: USANi Sub LLC, as General Partner
By: /s/ THOMAS J. KUHN
------------------------------------
Name: Thomas J. Kuhn
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
USANi Sub LLC General Partner January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
USA Networks Partner, LLC General Partner January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-40
348
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA TELEVISION LLC
By: /s/ KENNETH A. SOLOMAN
------------------------------------
Name: Kenneth A. Soloman
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ KENNETH A. SOLOMAN President January 27, 1999
- ---------------------------------------------------
Kenneth A. Soloman
/s/ RICHARD WONG Treasurer (Principal January 27, 1999
- --------------------------------------------------- Financial Officer and
Richard Wong Principal Accounting
Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-41
349
SIGNATURE TITLE DATE
--------- ----- ----
Studios USA LLC Member January 27, 1999
By: /s/ ROBERT T. FLEMING
----------------------------------------------
Robert T. Fleming, President
New-U Studios, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-42
350
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA FIRST-RUN
TELEVISION LLC
By: /s/ LONNIE BURSTEIN
------------------------------------
Name: Lonnie Burstein
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LONNIE BURSTEIN President January 27, 1999
- ---------------------------------------------------
Lonnie Burstein
/s/ MELISSA LEFFLER Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Melissa Leffler Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-43
351
SIGNATURE TITLE DATE
--------- ----- ----
Studios USA LLC Member January 27, 1999
By: /s/ ROBERT T. FLEMING
----------------------------------------------
Robert T. Fleming, President
New-U Studios, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-44
352
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA PICTURES LLC
By: /s/ ROBERT T. FLEMING
------------------------------------
Name: Robert T. Fleming
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT T. FLEMING President January 27, 1999
- ---------------------------------------------------
Robert T. Fleming
/s/ MELISSA LEFFLER Treasurer (Principal January 27, 1999
- --------------------------------------------------- Financial
Melissa Leffler Officer and Principal
Accounting Officer)
USANI LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-45
353
SIGNATURE TITLE DATE
--------- ----- ----
Studios USA LLC Member January 27, 1999
By: /s/ ROBERT T. FLEMING
----------------------------------------------
Robert T. Fleming,
President
New-U Studios, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-46
354
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA DEVELOPMENT LLC
By: /s/ STEVEN T. BRUNELL
------------------------------------
Name: Steven T. Brunell
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ STEVEN T. BRUNELL President January 27, 1999
- ---------------------------------------------------
Steven T. Brunell
/s/ ELIZABETH CHELL Treasurer (Principal January 27, 1999
- --------------------------------------------------- Financial Officer and
Elizabeth Chell Principal Accounting
Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-47
355
SIGNATURE TITLE DATE
--------- ----- ----
Studios USA LLC Member January 27, 1999
By: /s/ ROBERT T. FLEMING
----------------------------------------------
Robert T. Fleming,
President
New-U Studios, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-48
356
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA REALITY TELEVISION LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTINE HEDGECOCK Secretary January 27, 1999
- ---------------------------------------------------
Christine Hedgecock
/s/ LEONARD DIRISIO Treasurer (Principal January 27, 1999
- --------------------------------------------------- Financial Officer and
Leonard Dirisio Principal Accounting
Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-49
357
SIGNATURE TITLE DATE
--------- ----- ----
Studios USA LLC Member January 27, 1999
By: /s/ ROBERT T. FLEMING
----------------------------------------------
Robert T. Fleming,
President
New-U Studios, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-50
358
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA TALK TELEVISION LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTINE HEDGECOCK Secretary January 27, 1999
- ---------------------------------------------------
Christine Hedgecock
/s/ JANE KNAPP Treasurer (Principal January 27, 1999
- --------------------------------------------------- Financial Officer and
Jane Knapp Principal Accounting
Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-51
359
SIGNATURE TITLE DATE
--------- ----- ----
Studios USA LLC Member January 27, 1999
By: /s/ ROBERT T. FLEMING
----------------------------------------------
Robert T. Fleming,
President
New-U Studios, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-52
360
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA PICTURES DEVELOPMENT LLC
By: /s/ JOAN WHITEHEAD EVANS
------------------------------------
Name: Joan Whitehead Evans
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOAN WHITEHEAD EVANS President January 27, 1999
- ---------------------------------------------------
Joan Whitehead Evans
/s/ CHARLES KILLIAN Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Charles Killian Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-53
361
SIGNATURE TITLE DATE
--------- ----- ----
Studios USA LLC Member January 27, 1999
By: /s/ ROBERT T. FLEMING
----------------------------------------------
Robert T. Fleming, President
New-U Studios, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-54
362
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA TELEVISION
DISTRIBUTION LLC
By: /s/ STEVEN S. ROSENBERG
------------------------------------
Name: Steven S. Rosenberg
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ STEVEN S. ROSENBERG President January 27, 1999
- ---------------------------------------------------
Steven S. Rosenberg
/s/ MELISSA LEFFLER Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Melissa Leffler Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
II-55
363
SIGNATURE TITLE DATE
--------- ----- ----
Studios USA LLC Member January 27, 1999
By: /s/ ROBERT T. FLEMING
----------------------------------------------
Robert T. Fleming, President
