1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1999
REGISTRATION NO. 333-71305
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 3
TO
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)
-------------------------
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)
-------------------------
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: [ ]
- ---------------
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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-------------------------
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
JURISDICTION OF STANDARD IRS
INCORPORATION INDUSTRIAL EMPLOYER
OR CLASSIFICATION IDENTIFICATION
NAME 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
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
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PRIMARY
JURISDICTION OF STANDARD IRS
INCORPORATION INDUSTRIAL EMPLOYER
OR CLASSIFICATION IDENTIFICATION
NAME ORGANIZATION CODE NUMBER NUMBER
---- ---------------- ---------------- --------------
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, Florida 4833 58-2351011
Inc. .............................................
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 Delaware 4833 65-0510878
California .......................................
USA Station Group Partnership of Tampa ............. Delaware 4833 65-0510875
USA Station Group Partnership of Hollywood, Delaware 4833 65-0510876
Florida ..........................................
Ticketmaster Group, Inc. ........................... Illinois 7990 36-3597489
Ticketmaster Corporation............................ Illinois 7990 36-3285772
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PROSPECTUS
USA NETWORKS, INC.
USANi LLC
EXCHANGE OFFER OF
$500,000,000 OF OUR 6 3/4% SENIOR NOTES DUE 2005
FOR ALL OF OUR OUTSTANDING 6 3/4% SENIOR NOTES DUE 2005
THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON MAY 13, 1999, UNLESS EXTENDED.
- - The terms of the new 6 3/4% senior notes due 2005 that we are offering in this
prospectus are substantially identical to the terms of our already outstanding
6 3/4% senior notes due 2005. The difference between them is that the exchange
notes will be freely transferable and will not have any covenants regarding
exchange and registration rights.
MATERIAL TERMS OF THE EXCHANGE OFFER
- - 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 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.
INVESTING IN THE EXCHANGE NOTES INVOLVES CERTAIN RISKS. FOR DETAILS, SEE "RISK
FACTORS" BEGINNING ON PAGE 10.
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.
The date of this prospectus is April 9, 1999
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TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................... 2
Risk Factors................................................ 10
Use of Proceeds............................................. 14
Capitalization.............................................. 15
Selected Historical Financial Data.......................... 16
Selected Pro Forma Combined Financial Data.................. 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 36
Corporate History........................................... 71
Management.................................................. 74
Security Ownership of Certain Beneficial Owners and
Management................................................ 85
Certain Relationships and Related Party Transactions........ 88
Description of the Exchange Notes........................... 113
Exchange and Registration Rights Agreement.................. 124
Legal Matters............................................... 124
Experts..................................................... 124
Certain United States Federal Income Tax Considerations..... 126
Plan of Distribution........................................ 127
Index to Financial Statements............................... F-1
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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."
USAi AND USANi LLC
USA Networks, Inc., through its subsidiaries, is a leading media and electronic
commerce company. We refer to USA Networks, Inc. in this prospectus as "USAi."
USAi's principal operating assets include USA Network, The Sci-Fi Channel,
Studios USA, Home Shopping Network, Internet Shopping Network, Ticketmaster,
Ticketmaster Online-CitySearch and USA Broadcasting. USANi LLC is an indirect
subsidiary of USAi that holds virtually all of USAi's businesses other than
Ticketmaster, Ticketmaster Online-CitySearch and USA Broadcasting.
USAi 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 Home Shopping Network
and America's Store, which are engaged in the electronic retailing
business.
- TICKETING OPERATIONS, which includes 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 includes USAi's online retailing networks
business and CitySearch's online local city guide business.
RECENT DEVELOPMENTS
On February 9, 1999, USAi, Ticketmaster Online-CitySearch, Inc. and Lycos, Inc.,
a leading global Web media company, announced that they had entered into
agreements to combine Ticketmaster Online-CitySearch, Lycos and USAi's Home
Shopping Network, Ticketmaster and Internet Shopping Network/First Auction
businesses into a new publicly-traded company. The new company will be named
USA/Lycos Interactive Networks, Inc. Upon the closing of the transaction, USAi
will own 61.5%, Lycos shareholders will own 30% and Ticketmaster
Online-CitySearch shareholders, other than USAi, will own 8.5% of the new
company's common equity. The transaction is subject to Lycos' shareholders'
approval as well as receipt of required government approvals and other customary
conditions.
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SUMMARY DESCRIPTION OF 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 our joint and several obligations. The exchange notes
will not be secured and will rank equal in right of payment with all of our
unsecured and unsubordinated indebtedness which exists now or which we will
incur in the future.
The exchange notes will be unconditionally guaranteed, jointly and severally, by
each subsidiary that is a guarantor of the indebtedness under our credit
agreement and future subsidiaries that become guarantors under our credit
agreement in each case, to the extent that and for so long as the subsidiary
remains a credit agreement guarantor.
We and our subsidiaries may issue senior secured indebtedness, subject to some
limitations. The notes would be junior to our senior secured indebtedness to the
extent of the secured party's security interest in assets of us or our
subsidiaries.
RESTRICTIVE COVENANTS
The indenture under which the exchange notes will be issued will contain
covenants for your benefit which, in general, restrict our ability to:
- enter into sale-leaseback transactions;
- create liens; and
- consolidate, merge, or sell substantially all of our assets.
For more information, see "Description of the Exchange Notes -- Covenants."
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ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The exchange notes are new securities and there is currently no established
market for them.
SUMMARY OF 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. These initial purchasers subsequently resold the notes to
institutional investors in transactions exempt from the registration
requirements of the Securities Act and applicable state securities laws. In
connection with this private placement, USAi, USANi LLC, the guarantors and the
initial purchasers entered into the exchange and registration rights agreement
that provides for 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 resold 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 above 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, upon a 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. For more information,
see "Plan of Distribution." 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. This instruction does not
apply if you offer or sell them under an exemption from the requirements of the
Securities Act.
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EXPIRATION DATE
The exchange offer will expire at 5:00 p.m., New York City Time, on May 13, 1999
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 subject to customary conditions, including that:
- the exchange offer does not violate any applicable law or applicable
interpretation of law of the staff of the SEC;
- 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.
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, at the address specified on the cover page of the letter of
transmittal. Alternatively, you can tender your initial notes by following the
procedures for book-entry transfer, as described in this document.
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 described 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 specified in the section, "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
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 as
long as all of the conditions are met. We will deliver the exchange notes
promptly after the expiration date.
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.
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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.
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.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table presents the ratios of earnings to fixed charges of USAi,
Holdco and USANi LLC for the periods indicated. Home Shopping Network, Inc., a
direct subsidiary of USAi that is a holding company with no independent
operations, will be referred to as "Holdco" throughout this prospectus. The
ratios of earnings to fixed charges should be read with the financial statements
and accompanying notes and other financial data included or incorporated by
reference in this prospectus. 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.
For purposes of calculating the ratio of earnings to fixed charges, earnings
were calculated by adding:
- earnings (loss) before minority interest and income taxes,
- interest expense, including the portion of rents representative of
an interest factor; and
- 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.
USAi
YEARS
ENDED FOUR MONTHS YEARS ENDED
AUGUST 31, ENDED DECEMBER 31,
----------- DECEMBER 31, ------------------
1994 1995 1995 1996 1997 1998
---- ---- ------------ ---- ---- ----
Ratio of earnings to fixed charges.............. 1.05x 1.11x 0.13x 0.64x 2.81x 3.26x
HOLDCO
PREDECESSOR COMPANY HOLDCO
------------------------ ---------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ---- ----
Ratio of earnings to fixed charges
(deficiency)........................... 4.00x $(94.9) 3.66x 5.19x 2.32x
USANI LLC
PREDECESSOR COMPANY USANI LLC
------------------------ ---------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ---- ----
Ratio of earnings to fixed charges
(deficiency)........................... 4.00x $(94.9) 3.66x 8.78x 2.34x
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PRINCIPAL EXECUTIVE OFFICE
Our principal executive offices are located at 152 West 57th Street, New York,
New York 10019. Our telephone number is (212) 314-7300. USAi'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 or
incorporated into it by reference. No person is authorized to provide you with
different information. We are not making the exchange offer in any jurisdiction
where the offer is not permitted.
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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under 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.
USAi files annual, quarterly and special reports, proxy statements and other
information with the SEC. In addition, following the exchange offer, USANi LLC
and Holdco 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 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 the
SEC, 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 Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act prior to the expiration date
of the exchange offer.
- USAi's Annual Report on Form 10-K for the year ended December 31, 1998;
- USAi's Registration Statement on Form S-4, dated May 19, 1998; and
- USAi's Current Report on Form 8-K filed February 26, 1999.
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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 MAY 6, 1999.
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RISK FACTORS
You should carefully consider the following factors together with the other
matters described or referenced in this prospectus before deciding whether to
exchange your initial notes for exchange notes in the exchange offer.
FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL LIMIT OPPORTUNITIES TO SELL
YOUR NOTES IN THE FUTURE
We issued the initial notes in a private offering exempt from the registration
requirements of the Securities Act. Accordingly, you may not offer, sell or
otherwise transfer your 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. If you do not exchange your initial notes for
exchange notes in this exchange offer, your initial notes will continue to be
subject to these transfer restrictions after the completion of this exchange
offer.
After completion of this exchange offer, if you do not tender your initial notes
in this exchange offer, you 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.
THE NOTES AND THE GUARANTEES ARE JUNIOR TO SECURED INDEBTEDNESS, WHICH WOULD
LIMIT COLLECTIBILITY OF THE NOTES IN THE EVENT OF BANKRUPTCY
Neither the notes nor the guarantees are secured by any assets of us or the
guarantors. Accordingly, the notes and the guarantees will effectively rank
junior to all of our and the guarantors' secured obligations to the extent of
the assets securing those obligations. If either of us or one of the guarantors
becomes insolvent or is liquidated, or if payment under any secured obligation
is accelerated, claims of any secured lenders for the assets securing the
obligation will be prior to any claim of the holders of the notes for these
assets. After the claims of the secured lenders are satisfied, there may not be
assets remaining to satisfy our and our guarantors' obligations under the notes.
A VIOLATION OF A RESTRICTIVE COVENANT UNDER OUR CREDIT AGREEMENT MAY RESTRICT
OUR ABILITY TO SATISFY OUR OBLIGATIONS UNDER THE NOTES
Our credit agreement contains various financial and operating covenants which,
among other things, require the maintenance of certain financial ratios.
Violation of the covenants could result in a default under our credit agreement
which would permit the bank lenders to (1) restrict USANi LLC's ability to
borrow undrawn funds under our credit agreement and (2) accelerate the maturity
of borrowings under our credit agreement.
THE LOSS OF MR. DILLER MAY CAUSE USAI TO DIVEST ITS TELEVISION BROADCAST
LICENSES OR CAUSE UNIVERSAL AND LIBERTY TO CONTROL USAI
We are dependent upon the continued contributions of our senior corporate
management, particularly Mr. Barry Diller, and certain key employees for our
future success. Mr. Diller is the Chairman of the Board and Chief Executive
Officer of USAi. Mr. Diller does not have an employment agreement with USAi,
although he has been granted options to purchase a substantial number of shares
of USAi common stock. The vesting of the unvested portion of these options,
which should occur over the next few years, is conditioned on Mr. Diller
remaining at USAi.
If Mr. Diller no longer serves in his positions at USAi, USAi's business could
be substantially adversely affected. The terms of the governance agreement,
dated October 19, 1997, among USAi,
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Universal Studios, Inc., Liberty Media Corporation and Mr. Diller entered into
as part of the Universal transaction, provide that if Mr. Diller no longer
serves as Chief Executive Officer of USAi or becomes disabled, then some
restrictions on the conduct of Universal will be eliminated, and Universal's
ability to increase its equity interest in USAi will be accelerated. FCC
restrictions limit Universal's and Liberty's ability to exercise voting control
over entities, such as USAi, that hold television broadcast licenses. If Mr.
Diller is no longer Chief Executive Officer or becomes disabled, then Universal
and Liberty may cause USAi to divest its television broadcast licenses or cause
USAi to enter in arrangements relating to the control of USAi to allow Universal
and Liberty to exercise control over USAi in compliance with FCC law.
MR. DILLER HAS THE RIGHT TO CONTROL MOST MATTERS WHICH ARE SUBMITTED TO A VOTE
OF OUR SHAREHOLDERS
Mr. Diller has the right to control the outcome of any matter submitted to a
vote or for the consent of USAi's shareholders. However, he does not have
control over election of 25% of the members of the USAi's board of directors or
matters which require a separate class vote under the Delaware law.
USAi will not be able to engage in fundamental changes without the consent of
Mr. Diller, Universal and Liberty. If Mr. Diller and Universal agree to
fundamental changes that Liberty does not agree to, Universal, upon the
satisfaction of certain conditions, will be entitled to purchase Liberty's
equity interest of USAi to enable USAi to engage in the transaction or take the
proposed action. For more information see "Certain Relationships and Related
Party Transactions -- Agreements with Universal and Liberty."
YEAR 2000 TECHNOLOGY PROBLEMS COULD CAUSE BUSINESS INTERRUPTIONS
The Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the Year 1900 rather
than the Year 2000. This could result in miscalculations or system failures.
We may realize exposure or risks if we or our customers or vendors are unable to
resolve these processing issues in a timely manner. USAi believes that, with
respect to technological operations which are dependent on third parties, the
significant areas of potential risk are the ability of satellite and cable
operators to receive the signal transmission of USA Network, The Sci-Fi Channel
and the Home Shopping Network and America's Store services, and the ability of
banks and credit card processors to process credit card transactions. The
inability of the cable and satellite operators to receive these signal
transmissions or the inability of banks and credit card processors to process
credit card transactions could significantly disrupt our business operations and
may have an impact on the revenues and profits we generate. We are currently
working to resolve the potential impact of the Year 2000 problem. We plan to
devote the necessary resources to resolve all significant Year 2000 issues in a
timely manner.
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 FOR THE EXCHANGE NOTES COULD LIMIT OPPORTUNITIES TO
SELL YOUR NOTES IN THE FUTURE
There is no existing market for the exchange notes. 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
completion 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.
Future trading prices
11
16
of the exchange notes will depend on many factors, including prevailing interest
rates, our operating results and the market for similar securities.
HOLDING COMPANY STRUCTURE COULD RESTRICT ACCESS TO SUBSIDIARIES' REVENUES THAT
MAY BE NEEDED TO SERVICE THE NOTES
Both USAi and USANi LLC are holding companies. 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. Our ability to make
payments when due to holders of the notes depends 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. Our
credit agreement may restrict access to our subsidiaries cash and thus,
adversely affect our ability to service our indebtedness, including the notes.
POSSIBLE LOSS OF SOME GUARANTEES DUE TO TRANSACTION WITH TICKETMASTER
ONLINE-CITYSEARCH AND LYCOS
On February 9, 1999, USAi, Ticketmaster Online-CitySearch, Inc. and Lycos, Inc.
announced that they had entered into agreements to combine Ticketmaster
Online-CitySearch, Lycos and USAi's Home Shopping Network, Ticketmaster and
Internet Shopping Network/First Auction businesses into a new publicly-traded
company. Under these agreements, USAi is required to contribute the Home
Shopping Network, Ticketmaster and Internet Shopping Network/First Auction
businesses to the new company free of any guarantees, liens or security
interests. A substantial number of the entities holding these businesses are
guarantors of the notes and of our obligations under our credit agreement. We
expect to reach agreement with the lenders under our credit agreement to release
guarantees of our subsidiaries to the extent necessary to allow USAi to comply
with the Lycos transaction agreements. Under the indenture, the obligations of a
guarantor of the notes automatically terminate if the obligations of the same
guarantor terminate under our credit agreement. Accordingly, we expect the note
guarantees of the subsidiaries holding our Home Shopping Network, Ticketmaster
and Internet Shopping Network/First Auction businesses to terminate upon
completion of the Lycos transaction. These note guarantees represent
approximately 30% and 50% of the guarantor subsidiaries' total assets and
revenue, respectively, as of and for the year ended December 31, 1998.
A FEDERAL OR STATE COURT MAY VOID OR ALTER OUR OBLIGATIONS UNDER YOUR NOTES OR
THE GUARANTEES
A court could void our obligations under the new notes and the guarantees,
subordinate the new notes or guarantees to our other debt, or order you to
return any amounts paid to you under the new notes to us or to a fund
benefitting our creditors if the court finds that, at the time we sold the
notes, we:
- intended to defraud our creditors or did not receive fair value for the
notes and we:
-- were "insolvent", which means we could not pay our debts when they
came due or the sum of our debts was greater than the fair value of
all of our assets, or we became insolvent as a result of our
obligations under the notes; or
-- did not have enough capital to operate our business following the
sale of the notes; or
-- intended to or believed that we overextended our debt obligations.
The standards for insolvency vary. We cannot predict which standard a court
would apply or if a court would determine that any of USAi, USANi LLC or the
guarantors were insolvent at the time of the sale of the notes or became
insolvent as a result of the sale.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION CONTAINED IN THIS
PROSPECTUS
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. These 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 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 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 any other
reason. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not occur.
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USE OF PROCEEDS
We will not receive any cash proceeds from 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 outstanding under the credit agreement, dated February 12, 1998,
entered into by USAi, USANi LLC, as borrower, the lenders which are a party to
such agreement, The Chase Manhattan Bank, as administrative and collateral
agent, and Bank of America National Trust & Savings Association and The Bank of
New York, as co-documentation agents. 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 6.0% as of December 31, 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 table presents the unaudited consolidated capitalization of USAi,
Holdco and USANi LLC as of December 31, 1998. There will be no change in
capitalization as a result of the exchange offer. For USAi, cash and cash
equivalents include amounts held on behalf of Ticketmaster's clients, which
cannot be used to repay indebtedness. This table should be read with the
financial statements and accompanying notes and other financial data included or
incorporated by reference in this prospectus.
AS OF DECEMBER 31, 1998
--------------------------------------
(IN MILLIONS)
USAi Holdco USANi LLC
------ ------ ------
Cash and cash equivalents................................ $ 445 $ 235 $ 235
====== ====== ======
Long-term debt, including current maturities:
Existing Credit Agreement:
Revolving Credit Facility........................... $ -- $ -- $ --
Tranche A Term Loan................................. 250 250 250
------ ------ ------
Total Existing Credit Agreement................ 250 250 250
Senior Notes due 2005.................................... 500 500 500
Discount on face value of Notes.......................... (3) (3) (3)
Other long-term obligations.............................. 65 13 13
------ ------ ------
Total long-term debt........................... 812 760 760
Minority interest........................................ 3,634 3,783 143
Total stockholders' equity............................... 2,571 1,320 5,115
------ ------ ------
Total capitalization..................................... $7,017 $5,863 $6,018
====== ====== ======
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SELECTED HISTORICAL FINANCIAL DATA
USAi
The following table presents selected historical financial data of USAi for
- each of the years in the two-year period ended August 31, 1995,
- the four month period ended December 31, 1995 and
- each of the years in the three year period ended December 31, 1998.
This data was derived from USAi's audited consolidated financial statements and
reflects the operations and financial position of USAi at the dates and for the
periods indicated. The information in this table should be read with the
financial statements and accompanying notes and other financial data pertaining
to USAi included or incorporated by reference in this prospectus. The
consolidated statement of operations data include the operations of:
- Savoy Pictures Entertainment, Inc. and Holdco since their acquisition by
USAi on December 19, 1996 and December 20, 1996, respectively;
- Ticketmaster since the acquisition by USAi of its controlling interest in
Ticketmaster on July 17, 1997.
- Networks and Studios USA since their acquisition by USAi from Universal
on February 12, 1998 and CitySearch since its acquisition by USAi on
September 28, 1998.
Net earnings for the year ended December 31, 1998 include a pre-tax gain of
$74.9 million related to USAi's sale of its Baltimore television station during
the first quarter of 1998 and a pre-tax gain of $109.0 million related to the
CitySearch transaction during the fourth quarter of 1998.
Earnings (loss) per common share data and shares outstanding retroactively
reflect the impact of a one-for-one common stock and Class B common stock
dividend paid on March 26, 1998.
For purposes of this prospectus, EBITDA is defined as net income plus
- extraordinary items and cumulative effect of accounting changes,
- provision for income taxes,
- interest expense,
- depreciation and amortization, and
- minority interest.
EBITDA is presented in this prospectus because we believe it is a widely
accepted indicator of our 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 may not be comparable to
calculations of similarly titled measures presented by other companies.