New-U Studios, Inc. Member January 27, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-56
364
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
STUDIOS USA TALK VIDEO LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTINE HEDGECOCK Secretary January 27, 1999
- ---------------------------------------------------
Christine Hedgecock
/s/ JANE KNAPP Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Jane Knapp Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and General Counsel
Studios USA Talk Television LLC Member January 27, 1999
By: /s/ CHRISTINE HEDGECOCK
----------------------------------------------
Christine Hedgecock,
Secretary
II-57
365
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
NEW-U PICTURES FACILITIES LLC
By: /s/ JOAN WHITEHEAD EVANS
------------------------------------
Name: Joan Whitehead Evans
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOAN WHITEHEAD EVANS President January 27, 1999
- ---------------------------------------------------
Joan Whitehead Evans
/s/ CHARLES KILLIAN Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Charles Killian Accounting Officer)
USANi LLC Manager January 27, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and General Counsel
Studios USA Pictures Development LLC Member January 27, 1999
By: /s/ JOAN WHITEHEAD EVANS
----------------------------------------------
Joan Whitehead Evans,
President
II-58
366
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Petersburg, State of
Florida, on January 27, 1999.
SK HOLDINGS, INC.
By: /s/ LYNN KRALL
------------------------------------
Name: Lynn Krall
Title: Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD LYON President January 27, 1999
- ---------------------------------------------------
Richard Lyon
/s/ LYNN KRALL Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Lynn Krall Accounting Officer)
/s/ JED B. TROSPER Director January 27, 1999
- ---------------------------------------------------
Jed B. Trosper
/s/ JAMES G. GALLAGHER Director January 27, 1999
- ---------------------------------------------------
James G. Gallagher
II-59
367
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA BROADCASTING, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-60
368
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF HOUSTON, INC.
By: /s/ JOHANTHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-61
369
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
SILVER KING CAPITAL
CORPORATION, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-62
370
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF DALLAS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-63
371
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF ILLINOIS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27,1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-64
372
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF MASSACHUSETTS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27,1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-65
373
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF NEW JERSEY, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27,1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-66
374
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF OHIO, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27,1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-67
375
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF
VINELAND, INC.
By: /s/ JONATHAN MILLER
-----------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27,1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-68
376
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF ATLANTA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-69
377
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF
SOUTHERN CALIFORNIA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-70
378
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF VIRGINIA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-71
379
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF
TAMPA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal January 27, 1999
- --------------------------------------------------- Financial Officer and
Helen Rosenberg Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-72
380
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF HOLLYWOOD
FLORIDA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal January 27, 1999
- --------------------------------------------------- Financial Officer and
Helen Rosenberg Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-73
381
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
TELEMATION, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-74
382
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP OF NORTHERN
CALIFORNIA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-75
383
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-76
384
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA BROADCASTING
PRODUCTIONS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-77
385
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
MIAMI, USA BROADCASTING STATION
PRODUCTIONS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal January 27, 1999
- --------------------------------------------------- Financial Officer and
Helen Rosenberg Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-78
386
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
MIAMI, USA BROADCASTING
PRODUCTIONS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-79
387
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
SILVER KING INVESTMENT
HOLDINGS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-80
388
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
SKC INVESTMENTS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director January 27, 1999
- ---------------------------------------------------
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer (Principal Financial January 27, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
/s/ DOUGLAS BINZAK Director January 27, 1999
- ---------------------------------------------------
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director January 27, 1999
- ---------------------------------------------------
Julius Genachowski
II-81
389
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF DALLAS
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal
Accounting Officer)
/s/ DOUGLAS BINZAK Director of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc.