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YEARS ENDED FOUR MONTHS YEARS ENDED
AUGUST 31, ENDED DECEMBER 31,
------------------- DECEMBER 31, -------------------------------------------
1994 1995 1995 1996 1997 1998
-------- -------- ------------ ---------- ---------- -----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net revenues............................... $ 46,563 $ 47,918 $ 15,980 $ 75,172 $1,261,749 $ 2,634,136
Operating profit (loss).................... 8,111 8,236 (680) 3,612 94,519 218,216
Earnings (loss) before cumulative effect of
change in accounting principle for income
taxes.................................... (899) 115 (2,882) (6,539) 13,061 76,874
Net earnings (loss)........................ (3,878) 115 (2,882) (6,539) 13,061 76,874
Basic earnings(loss) per common share:
Earnings (loss) before cumulative effect
of change in accounting principle for
income taxes........................... (.05) .01 (.15) (.30) .12 .54
Net earnings (loss)...................... (.22) .01 (.15) (.30) .12 .54
Diluted earnings (loss) per common share:
Earnings (loss) before cumulative effect
of change in accounting principle for
income taxes........................... (.05) .01 (.15) (.30) .12 .43
Net earnings (loss)...................... (.22) .01 (.15) (.30) .12 .43
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit).................. $ 1,553 $ 6,042 $ 7,553 $ (24,444) $ 60,941 $ 404,759
Total assets............................... 145,488 142,917 136,670 2,116,232 2,670,796 8,327,102
Long-term obligations, net of current
maturities............................... 114,525 97,937 95,980 271,430 448,346 775,683
Minority interest.......................... -- -- -- 356,136 372,223 3,633,597
Stockholders' equity....................... 2,614 9,278 7,471 1,158,749 1,447,354 2,571,405
OTHER DATA:
Net cash provided by (used in):
Operating activities..................... $ 15,088 $ 17,442 $ 2,582 $ 11,968 $ 47,673 $ 226,756
Investing activities..................... (908) (1,696) 249 (2,622) (82,293) (1,193,589)
Financing activities..................... (11,997) (5,576) (5,901) 14,120 108,050 1,297,654
EBITDA..................................... 23,111 22,910 4,021 19,098 191,543 464,363
Ratio of earnings to fixed charges......... 1.05x 1.11x 0.13x 0.64x 2.81x 3.26x
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HOLDCO AND USANi LLC
The following tables present selected historical financial data of Holdco and
its predecessor company and USANi LLC and its predecessor company, for each of
the years in the five-year period ended December 31, 1998. This data was derived
from audited consolidated financial statements of Holdco and USANi LLC or their
respective predecessors, and reflects the operations and financial position of
Holdco and USANi LLC or their predecessors at the dates and for the periods
indicated. The information in this table should be read in conjunction with the
financial statements and accompanying notes and other financial data pertaining
to Holdco and USANi LLC included or incorporated by reference in this
prospectus.
The years ended December 31, 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 includes net revenues of $30.6 million and net earnings of
$.3 million. Prior to the Universal transaction, the assets of Holdco consisted
principally of our retail sales programs, Home Shopping Network and America's
Store. The contribution of assets by USAi 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 which is the date the assets and liabilities were
deemed to be transferred to USANi LLC at USAi's historical cost. The
consolidated statement of operations data includes Networks and Studios USA
since its acquisition by USANi LLC from Universal on February 12, 1998.
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, 1994, 1995, 1996 and 1997 and the period January 1,
1998 to February 12, 1998 include income tax expense (benefit) of $12.8 million,
($33.3) million, $12.6 million, $30.3 million and $1.9 million, respectively.
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.
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HOLDCO
PREDECESSOR COMPANY HOLDCO
---------------------------------- ------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- -------- ---------- ---------- -----------------
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Net revenues............................. $1,014,981 $919,796 $1,014,705 $1,037,060 $ 2,205,510
Operating profit (loss).................. 26,879 (80,280) 41,186 61,142 231,730
Earnings (loss) before extraordinary item
for debt extinguishment................ 17,701 (61,883) 20,620 13,809 4,565
Net earnings (loss)...................... 16,777 (61,883) 20,620 13,809 4,565
BALANCE SHEET DATA (END OF PERIOD):
Working capital.......................... $ 23,073 $ 7,571 $ 3,148 $ 43,869 $ 272,909
Total assets............................. 446,499 436,295 1,645,108 1,663,508 7,000,841
Long-term obligations, net of current
maturities............................. 27,491 135,810 107,567 106,628 732,307
Minority interest........................ -- -- -- -- 3,783,085
Stockholders' equity..................... 206,443 125,061 1,289,463 1,304,404 1,320,172
OTHER DATA:
Net cash provided by (used in):
Operating activities.................... $ (27,871) $(74,474) $ 23,123 $ 34,068 $ 278,478
Investing activities.................... 107,421 (8,406) (10,733) (49,791) (1,400,559)
Financing activities.................... (81,468) 74,396 (21,280) 22,471 1,334,166
EBITDA................................... 55,945 (41,426) 74,669 126,294 406,356
Ratio of earnings to fixed charges
(deficiency)........................... 4.00x $ (94.9) 3.66x 5.19x 2.32x
USANI LLC
HOLDCO (PREDECESSOR COMPANY) USANI LLC
----------------------------------------------- -------------
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996 1997 1998
---------- -------- ---------- ---------- -------------
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Net revenues................................. $1,014,981 $919,796 $1,014,705 $1,037,060 $2,205,510
Operating profit (loss)...................... 26,879 (80,280) 41,186 61,142 231,730
Earnings (loss) before extraordinary item for
debt extinguishment........................ 17,701 (61,883) 20,620 16,255 125,535
Net earnings (loss).......................... 16,777 (61,883) 20,620 16,255 125,535
BALANCE SHEET DATA(END OF PERIOD):
Working capital.............................. $ 23,073 $ 7,571 $ 3,398 $ 41,321 $ 283,356
Total assets................................. 446,499 436,295 1,636,380 1,653,875 7,002,685
Long-term obligations, net of current
maturities................................. 27,491 135,810 -- -- 732,307
Members' equity.............................. 206,443 125,061 1,390,975 1,408,362 5,115,405
OTHER DATA:
Net cash provided by (used in):
Operating activities........................ $ (27,871) $(74,474) $ 23,123 $ 40,237 $ 278,274
Investing activities........................ 107,421 (8,406) (10,733) (49,791) (1,400,559)
Financing activities........................ (81,468) 74,396 (21,280) 16,302 1,334,166
EBITDA....................................... 55,945 (41,426) 74,669 126,294 406,356
Ratio of earnings to fixed charges
(deficiency)............................... 4.00x $ (94.9) 3.66x 8.78x 2.34x
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SELECTED PRO FORMA COMBINED FINANCIAL DATA
USAi
The following table presents selected pro forma combined financial data of USAi
for the year ended December 31, 1998. This data gives effect to the Universal
transaction, the Ticketmaster transaction, the CitySearch merger, the sale of
the assets of SF Broadcasting, the notes offering and the exchange offer as if
they had all occurred on January 1, 1998.
The information in this table does not purport to represent what USAi's results
would have been if the transactions, the notes offering and the exchange offer
had occurred on the dates or for the periods indicated, or to project what
USAi's results of operations for any future period will be. The information in
this table should be read with the financial statements and accompanying notes
and other financial data pertaining to USAi included or incorporated by
reference in this prospectus.
YEAR ENDED
DECEMBER 31,
1998
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net revenues:
Networks and Television Production........................ $1,243,049
Electronic Retailing...................................... 1,098,634
Ticketing Operations...................................... 386,555
Internet Services......................................... 37,962
Broadcasting and Other.................................... 9,487
----------
Total.................................................. 2,775,687
Operating costs and expenses:
Cost related to revenues.................................. 1,441,966
Other costs and expenses.................................. 855,721
Depreciation and amortization............................. 291,408
----------
Total operating costs and expenses..................... 2,589,095
----------
Operating profit............................................ 186,592
Net income.................................................. 38,406
Basic income per share...................................... .25
Diluted income per share.................................... .23
OTHER DATA:
EBITDA...................................................... $ 478,000
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HOLDCO AND USANI LLC
The following tables present selected pro forma combined financial data of
Holdco and USANi LLC for the year ended December 31, 1998. The unaudited pro
forma combined statement of operations data for the year ended December 31, 1998
gives effect to the exchange offer, the notes offering and the Universal
transaction as if they had all occurred on January 1, 1998.
The information in this table does not purport to represent what Holdco's or
USANi LLC's results would have been if the notes offering, the exchange offer
and the Universal transaction had occurred on the dates or for the periods
indicated, or to project what Holdco's or USANi LLC's results of operations for
any future period will be. The information in this table should be read with the
financial statements and accompanying notes and other financial data pertaining
to Holdco or USANi LLC included or incorporated by reference in this prospectus.
YEAR ENDED
DECEMBER 31,
1998
-----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
HOLDCO USANI LLC
---------- ----------
STATEMENT OF OPERATIONS DATA:
Net revenues:
Networks and Television Production........................ $1,243,049 $1,243,049
Electronic Retailing...................................... 1,098,634 1,098,634
Internet Services......................................... 21,191 21,191
---------- ----------
Total.................................................. 2,362,874 2,362,874
Operating costs and expenses:
Costs related to revenues................................. 1,362,468 1,362,468
Other costs and expenses.................................. 550,040 550,040
Depreciation and amortization............................. 187,981 187,981
---------- ----------
Total operating costs and expenses..................... 2,100,489 2,100,489
---------- ----------
Operating profit.......................................... 262,385 262,385
Net income................................................ 15,467 149,471
OTHER DATA:
EBITDA...................................................... $ 450,366 $ 450,366
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
USAi is a holding company, with subsidiaries engaged in diversified media and
electronic commerce businesses. USANi LLC is a holding company that holds
virtually all of USAi'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. USAi adopted its present corporate
structure as part of the Universal transaction. USAi maintains control and
management of Holdco and USANi LLC, and manages the businesses held by USANi LLC
in substantially the same manner as they would be if USAi held them directly
through wholly owned subsidiaries.
In December 1996, USAi completed mergers with each of Holdco and Savoy Pictures
Entertainment, Inc. At the time of the Home Shopping merger, Holdco owned and
operated the Home Shopping Network electronic retailing business. In July 1997,
USAi acquired a controlling interest in Ticketmaster. On June 24, 1998, USAi
completed its acquisition of Ticketmaster in a tax-free merger, pursuant to
which each outstanding share of Ticketmaster common stock not owned by USAi was
exchanged for 1.126 shares of common stock. The acquisition of the controlling
interest and the tax-free merger are referred to in this prospectus as the
Ticketmaster transaction.
USAi completed the Universal transaction on February 12, 1998. In the Universal
transaction, USAi acquired USA Networks, a New York general partnership, which
consisted of USA Network and The Sci-Fi Channel cable television networks, and
Universal Studios, Inc.'s domestic television production and distribution
businesses, from Universal and changed its name to USA Networks, Inc.
In September 1998, USAi merged Ticketmaster Online into a subsidiary of
CitySearch, Inc., a publisher of local city guides on the Web, to create
Ticketmaster Online-CitySearch.
TRANSACTIONS AFFECTING THE COMPARABILITY OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
During the past three years, we have augmented our media and electronic commerce
businesses by acquiring and developing several new businesses. As a result, the
following changes should be considered when comparing our results of operations
and financial position. These include the Universal transaction, the acquisition
of a controlling interest in Ticketmaster in July 1997 and the subsequent
tax-free merger in June 1998, and the 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 operations is supplemented, where
appropriate, with separate pro forma financial information that gives effect to
the above transactions as if they had occurred at the beginning of the
respective periods presented.
The pro forma information is not necessarily indicative of the revenues and 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.
You should also review the consolidated financial statements and summary
financial data included or incorporated by reference in this prospectus.
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USAi CONSOLIDATED RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 VS. YEAR ENDED DECEMBER 31, 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. However, no significant
discussion of these fluctuations is presented.
Net Revenues
For the year ended December 31, 1998, revenues increased by $1.4 billion
compared to 1997 primarily due to increases of $1.1 billion, $230 million, and
$74 million from the Networks and Television Production business, Ticketing
Operations and Electronic Retailing, respectively.
Operating Costs and Expenses
For the year ended December 31, 1998, operating expenses increased by $1.2
billion compared to 1997 primarily due to increases of $824 million, $206
million and $64 million from the Networks and Television Production business,
Ticketing Operations and Electronic Retailing, respectively.
Other Income (Expense)
For the year ended December 31, 1998, net interest expense increased by $79
million, compared to 1997 primarily due to interest incurred to finance the
Universal transaction, interest on the Notes and non-cash interest expense on
long-term program liabilities at the Networks and Television Production
business.
On January 20, 1998, USAi sold its Baltimore television station for a pre-tax
gain of $74.9 million. On July 16, 1998, USAi completed the sale of the assets
of SF Broadcasting for a pre-tax gain of $9.2 million. In the fourth quarter of
1998, USAi recognized pre-tax gains totalling $109.0 million related to the
merger of Ticketmaster Online and CitySearch, Inc. and the subsequent initial
public offering of shares of Ticketmaster Online-CitySearch, Inc.
In addition to the above items, for the year ended December 31, 1998,
miscellaneous expense increased by $11 million compared to 1997 primarily due to
losses from international joint ventures of Home Shopping Network and the
Networks and Television Production business.
Income Taxes
USAi's effective tax rate of 45.0% for the year ended December 31, 1998 was
higher than the statutory rate due primarily to non-deductible goodwill and
other acquired intangible and state income taxes.
Minority Interest
For the year ended December 31, 1998, minority interest represented Universal's
and Liberty's ownership interest in USANi LLC for the period February 12 through
December 31, 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, the public's ownership interest in Ticketmaster for the
period January 1 through June 24, 1998 and CitySearch's and the public's
ownership in TMCS for the period September 28 through December 31, 1998.
PRO FORMA YEAR ENDED DECEMBER 31, 1998 VS. PRO FORMA YEAR ENDED DECEMBER 31,
1997
The following unaudited pro forma operating results of USAi present combined
results of operations as if the Universal transaction, Ticketmaster transaction,
CitySearch transaction, the notes offering,
23
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the exchange offer and the sale of the assets of SF Broadcasting all had
occurred on January 1, 1998 and 1997, respectively.
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.
USAi UNAUDITED COMBINED CONDENSED PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
NET REVENUES:
Networks and television production.......................... $1,243,049 $1,107,604
Electronic retailing........................................ 1,098,634 1,024,201
Ticketing operations........................................ 386,555 361,697
Internet services........................................... 37,962 19,041
Broadcasting and other...................................... 9,487 15,379
---------- ----------
Total net revenues..................................... 2,775,687 2,527,922
Operating costs and expenses:
Cost related to revenues.................................... 1,441,966 1,315,295
Other costs and expenses.................................... 855,721 798,087
Depreciation and amortization............................... 291,408 277,623
---------- ----------
Total operating costs and expenses..................... 2,589,095 2,391,005
---------- ----------
Operating profit....................................... $ 186,592 $ 136,917
========== ==========
EBITDA................................................. $ 478,000 $ 414,540
========== ==========
The following discussion provides an analysis of the pro forma revenues and
costs related to revenues and other costs and expenses by significant business
segment.
Networks and Television Production
Net revenues for the year ended December 31, 1998 increased by $135.4 million,
or 12.2%, to $1,243.0 million from $1,107.6 million in 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
higher rates for 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 subscriber
rates at both networks. The increase in first run syndication revenues resulted
from higher barter revenue due to higher ratings and greater foreign sales.
Cost related to revenues and other costs and expenses for the year ended
December 31, 1998 increased by $40.3 million, or 4.1%, to $1,025.3 million from
$985.0 million in 1997. This increase resulted primarily from the cost of
increased deliveries of first run syndication product by Studios
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USA and higher cost of original programming at USA Network and The Sci-Fi
Channel, partially offset by the absence in 1998 of write-offs of USA Network
programming recorded in 1997.
Electronic Retailing
Net revenues for the year ended December 31, 1998 increased by $74.4 million, or
7.3%, to $1,098.6 million from $1,024.2 million in 1997. The increase primarily
resulted from increased sales of hardgoods, which includes consumer electronics,
collectibles and housewares. Total units shipped increased by 8.6% to 28.9
million units compared to 26.6 million units in 1997. The average price point
decreased by 2.0%. The increase in net revenues also reflected a decrease in the
return rate to 21.0% from 22.2% in 1997.
Cost related to revenues and other costs and expenses for the year ended
December 31, 1998 increased by $82.3 million, or 9.0%, to $997.9 million from
$915.6 million in 1997. The increase in cost of revenues resulted primarily from
higher cost of product as a result of higher net revenues and the sale of
merchandise at lower gross margins (39.8% in 1998 compared to 41.2% in 1997).
Other costs increased as a result of higher telephone and operator costs, higher
commissions to broadcast and cable affiliates due to higher revenues, and costs
to launch Home Shopping Network en Espanol.
Ticketing Operations
Net revenues for the year ended December 31, 1998 increased by $24.9 million, or
6.9%, to $386.6 million from $361.7 million in 1997. The increase resulted from
an increase of 3.3% in the number of tickets sold, including an increase of 2.0
million in the number of tickets sold online, and an increase in revenue per
ticket to $5.03 from $4.76 in 1997.
Cost related to revenues and other costs and expenses for the year ended
December 31, 1998 increased by $25.8 million, or 7.2%, to $384.2 million from
$358.4 million in 1997. The increase resulted primarily from the increased sale
of tickets at a slightly higher cost per ticket and costs incurred to launch
ticketing operations in Northern California, South America and France.
Internet Services
Net revenues for the year ended December 31, 1998 increased by $19.0 million to
$38.0 million in 1998 compared to $19.0 million in 1997. The increase resulted
from an increase in registered users to USAi's primary online retailing service,
First Auction and an increase in online city guide revenue of 171%.
Cost related to revenues and other costs and expenses for the year ended
December 31, 1998 increased by $21.5 million, or 33.8%, to $85.1 million from
$63.6 million in 1997. The increase resulted primarily from increased costs to
maintain and enhance the Internet Services and increased advertising and
promotion costs. An increased loss is expected in 1999 as we continue to focus
building this segment.
Broadcasting and Other
Net revenues include 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.
Other costs related to revenues and other costs and expenses include costs to
generate the Savoy revenues, corporate expenses and $24.4 million of cost in the
year ended December 31, 1998 to launch the Miami/Ft. Lauderdale station. An
increased loss is expected in the broadcasting segment in 1999 as costs are
incurred to launch more local television stations.
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YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
Net Revenues
For the year ended December 31, 1997, total revenues of USAi increased by $1.2
billion compared to 1996 primarily due to increases of $1.0 billion and $156.4
million related to electronic retailing and ticketing operations, respectively.
Operating Costs and Expenses
For the year ended December 31, 1997, total operating costs and expenses
increased by $1.1 billion compared to 1996 primarily due to increases of $897.6
million and $144.1 million related to electronic retailing and ticketing
operations, 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 ended December 31, 1997, interest expense increased by $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 for the electronic retailing business.
For the year ended December 31, 1997, miscellaneous expense increased $11.8
million compared to 1996 primarily due to losses from international joint
ventures of Home Shopping Network.
Income Taxes
USAi'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.
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.
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. USAi
does not expect significant additional revenues or costs from the motion picture
business.
HOLDCO AND USANI LLC CONSOLIDATED RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 VS. YEAR ENDED DECEMBER 31, 1997
The Universal transaction resulted in significant increases in net revenues,
operating costs and expenses, other income (expense), minority interest and
income taxes, and accordingly, no significant discussion of these fluctuations
is presented.
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Net Revenues
For the year ended December 31, 1998, revenues increased by $1.2 billion for
Holdco and USANi LLC compared to 1997 primarily due to increases of $1.1 billion
and $74 million from the Networks and Television Production business and
Electronic Retailing, respectively.
Operating Costs and Expenses
For the year ended December 31, 1998, operating expenses increased by $998
million for Holdco and USANi LLC compared to 1997 primarily due to increases of
$922 million and $110 million from the Networks and Television Production
business and Electronic Retailing, respectively.
Other Income (Expense)
For the year ended December 31, 1998, net interest expense increased $75 million
and $80 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, interest on the Notes and non-cash interest
expense on long-term program liabilities at the Networks and Television
Production business.
For the year ended December 31, 1998, miscellaneous expense increased by $7
million for Holdco and USANi LLC 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 year ended December 31, 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 year ended December 31, 1998, Holdco minority interest represents
Universal's and Liberty's ownership interest in USANi LLC for the period
February 12 through December 31, 1998, and Fox Broadcasting Company's 50%
ownership interest in SF Broadcasting for the period January 1 through July 16,
1998.
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32
PRO FORMA YEAR ENDED DECEMBER 31, 1998 VS. PRO FORMA YEAR ENDED DECEMBER 31,
1997
The following unaudited pro forma operating results of Holdco and USANi LLC
present combined results of operations as if the Universal transaction the notes
offering and the exchange offer had occurred on January 1, 1998 and 1997,
respectively.
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 UNAUDITED COMBINED CONDENSED PRO FORMA STATEMENTS OF
OPERATIONS
YEAR ENDED
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
NET REVENUES:
Networks and television production.......................... $1,243,049 $1,107,604
Electronic retailing........................................ 1,098,634 1,024,249
Internet services........................................... 21,191 12,811
---------- ----------
Total net revenues..................................... 2,362,874 2,144,664
Operating costs and expenses:
Cost related to revenues.................................. 1,362,468 1,267,478
Other costs and expenses.................................. 550,040 512,712
Depreciation and amortization............................. 187,981 180,513
---------- ----------
Total operating costs and expenses..................... 2,100,489 1,960,703
---------- ----------
Operating profit....................................... $ 262,385 $ 183,961
========== ==========
EBITDA................................................. $ 450,366 $ 364,474
========== ==========
The following discussion provides an analysis of the pro forma revenues and
costs related to revenues and other costs and expenses by significant business
segment.
Networks and Television Production
Net revenues for the year ended December 31, 1998 increased by $135.4 million,
or 12.2%, to $1,243.0 million from $1,107.6 million in 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
higher percentage rates for 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
subscriber rates at both networks. The increase in first run syndication
revenues resulted from higher barter revenue from higher ratings and greater
foreign sales.
Cost related to revenues and other costs and expenses for the year ended
December 31, 1998 increased by $40.3 million, or 4.1%, to $1,025.3 million from
$985.0 million in 1997. This increase
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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 and the Sci Fi Channel, partially offset by the absence in 1998 of
write-offs of USA Network programming recorded in 1997.
Electronic Retailing
Net revenues for the year ended December 31, 1998 increased by $74.4 million, or
7.3%, to $1,098.6 billion from $1,024.2 million in 1997. The increase primarily
resulted from increased sales of hardgoods, which includes consumer electronics,
collectibles and housewares. Total units shipped increased by 8.6% to 28.9
million units compared to 26.6 million units in 1997. The average price point
decreased by 2.0%. The increase in net revenues also reflected a decrease in the
return rate to 21.0% from 22.2% in 1997.
Cost related to revenues and other costs and expenses for the year ended
December 31, 1998 increased by $82.3 million, or 9.0%, to $997.9 million from
$915.6 million in 1997. The increase in cost of revenues resulted primarily from
higher net revenues and the sale of merchandise at lower gross margins 39.8% in
1998 compared to 41.2% in 1997. Other costs increased as a result of higher
telephone and operator costs, higher commissions to broadcast and cable
affiliates due to higher revenues, and costs to launch Home Shopping Network en
Espanol.
Internet Services
Net revenues for the year ended December 31, 1998 increased by $8.4 million to
$21.2 million in 1998 compared to $12.8 million in 1997. The increase resulted
from an increase in registered users to USAi's primary online retailing service,
First Auction.
Cost related to revenues and other costs and expenses for the year ended
December 31, 1998 increased by $16.4 million, or 79.2%, to $37.1 million from
$20.7 million in 1997. The increase resulted primarily from costs to maintain
and enhance the Internet Services and increased advertising and promotion costs.
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
Net Revenues
Net sales for Home Shopping Network increased by $22.4 million, or 2.2%, to
$1,037.1 million for the year ended December 31, 1997 compared to $1,014.7
million in 1996. Net sales of Home Shopping Club, 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. Home Shopping Club'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 Home Shopping Club net sales was offset by planned
decreases in net sales of wholly-owned subsidiaries, HSN Mail Order, Inc., and
the retail outlet stores of $33.8 million and $10.6 million, respectively, in
1996. Management believes that the improved sales for 1997 in 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, Home Shopping Club's merchandise return
percentage decreased to 22.2% from 23.5% in 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.
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Operating Costs and 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 Home Shopping Club 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 HSN Mail Order, Inc. 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 Home Shopping Club's net sales, cost of sales
decreased to 60.1% from 62.3% in 1996. These decreases were primarily the result
of changes in merchandising and programming strategies, as discussed above.
Other operating costs and expenses increased $13.2 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 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 67% 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.
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,
among Universal, Liberty, USAi and Holdco requires that no less frequently than
monthly, (1) all cash generated by entities not owned by USANi LLC be
transferred to USANi LLC and (2) 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 Transactions -- Agreements with Universal and
Liberty -- Investment Agreement."
Net cash provided by operating activities was $226.8 million for USAi ($278.3
million for Holdco and USANi LLC) for the year ended December 31, 1998. These
cash proceeds were used to pay for capital expenditures of $87.0 million for
USAi ($52.1 million for Holdco and USANi LLC), to make long-term investments
totaling $26.6 million for USAi ($23.2 million for Holdco and USANi LLC) and to
reduce amounts outstanding under the existing credit agreement.
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35
Under the investment agreement, transfers of cash between USAi and USANi LLC are
evidenced by a demand note and accrue interest at USANi LLC's borrowing rate
under the existing credit 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. During the year ended
December 31, 1998, net transfers from USANi LLC to USAi totaling approximately
$118.2 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.
On February 12, 1998, USAi and some of its subsidiaries, including USANi LLC as
borrower, entered into the credit agreement which provides for a $1.6 billion
credit facility. The credit facility was used to finance the Universal
transaction and to refinance USAi's then-existing $275.0 million revolving
credit facility. The 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.
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 and
permanently reduce $500.0 million of the Tranche A Term Loan. The existing
credit facility is guaranteed by substantially all of USAi'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 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 credit agreement entered into an
amendment, which, among other things, (1) provided for the release of all
security interests in favor of the lenders, (2) increased the level of permitted
stock repurchases from $100 million to $300 million, and (3) lowered the maximum
ratio of Total Debt to EBITDA, each as defined in the credit agreement,
permitted under the credit agreement from 5.0x to 4.0x.
On February 12, 1998, USAi 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) 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, USAi and Liberty would
complete a transaction involving a $300.0 million cash investment, plus an
interest factor, by Liberty in USAi through the purchase of USANi LLC shares.
Under this agreement, on June 30, 1998, Liberty contributed $308.5 million in
exchange for 15,000,000 USANi LLC shares.
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36
Under the investment agreement, USAi has granted to Universal and Liberty
preemptive rights with respect to future issuances of USAi's common stock and
Class B common stock. These preemptive rights generally allow Universal and
Liberty the right to maintain an ownership percentage equal to the ownership
percentage that entity held, on a fully converted basis, immediately prior to
the issuance. In addition, Universal had certain mandatory purchase obligations
with respect to USAi's common stock or USANi LLC shares issued with respect to
the conversion of the Home Shopping Debentures and the Ticketmaster merger.
Through the exercise of its preemptive rights during 1998, Universal and Liberty
contributed to USAi and USANi LLC approximately $787.0 million in exchange for
USAi's common stock and USANi LLC shares. These preemptive rights exercises are
described more fully below. For more information, see "Certain Relationships and
Related Party transactions -- Agreements with Universal and
Liberty -- Investment Agreement."
As part of the Universal transaction, USAi 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 USAi
elects to have Universal buy out its interest in the venture, USAi 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 USAi on whether to have
Universal buy out its interest in the joint venture is expected to be made
during the second quarter of 1999.
As part of the Universal transaction and based upon USAi's business plans, USAi
anticipates that it will need to invest working capital towards the development
and expansion of its overall operations. Due primarily to the expansion of the
Internet business and the roll-out of new television stations, future capital
expenditures are projected to be higher than current amounts.
USAi implemented its plan to disaffiliate its television station in the
Miami/Ft. Lauderdale market in June 1998. USAi 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. USAi may also transition additional broadcasting stations
to the new format in 1999. USAi believes that the process of disaffiliation can
be successfully managed so as not to have a material adverse effect but rather
to maximize the value of the broadcasting stations.
On June 24, 1998, USAi 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
USAi common stock for a total consideration of $467.0 million. At the closing,
USAi repaid all outstanding borrowings under the Ticketmaster credit agreement
using proceeds from the existing credit facility. As part of the Ticketmaster
merger, Universal and Liberty exercised their preemptive rights with respect to
the issuance of shares of USAi's 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, USAi completed the sale of its Baltimore, Maryland
television station for $80.0 million. On June 18, 1998, USAi purchased a
television station serving the Atlanta, Georgia, market. On June 18, 1998 USAi
acquired the remaining interest in an entity partially owned by USAi, which
owned television stations serving the Orlando, Florida, Portland, Oregon and
Rapid City, South Dakota markets. The aggregate purchase price 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, USAi sold the station serving Portland, Oregon for
total cash
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consideration of $30 million. On October 30, 1998, USAi sold the station serving
Rapid City, South Dakota for total consideration of $5.5 million.
As of March 1, 1998, USAi redeemed, at a redemption price of 104.7% of the
principal amount, all of Holdco's outstanding 5.875% Convertible Subordinated
Debentures. The Holdco debentures were all converted by the holders into an
aggregate 7,499,022 shares of USAi's common stock on or prior to the redemption
date. Under their preemptive mandatory and optional rights with respect to
issuances of shares by USAi, Universal exercised its right in connection with
the redemption of the Holdco debentures. This exercise resulted in the issuance
of 9,978,830 USANi LLC shares, generating an increase in minority interest in
USANi LLC of $199.6 million. This amount reduced USAi's deferred purchase price
liability by the same amount. Liberty exercised its optional preemptive rights,
related to the redemption of the Holdco debentures and the Universal preemptive
elections, in exchange for 4,697,327 shares of USAi's common stock which
generated 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 USANi LLC
Class A shares.
On February 20, 1998, USAi's board of directors approved the declaration of a
dividend to its stockholders in the form of a distribution of one share of
USAi's 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 USAi'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, USAi announced that its board of directors authorized a stock
repurchase program of up to 10 million shares of USAi'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 USAi's overall capital structure. Funds for these
purchases will come from cash on hand or borrowings under the credit facility.
On September 28, 1998, Ticketmaster Online was merged with a subsidiary of
CitySearch, a publisher of local city guides on the Web, to create Ticketmaster
Online-CitySearch. USAi had acquired Ticketmaster Online as part of the
Ticketmaster transaction and allocated to Ticketmaster Online a total of $154.8
million of the goodwill resulting from USAi's acquisition of Ticketmaster. The
CitySearch merger was accounted for using the "reverse purchase" method of
accounting, under 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, USAi owned approximately 11.8% of CitySearch,
which it had purchased for total consideration of $23.0 million. Pursuant to the
CitySearch merger, USAi 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 $120.8
million, substantially all of which was allocated to goodwill which is being
amortized over five years.
As part of the Ticketmaster Online-CitySearch transaction, USAi purchased
1,997,502 Ticketmaster Online-CitySearch shares in a 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,
Ticketmaster Online-CitySearch completed an initial public offering of its Class
B common stock. Under the offering, an aggregate of 8,050,000 shares of
Ticketmaster Online-CitySearch's Class B common stock were issued and sold for
aggregate net proceeds to Ticketmaster Online-CitySearch of approximately $105
million. Upon completion of the Ticketmaster Online-CitySearch
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initial public offering, Ticketmaster Online-CitySearch paid approximately $51
million to USAi as repayment in full, including accrued interest, of a $50
million loan made by USAi to Ticketmaster Online-CitySearch on August 12, 1998.
As of December 31, 1998, USAi beneficially owned 59.5% of the outstanding
Ticketmaster Online-CitySearch common stock, representing 63.5% of the total
voting power of Ticketmaster Online-CitySearch's outstanding common stock.
As part of the CitySearch merger, USAi recorded a gain of $67.9 million by
exchanging a 35.2% interest in Ticketmaster Online with a basis of $52.9 million
for a 50.7% interest in CitySearch, which had a fair value of $120.8 million. As
a result of the initial public offering, USAi recognized a gain of $41.1
million.
CitySearch has experienced significant losses during its startup phase and USAi
expects Ticketmaster Online-CitySearch to continue to incur losses for the
foreseeable future as it rolls out its product into new markets. As of December
31, 1998, Ticketmaster Online-CitySearch had approximately $107 million in cash
which it believes is sufficient to cover losses for the foreseeable future.
In our management's opinion, available cash, internally generated funds and
available borrowings will provide sufficient capital resources to meet USAi's
foreseeable needs.
During the year ended December 31, 1998, USAi did not pay any cash dividends,
and none are permitted under the existing credit facility.
OTHER MATTERS
USAi is currently working to resolve the potential impact of the year 2000 on
the processing of date-sensitive information by USAi's computerized information
systems.
Although assessment of non-critical systems is an ongoing process, USAi has
substantially completed its detailed assessment of all of its information
technology and non-information technology hardware and software to assess the
scope of its year 2000 issue. USAi has potential exposure in technological
operations within the sole control of USAi and in technological operations which
are dependent in some way on one or more third parties. USAi believes that it
has identified all significant technological areas within its control. USAi 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 USAi's operations.
USAi believes that, with respect to technological operations which are dependent
on third parties, the significant areas of potential risk are the ability of
satellite and cable operators to receive the signal transmission of USA Network,
The Sci-Fi Channel and the Home Shopping Network and America's Store services,
and the ability of banks and credit card processors to process credit card
transactions. Remediation of critical systems that are not Year 2000 compliant
is more than half complete. USAi expects its Year 2000 assessment, remediation,
implementation and testing to be completed by the end of the second quarter of
1999, except for some of its systems at Home Shopping Network and Ticketmaster
which are scheduled to be completed by September and October 1999, respectively.
It is not possible at this time to predict with any reasonable certainty the
total cost to address all Year 2000 issues. However, USAi believes that the
total costs associated with the Year 2000 assessment, remediation,
implementation and testing will not exceed $10 million of which approximately $5
million has been spent through February 28, 1999. This amount is exclusive of
capital expenditures that are currently planned to replace existing hardware and
software systems as part of USAi's ongoing efforts to upgrade its infrastructure
and systems.
Accordingly, based on existing information, USAi believes that the costs of
addressing potential problems will not have a material adverse effect on USAi's
financial position, results of operations or cash flows. However, if USAi, its
customers or vendors were unable to resolve the issues in a timely
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manner, it could result in a material adverse effect on USAi's financial
position, results of operations or cash flows. USAi plans to devote the
necessary resources to resolve all significant year 2000 issues in a timely
manner.
USAi 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. USAi is
currently examining its status and will continue to examine its status by the
end of the first quarter of 1999, and periodically thereafter, to determine
whether such plans are necessary.
SEASONALITY
USAi's businesses are subject to the effects of seasonality.
Networks and Television Production revenues are influenced by advertiser demand
and the seasonal nature of programming, and generally peak in the spring and
fall.
USAi 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
USAi, through its subsidiaries, is a leading media and electronic commerce
company. USAi is organized along five principal lines of business:
- NETWORKS AND TELEVISION PRODUCTION
- TELEVISION BROADCASTING
- ELECTRONIC RETAILING
- TICKETING OPERATIONS
- INTERNET SERVICES
USANi LLC is an indirect subsidiary of USAi that holds virtually all of USAi's
businesses other than Ticketmaster, Ticketmaster Online-CitySearch and USA
Broadcasting.
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 the sale of advertising time within
the programming carried on each of the networks. Tele-Communications, Inc. or
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. USAi is currently in negotiations with TCI to renew its
distribution agreement for USA Network. For more information 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.
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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 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 USAi. 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.
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Television Production
USAi 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. Under the 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 and financial participation in the development of 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. Alternatively, Studios USA may elect to
self-finance a project, and then market the completed script or produced pilot
to the various networks. In any case, 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 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 the beginning 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. Several 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 the Directors Guild of
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America and the Screen Actors Guild 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's 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. 1998/99 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 and
sometimes with further options thereafter. 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 recent years, Studios USA or its predecessor company 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 Fox Broadcasting. 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. First-run
syndication programming for 1998/99 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.
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
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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 were 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 distributes its current programming domestically. In addition, USAi
and Universal have agreed that Studios USA will have the exclusive right through
February, 2013, 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. During this period, Studios USA also has the exclusive right,
with limited exceptions, to distribute domestically television programming newly
produced by Universal.
In addition, USAi 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 entered into several
output and volume agreements with international 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 USAi and Universal,
USAi'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.
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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
USAi'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, USAi intends over time to disaffiliate the USA Station Group stations
from Home Shopping Network and develop and program the stations independently.
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(3)
WHSI-TV(2)................ Smithtown, NY 67 New York, NY 6,755,510 1 6/1/99(3)
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(3)
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 reach to UHF stations. Arbitron area of dominant influence, like
Nielsen designated market area, are measurements of television households in
television markets throughout the country. For USAi's purposes, area of
dominant influence and designated market area 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 application pending.
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Broadcast Station Transactions
In June 1998, entities controlled by USAi acquired from Atlanta-14, Inc. the
assets of television station WNGM-TV, Channel 34, Athens, Georgia, which serves
the Atlanta metropolitan area, for $50 million from Paxson Communications.
In June 1998, USA Broadcasting acquired all of the membership interests of
Blackstar L.L.C. , 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.
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 (1) 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; (2)
WALA-TV, Mobile, Alabama; and (3) WVUE-TV, New Orleans, Louisiana, and SF
Broadcasting of Wisconsin, Inc. and its wholly owned subsidiaries, which owned
WLUK, Green Bay, Wisconsin. Savoy Stations, Inc., an indirect wholly owned
subsidiary of USAi 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: (1) Roberts Broadcasting Company,
which owns Station WHSL(TV), East St. Louis, Illinois, serving the St.
Louis, Missouri metropolitan area; (2) Urban Broadcasting Corporation,
which owns Station WTMW(TV), Arlington, Virginia, serving the Washington,
D.C. metropolitan area; and (3) 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 USAi involving, among other things, performance
issues concerning the affiliation agreements for each of the
aforementioned stations.
- An affiliate of USA Broadcasting holds a 49% nonvoting common stock
interest in Channel 66 of Vallejo, California, Inc., licensee 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, the
licensee of Station WJYS(TV), Hammond, Indiana, serving the Chicago,
Illinois television market. Jovon has contested the validity of the
option. For more information, see "-- Legal Proceedings."
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LPTV Stations
USAi's 26 low power television stations are located in the areas of 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. USAi's low power television stations, for the most part, carry
America's Store. The low power television stations have an average coverage
radius of 10-12 miles and an average transmitter power of 1,000-2,000 watts.
This contrasts with USAi'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 low power television 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, 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, USAi may also incur additional
expenses and cash outflows, including making 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
USAi's revenues. USAi 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, USAi will be successful in its strategy to develop and broadcast
new programming formats, whether on a local or national basis, or that USAi 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 these
decisions will impact the business, financial condition and results of
operations of USAi.
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 and America's Store, each 24
hours a day, seven days a week.
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Home Shopping Network's 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. Home Shopping Network
and America's Store programs are carried by cable television systems and
broadcast television stations throughout the country. Home Shopping Network and
America's Store 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.
The following table highlights the changes in the estimated unduplicated
television household reach of Home Shopping Network, 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 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 direct broadcast satellite.
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 Home Shopping Network.
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 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.
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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 voice response unit, which allows callers to place their orders by means of
touch tone input or to be transferred to an operator.
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 and
vitamins; 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 its programming in its studios located in St.
Petersburg, Florida. Home Shopping Network and America's Store programs are
distributed to cable television systems, broadcast television stations, direct
broadcast satellite, 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
Home Shopping Network and America's Store.
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 under a special termination right in order to satisfy the owner's
obligations to provide the transponder to
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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. 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 Home Shopping
Network and America's Store. However, a failure that would necessitate a move to
another satellite may temporarily affect the number of cable systems and/or
television stations which receive Home Shopping Network and America's Store, 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 Home Shopping Network
programming 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 USAi.
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 Home Shopping Network, 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 Home Shopping Network 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. This compensation will be in various forms, for
example, 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 Home Shopping Network subscribers for a certain
number of years.
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Affiliation Agreements with Television Stations
Home Shopping Network has entered into affiliation agreements with television
stations to carry Home Shopping Network or America's Store programs. In addition
to the 13 owned and operated full power (two of which do not carry Home Shopping
Network or America's Store) and 26 low power television stations owned by USAi
as of December 31, 1998, USAi has affiliation agreements with 8 full-time, full
power stations, 35 part-time, full power stations that carry Home Shopping
Network or America's Store and 38 low power stations. USAi has a minority
ownership interest in 4 of the full-time, full power stations that carry Home
Shopping Network or America's Store programs. The affiliation agreements have
terms ranging from four weeks to fourteen years. All television station
affiliates other than stations owned by USAi receive an hourly or monthly fixed
rate for airing Home Shopping Network and America's Store programs. Full power
television signals are carried by cable operators within a station's coverage
area. For more information, see "-- Regulation -- Must-Carry/ Retransmission
Consent". Low power station signals are rarely carried by cable systems.
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 17 domestic call centers with
approximately 2,000 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.
USAi believes that the Ticketmaster system for live event ticketing transactions
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 under
which Ticketmaster 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 five to
seven years. Under its facilities agreements, 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.
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As part of 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 any 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.
The agreements with some of Ticketmaster's clients 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.