Julius Genachowski
II-82
390
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF HOUSTON
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial
Officer and Principal
Accounting Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-83
391
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF ILLINOIS
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-84
392
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP OF
MASSACHUSETTS
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-85
393
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF NEW JERSEY
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-86
394
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF OHIO
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-87
395
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF VINELAND
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-88
396
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF ATLANTA
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-89
397
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF SOUTHERN CALIFORNIA
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-90
398
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF TAMPA
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-91
399
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 27, 1999.
USA STATION GROUP PARTNERSHIP
OF HOLLYWOOD, FLORIDA
By: USA Station Group, Inc., as
Managing General Partner
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JONATHAN MILLER President and Director of USA January 27, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
/s/ HELEN ROSENBERG Treasurer of USA Station January 27, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
/s/ DOUGLAS BINZAK Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
/s/ JULIUS GENACHOWSKI Director of USA Station Group, January 27, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
II-92
400
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on January 27, 1999.
TICKETMASTER GROUP, INC.
By: /s/ TERRY BARNES
------------------------------------
Name: Terry Barnes
Title: Chairman of the Board,
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ TERRY BARNES Chairman of the Board, January 27, 1999
- --------------------------------------------------- President, Chief Executive
Terry Barnes Officer and Director
/s/ STUART DEPINA Senior Vice President, January 27, 1999
- --------------------------------------------------- Treasurer, Chief Financial
Stuart DePina Officer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
/s/ EUGENE COBUZZI Director January 27, 1999
- ---------------------------------------------------
Eugene Cobuzzi
II-93
401
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on January 27, 1999.
TICKETMASTER CORPORATION
By: /s/ TERRY BARNES
------------------------------------
Name: Terry Barnes
Title: Chairman of the Board,
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas J. Kuhn and Michael P. Durney, and each of them,
with full power to act alone without the other, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or any of their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ TERRY BARNES Chairman of the Board, January 27, 1999
- --------------------------------------------------- President, Chief Executive
Terry Barnes Officer and Director
/s/ STUART DEPINA Senior Vice President, January 27, 1999
- --------------------------------------------------- Treasurer, Chief Financial
Stuart DePina Officer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
/s/ EUGENE COBUZZI Director January 27, 1999
- ---------------------------------------------------
Eugene Cobuzzi
II-94
402
SCHEDULE II
USA NETWORKS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
BALANCE CHARGES CHARGES BALANCE
AT TO TO AT
BEGINNING COSTS AND OTHER DEDUCTIONS -- END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DESCRIBE(1) OF PERIOD
----------- --------- --------- ----------- ------------- ---------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended December 31, 1997......... $2,679 $3,432 $ 813 $(3,336) $3,588
====== ====== ====== ======= ======
Year ended December 31, 1996......... $ 68 $ 23 $2,751 $ (163) $2,679
====== ====== ====== ======= ======
Four months ended December 31,
1995.............................. $ 82 $ 51 $ -- $ (65) $ 68
====== ====== ====== ======= ======
Year ended August 31, 1995........... $ 73 $ 179 $ -- $ (170) $ 82
====== ====== ====== ======= ======
- -------------------------
(1) Write-off fully reserved accounts receivable.
(2) Amounts relate to mergers with Savoy Pictures Entertainment, Inc. and
subsidiaries, Home Shopping Network, Inc. and subsidiaries for 1996 and the
acquisition of USA Networks, Inc.'s interest in Ticketmaster Group, Inc. in
1997.
S-1
403
SCHEDULE II
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
BALANCE CHARGES CHARGES BALANCE
AT TO TO AT
BEGINNING COSTS AND OTHER DEDUCTIONS -- END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DESCRIBE(1) OF PERIOD
----------- --------- --------- -------- ------------- ---------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended December 31, 1997............ $2,291 $3,008 $ -- $(3,122) $2,177
====== ====== ====== ======= ======
Year ended December 31, 1996............ $1,685 $2,241 $ -- $(1,635) $2,291
====== ====== ====== ======= ======
Year ended December 31, 1995............ $1,738 $2,851 $ -- $(2,904) $1,685
====== ====== ====== ======= ======
- -------------------------
(1) Write-off fully reserved accounts receivable.
S-2
404
SCHEDULE II
USANi LLC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
BALANCE CHARGES CHARGES BALANCE
AT TO TO AT
BEGINNING COSTS AND OTHER DEDUCTIONS -- END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DESCRIBE(1) OF PERIOD
----------- --------- --------- -------- ------------- ---------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended December 31, 1997............ $2,291 $3,008 $ -- $(3,122) $2,177
====== ====== ====== ======= ======
- -------------------------
(1) Write-off fully reserved accounts receivable.
S-3