USAi believes that the primary benefits derived by Ticketmaster's clients by use
of the Ticketmaster system include
- centralized control of total ticket inventory as well as accounting
information and market research data,
- centralized accountability for ticket proceeds,
- manageable and predictable transaction costs,
- broader and expedited distribution of tickets,
- wide dissemination of information about upcoming events through
Ticketmaster's call centers, the Ticketmaster Online Web site and other
media platforms,
- the ability to easily add additional performances if warranted by demand,
and
- marketing and promotional support.
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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. Ticketmaster Online-CitySearch intends to expand the types and
range of merchandise that can be ordered by consumers through the Ticketmaster
Online Web site. Ticketmaster Online-CitySearch 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.
Since the beginning 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, as part of the
Ticketmaster Online-City Search transaction, subject to certain limitations,
Ticketmaster has granted (a) Ticketmaster Online an exclusive, perpetual,
irrevocable, worldwide license to use the Ticketmaster trademark and (b) certain
Ticketmaster databases to sell live event tickets online for Ticketmaster's
clients. In addition, subject to limitations, Ticketmaster authorized
Ticketmaster Online-CitySearch 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 (1) by telephone; (2)
by other voice-to-voice means or voice-to-voice recognition unit systems; (3) by
non-interactive broadcast, cable and satellite television; and (4) 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 this
information to Ticketmaster Online-CitySearch for processing of online live
event ticket sales and provides all transaction processing and fulfillment
services for online live
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event ticket sales. Ticketmaster Online-CitySearch is required under the
Ticketmaster license agreement to comply with the terms of Ticketmaster's client
agreements. Ticketmaster Online-CitySearch rights, contained in the Ticketmaster
license agreement, are subject to the client agreements. The Ticketmaster
license agreement also generally restricts Ticketmaster Online-CitySearch 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, Ticketmaster Online-CitySearch pays
Ticketmaster a royalty based on the percentage of the net profit it derives from
online ticket sales. Ticketmaster Online-CitySearch 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 merchandise available
through Ticketmaster. Ticketmaster serves as Ticketmaster Online's exclusive
fulfillment provider for the online sales of this 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
USAi operates several Internet services associated with its media and
entertainment and electronic retailing businesses. In July 1998, USAi announced
the formation of USA Networks Interactive to coordinate the operations of its
Internet Services business.
RETAILING
USAi conducts its Internet retailing operations through Internet Shopping
Network. Internet Shopping Network's principal Internet retailing service is
First Auction, which was launched in June 1997. First Auction is an interactive
Internet site, which auctions a broad range of 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.
Internet Shopping Network specializes in marketing, fulfillment, customer
service and site development in online retailing. Internet Shopping Network has
online advertising distribution agreements with America Online, Microsoft
Network and @Home. Internet Shopping Network's technology partners include Sun
Microsystems, Oracle and Netscape.
In addition to First Auction, Internet Shopping Network 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
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city guides to purchase live event tickets and related merchandise online. In
some 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)
UPN13
Salt Lake City/Utah.......... April 1997 KUTV (CBS)
Citadel Communications Corporation
(6 radio stations)
Nashville.................... May 1997 WZTV (Fox)
UPN30
Dick Broadcasting (2 radio
stations)
Portland..................... June 1997 KATU (ABC)
KKCW FM (Jacor Communications Inc.)
New York(1).................. September 1997 New York Daily News
Time Out New York (weekly arts and
entertainment publication)
New York Convention & Visitors
Bureau
Denver....................... January 1999
Atlanta...................... February 1999
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MARKETS DATE OF LAUNCH SELECTED PARTNERS
------- -------------- -----------------
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 1998 Washingtonpost.Newsweek Interactive
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
San Diego.................... February 1999 The San Diego Union-Tribune
Oslo......................... 1999* Schibsted ASA/Scandinavia Online
- -------------------------
* Estimated launch dates
(1) CitySearch acquired Metrobeat, Inc. 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 $1,000 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.
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
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$1,000 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 the Universal transaction, USAi 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 USAi elects to have Universal buy out USAi's
interest in the venture, which election USAi expects to make in the second
quarter of 1999, USAi 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 USAi or
Universal, excluding, for example, channels that feature Home Shopping Network
programming 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 USAi's election
to maintain its 50% interest or to be diluted based on additional contributions
from Universal. Under the joint venture agreement, each party is obligated to
present 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. In some cases, 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 a venture based in Munich. Home Order Television broadcasts
television shopping 24 hours per day, 16 of which are devoted to live shopping.
Home Order Television 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., a venture based in Tokyo. Jupiter Shop Channel broadcasts televised
shopping 24 hours a day, of which 36.5 hours per week are devoted to live
shopping. Jupiter Shop Channel has reached agreements to be available in
approximately 2.1 million full-time equivalent households as of December 31,
1998. Tele-Communications International, Inc., a subsidiary of TCI, owns a 50%
interest in Jupiter Programming Co. Ltd. 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.
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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
A substantial portion of USAi'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 under the Communications Act of 1934, the
Telecommunications Act of 1996 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 Communications Act prohibits the operation of
television broadcasting stations except under a license issued by the FCC and
empowers the FCC to issue, renew, revoke and modify broadcast licenses, to
determine the location of stations, to establish areas to be served and to
regulate aspects of broadcast and cable programming. The Communications 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 Communications 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 Communications 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 limitations. Television stations operate according 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
- the station has served the public interest, convenience and necessity;
- there have been no serious violations by the licensee of the
Communications Act or the rules and regulations of the FCC; and
- there have been no other violations by the licensee of the Communications
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 Communications 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"). 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 considered an Alien, since it is 84% owned by The Seagram Co. Ltd., a
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Canadian corporation, and 16% by Matsushita Electric Industrial Co. Ltd., a
Japanese corporation. At the Annual Meeting of Stockholders held in February
1998, USAi's stockholders approved amendments to USAi's certificate of
incorporation to ensure that USAi will continue to be in compliance with the
Alien ownership limitation of the 1934 Act. Universal's equity interest in USAi,
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 some
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. This is called the duopoly
rule. The rules also currently prohibit with 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 USAi, 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 USAi 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 USAi to conditions,
including that (1) the prior approval of the FCC be obtained for any increase in
Liberty's interest, and (2) the FCC be notified prior to completion 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 USANi 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 USAi's board of
directors, Messrs. Paul G. Allen and William D. Savoy, have attributable
interests in cable television systems located within the coverage areas of
certain of the television stations controlled by USA Broadcasting. On November
3, 1998, USAi notified the FCC that Messrs. Allen and Savoy have pledged to
recuse themselves from any matters that come before USAi'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 USAi or USA Broadcasting in the television stations.
In pending rulemaking proceedings, the FCC is considering, among other things,
(1) the relaxation, under various circumstances, of the duopoly rule, and (2)
the codification of the cross-interest policy
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to the extent it was applied to limit Liberty's beneficial equity interest in
USAi. 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 USAi.
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 USAi.
Digital Television
The FCC has taken a number of steps to implement digital television 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 digital television. 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 digital television,
conditioned upon the surrender of one of the channels at the end of the digital
television 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 digital television facilities and 2006 for expiration of the
transition period, subject to biennial reviews to evaluate the progress of
digital television, including the rate of consumer acceptance. Conversion to
digital television may reduce the geographic reach of USAi's stations or result
in increased interference, with, in either case, a corresponding loss of
population coverage. Digital television implementation will impose additional
costs on USAi, primarily due to the capital costs associated with construction
of digital television 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.
USAi continually reviews developments relating to the FCC's digital television
proceedings, and the digital television industry generally. Material
developments in this regard could have a material impact on USAi's businesses.
For example, in the future, seven of USAi's 26 low-power television stations, as
well as other low-power television affiliates of Home Shopping Network, will
likely have to cease business operations due to irremediable interference to or
from new digital television allocations. Under procedures established in the
digital television rulemaking proceeding, USAi has filed applications for
authorization to shift the operation of 15 additional low-power television
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
USAi's low-power television stations are not expected to be subject to digital
television displacement at their existing channel assignments.
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Children's Television Programming
Under 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
younger. 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
As part of 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. USAi 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 or to
substitute programming 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.
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Must-Carry/Retransmission Consent
As part of the Cable Television Consumer Protection and Competition Act of 1992,
television broadcasters are required to make triennial elections to exercise
either "must-carry" or "retransmission consent" rights upon 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, 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 USAi'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. Home Shopping Network and America's Store programming 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 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 a local franchising authority, and then only after the local
franchising authority 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 local franchising authorities, rate regulation
of other cable services between now and March 31, 1999 will be triggered only by
a valid rate complaint by a local franchising authority, and only in an area
where no effective competition exists. Because USAi'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 USA'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 from providing satellite-delivered programming to their
subscribers. The FCC has adopted regulations to (1) 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 (2) to prevent a programmer in which a cable operator has an
attributable interest from discriminating between cable operators and other
multichannel video programming distributors, including other cable operators.
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The FCC's rules may have the effect, in some cases, of requiring vertically
integrated programmers to offer their programming to multichannel video
programming distributor competitors of cable television, and of prohibiting
certain exclusive contracts between such programmers and cable system operators.
The rules also permit multichannel video programming distributors 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.
Under 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. USAi 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 limitations
on the ability of a local franchising authority 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 local
franchising authorities 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 local franchising authorities to
operate their own multichannel video distribution systems without having to
obtain franchises. Moreover, local franchising authorities 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 beginning 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 USAi 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. USAi is not able to predict the impact
such regulation could have on its businesses.
Other Cable Regulation
The FCC's regulations concerning the commercial limits in children's programming
and political advertising may also apply to cable television system operators.
USAi also must provide program ratings information and, under the phased
implementation established by the FCC, closed captioning of its cable program
services, which could increase its operating expenses.
Proposed Changes
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
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indirectly, the operation, ownership and profitability of USAi'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 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 USAi'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 summary presented above 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, you should review
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 USAi's business and operations.
TRADEMARKS, TRADENAMES AND COPYRIGHTS
USAi has registered and continues to register, when appropriate, its trade and
service marks as they are developed and used, and USAi vigorously protects its
trade and service marks. USAi believes that its marks are a primary marketing
tool for promoting its identity. USAi 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 a manner that only a portion of their subscribers will
receive the service (for example, by charging an additional fee). 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 spend significantly greater amounts of money
on programming. Therefore, greater 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.
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THIRD-PARTY PROGRAMMING. The competition for third-party programming is likely
to increase as more networks seek to acquire that form of 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, which are
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. These
rules were adopted in 1970 to limit television network control over television
programming and to foster the development of diverse programming sources. The
rules 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 rules has increased in-house production of
television programming for the networks' own use. As a result of the repeal of
these 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's business as its network customers are
now able to choose between their own product and Studios USA's product in making
programming decisions.
Television Broadcasting
VIEWERSHIP AND ADVERTISING REVENUE. The USA Station Group stations, to the
extent they do not air Home Shopping Network and America's Store programming,
also compete for a share of advertising dollars. A station's share is based
primarily upon (1) the size of its viewing audience, (2) the demographics of
those viewers and (3) 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 Station Group
stations that develop local programming other than Home Shopping Network and
America's Store.
LOCAL MARKETS. In addition to the above factors, USAi'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. USAi'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. USAi also competes with new entertainment and shopping
networks for carriage on broadcast television stations. USAi cannot quantify the
competitive effect of the foregoing or any other sources of video programming on
any of USAi's affiliated television stations, nor can it predict whether such
competition will have a material adverse effect on its operations.
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Electronic Retailing
The 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. are currently the two leading electronic
retailing companies. TCI, which indirectly holds a substantial equity interest
in USAi and USANi LLC, currently owns 43% of QVC but has entered into a
stockholders agreement with Comcast Corporation ,which owns 57% of QVC, under
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. Some competitors of the Home Shopping Network business are
larger and more diversified than USAi.
VIEWERSHIP. The 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 Home Shopping Network and America's Store programming and the
compensation which must be paid to cable operators for carriage of Home Shopping
Network and America's Store programming.
CHANNEL CAPACITY. In addition, USAi 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 USAi'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 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, NEXT Ticketing, Advantix, ETM Entertainment Network,
Dillard's, Prologue, Capital Tickets and Lasergate. 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 some geographic
regions, including some of the local markets in which CitySearch provides or
intends to provide its local city guide service, one or more of Ticketmaster's
and Ticketmaster Online's competitors may serve as the primary ticketing service
in the region. USAi believes that Ticketmaster Online will experience
significant difficulty in establishing a significant online presence in these
regions and, as a result, any local city guide for such a region may be unable
to provide
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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, as part of 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 these
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
Internet Shopping Network operates First Auction, an Internet retailing service
that competes with a number of other companies including uBid, Yahoo! Auctions
Powered by OnSale, Excite, OnSale, ZAuction and Surplus Auction. Internet
Shopping Network/First Auction potentially faces competition from a number of
large online communities and services that have expertise in developing online
commerce. USAi believes that the principal competitive factors in this 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) 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, USAi and its subsidiaries
employed 7,191 full-time employees, with 1,022 employees employed by Networks
and Television Production, 3,597 employees employed by Electronic Retailing, 91
employed by Internet Services, 250 employees employed by USA Broadcasting and
2,189 employees employed by Ticketmaster including Ticketmaster Online-City
Search. Of these employees, 4,794 were employed by USAi through USANi LLC. USAi
believes that it generally has good employee relationships, including employees
represented by unions and guilds.
PROPERTIES
USAi's facilities for its management and operations are generally adequate for
its current and anticipated future needs. USAi's facilities generally consist of
executive and administrative offices, fulfillment facilities, warehouses,
operations centers, call centers, television production and distribution
facilities, satellite transponder sites and sales offices.
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All of USAi's leases are at prevailing market (or "most favorable") rates and,
except as noted, with unaffiliated parties. USAi believes that the duration of
each lease is adequate. USAi 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, USAi leases
or subleases such space to the extent possible. USAi anticipates no future
problems in renewing or obtaining suitable leases for its principal properties.
Corporate
USAi 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 USAi 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 under 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. As of early 1999, Studios USA is in the
process of relocating some of its executive functions away from Universal City
to a facility owned by Ticketmaster. 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 Jessy Raphael Show and Maury -- and in Chicago for production of The Jerry
Springer Show.
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Television Broadcasting
USAi 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
Melbourne, FL.................... Offices/Studio Leased
Miami, FL........................ Transmitter Leased
Miami Beach, FL.................. Offices/Studio Leased
Miramar, FL...................... Offices/Studio 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 Owned
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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USAi leases the following low power television 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) USAi 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's headquarters are located in Los Angeles, California, where
Ticketmaster currently leases approximately 57,000 square feet of space under a
lease expiring in 2005, with an option to renew for an additional five years. 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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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 and the remaining 10,000 square feet is
leased to an unaffiliated entity.
Internet Services
Ticketmaster Online-City Search's executive offices are located in Pasadena,
California, where Ticketmaster Online-City Search currently leases approximately
30,700 square feet under a lease expiring in 2002.
Internet Shopping Network's executive offices are located in Sunnyvale,
California, where Internet Shopping Network currently leases 31,000 square feet
under a lease expiring in 2000.
LEGAL PROCEEDINGS
In the ordinary course of business, USAi and USANi LLC 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 financial position or operations of USAi
and USANi LLC.
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 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 and by Broadcast Music, Inc. The payments to
be made to the American Society 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 the American Society 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 American Society
claims prior to these times have been settled and are final. As to Broadcast
Music, Networks has agreed with Broadcast Music with respect to certain interim
fees to be paid by both USA Network and The 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 Broadcast Music's
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own federal "rate court." USAi cannot predict the final outcome of these
disputes, but does not believe that it will suffer any material liability as a
result of them.
Ticketmaster Shareholder Litigation
USAi and some 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 USAi's October 1997 merger proposal to
Ticketmaster, and seek, among other things, injunctive relief and damages in an
unspecified amount. On October 26, 1998, the Cook County Circuit Court entered
an order dismissing the Illinois cases with prejudice from which no appeal was
taken. On March 17, 1999, the plaintiffs in the California cases filed a request
for dismissal with prejudice as to all named plaintiffs and without prejudice as
to any unnamed potential class members.
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 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
Silver King Capital Corporation holds an option to acquire 45% of the stock of
Jovon Broadcasting Corporation, licensee of WJYS-TV, Hammond, Indiana. In a 1996
order, the FCC ruled that USAi could proceed to exercise its option to acquire
45% of Jovon's stock, but limited the present exercise of that option to no more
than 33% of Jovon's outstanding stock. Certain entities controlled by USAi
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filed litigation on May 30, 1997 in the Circuit Court of Pinellas County,
Florida against Jovon seeking declaratory and injunctive relief to permit USAi
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 affirming 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, USAi 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 USAi against Jovon. The court stayed the action for a
period of six months. The stay was lifted on February 1, 1999.
Urban Litigation
Beginning in October 1996, Home Shopping Club, Inc., predecessor in interest to
Home Shopping Club, L.P., withheld monthly payments under the Affiliation
Agreement with Urban Broadcasting Corporation due to 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 USAi's actions of withholding payments to Urban to determine
whether USAi 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 began a
related action in the Circuit Court against HSC, HSN, Inc. (now USAi) and Silver
King Broadcasting of Virginia, Inc. (now USA Station Group of Virginia, Inc.).
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. USAi, HSC and USA Station Group of Virginia continue to defend the case
vigorously.
MovieFone Litigation
In March 1995, MovieFone, Inc. 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, to provide teleticketing services to movie theaters. Plaintiffs
also allege that, together with Pacer Cats, they had planned to begin 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 tortiously interfered with contractual and prospective
business relationships and seeks monetary and injunctive relief based 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. Some of the claims in this
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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 some entities, which
may include affiliates of Ticketmaster, restricting or prohibiting their
activity with respect to aspects of the movie teleticketing business for a
specified period of time. Neither USAi, 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.
Lycos Litigation
USAi is a defendant (along with several of its directors) in a number of
lawsuits brought in connection with the proposed Lycos transaction. Seven of the
lawsuits are brought on behalf of shareholders of Ticketmaster Online-CitySearch
and allege that the non-USAi shareholders of Ticketmaster Online-CitySearch will
receive consideration in the Lycos transaction that is "grossly inadequate" and
unfair and that defendants, including USAi, breached alleged fiduciary duties to
the shareholders of Ticketmaster Online-CitySearch in negotiating and approving
the Lycos transaction. These complaints seek an injunction against completion of
the Lycos transaction, rescission in the event it is completed, and damages in
an unspecified amount. Six additional lawsuits have been brought on behalf of
shareholders of Lycos, alleging that USAi aided and abetted alleged breaches of
fiduciary duties by Lycos' directors, in that the consideration Lycos
shareholders will receive in the Lycos transaction is alleged to be grossly
inadequate and unfair. These complaints seek an injunction against completion of
the Lycos transaction, rescission in the event it is completed, and damages in
an unspecified amount. All of these actions are pending in the Court of Chancery
of the State of Delaware. The time for defendants to answer has not yet elapsed,
and discovery has not yet been scheduled. USAi believes that the allegations
against USAi and its directors have no merit.
Other
USAi and USANi LLC 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 USAi or USANi LLC.
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CORPORATE HISTORY
USAi 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 USAi to its stockholders.
SAVOY AND HOME SHOPPING MERGERS
In December 1996, USAi completed mergers with Savoy Pictures Entertainment, Inc.
and Holdco and Savoy and Holdco became subsidiaries of USAi. At the same time as
the mergers, USAi changed its name from Silver King Broadcasting Company, Inc.
to HSN, Inc.
TICKETMASTER TRANSACTION
On July 17, 1997, USAi acquired a controlling interest in Ticketmaster from Mr.
Paul G. Allen in exchange for shares of USAi's common stock. Upon completion of
the acquisition, Mr. Allen became a director of USAi. On June 24, 1998, USAi
acquired the remaining Ticketmaster common equity in a tax-free stock-for-stock
merger.
UNIVERSAL TRANSACTION
On February 12, 1998, in the Universal transaction, USAi acquired both USA
Networks, a New York partnership which consisted of USA Network 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. USAi paid Universal approximately
$1.6 billion in cash ($300 million of which was deferred with interest) and an
effective 45.8% interest in USAi through shares of USAi common stock, USAi Class
B common stock and shares of USANi LLC. The USANi LLC shares are exchangeable
for shares of USAi's common stock and Class B common stock on a one-for-one
basis.
Due to FCC restrictions on foreign ownership of entities such as USAi that
control domestic television broadcast licenses, Universal, which is controlled
by Seagram, a Canadian corporation, is limited in the number of shares of USAi's
stock that it may own. USAi formed USANi LLC primarily to hold USAi's
non-broadcast businesses in order to comply with such FCC restrictions and for
other tax and regulatory reasons. Universal's interest in USANi LLC is not
subject to the FCC foreign ownership limitations. USAi maintains control and
management of USANi LLC, and the businesses held by USANi LLC are managed by
USAi in substantially the same manner as they would be if USAi held them
directly through wholly owned subsidiaries. As long as Mr. Diller is the
Chairman and Chief Executive Officer of USAi 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 may have the right
to designate a person to be the manager of USANi LLC and the Chairman and Chief
Executive Officer of USAi. If Universal does not have such right, Liberty may be
entitled to designate such persons. In all other cases, USAi is entitled to
designate the manager of USANi LLC.
As part of with the Universal transaction, USAi 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.
Following the merger, Ticketmaster Online-CitySearch was a majority-owned
subsidiary of Ticketmaster. Shares of Ticketmaster Online-CitySearch's Class B
common stock were sold to the public in an initial public offering that was
completed on December 8, 1998. The Ticketmaster Online-CitySearch 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 Ticketmaster Online-CitySearch common stock, representing 63.5% of
the total voting power of Ticketmaster Online-CitySearch's outstanding
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common stock. For financial reporting purposes, Ticketmaster Online-CitySearch's
Ticketmaster Online ticketing business is considered part of USAi's Ticketing
Operations, while Ticketmaster Online-CitySearch's local city guides business is
considered part of USAi's Internet Services.
CORPORATE STRUCTURE; CONTROLLING SHAREHOLDERS
USAi. As of February 26, 1999, Liberty, through companies owned by Liberty and
Mr. Diller, owned 3.8% of USAi's outstanding common stock and 78.7% of USAi's
outstanding Class B common stock and Universal owned approximately 6.6% of
USAi's outstanding common stock and 21.3% of USAi's outstanding Class B common
stock. Mr. Diller, through companies owned by Liberty and Mr. Diller, his own
holdings and the stockholders agreement, dated as of October 19, 1997, among Mr.
Diller, Universal, Liberty, USAi and Seagram, controls 74.4% of the outstanding
total voting power of USAi. Mr. Diller, subject to the stockholders agreement
and subject to veto rights of Universal and Liberty over fundamental changes, is
effectively able to control the outcome of nearly all matters submitted to a
vote of USAi's stockholders.
Assuming the exchange of all equity securities of USANi LLC and Holdco that are
exchangeable for USAi's common stock or Class B common stock, but excluding
employee stock options, as of February 26, 1999: (1) Universal would own
approximately 45% of USAi's common equity, (2) Liberty would own approximately
21% of USAi's common equity, and (3) the public shareholders, including Mr.
Barry Diller and other USAi officers and directors, would own approximately 34%
of USAi's common equity.
HOLDCO. As of February 26, 1999, Liberty owned a 19.9% equity interest (9.2% of
the voting power) in Holdco and USAi owned the remaining equity and voting
interests. Holdco's only asset is its 38.8% interest in USANi LLC. Holdco has a
dual-class common stock structure similar to USAi's. Under to an exchange
agreement, dated as of December 20, 1996 between USAi and a subsidiary of
Liberty, Liberty or its permitted transferee will exchange its Holdco common
stock and its Holdco Class B common stock for shares of USAi's common stock and
Class B common stock, respectively, at the applicable conversion ratio. This
exchange will only occur 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 USAi's stock. Liberty, however, is obligated to effect an
exchange only after all of its USANi LLC shares have been exchanged for shares
of USAi's common stock. Upon completion of the exchange of Liberty's Holdco
shares, Holdco will become a wholly owned subsidiary of USAi.
USANi LLC. As of February 26, 1999, USAi owned 3.2% and indirectly through
Holdco 38.8% of the outstanding USANi LLC shares, Universal owned 49.5% of the
outstanding USANi LLC shares and Liberty owned 8.5% of the outstanding USANi LLC
shares.
Under an exchange agreement, dated February 12, 1998, among USAi, Universal and
Liberty, Universal may exchange its USANi LLC shares for shares of USAi's common
stock and Class B common stock and Liberty may exchange its USANi LLC shares for
USAi's common stock. USAi has the right, subject to conditions, to require
Liberty to exchange such shares when, under applicable law, it is legally
permitted to do so. USAi may only require Universal to exchange its USANi LLC
shares upon a sale of USAi as provided in the exchange agreement.
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The following chart shows USAi's corporate structure.
[CORPORATE STRUCTURE FLOW CHART]
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table presents the name, age and position of individuals who serve
as directors and executive officers of USAi and USANi LLC, as indicated. All
biographical information is as of February 26, 1999. Except as otherwise
indicated, each individual who serves as a director or executive officer of USAi
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 USAi and USANi LLC are appointed by the Boards of Directors of USAi
and USANi LLC and serve at the discretion of the Boards.
NAME AGE POSITION
---- --- --------
Barry Baker(1)....................... 46 Director, President and Chief Operating Officer
Barry Diller(1)...................... 57 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........................ 45 Director
Robert R. Bennett(2)................. 40 Director
Edgar J. Bronfman, Jr.(1)............ 42 Director
Anne M. Busquet(4)(5)................ 49 Director
Donald R. Keough(3)(4)............... 72 Director
John C. Malone(2).................... 58 Director
Robert W. Matschullat................ 51 Director
Samuel Minzberg...................... 49 Director
William D. Savoy(3)(4)(5)............ 34 Director
H. Norman Schwarzkopf(3)............. 64 Director
Diane Von Furstenberg................ 52 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 USAi 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. Mr. Allen currently serves as a director of Microsoft
Corporation and also serves as a director of various private corporations.
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Barry Baker has been a director and the President and Chief Operating Officer of
USAi and of USANi LLC since March 31, 1999. Mr. Baker was Executive Vice
President of Sinclair Broadcast Group, Inc. and served as Chief Executive
Officer designate and as a director of Sinclair Communications, Inc. from June
1996 through February 1999. From 1989 through May 1996, he was also Chief
Executive Officer of River City Broadcasting, L.P., which was acquired by
Sinclair Broadcasting.
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 USAi 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.
Anne M. Busquet has been a director of USAi and of USANi LLC since March 1999.
She has been the President of American Express Relationship Services, TRS since
October 1995. Previously, she had been the Executive Vice President of American
Express' Consumer Card Group since November 1993. She is a member of the Board
of Trustees for Teach of America, Rheedlen Centers for Children and Families and
the Cornell University Trustees Council. She also serves on the Board of
Directors for Administaff, Exactis.com and Epsilon.
Barry Diller has been a director and the Chairman of the Board and Chief
Executive Officer of USAi 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 USAi and of USANi
LLC since March 1998. Prior to joining USAi, 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 USAi and
of USANi LLC since March 1998. Prior to joining USAi, 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
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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.
Victor A. Kaufman has been a director of USAi and of USANi LLC since December
1996 and February 1998, respectively. Mr. Kaufman has served in the Office of
the Chairman for USAi 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. 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. 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 USAi 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 USAi and of
USANi LLC since March 1998. Prior to joining USAi, 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
USAi and of USANi LLC since February 1998. Prior to joining USAi, 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 USAi and of USANi LLC since
February 1998. He has been Vice Chairman and Chief Financial Officer of Seagram
since 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 USAi 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 USAi and of USANi LLC since July 1997
and February 1998, respectively. Currently, Mr. Savoy serves as President of
Vulcan Northwest Inc., managing the personal finances of Paul Allen, and Vice
President of Vulcan Ventures Inc., a venture
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capital fund wholly-owned by Paul Allen. 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, Harbinger Corporation, Metricom, Inc., Telescan,
Inc., and U.S. Satellite Broadcasting Co, Inc.
Gen. H. Norman Schwarzkopf has been a director of USAi and of 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 recently worked 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 Nature Conservancy's President's Conservation
Council, 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.
Diane Von Furstenberg has been a director of USAi and of USANi LLC since March
1999. She is the founder and Chairman of Diane Von Furstenberg Studio, L.P.
since August 1995. Previously, she was the founder and Chairman of DVF Studio.
BOARD COMMITTEES
Executive Committee
The Executive Committee of the Boards of Directors of USAi and USANi LLC,
consisting of Messrs. Baker, Bronfman, Diller and Kaufman, has all the power and
authority of the Boards of Directors of USAi and USANi LLC, except those powers
specifically reserved to the Boards by Delaware law or USAi's and USANi LLC's
respective organizational documents.
Audit Committee
The Audit Committee of the Boards of Directors of USAi and USANi LLC, currently
consisting of Messrs. Keough and Savoy and Gen. Schwarzkopf, is authorized to
(1) recommend to the Boards of Directors independent certified public accounting
firms for selection as auditors of USAi and USANi LLC; (2) make recommendations
to the Boards of Directors on auditing matters; (3) examine and make
recommendations to the Boards of Directors concerning the scope of audits; and
(4) review and approve the terms of transactions between or among USAi and USANi
LLC and related parties. None of the members of the Audit Committee is an
employee of USAi and USANi LLC.
Compensation/Benefits Committee
The Compensation/Benefits Committee of the Boards of Directors of USAi and USANi
LLC, currently consisting of Ms. Busquet and 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 matters, incentive/bonus plans, stock option plans, investment
programs and insurance plans, except that the Performance-Based Compensation
Committee exercises 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 USAi and USANi LLC.
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Performance-Based Compensation Committee
The Performance-Based Compensation Committee of the boards of directors of USAi
and USANi LLC, currently consisting of Ms. Busquet and Mr. 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 $1,000,000
paid to a corporation's chief executive officer and four other most highly
compensated executive officers, unless various conditions are met. None of the
members of the Performance-based Compensation Committee is an employee of USAi
and USANi LLC.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
This section of the prospectus contains information pertaining to compensation
of the Chief Executive Officer of USAi and USANi LLC and the four most highly
compensated executive officers of USAi and USANi LLC other than the Chief
Executive Officer, as well as information pertaining to the compensation of
members of the Boards of Directors of USAi and USANi LLC. All option grants
described in this section reflect the one-for-one stock dividend paid on March
26, 1998.
Summary of Executive Officer Compensation
The following table presents information concerning total compensation earned by
the Chief Executive Officer and the four other most highly compensated executive
officers of USAi and USANi LLC who served in such capacities as of December 31,
1998 (the "Named Executive Officers") for services rendered to USAi and USANi
LLC during each of the last three fiscal years. The information presented below
represents all compensation earned by the Named Executive Officers for all
services performed for USAi or USANi LLC or any of their subsidiaries. The Named
Executive Officers did not receive separate or additional compensation for
serving in their respective capacities for USAi or USANi LLC.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- -----------------------
OTHER RESTRICTED
ANNUAL STOCK STOCK ALL OTHER
FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- ------------------------- ------ ------- --------- ------------ ---------- --------- ------------
Barry Diller........... 1998 126,923(1) 0 -- 0 0 1,288,472(2)(3)
Chairman and 1997 0 0 -- 0 9,500,000 1,282,343(2)
Chief Executive 1996 0 1,618,722(4) -- 0 0 1,280,508(2)(3)
Officer 0
Victor A. Kaufman...... 1998 500,000 450,000(6) -- 500,000(7) 100,000 4,800(3)
Office of the 1997 500,000 0 -- 0 500,000 0
Chairman and 1996 19,230 0 -- 0 346,000 0
Chief Financial
Officer(5)
Thomas J. Kuhn......... 1998 398,077(9) 450,000(6) -- 187,500(7) 250,000 2,118(3)
Senior Vice President,
General Counsel and
Secretary(8)
Dara Khosrowshahi...... 1998 248,077(11) 300,000(6) -- 125,000(7) 220,000 0
Vice President,
Strategic Planning(10)
Michael P. Durney...... 1998 187,500(13) 125,000(6) -- 0 70,000 1,731(3)
Vice President and
Controller(12)
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(1) Reflects an annual base salary of $500,000 commencing September 25, 1998.
(2) 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 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.
(3) Includes USAi's matching contributions under its 401(k) Retirement Savings
Plan. Under the 401(k) Plan as in effect through December 31, 1998, USAi
matches $.50 for each dollar a participant contributes up to the first 6%
of compensation.
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(4) Pursuant to an equity compensation agreement between Mr. Diller and USAi,
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.
(5) Mr. Kaufman assumed the position of Chief Financial Officer of USAi on
November 1, 1997.
(6) Of this amount, Messrs. Kaufman, Kuhn, Khosrowshahi and Durney elected to
defer $225,000, $90,000, $60,000 and $62,500, respectively, under USAi'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 USAi had a right to elect to
purchase shares of common stock with up to 50% of the value of their 1998
bonus payments. Employees received a 20% discount on the purchase price of
these bonus shares, which was calculated by taking the average of the high
and low trading prices of common stock over a specified period of time in
February, 1999.
(7) 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 USAi 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.
(8) Mr. Kuhn joined USAi as its Senior Vice President, General Counsel and
Secretary on February 9, 1998.
(9) Reflects an annual base salary of $450,000 beginning February 9, 1998.
(10) Mr. Khosrowshahi joined USAi as its Vice President, Strategic Planning on
March 2, 1998.
(11) Reflects an annual base salary of $300,000 commencing March 2, 1998.
(12) Mr. Durney joined USAi as its Vice President and Controller on March 30,
1998.
(13) Reflects an annual base salary of $250,000 beginning March 30, 1988.
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Option Grants
The following table presents information with respect to options to purchase
USAi's common stock granted to the Named Executive Officers during the year
ended December 31, 1998. The grants were made under the 1997 Incentive Plan.
The 1997 Incentive Plan is administered by the Compensation/Benefits Committee
and the Performance-Based Compensation Committee, which have the sole discretion
to determine the selected officers, employees and consultants to whom incentive
or non-qualified options, SARs, restricted stock and performance units may be
granted. As to these awards, the Compensation/ Benefits Committee and the
Performance-Based Compensation Committee also have the sole discretion to
determine the number, type, exercise price, vesting schedule and other terms,
conditions and restrictions of the grants. The Compensation/Benefits Committee
and the Performance-Based Compensation Committee also retain discretion, subject
to plan limits, to modify the terms of outstanding options and to reprice such
options. The exercise price of an incentive stock option granted under the 1997
Incentive Plan must be at least 100% of the fair market value of USAi's common
stock on the date of grant. In addition, options granted under the 1997
Incentive Plan terminate within ten years of the date of grant. To date, only
non-qualified stock options have been granted under the 1997 Incentive Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS TO ANNUAL RATES OF
SECURITIES EMPLOYEES EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED PRICE FOR OPTION TERMS(2)
OPTIONS IN THE PER SHARE EXPIRATION -------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE(1) 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
Controller................... 20,000 0.34% 25.00 12/15/2008 314,447 796,871
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(1) 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. These options expire ten years from the date
of grant.
(2) Potential value is reported net of the option exercise price, but before
taxes associated with exercise. These amounts represent assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of USAi's 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.
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The table below presents 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.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
VALUE YEAR END (#) YEAR-END($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) 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) Represents the difference between the $33.125 closing price of USAi's 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 of these directors $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 a director as a result of
attendance at any of these meetings. For the year ended December 31, 1998, the
directors that were designated by Universal and Liberty waived their rights to
receive the annual retainer and attendance fees.
Under the USAi 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 USAi's 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 USAi's common stock subject to the options is the fair market value of USAi's
common stock on the date of grant, which is defined as the mean of the high and
low sale price on the date on any stock exchange on which the common stock is
listed or as reported by NASDAQ or, in the event that the common stock is not so
listed or reported, as determined by an investment banking firm selected by the
Compensation/Benefits Committee. The 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.
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Equity Compensation Agreement; Employment Agreements; Stock Option Grant
Agreements
MR. BAKER. On February 19, 1999, USAi and Mr. Baker entered into a five-year
employment agreement, providing for an annual base salary of $750,000 per year.
Mr. Baker is also eligible to receive an annual discretionary bonus.
Mr. Baker's employment agreement provides for a grant of options to purchase
1,200,000 shares of common stock. Mr. Baker's options become exercisable with
respect to 25% of the total shares on February 19, 2000, with an additional 25%
vesting on each of the next three anniversaries of such date. Upon a change of
control of USAi, 100% of Mr. Baker's options become vested and exercisable. Upon
termination of Mr. Baker's employment by USAi for any reason other than death,
disability or cause, or if Mr. Baker terminates his employment for good reason,
USAi is required to pay Mr. Baker the present value of his base salary through
the end of the term of his agreement in a lump sum within thirty days of the
termination date, plus the average of the last 2 years' bonuses paid to him
(unless termination is prior to payment of 2 bonuses, in which case Mr. Baker
will be entitled to 150% of his base salary multiplied by the number of whole
and partial years remaining until the end of his contract). In the event of a
termination for any reason other than death, disability or cause or if Mr. Baker
terminates his employment for good reason, Mr. Baker's options will vest
immediately and remain exercisable until the later of the end of his contract or
two years from the date of such termination. Mr. Baker's employment agreement
also provides for the grant of 125,000 restricted shares of common stock, 60% of
which vest on February 19, 2002, with an additional 20% vesting on each of
February 19, 2003 and 2004. The restricted shares vest upon a change of control.
MR. DILLER. On October 19, 1997, USAi and Mr. Diller entered into a stock
option grant agreement which granted Mr. Diller options to purchase 9,500,000
shares of USAi's 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 of
USAi, 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 USAi, dated August 24, 1995, 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 Internal Revenue Code
upon payments made to Mr. Diller and imposition of income and excise taxes on
the gross-up payment.
Mr. Diller and USAi are also parties to the Equity and Bonus Compensation
Agreement dated as of August 26, 1995. Under that agreement, USAi issued and
sold to Mr. Diller 441,988 shares of USAi's 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, USAi granted options to Mr. Diller to
purchase 3,791,694 shares of USAi's common stock at $11.3125 per share. These
options were granted in tandem with conditional SARs, which become exercisable
only in the event of a change of control of USAi and in lieu of exercise of the
options. The Initial and Additional Shares and the 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, under 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
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payment of taxes by Mr. Diller due to the compensation expense which resulted
from the difference in the per share fair market value of USAi's common stock
and the per share purchase price of the Initial Diller Shares and Additional
Diller Shares.
MR. DURNEY. On March 30, 1998, USAi and Mr. Durney entered into a three-year
employment agreement, providing for an annual base salary of $250,000 per year.
Mr. Durney is also eligible to receive an annual discretionary bonus.
Mr. Durney's employment agreement provides for a grant of options to purchase
50,000 shares of USAi's 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 that date. Upon a change of control of USAi, 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 USAi for any reason other than cause,
death or disability, USAi 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, USAi and Mr. Kaufman entered into a stock
option grant agreement under which, USAi 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, USAi and Mr. Khosrowshahi entered into a
three-year employment agreement, providing for an annual base salary of $300,000
per year. Mr. Khosrowshahi is also eligible to receive an annual discretionary
bonus.
Mr. Khosrowshahi's employment agreement provides for a grant of options to
purchase 120,000 shares of Common Stock. Mr. Khosrowshahi's options became
exercisable with respect to 25% of the total shares on March 2, 1999, with an
additional 25% vesting on each of the next three anniversaries of such date.
Upon a change of control of USAi, 100% of Mr. Khosrowshahi's options become
vested and exercisable. Upon termination of Mr. Khosrowshahi's employment by
USAi for any reason other than death, disability or cause, or if Mr.
Khosrowshahi terminates his employment for good reason, USAi 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, USAi and Mr. Kuhn entered into a four-year
employment agreement, providing for an annual base salary of $450,000 per year.
Mr. Kuhn is also eligible to receive an annual discretionary bonus.
Mr. Kuhn's employment agreement provides for a grant of options to purchase
200,000 shares of USAi's common stock. Mr. Kuhn's options became exercisable
with respect to 25% of the total shares on February 9, 1999, with an additional
25% vesting on each of the next three anniversaries of such date. The provisions
in his 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, and vesting and
exercisability of options upon termination are substantially the same as those
in Mr. Khosrowshahi's employment agreement.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents, as of February 26, 1999, information relating to
the beneficial ownership of USAi's common stock by:
- each person known by USAi to own beneficially more than 5% of the
outstanding shares of USAi's common stock,
- each director of USAi and USANi LLC,
- each of the Named Executive Officers, and
- all executive officers and directors of USAi and USANi LLC as a group.
The table does not include information relating to the beneficial ownership of
USAi's common stock by Ms. Anne Busquet and Miss Diane Von Furstenburg, who
joined the Boards of Directors of USAi and of USANi LLC on March 31, 1999, and
by Mr. Barry Baker, who joined the Boards of Directors and became the President
and Chief Operating Officer of USAi and of USANi LLC on March 31, 1999.
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 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
February 26, 1999.
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's Holdco shares and USANi LLC shares
beneficially owned by Liberty or Seagram.
NUMBER OF PERCENT PERCENT OF VOTES
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS (ALL CLASSES)
- ------------------------------------ ---------- -------- ----------------
Capital Research & Management Co.(1).............. 8,496,500 6.6% 1.9%
333 South Hope Street
Los Angeles, CA 90071
Tele-Communications, Inc.(2)(3)................... 29,622,335 19.4% 57.1%
5619 DTC Parkway
Englewood, CO 80111
The Seagram Co. Ltd.(4)........................... 15,205,654 11.3% 17.1%
375 Park Avenue
New York, NY 10152
Barry Diller(2)(5)................................ 60,071,714 34.6% 75.2%
Paul Allen(6)..................................... 15,832,015 12.4% 3.6%
Robert R. Bennett(7).............................. 13,048 * *
Edgar J. Bronfman, Jr............................. 0 * *
Michael P. Durney(8).............................. 13,400 * *
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NUMBER OF PERCENT PERCENT OF VOTES
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS (ALL CLASSES)
- ------------------------------------ ---------- -------- ----------------
Victor A. Kaufman(9).............................. 495,000 * *
Donald R. Keough(10).............................. 10,000 * *
Dara Khosrowshahi(11)............................. 30,000 * *
Thomas J. Kuhn(12)................................ 50,522 * *
John C. Malone.................................... 0 * *
Robert W. Matschullat............................. 0 * *
Samuel Minzberg................................... 0 * *
William D. Savoy(13).............................. 78,411 * *
Gen. H. Norman Schwarzkopf(14).................... 62,834 * *
All executive officers and directors as a group
(15 persons)(15)................................ 76,657,218 44.0% 78.7%
- -------------------------
* The percentage of shares beneficially owned does not exceed 1% of the
class.
(1) Based upon information provided to USAi and USANi LLC by Capital Research &
Management Co. as of December 31, 1998.
(2) Liberty, a wholly owned subsidiary of TCI, Universal, Seagram, the parent
of Universal, USAi and Mr. Diller are parties to a stockholders agreement
under 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 February 26, 1999, 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.
(3) 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.
(4) 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.
(5) Consists of 1,029,954 shares of common stock owned by Mr. Diller, options
to purchase 14,153,771 shares of common stock granted under USAi'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 stock 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 under
the Stockholders Agreement.
(6) Consists of 15,822,014 shares of common stock and options to purchase
10,001 shares of common stock granted under USAi's stock option plans.
(7) Consists of 13,048 shares of common stock.
(8) Consists of 900 shares of common stock and options to purchase 12,500
shares of common stock granted under USAi's stock option plans.
(9) Consists of 160,000 shares of common stock, and options to purchase 335,000
shares of common stock granted under USAi's stock option plans.
(10) 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 2,077,668 shares of common stock beneficially owned, as of
December 31, 1998, by Allen & Co., for which Mr. Keough serves as
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Chairman, and certain of its affiliates. Mr. Keough disclaims beneficial
ownership of such shares.
(11) Consists of options to purchase 30,000 shares of common stock granted under
USAi's stock option plans.
(12) Consists of options to purchase 50,000 shares of common stock granted under
USAi's stock option plans and 522 shares of common stock purchased under
the 401(k) Plan.
(13) Consists of 29,000 shares of common stock and options to purchase 49,411
shares of common stock granted under USAi's stock option plans.
(14) Consists of options to purchase 62,834 shares of common stock granted under
USAi's stock option plans.
(15) Does not include (i) 1,711,400 shares of common stock granted under USAi's
stock option plans and 93 shares of common stock purchased under the 401(k)
Plan by James G. Held, who resigned from all of his positions with USAi,
USANi LLC and their affiliates on March 5, 1999, and (ii) 85,000 shares of
common stock granted under USAi's stock option plan to Leo J. Hindery, who
resigned from USANi LLC's Board of Directors on March 8, 1999.
The following table presents, as of February 26, 1999, information relating to
the beneficial ownership of USAi's Class B common stock:
NAME AND ADDRESS NUMBER OF PERCENT
OF BENEFICIAL OWNER SHARES OF CLASS
- ------------------- ---------- -----------
Barry Diller(1)............................................. 31,516,726 100%
c/o USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Tele-Communications, Inc.(1)(2)............................. 24,801,726 78.7%
5619 DTC Parkway
Englewood, CO 80111
BDTV Entities(1)(2)......................................... 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.(3)................................. 6,715,000 21.3%
375 Park Avenue
New York, NY 10152
- -------------------------
(1) 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 USANi
LLC shares beneficially owned by Liberty or Seagram.
(2) Liberty, a wholly owned subsidiary of TCI, Universal, Seagram, the parent of
Universal, USAi and Mr. Diller are parties to the stockholders agreement,
under 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
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.
(3) Mr. Diller generally votes all of the shares held by Seagram under the terms
of the stockholders agreement.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Mr. Diller, the Chairman of the Board and Chief Executive Officer of USAi and
USANi LLC, is the sole holder of the voting stock of the BDTV Entities. The BDTV
Entities hold shares of USAi common stock and Class B common stock, which have
effective voting control of USAi 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, USAi entered into a lease with Nineteen Forty CC, Inc.
under which USAi leases an aircraft for use by Mr. Diller and other directors
and executive officers of USAi and USANi LLC in connection with USAi's and USANi
LLC's 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, USAi paid a total of $1,967,000 in expenses related to the use of the
aircraft. USAi believes that the terms of the lease are more favorable to USAi
than those USAi 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, the
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, the President of TCI, who was a member of the board of directors of
USANi LLC until March 8, 1999 when he resigned. 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 USAi and
USANi LLC. Under the consulting arrangement, General Schwarzkopf received
options to purchase 45,000 shares of Common Stock at an exercise 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, USAi made a $4.0 million loan to Mr. Held, who was the Chairman
and Chief Executive Officer of Home Shopping Network and a member of the board
of directors of USAi and USANi LLC until March 5, 1999, when he resigned from
all positions with USA, USANi LLC and their affiliates. The loan was made to
facilitate Mr. Held's construction of a personal residence. The loan bore
interest at USAi's average bank rate during the term of the loan and was secured
by Mr. Held's options to purchase 3,000,000 shares of USAi's common stock. The
loan was scheduled to mature on July 1, 1999 and was scheduled to be repaid in
three quarterly installments, either in cash or through the exercise of options
to purchase 163,600 shares of USAi's common stock per installment following the
public announcement of USAi's financial results for each of (1) the quarter
ending September 30, 1998, (2) the year ending December 31, 1998 and (3) the
quarter ending March 31, 1999. As required under the terms of the loan, in
November 1998, Mr. Held exercised options and used their net proceeds to repay
the first installment on the loan in the amount of $1,375,568. Mr. Held paid the
remainder of the loan on March 18, 1999.
Under the 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
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outstanding. The loan bore interest at 5% per annum, and the outstanding
principal and any accrued and unpaid interest was to become due and payable in
the event that Mr. Held was terminated for any reason, on the first anniversary
of the termination. Mr. Held repaid the loan on March 18, 1999.
RELATIONSHIP BETWEEN USAI AND UNIVERSAL
Under the agreements entered into as part of the Universal transaction, USAi and
some of its subsidiaries entered into business agreements with Universal and
some of its subsidiaries relating to, among other things: (1) the domestic
distribution by USAi of Universal-produced television programming and
Universal's library of television programming; (2) the international
distribution by Universal of television programming produced by Studios USA; (3)
long-term arrangements relating to the use by Studios USA of Universal's
production facilities in Los Angeles and Orlando, Florida; and (4) a joint
venture relating to the development of international general entertainment
television channels. Some of these agreements are summarized in this prospectus
under the caption "-- Ancillary Business Agreements."
Universal, through its ownership of USAi stock and USANi LLC shares, is USAi's
largest stockholder, assuming conversion of Universal's USANi LLC shares that is
not currently permissible under FCC rules. Messrs. Bronfman, Matschullat and
Minzberg are members of the Boards of Directors of USAi and USANi LLC and, other
than Mr. Minzberg, hold director and executive positions with Universal and its
affiliates, including Seagram. These individuals were elected to the Boards of
Directors of USAi and USANi LLC as part of the completion of the Universal
transaction, under 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 USAi and USANi LLC, these individuals do not have any direct or
indirect interest in the Universal-USAi agreements.
USAi and USANi LLC believe that the business agreements described below and
entered into as part of the Universal transaction are all on terms at least as
favorable to USAi and USANi LLC as terms that could have been obtained from an
independent third party.
USAi and Universal are also parties to other agreements entered into under the
Universal transaction, which agreements are summarized in this prospectus under
the caption "-- Agreements with Universal and Liberty." These agreements were
negotiated on an arm's-length basis prior to the time that Universal held an
equity interest in USAi and USANi LLC.
In the ordinary course of business, USAi and USANi LLC may determine to enter
into other agreements with Universal and its affiliates.
October Films/Polygram Filmed Entertainment Transaction
On April 7, 1999, USAi announced that it had entered into an agreement to
acquire 100 percent of October Films, Inc., in which Universal owns a majority
interest. In the merger, October Films shareholders (other than Universal) will
receive aggregate consideration equal to $12 million in cash. Universal will
receive 300,000 shares of USAi's common stock. To fund the cash portion of the
transaction consideration, Universal has also agreed to purchase from USAi
300,000 additional shares of USAi's common stock at $40.00 per share as part of
the October Films transaction.
USAi also announced on April 7, 1999 an agreement to acquire from Universal the
domestic film distribution and development business previously operated by
Polygram Filmed Entertainment and Polygram Filmed Entertainment's domestic video
and specialty video businesses. The acquisition includes Polygram Filmed
Entertainment domestic production assets such as Interscope Communications and
Propaganda Films, as well as the following distribution assets: PolyGram Video,
Polygram
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Filmed Entertainment Canada, Gramercy Pictures, and PolyGram Films. The
transaction does not include PolyGram's stake in the Sundance Channel,
PolyGram's domestic television business, PolyGram's joint venture with Castle
Rock Entertainment, Propaganda's non-film business or any of PolyGram's
international operations other than certain operations in Canada.
In connection with the PolyGram Filmed Entertainment transaction, USAi has
agreed to assume certain liabilities related to the Polygram Filmed
Entertainment businesses being acquired. In addition, USAi will advance $200
million to Universal on a full recourse, interest-bearing basis in connection
with a distribution agreement pursuant to which USAi will distribute, in the
U.S. and Canada, certain Polygram theatrical films not being acquired. The
advance will be prepaid as revenues are received under the distribution
agreement and, in any event, will be repaid in full at maturity. Both the
October Films and Polygram Filmed Entertainment transactions are subject to the
receipt of required government approvals and other customary conditions. The
transactions are expected to close in the second quarter.
The combined October Films/Polygram Filmed Entertainment entity is expected to
be renamed USA Films, which will become an operating division of USAi. USA Films
will consist of October Films, Gramercy Pictures (which will include Propaganda
Films and Interscope Communications) and USA Home Entertainment (formerly
Polygram Home Video).
RELATIONSHIP BETWEEN USAI AND LIBERTY
USAi and USANi LLC 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 Home Shopping Network and America's Store
programming and the acquisition of, or other investment in, businesses related
to the businesses of USAi and USANi LLC. Currently, none of the members of
USAi's board of directors is affiliated with, or has been designated by, Liberty
or TCI. Under 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 USAi and USANi LLC, and Liberty is a party to 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 Home Shopping Network and America's Store
programming over 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 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 may provide for carriage commitments,
and provides a fee schedule based upon the number of subscribers. Payments by
TCI and 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 entities
controlled by Flextech P.L.C., a company controlled by TCI. In each of February
1998 and 1999, Flextech paid Home Shopping Network a $250,000 installment of the
purchase price. Home Shopping Network retains a 15% interest in the venture and
a related corporation.
During 1996, Home Shopping Network, along with Jupiter Programming Company,
formed Shop Channel, a television shopping venture based in Tokyo. TCI
International, a subsidiary of TCI, owns
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a 50% interest in Jupiter, 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.
USAi and USANi LLC 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 USAi and USANi LLC 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 the other party or
USAi and USANi LLC, as the case may be.
In the ordinary course of business, and otherwise from time to time, USAi and
USANi LLC may determine to enter into other agreements with Liberty and its
affiliates.
AGREEMENTS WITH UNIVERSAL AND LIBERTY
This section summarizes various agreements that USAi, Seagram, Universal,
Liberty and Mr. Diller have entered into as part of the Universal transaction.
These agreements involve (1) governance matters relating to USAi, (2)
stockholder arrangements among Universal, Liberty and Mr. Diller, (3) agreements
between Universal and Liberty and (4) 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
As part of the Universal transaction, each of Universal and Liberty was granted
a preemptive right, subject to limitations, to maintain their respective
percentage ownership interests in USAi under future issuances of USAi capital
stock. In addition, with respect to issuances of USAi capital stock in specified
circumstances, Universal will be obligated to maintain its percentage ownership
interest in USAi that it had immediately prior to the issuances.
Universal's Preemptive Rights
In the event that USAi issues any USAi securities, Universal will have the right
to purchase for cash the number of shares of USAi's common stock, or, if
Universal requests, USANi LLC shares or a combination of USAi's common stock and
USANi LLC shares, so that Universal will maintain the identical percentage
equity ownership interest in USAi that Universal owned immediately prior to such
issuance. This equity interest will not be in excess of the lesser of the
percentage ownership interest limitations applicable under to the governance
agreement and 57.5%. Universal will not have a preemptive right regarding
issuances of shares of USAi's securities in a (1) sale transaction; (2)
issuances of restricted stock or issuances of USAi securities upon conversion of
shares of USAi's Class B common stock or (3) in respect of USANi 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 another 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 under agreements entered into between Liberty and USAi as part of 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's common stock (or USANi 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
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USAi's common stock, or USANi 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 USANi LLC shares
and the Additional Liberty Shares will be regarded as outstanding USAi shares on
an as-exchanged basis. These are used as "assumptions" in measuring the
percentage equity or voting interest.
UNIVERSAL VOTING THRESHOLD. If, based on the assumptions, Universal's voting
power after executing its optional preemptive right would be less than 67%, then
upon exercise of its right, Universal may purchase shares of USAi's Class B
common stock or USANi LLC shares exchangeable for USAi's 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 that time.
In addition, if USAi purchases or redeems its securities, USAi may purchase the
USANi LLC shares owned by Universal to maintain Universal's ownership percentage
at the levels indicated in the governance agreement.
Liberty's Preemptive Rights
If USAi issues any USAi securities under the circumstances described in the
first paragraph under "-- Universal's Preemptive Rights," Liberty will be
entitled to purchase the number of shares of USAi's common stock or USANi LLC
shares exchangeable for USAi's common stock so that Liberty will maintain the
identical percentage equity beneficial ownership interest in USAi that Liberty
owned immediately prior to such issuance. However, this will not be 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 USANi 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 February 29, 1999, Universal owned 49.5% of USANi LLC, Liberty owned 8.5%
and USAi owned the remaining 42.0% interest, 38.8% of which is held indirectly
through Holdco. Except for some fundamental changes related to USANi LLC, USAi
will manage and operate the businesses of 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."
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, following the CEO termination date or Mr. Diller's becoming disabled,
Universal will designate the manager of USANi LLC who will generally be
responsible for managing the businesses of 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 USAi's 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 USANi LLC shares will be exchangeable for shares of USAi's common stock or
Class B common stock (in the case of Universal) and shares of USAi's common
stock (in the case of Liberty). The exchange agreement relating to USANi LLC
shares provides customary anti-dilution adjustments relating to the capital
stock and assets of USAi. These adjustments do not apply to the
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extent that dividends or other distributions of USAi stock are accompanied by
pro rata distributions of USANi LLC shares held by Universal and Liberty, which
USANi LLC is generally obligated to do under the investment agreement.
If USAi issues additional USAi securities, USAi is obligated to purchase an
equal number of USANi 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 USANi LLC an equal number of USANi LLC shares for the
same consideration or for cash, if USANi LLC cannot provide the same
consideration. The net effect of these provisions is to cause USANi LLC
generally to hold the proceeds of any USAi equity sales or to fund the costs of
any USAi equity redemptions.
The exchange agreement also contains provisions regarding the exchange or other
conversion of USANi LLC shares upon a tender offer, merger or similar
extraordinary transaction, which permit Universal and Liberty to participate
with respect to their USANi LLC shares in a transaction of that type as if they
held USAi stock.
USANi LLC shares owned by Universal and Liberty are not transferable, except to
each other in transactions permitted by the stockholders agreement or to their
respective controlled affiliates or with extraordinary transactions relating to
USAi or 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, USAi will distribute the subsidiaries which engage in
broadcasting or other regulated businesses in a distribution to its stockholders
as promptly as practicable on terms and conditions that are reasonably
satisfactory to Universal. Prior to effecting such a transaction, known as a
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 regarding matters relating to the spinoff and the
spinoff company. This agreement is described below, under "-- Spinoff
Agreement."
If UTV EBITDA, as such term is defined in the investment agreement, for the
three-year periods ending on December 31, 1998, 1999 and 2000 is less than $150
million, Universal will pay USAi the excess of $150 million over UTV EBITDA for
these periods, subject to a maximum of $75 million.
Governance Agreement
USAi, Universal, Liberty and Mr. Diller are parties to the governance agreement.
This document details 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 fundamental
changes by USAi or any subsidiary of USAi, including USANi LLC.
Restrictions on the Acquisition of Additional Voting Securities
The governance agreement provides that, for a four-year "standstill" period
beginning on the closing of the Universal transaction, without the approval of
the USAi Board, Universal
- will not acquire additional beneficial ownership of USAi's common equity
other than through the exercise of Universal's preemptive right to
maintain its percentage equity beneficial ownership interest; and
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- will not, except as a result of the exercise of USAi's 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 standstill period, subject to
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
(1) 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 (2) a
merger, other than a merger following a tender or exchange offer complying with
(1) above, involving USAi and Universal that is approved, in addition to any
vote required by law, by a majority of the public stockholders. The maximum
permissible ownership percentages set forth in this paragraph exclude any shares
Universal may acquire from Liberty or Mr. Diller as part of the stockholders
agreement. These percentages are all based on the assumptions. The term "public
stockholders" is defined in the governance agreement 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 under 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.
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's 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 distribution to Universal's stockholders on
a basis proportional to the stockholders' ownership (which, in the case
of Seagram, must be to its public stockholders);
- in a sale under Rule 144 of the Securities Act, except generally not to a
transferee who would beneficially own more than 5% of the USAi equity
following such purchase;
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- in a tender or exchange offer that is not rejected by the USAi Board or
to USAi as part of 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 as part of 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, as provided in the stockholders agreement.
In addition, the governance agreement provides that USANi LLC shares cannot be
transferred by Universal or Liberty to non-affiliates, other than to each other.
Accordingly, prior to a permitted transfer, any USANi 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 USAi Class B common stock owned
by the transferring party for shares of USAi common stock. If Mr. Diller, or his
designee, does not exchange the shares or if the CEO termination date has
occurred or Mr. Diller is disabled, any shares of USAi Class B common stock to
be transferred by Universal must first be exchanged into shares of USAi common
stock. This exchange need not occur if 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. The
transferee would be subject to the remaining limitations on Universal's
acquisition of USAi securities and conduct restrictions contained in the
governance agreement. For more information, 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 under the
transaction agreements entered into as part of the Universal transaction,
for the purpose of acquiring, holding, voting or disposing of any USAi
securities.
The restrictions terminate on the earlier of the CEO termination date and such
time as Mr. Diller becomes disabled.
Representation on the USAi Board
Under 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
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Universal and generally will have the right to designate one USAi Board member
for each 10% ownership of USAi equity, including USANi LLC shares, up to a
maximum of four directors.
In addition, under the governance agreement, provided that Liberty's USAi stock
ownership remains at specified levels and subject to applicable law, Liberty has
the right to designate up to two directors at the time when Liberty is no longer
prohibited from having representation on the USAi board. Under 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 one or two directors on
the board of directors of the USANi LLC, to the extent that Liberty is not
permitted to designate directors of USAi. There are currently three directors
designated by Liberty on the board of directors of USANi LLC. 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 USANi
LLC, will effect a fundamental change without the prior approval of Universal,
Liberty and Mr. Diller (each, a "stockholder") so long as those 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 a stockholder being
required under law to divest itself of all or any part of its USAi
securities, USANi LLC shares or any material assets or render any
ownership illegal or subject the 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 the transaction, assuming that all USANi 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 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 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
described 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 USANi LLC shares except as contemplated by
the investment agreement or pledges as part of financings.
- Voluntarily beginning any liquidation, dissolution or winding up of USAi
or any material subsidiary, including USANi LLC.
- Making any material amendments to USAi's certificate of incorporation or
by-laws.
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- 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 USANi
LLC, as the case may be, by virtue of Universal's ownership. The matters
described 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 a stockholder
or the continued ownership of assets by USAi or a 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 USANi LLC shares in such stockholder's or interest holder's capacity
which grants the stockholder with approval rights similar in type and
magnitude to those described 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
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 under which Mr. Diller exercises voting control over the
equity securities of USAi held by these persons and their affiliates.
Voting Authority
Under 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 their affiliates for all matters except for a fundamental change,
which requires the consent of each of Mr. Diller, Universal and Liberty. The
proxy will generally remain in effect until the earlier of the CEO termination
date or the date that Mr. Diller becomes disabled, provided that Mr. Diller
continues to beneficially own at least 5,000,000 shares of USAi's common stock,
including options to acquire shares of USAi's common stock, whether or not
exercisable.
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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 the
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 under the investment agreement, provided
that if Liberty's initial ownership percentage is less than 20%, the reduction
is calculated as if it were 20%. This restriction terminates upon the earlier of
the time when 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, including:
- 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 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. For more information, 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 USANi 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.
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 USAi incentive
compensation and stock options;
- transfers to each party's respective affiliates; and
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- 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 BDTV Entities (which together hold 11,811,702 shares of
Class B common stock), after a 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's stock, or convert Class B common stock into USAi's common stock, subject
to 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
some 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
for some 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) for sales by Liberty prior to August 24, 2000 of a number of shares of
USAi's stock having the aggregate number of votes represented by the shares of
USAi's 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 proportional basis) on some sales
of USAi stock by the transferring stockholder. These tag-along rights are
limited by a number of exceptions.
If Universal transfers a substantial amount of its USAi stock, Liberty and Mr.
Diller will have the right to participate in that sale along with Universal,
Liberty and Mr. Diller.
Under the governance agreement, transfers of USAi securities by Universal
(whether before or after the CEO termination date or the date that 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 permitted transfers by Universal under the governance
agreement, which are permitted prior to the CEO termination date. For more
information, see "-- Governance Agreement -- Transfer Restrictions."
Put and Call Rights
Universal, Liberty and Mr. Diller have agreed to put and call arrangements which
grants one party the right to sell, or the other party the right to acquire,
shares of USAi's stock held by another party.
LIBERTY/UNIVERSAL PUT AND CALL RIGHTS. Prior to the CEO termination date or the
date Mr. Diller becomes disabled, Universal has the right to acquire
substantially all of Liberty's USAi securities if Mr. Diller and Universal agree
to take an action that would constitute a fundamental change described in the
second bullet under "Fundamental Changes" above and Liberty does not provide its
consent. In addition, at any time after the CEO termination date or the date Mr.
Diller becomes
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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 the shares.
Universal also has rights and obligations to acquire Liberty's USAi securities
under a permitted business combination, if Universal using its best efforts
cannot provide Liberty with tax-free consideration as part of the transaction.
This provision effectively means that, after the 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 the date 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. 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 USAi's 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 USAi's 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 if Universal sells a
portion 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 USAi's
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 USAi's
common stock he owns for such shares. Thereafter, any other non-transferring
stockholder (with Universal's right preceding Liberty's) may similarly swap
shares of USAi's common stock for shares of USAi's Class B common stock proposed
to be transferred. To the extent there remain shares of USAi's Class B common
stock that the selling stockholder would otherwise transfer to a third party,
the shares must be converted into shares of USAi's 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 USAi's Class B common stock must agree to
the conduct and securities ownership restrictions applicable to Universal, if
the 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 the
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 be subject to the proxy described above
held by Mr. Diller with respect to Liberty's and Universal's shares of USAi
stock under the stockholders agreement.
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Termination of Stockholders Agreement
Universal's rights and obligations generally terminate at the time when
Universal no longer beneficially owns at least 10% of the USAi equity.
Mr. Diller's and Liberty's rights and obligations under the stockholders
agreement generally terminate (other than with respect to Mr. Diller's put
right) at the time when, 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. 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. For more information, 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
the date 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, bound by 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 bound by, for a period of 18 months, 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, 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 the date 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 the date that Mr. Diller becomes disabled, to effect a
sale of USAi's broadcast stations, this designated CEO would generally have a
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, 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 complete a taxable spinoff.
Universal has agreed to reimburse Liberty as part of any taxable spinoff in an
amount up to $50 million with respect to any actual tax liability incurred by
Liberty in the transaction.
If Universal makes the election described above, Liberty has agreed not to
transfer, directly or indirectly, any of its USAi common stock or USAi Class B
common stock for a period of fourteen months after the CEO termination date (or
the date that Mr. Diller becomes disabled) if the transfer would result in
Universal and Liberty ceasing to own at least 50.1% of the outstanding USAi
voting
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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: (1) 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 (2) 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
(a) the termination of Universal's right to seek a spinoff under the investment
agreement or (b) 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
Under 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 exceptions
regarding future extraordinary transactions by Universal and excluded
programming. USAi will receive a 10% distribution fee (based on gross receipts)
for 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 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
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elects not to participate in the 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 USAi expects to be made in the second 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, other international channels based on new domestic channels that
USAi develops (other than home shopping channels and local broadcast stations).
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 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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THE EXCHANGE OFFER
The following summary of certain provisions of the exchange and registration
rights agreement entered into by USAi and USANi LLC, the guarantors and the
initial purchasers as of November 23, 1998 does not purport to be complete. The
following discussion is qualified in its entirety by reference to the exchange
and registration rights agreement, which has been filed as an exhibit to the
registration statement.
PURPOSE OF THE EXCHANGE OFFER
Upon the issuance of the initial notes under a purchase agreement dated as of
November 19, 1998 by and among USAi and USANi LLC, some of the guarantors and
the initial purchasers, the initial purchasers and their respective assignees
became entitled to the benefits of the exchange and registration rights
agreement.
Under the exchange and 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 registration statement of which this prospectus is a
part providing for the exchange offer. We and the guarantors are also required
to:
- use reasonable best efforts to cause the registration statement to
be declared effective no later than 150 days after the date the
initial shares were issued,
- keep the exchange offer open for not less than 20 business days (or
longer if required by applicable law) after we notify holders of the
initial notes of the exchange offer, and
- use reasonable best efforts to complete the exchange offer as
promptly as practicable, but no later than 180 days after the issue
date.
We and the guarantors are also required to file with the SEC a shelf
registration statement relating to the offer and sale of initial notes by
holders of initial notes who provide us with information to be included in the
shelf registration statement.
The exchange offer being made by this prospectus is intended to satisfy your
exchange and registration rights under the exchange and 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 contained 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 under 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
- you are not an "affiliate" (as defined in Rule 405 of the Securities
Act) of ours or any guarantor.
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If you are not able to make these representations, you are referred to in this
prospectus as a restricted holder. As a restricted holder, you will not be able
to participate in the exchange offer and may only sell your initial notes as
part of a registration statement containing the selling security holder
information required by Item 507 of Regulation S-K under the Securities Act, or
under 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, must acknowledge in the letter of transmittal that it will deliver a
prospectus meeting the requirements of the Securities Act upon 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 broker-dealer who
acquired the notes as a result of market-making or other trading activities may
offer for resale, resell and otherwise transfer exchange notes issued under 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 these broker-dealers as part of their resales. We have agreed that, for
a period of 90 days after the completion of the exchange offer, we will make
this prospectus available to any broker-dealer for use by the broker-dealer in
any resale. By acceptance of this exchange offer, each broker-dealer that
receives exchange notes under the exchange offer agrees to notify USAi and USANi
LLC prior to using this prospectus in a 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 completion of the exchange offer will
continue to be subject to transfer restrictions.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions contained 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 under 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
- 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.
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You do not have any appraisal or dissenters, rights under law or the indenture
in the exchange offer. We intend to conduct the exchange offer in accordance
with the applicable requirements of the Exchange Act.
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 of the
acceptance 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 other events described in this prospectus 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 relating to the exchange of initial notes under
the exchange offer. We will pay all charges and expenses, other than certain
applicable taxes, as part of 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 May 13, 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, (1) 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 (2) 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.
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 the 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 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 and any other required
documents, to the exchange agent prior to 5:00 p.m., New York City time, on the
expiration date. The Depository Trust Company is commonly referred to as DTC. To
be tendered effectively, the initial notes (or a timely confirmation of a
book-entry transfer of such
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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 listed 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 us
in accordance with the terms and subject to the conditions described in this
prospectus 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 the 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 listed 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 us.
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 unless the initial notes
tendered pursuant thereto are tendered (1) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or (2) for the account of an eligible
institution. If the signatures on a letter of transmittal or a notice of
withdrawal needs to be guaranteed, such guarantee must be by an eligible
institution which includes a member firm of a registered national securities
exchange or of the National Association of Securities 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.
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 us, proper
evidence satisfactory to us of their authority to so act must be submitted with
the letter of transmittal.
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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 broker-dealer who acquired
the notes as a result of market-making or other trading activities must
acknowledge that it will deliver a prospectus as part of any resale of exchange
notes.
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 listed 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 in this prospectus 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 (1) the aggregate principal amount of
initial notes which have been tendered by such participant,
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(2) that such participant has received and agrees to be bound by the terms of
the letter of transmittal and (3) that we may enforce such agreement against the
participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their initial notes and
- whose initial notes are not immediately available or
- 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
- 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)
listing the name and address of the holder of the initial notes and the
principal amount of initial notes tendered, stating that the tender is
being made thereby and guaranteeing that, within three 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
- the 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 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 described 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 listed in this prospectus prior to 5:00 p.m., New York City
time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the initial notes to be
withdrawn,
- identify the initial notes to be withdrawn (including the certificate
number or numbers and principal amount of such initial notes),
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the 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 the initial notes into the name of
the person withdrawing the tender and
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- specify the name in which any initial notes are to be registered, if
different from that of the person having deposited the notes to be
withdrawn.
If the initial notes have been delivered under 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 without cost to the 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 under the book-entry
transfer procedures described above, these 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 in this prospectus before the acceptance of any 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 (1) any general suspension of trading in, or
general limitation on prices for, securities on the New York Stock
Exchange, (2) 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 (3) 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 completion of the
exchange offer as contemplated hereby.
These 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 time and from
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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 the right and each
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
- 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 any initial notes to the account
maintained within DTC by the participant in DTC which delivered the
Notes),
- 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 the tenders of initial notes (see "Withdrawal of
Tenders" above) or
- waive the unsatisfied conditions with respect to the exchange offer and
accept all properly tendered initial notes which have not been withdrawn.
- If a waiver constitutes a material change to the exchange offer, we will
promptly disclose the 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:
Global Trust Services (212) 638-7380
55 Water Street or (212) 638-7381
Room 234, North Building (FOR ELIGIBLE INSTITUTIONS ONLY)
New York, NY 10041 Confirm by Telephone
Attention: Carlos Esteves (212) 638-0828
(IF BY MAIL, REGISTERED OR CERTIFIED MAIL
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 as part of the exchange offer and will
not make any payments to brokers, dealers or others soliciting acceptance of the
exchange offer. We will, however,
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pay the exchange agent reasonable and customary fees for services and will
reimburse it for its reasonable out-of-pocket expenses under the exchange offer
and will pay the reasonable fees and expenses of one firm acting as counsel for
the holders of initial notes should the holders deem it advisable to appoint
such counsel.
We will pay the cash expenses to be incurred under 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 under 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
in the exchange offer, then the amount of any 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 the taxes or exemption therefrom
is not submitted with the letter of transmittal, the amount of the transfer
taxes will be billed directly to the 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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DESCRIPTION OF THE EXCHANGE NOTES
The initial notes were issued under the indenture and the exchange notes also
will be issued under the same indenture. The initial notes and the exchange
notes have substantially identical terms and will constitute a single series of
debt securities under the indenture. If the exchange offer is completed, holders
of any remaining initial notes will vote together with holders of exchange notes
for all relevant purposes under the indenture.
The following discussion of the provisions of the indenture and the terms of the
notes is a summary only and does not purport to be a complete discussion of the
terms of the notes. The terms of the notes include those stated in the indenture
and those made part of the indenture by reference to the Trust Indenture Act of
1939. Accordingly, the following discussion is qualified in its entirety by
reference to the provisions of the indenture and the notes including the
definitions of various terms used below with their initial letters capitalized.
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 and upon surrender will be repaid at 100% of the principal amount
thereof.
The exchange notes will bear interest at the rate of 6 3/4% per annum. Interest
will accrue from November 23, 1998 or from the most recent interest payment date
to which interest has been paid. Interest will be payable on May 15 and November
15 of each year, beginning on May 15, 1999, to holders of record at the close of
business on the May 1 or November 1, next preceding such interest payment date.
Interest will be calculated on the basis of a 360-day year of twelve 30-day
months.
If the date of payment of the principal of or interest on the exchange notes or
the date fixed for redemption of the exchange notes does not fall on a business
day, then payment of principal or interest may be made on the next succeeding
business day. The payment will have the same force and effect as if made on the
applicable payment date or the date fixed for redemption and no interest will
accrue after this 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 will be transferable, at Chase Manhattan Bank,
450 West 33rd Street, 15th Floor, New York, New York 10001. We may pay interest
by mailing a check to holders at their registered addresses or by wire transfer
to an account located in the United States maintained by the holder.
The exchange notes will be issued only in 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 notes, but we may
require a payment to cover any transfer tax or other similar governmental charge
payable upon a transfer or exchange of the notes.
OPTIONAL REDEMPTION
The exchange notes will be redeemable, at our option, in whole or in part, at
any time and from time to time, upon not less than 30 nor more than 60 days
notice. Upon redemption of the notes, we will pay a redemption price equal to
the greater of (1) 100% of the principal amount of the exchange notes to be
redeemed and (2) the sum of the present values of the remaining scheduled
payments of the notes that would be due after the redemption date had the
redemption not occurred, 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 on the notes to the
date of redemption.
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 deems
fair and appropriate.
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RANKING
The exchange notes will be unsecured and unsubordinated obligations of ours and
will rank equally in right of payment with all of our existing and future
unsecured and unsubordinated obligations. The guarantees will be unsecured and
unsubordinated obligations of the relevant guarantor and will rank equally in
right of payment with all other existing and future unsecured and unsubordinated
obligations of each guarantor. The exchange notes and the guarantees will
effectively rank junior to any secured indebtedness of ours and the guarantors
to the extent of the assets securing this indebtedness.
GUARANTEES
Our payment obligations under the notes are jointly and severally guaranteed by
each guarantor. If the obligations of a guarantor terminate under the existing
credit agreement, the guarantor will be released from all its obligations under
the indenture and its guarantee will terminate. This termination may occur upon
the agreement of the lenders under the existing credit agreement or upon the
replacement of the existing credit agreement with a credit facility not
requiring these guarantees.
The indenture provides that the obligations of each guarantor will be limited to
the maximum amount that can be guaranteed by such guarantor without constituting
a fraudulent conveyance under applicable law. This computation shall give effect
to (1) all other contingent and fixed liabilities of the guarantor, including
any guarantees under the existing credit agreement, and (2) any payments made by
any other guarantor in respect of another guarantor's obligation under its
guarantee or under the indenture.
Each guarantor may consolidate with, merge into or sell its assets to either of
us or another guarantor without limitation. Each guarantor may consolidate with,
merge into or sell all or substantially all its assets to a person or entity
other than either of us or another guarantor (whether or not affiliated with the
guarantor), except that the person or entity surviving the merger or
consolidation, or the person to whom a sale is made, may not be a foreign
subsidiary. The sale or disposition of a guarantor in compliance with the
indenture to a person or entity which is not a subsidiary of either of us will
release the guarantor from all of its obligations under the indenture and its
guarantee will terminate, so long as the guarantor's obligations under the
existing credit agreement also terminate upon the sale or transfer.
COVENANTS
Except as discussed below, neither of us nor any of our guarantors are
restricted by the indenture from
- incurring any type of indebtedness or other obligation,
- paying dividends or making distributions on our capital stock or
- purchasing or redeeming our capital stock. We are not required to
maintain any financial ratios or specified levels of net worth or
liquidity.
In addition, we are not required 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 us which may adversely affect the creditworthiness of the notes.
The indenture contains various covenants including the following:
LIMITATIONS ON LIENS. Neither of us nor any guarantor will, nor will such
parties permit any of their respective subsidiaries to, incur any indebtedness
secured by a mortgage, security interest, pledge, lien, charge or other
encumbrance upon any of their respective property or assets, including capital
stock, (whether such property, assets, shares or indebtedness are now existing
or owned or hereafter created or acquired) unless prior to or at the same time,
the notes or the guarantee, as applicable, are equally and ratably secured with
or, at our the option, prior to such secured indebtedness. Mortgages,
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security interests, pledges, liens, charges and other encumbrances are
collectively referred to in this prospectus as mortgages.
The restriction does not apply to:
(1) mortgages existing at the time a person or entity becomes a subsidiary
of us or any of our subsidiaries; provided that such mortgage was not
incurred in anticipation of a person or entity becoming a subsidiary;
(2) mortgages existing at the time of acquisition by either of us or one of
our subsidiaries, a subsidiary, or any of their subsidiaries (which may
include property previously leased by us, any guarantor or any of their
respective subsidiaries and leasehold interests on the property,
provided that the lease terminates prior to or upon the acquisition) or
mortgages on the property to secure the payment of all or any part of
the purchase price of the property, 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, or, in the case of property, the completion of
construction, the completion of improvements or the beginning of
substantial commercial operation of the property for the purpose of
financing all or any part of the purchase price of the property, the
construction or the making of the improvements;
(3) mortgages in favor of us;
(4) mortgages existing on November 23, 1998;
(5) mortgages on property of a corporation existing at the time a
corporation is merged into or consolidated with either of us or any of
our 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 either of us or any of our subsidiaries, provided that
this mortgage was not incurred in anticipation of the merger or
consolidation or sale, lease or other disposition;
(6) mortgages created in connection with a project financed with, and
created to secure, an obligation substantially related to
- the acquisition of assets not previously owned by us, any guarantor or
any of their respective subsidiaries or
- the financing of a project involving the development or expansion of
properties of ours, any guarantor or any of their respective
subsidiaries, as to which the obligee under that indebtedness or
obligation has no recourse to us, any guarantor or any of their
respective subsidiaries or any assets of us, any guarantor or any of
their respective subsidiaries other than the assets which were
acquired with the proceeds of the transaction or the project financed
with the proceeds of the transaction;
(7) mortgages securing the notes; or
(8) extensions, renewals or replacements of any mortgage referred to in
clauses (4) through (7) without increase of the principal of the
indebtedness secured by the mortgage; provided, however, that any
mortgages permitted by any of clauses (1) through (7) shall not extend
to or cover any property of USAi or USANi LLC or any of their
respective subsidiaries, other than the property specified in these
clauses and improvements to this property.
We and our subsidiaries are permitted to incur indebtedness secured by a
mortgage which we would otherwise not be permitted to unless we equally and
ratably secured the notes, or in the case of mortgages on any guarantors'
property or assets, any guarantee of the guarantor, if after giving effect to
this indebtedness, the aggregate amount of all indebtedness secured by mortgages
(not including mortgages permitted under clauses (1) through (8)) does not
exceed 15% of the consolidated net assets of USAi. Consolidated net assets means
as of any particular time the aggregate amount of
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assets of an entity and its consolidated subsidiaries at the end of the most
recently completed fiscal quarter after deducting therefrom, to the extent
included, all current liabilities except for:
- notes and loans payable,
- current maturities of long-term debt and
- current maturities of obligations under capital leases, all as listed on
the consolidated balance sheet of the entity and its consolidated
subsidiaries as of the end of the relevant fiscal quarter and computed
in accordance with GAAP.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. Neither of us nor any of the
guarantors will, nor will such persons or entities permit any of their
respective subsidiaries to, enter into any sale/leaseback transaction with our,
our guarantors or any of their respective subsidiaries' property, unless:
(a) USAi or USANi LLC or a guarantor or subsidiary would be able to
incur indebtedness secured by a mortgage on the property involved in the
transaction at least equal in amount to the attributable debt with respect
to the sale/leaseback transaction, without equally and ratably securing the
notes or the guarantees, under the covenant described in "-- 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 USAi, and the proceeds are applied within 180 days of the
effective date of the sale/leaseback transaction to the purchase,
construction, development or acquisition of assets or to the repayment of
indebtedness of either of USAi or USANi LLC, any guarantor or any of their
respective subsidiaries.
The restriction does not apply to transactions:
(1) entered into prior to the closing of the notes offering;
(2) between USANi LLC and USAi or USANi LLC and any subsidiary of
USANi LLC or USAi or between USAi and any subsidiary of USANi LLC or USAi
or between subsidiaries;
(3) involving leases for no longer than three years; or
(4) 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.
A sale/leaseback transaction means an arrangement relating to property owned by
us which was transferred to another entity and then leased back to us.
Attributable debt means the lesser of: (1) the fair value of the property
subject to a sale/leaseback transaction, as determined in good faith by the USAi
board of directors; or (2) the present value of the total net amount of rent
required to be paid under the lease during the remaining term of the lease,
including any renewal term or period for which the lease has been extended,
discounted at the rate of interest contained forth or implicit in the terms of
the lease or, if not practicable to determine the 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 USAi. For
purposes of this 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. If a lease is terminable by the lessee upon the
payment of a penalty, the net amount of rent of this lease shall be the lesser
of (a) the net amount determined assuming termination upon the first date the
lease may be terminated, which amount shall include the amount of the penalty,
but shall exclude rent required to be paid under the lease after the assumed
termination date and (b) the net amount of rent determined assuming no
termination of the lease.
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MERGER, CONSOLIDATION OR SALE OF ASSETS. Either of us 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 or entity, provided that:
(1) either of us shall be the continuing person or entity, or the
successor person or entity formed from the consolidation or merger
or the person or entity which received the transfer of the assets
is organized under the laws of any domestic jurisdiction and
expressly assumes our obligations under the notes and the
indenture and the guarantees remain in effect;
(2) immediately after giving effect to the transaction, no event of
default 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
(3) an officers' certificate and legal opinion is delivered to the
trustee.
The successor person or entity will succeed to us, and be substituted for us,
and may exercise all of our rights and powers under the indenture, but the
predecessor entity in the case of a lease of all or substantially all of that
entity's respective assets will not be released from the obligation to pay the
principal of and interest on the notes.
FUTURE GUARANTORS. Each subsidiary which is created or acquired by either of us
and becomes an existing credit agreement guarantor will become a guarantor of
the notes.
DEFAULTS
The following is an event of default under the indenture:
(1) a default in any payment of interest, including additional interest, if
any, on any note when due, which continues for 30 days;
(2) a default in the payment of principal of any note when due at its
stated maturity date, upon optional redemption, upon declaration or
otherwise;
(3) a failure by us to comply with our other agreements contained in the
indenture continuing for 90 days after written notice as provided in
the indenture;
(4) (a) a failure to make any payment at maturity, including any applicable
grace period, on any of our indebtedness in an amount in excess of
$25,000,000 and continuance of this failure to pay or (b) a default on
any of our indebtedness, which default results in the acceleration of
indebtedness in an amount in excess of $25,000,000 without this
indebtedness having been discharged or the 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 us by the
trustee or to us and the trustee by the holders of not less than 25% in
principal amount of outstanding notes; provided, however, that if the
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 shall be deemed cured;
(5) any guarantee ceases to be in full force and effect or any guarantor
denies or disaffirms in writing its obligations under the indenture of
its guarantee; and
(6) various events in bankruptcy, insolvency or reorganization involving
either of us.
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
us may declare the principal of, and accrued but unpaid interest on, all the
notes to be due and payable. Upon this declaration, principal and interest will
be immediately due and payable. If an event of default relating to various
events of bankruptcy, insolvency or reorganization of either of us occurs and is
continuing, the principal of, and accrued interest on, all the notes will become
immediately due and payable without any declaration or other act on the part of
the trustee or any holders. Under some circumstances, the holders of a
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majority in aggregate principal amount of the outstanding notes may rescind any
acceleration with respect to the notes and its consequences.
If an event of default occurs and is continuing, the trustee, in conformity with
its duties under the indenture, will exercise all rights or powers under the
indenture at the request or direction of any of the holders provided the holders
provide the trustee with a reasonable indemnity or security against any loss.
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:
(1) the holder previously notified the trustee that an event of default is
continuing,
(2) holders of at least 25% in aggregate principal amount of the
outstanding notes requested the trustee to pursue the remedy,
(3) the holders offered the trustee reasonable security or indemnity
against any loss, liability or expense,
(4) the trustee has not complied with the holder's request within 60 days
after the receipt of the request and the offer of security or
indemnity, and
(5) the holders of a majority in principal amount of the outstanding notes
has not given the trustee a direction inconsistent with the request
within the 60-day period.
Generally, 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.
If a default occurs and is continuing and is known to the trustee, the trustee
must mail to each holder notice of the default within 90 days after it is known
to 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 the
trustee determines in good faith that withholding notice is not opposed to the
interests of the holders. In addition, we are required to deliver to the
trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers of the certificate know of any default that
occurred during the previous year. We also are required to notify the trustee
within 30 days of any event which would constitute various defaults, their
status and what action we are taking or propose to take in respect of these
defaults.
AMENDMENTS AND WAIVERS
We may amend the indenture with the consent of the holders of a majority in
principal amount of the notes then outstanding. 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.
These consents may be obtained through a tender offer or exchange offer for the
notes. Without the consent of each holder of an outstanding note, we may not
amend the indenture to:
(1) reduce the amount of notes whose holders must consent to an amendment,
supplement or waiver,
(2) reduce the rate of or extend the time for payment of interest on any
note,
(3) reduce the principal of or extend the stated maturity date of any note,
(4) reduce the premium payable upon any redemption of any note or change
the time at which any note may be redeemed,
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(5) make any note payable in money other than that stated in each note,
(6) impair the right of any holder to receive payment of principal of and
interest on the holder's notes on or after the due dates for the
payment of the principal or interest or to institute suit for the
enforcement of any payment on or with respect to the holder's notes,
(7) make any changes that would affect the ranking for the notes in a
manner adverse to the holders or
(8) make any change in the amendment provisions which require each holder's
consent.
We may amend the indenture without the consent of any holder:
(1) to cure any ambiguity, omission, defect or inconsistency,
(2) to provide for the assumption by a successor corporation of our
obligations under the indenture,
(3) to add guarantees or collateral security with respect to the notes,
(4) to add to our covenants for the benefit of the holders or to surrender
any right or power conferred upon us,
(5) to make any change that does not adversely affect the rights of any
holder or
(6) to comply with any requirement of the SEC regarding qualification of
the indenture under the Trust Indenture Act.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes under the indenture. Upon any transfer
or exchange, the registrar and the trustee may require a holder to furnish
appropriate endorsements and transfer documents and we 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 as part of the
transfer or exchange. We 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 the note for all purposes.
DEFEASANCE
We may terminate all of our and our guarantors' obligations under the indenture
at any time through either legal defeasance or covenant defeasance.
To exercise either defeasance option:
(1) We must irrevocably deposit with the trustee, in trust for the benefit
of the holders of the notes, money or U.S. government obligations which
will provide cash at the times and in the amounts as will be sufficient
to pay principal and interest when due on all the notes to maturity or
redemption;
(2) We will deliver to the trustee an opinion of counsel which will provide
that the holders of the notes will not recognize income, gain or loss
for federal income tax purposes as a result of the 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 the deposit and defeasance had not occurred; and
(3) in the case of legal defeasance, the opinion of counsel referred to in
(2) above must be based on a ruling of the Internal Revenue Service or
other change in applicable federal income tax law.
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CONCERNING THE TRUSTEE
Chase Mahattan Bank is the trustee under the indenture and is also registrar and
paying agent of the notes and the exchange agent in the exchange offer. Chase
Manhattan Bank is also an agent and lender under the existing credit agreement.
Chase Securities Inc., an initial purchaser of the notes, is an affiliate of the
trustee.
The indenture contains limitations on the rights of the trustee, should it
become a creditor of either of us, to obtain payment of claims in some cases, or
to realize on property received in respect of any of these claims as security or
otherwise. The trustee is permitted to engage in other transactions. However, if
the trustee acquires any conflicting interest it must either eliminate its
conflict within 90 days, apply to SEC 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 by the
terms of the indenture, notes or guarantees.
DEFINITIONS
"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 consistent with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the notes.
"Comparable Treasury Price" means, with respect to any redemption date, (1) 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 contained 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
(2) if the release, or any successor release, is not published or does not
contain these prices on that business day, (a) the average of the Reference
Treasury Dealer Quotations for this redemption date, after excluding the highest
and lowest of the Reference Treasury Dealer Quotations, or (b) if the trustee
obtains fewer than four Reference Treasury Dealer Quotations, the average of all
of these quotations.
"Control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a person or entity,
whether through the ability to exercise voting power, by contract or otherwise.
A person or entity shall be deemed to Control another person or entity if such
person or entity (1) is an officer or director of the other person or entity or
(2) directly or indirectly owns or controls 10% or more of the other person's or
entity's capital stock.
"existing credit agreement guarantor" means every subsidiary of either of us
that is a guarantor under the existing credit agreement from time to time. If a
subsidiary that is a guarantor ceases to be a guarantor under the existing
credit agreement, the subsidiary will cease to be an "existing credit agreement
guarantor."
"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 or
entity directly or indirectly guaranteeing any indebtedness of any other person
or entity and any obligation, direct or indirect, contingent or otherwise, of
that person or entity (1) to purchase or pay, or advance or supply funds for the
purchase or payment of, any indebtedness of the other person or entity, 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
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(2) entered into for purposes of assuring in any other manner the obligee of the
indebtedness of the payment of this indebtedness or to protect this obligee
against loss from this obligation. The term "guarantee" will not include
endorsements for collection or deposit in the ordinary course of business.
"guarantor" means each subsidiary of either of us except for (1) USANi LLC, (2)
foreign subsidiaries and (3) any other subsidiary that is not an existing credit
agreement guarantor, and any other person or entity that becomes an existing
credit agreement guarantor. If any subsidiary that is a guarantor ceases to be
an existing credit agreement guarantor, that subsidiary will cease to be a
"guarantor."
"Reference Treasury Dealer" means each of Chase Securities Inc. (and its
successors) and three other nationally recognized investment banking firms that
are primary U.S. Government securities dealers specified from time to time by us
so long as the entity is a primary U.S. Government securities dealer.
"Reference Treasury Dealer Quotations" means, with respect to each the primary
U.S. Government securities dealers 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 the primary U.S. Government securities
dealers as of 3:30 p.m., New York time, on the third business day preceding such
redemption date.
"Subsidiary" means, with respect to any person or entity (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 that date, as well as any
other corporation, limited liability company, partnership, association or other
entity (1) 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 that date, owned, controlled or held, or (2) that is, as of that 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.
"Treasury Rate" means 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 that redemption date.
BOOK-ENTRY, DELIVERY AND FORM
The exchange notes will be issued in the form of one or more permanent global
certificates in definitive, fully registered form (the "global exchange notes").
The global certificates will be deposited with, or on behalf of, DTC and
registered in the name of Cede & Co., as nominee of DTC.
Except as described 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.
DTC has advised us that it is (1) a limited-purpose trust company organized
under the laws of the State of New York, (2) a "banking organization" within the
meaning of the New York Banking Law, (3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, as amended, and (5) a "clearing agency" registered under
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and to facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants, thus eliminating the need for physical transfer
and delivery of certificates. DTC's participants include securities brokers and
dealers,
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including the initial purchasers, banks and trust companies, clearing
corporations and other organizations. Indirect access to DTC's system is also
available to indirect participants such as banks, brokers, dealers and trust
companies 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 exchange notes, DTC will credit, on its internal
system, the respective principal amounts of the individual beneficial interests
represented by the 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
the system, or indirectly through organizations which are participants in the
system. The laws of some jurisdictions may require that purchasers of securities
take physical delivery of the securities in definitive form. These 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 its nominee, as the case may be, will be considered the sole legal
owner or holder of the notes represented by the global exchange note for all
purposes of such exchange notes and the indenture. Except as provided below,
owners of beneficial interests in global exchange notes (1) will not be entitled
to have the notes represented by the global exchange notes registered in their
names, (2) will not receive or be entitled to receive physical delivery of
certificated exchange notes, and (3) will not be considered the owners or
holders of the global exchange notes under the indenture for any purpose,
including for purposes of giving directions, instructions or approvals to the
trustee under the indenture. Accordingly, each holder owning a beneficial
interest in a global exchange note must rely on the procedures of DTC and, if
that holder is not a participant or an indirect participant, on the procedures
of the participant through which that holder owns its interest, to exercise any
rights of a holder of exchange notes under the indenture or the global exchange
note. We understand that under existing industry practice, if we request any
action by 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 the global exchange note, is entitled to take, DTC would authorize the
participants to take that action and the participants would authorize holders
owning through participants to take that action or would otherwise act upon the
instruction of the holders. Neither of us 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 the exchange notes.
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 registered owner and holder of the global
exchange notes.
We 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. We also expect that payments by participants to owners of
beneficial interests in the global exchange notes held through those
participants will be governed by standing instructions and customary practices
and will be the responsibility of those participants. We 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 the beneficial ownership interests or
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for any other aspect of the relationship between DTC and its participants or the
relationship between its participants and the owners of beneficial interests in
the global exchange notes owning through its 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 these 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 these procedures, and these
procedures may be discontinued at any time. Neither the trustee nor either of us
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 (1) we 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
our notice or cessation, (2) we, at our option, notify the trustee in writing
that they elect to cause the issuance of exchange notes in definitive form under
the indenture or (3) upon the occurrence of 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 those
certificated exchange notes in the name of the beneficial owner or owners, or
their nominee of, and cause the certificated exchange notes to be delivered to
that person.
Neither of us 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 of us and the trustee 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.
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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
exchange and registration rights agreement dated as of November 23, 1998, among
USAi and USANi LLC, the guarantors and 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 exchange and registration rights agreement sets forth various circumstances
under which we are required to file a shelf registration statement with the SEC
in lieu of a registration statement. We will, if a shelf registration statement
is filed, provide to each holder for whom the shelf registration statement was
filed copies of the prospectus which is a part of the shelf registration
statement, notify each holder when the shelf registration statement has become
effective and take other actions required to permit unrestricted resales of the
initial notes or the exchange notes, as the case may be. A holder selling its
initial notes or exchange notes under the shelf registration statement generally
(1) will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, (2) will be bound by the
civil liability provisions of the Securities Act applicable to these sales and
(3) will be bound by the provisions of the registration rights agreement which
are applicable to such holder (including some indemnification obligations).
If (1) by March 23, 1999, neither the registration statement nor the shelf
registration statement has been filed with the SEC; (2) by April 22, 1999,
neither the registration statement nor the shelf registration statement is
declared effective; (3) by May 22, 1999, the exchange offer is not consummated,
or (4) after the shelf registration statement is declared effective, the
registration statement thereafter ceases to be effective, at any time we are
obligated to maintain the effectiveness of the shelf registration statement,
without being succeeded by an additional registration statement filed and
declared effective (each event referred to in clause (1) through (4) is referred
to 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 from and
including the date on which any registration default shall occur to but
excluding the date on which all registration defaults have been cured. The
amount of additional cash interest is calculated by multiplying the rate by the
principal amount of the notes as of the date on which the interest is payable.
The interest is payable in addition to any other interest payable from time to
time with respect to the notes.
LEGAL MATTERS
The validity of the exchange notes will be passed upon on behalf of USAi and
USANi LLC and the guarantors by Howard, Smith & Levin LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements and schedule as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, as contained in their report.
We've included our financial statements and schedule in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the Ticketmaster Group,
Inc. consolidated financial statements and schedule at January 31, 1998 and for
the year then ended included in Ticketmaster Group, Inc.'s Annual Report on Form
10-K for the year ended January 31, 1998, as contained in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Ticketmaster Group, Inc. financial statements and schedule as of
January 31, 1998 and for the year then ended are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
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129
KPMG LLP, independent certified public accountants, have audited Ticketmaster
Group, Inc. consolidated financial statements at January 31, 1997 and each of
the years in the two-year period ended January 31, 1997 included in Ticketmaster
Group, Inc.'s Annual Report on Form 10-K for the year ended January 31, 1998, as
contained in their report, which is incorporated by reference in this prospectus
and elsewhere in the registration statement. Ticketmaster Group, Inc. financial
statements at January 31, 1997 and each of the years in the two-year period
ended January 31, 1997 are incorporated by reference in reliance on KPMG LLP's
report, given on their authority 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.
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of Home Shopping Network, Inc. as of December 31, 1998 and 1997, and
for each of the years then ended, as contained in their report. We've included
these financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
KPMG LLP, independent certified public accountants, have audited the
consolidated financial statements of Home Shopping Network, Inc. for the year
ended December 31, 1996, as contained in their report. We've included these
financial statements in the prospectus and elsewhere in the registration
statement in reliance on KPMG LLP's report, given on their authority as experts
in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of USANi LLC as of December 31, 1998 and 1997, and for each of the
years then ended, as contained in their report. We've included these financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
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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 in the exchange offer. This discussion is based on
currently existing provisions of the Internal Revenue Code, existing, temporary
and proposed Treasury regulations promulgated under the Internal Revenue Code,
and administrative and judicial interpretations of the Internal Revenue Code,
all as in effect or proposed on the date of this prospectus 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 capital assets, within the meaning of section 1221 of the Internal
Revenue Code. Moreover, this discussion is 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
some types of holders of initial notes and exchange notes including 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 under 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
under the exchange offer and any 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.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account under the
exchange offer must acknowledge that it will deliver a prospectus as part of any
resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer as part of
resales of exchange notes received in exchange for initial notes where the
initial notes were acquired as a result of market-making activities or other
trading activities. We have agreed that for a period of 90 days after the
expiration date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use upon any such resale.
We 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 under 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 these methods of resale, at market prices prevailing at the
time of resale, at prices related to the prevailing market prices or negotiated
prices. The 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 of these broker-dealers and the purchasers of any such
exchange notes. Any broker-dealer that resells exchange notes that were received
by it for its own account in the exchange offer and any broker or dealer that
participates in a distribution of the exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on their
resale of exchange notes and any commissions or concessions received by them may
be deemed to be underwriting compensation under the Securities Act. The letter
of transmittal states that by acknowledging that it will deliver a prospectus
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, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests these documents in the letter of
transmittal. We 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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INDEX TO FINANCIAL STATEMENTS
PAGE
-----
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
OF USAi, HOLDCO, AND USANi LLC............................ F-3
USA Networks, Inc. Unaudited Pro Forma Combined Condensed
Statement of Operations for the Year Ended December 31,
1998...................................................... F-4
Holdco Unaudited Pro Forma Combined Condensed Statement of
Operations for the Year Ended December 31, 1998........... F-5
USANi LLC Unaudited Pro Forma Combined Condensed Statement
of Operations for the Year Ended December 31, 1998........ F-6
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements................................................ F-7
USA NETWORKS, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-9
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-10
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-11
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996.............. F-13
Consolidated Statements of Cash Flow for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-14
Notes to Consolidated Financial Statements.................. F-15
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES ("HOLDCO")
Report of Independent Auditors.............................. F-45
Independent Auditors' Report................................ F-46
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-47
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-48
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996.............. F-50
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-51
Notes to Consolidated Financial Statements.................. F-52
USANi LLC AND SUBSIDIARIES (INCLUDING PREDECESSOR COMPANY)
Report of Independent Auditors.............................. F-69
Consolidated Statement of Operations for the Years Ended
December 31, 1998 and 1997................................ F-70
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-71
Consolidated Statement of Members' Equity for the Years
Ended December 31, 1998 and 1997.......................... F-73
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998 and 1997................................ F-74
Notes to Consolidated Financial Statements.................. F-75
USA NETWORKS
Report of Independent Accountants........................... F-93
Combined Balance Sheets as of December 31, 1996 and 1995.... F-94
Combined Statements of Income for the Years Ended December
31, 1996 and 1995......................................... F-95
Combined Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995................................ F-96
Combined Statements of Changes in Partners' Equity for the
Years Ended December 31, 1996 and 1995.................... F-97
Notes to Combined Financial Statements...................... F-98
F-1
133
PAGE
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UNIVERSAL TELEVISION GROUP
Report of Independent Accountants........................... F-105
Combined Balance Sheets as of June 30, 1997 and 1996........ F-106
Combined Statements of Operations for the Years Ended June
30, 1997, 1996 and for the period July 1, 1994 to June 4,
1995...................................................... F-107
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-108
Notes to Combined Financial Statements...................... F-109
F-2
134
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
OF USAi, HOLDCO AND USANi LLC
The following unaudited pro forma combined condensed financial statements have
been prepared to give effect to the notes offering, the exchange offer, USAi's
tax-free merger with Ticketmaster, the Universal transaction through which USAi
acquired USA 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, as if all such transactions had occurred on January 1, 1998. The
purchase method of accounting was used to give effect to all transactions.
The unaudited pro forma statements reflect certain assumptions regarding the
transactions and are based on the historical consolidated financial statements
of the respective entities. The unaudited pro forma statements, including the
notes thereto, are qualified in their entirety by reference to, and should be
read in conjunction with, the audited financial statements, including the notes
thereto, of USAi, Holdco, USANi LLC, CitySearch, Ticketmaster, USA Networks and
Studios USA, all of which are either included or incorporated by reference in
this prospectus.
The USAi unaudited pro forma combined condensed statement of operations for the
year ended December 31, 1998 reflects the audited consolidated statement of
operations of USAi, and also reflects the unaudited pro forma results of Studios
USA and USA Networks for the period prior to February 12, 1998, and the
unaudited results of CitySearch for the period ended September 28, 1998, and
gives effect to the transactions as if they had occurred on January 1, 1998.
The Holdco and USANi LLC unaudited pro forma combined condensed statements of
operations for the year ended December 31, 1998 give effect to the Universal
transaction, the notes offering and the exchange offer as if they had occurred
on January 1, 1998.
The unaudited pro forma statements are presented for illustrative purposes only
and are not necessarily indicative of the results of operations which would have
actually been reported had the Transactions occurred as of January 1, 1998, nor
are the unaudited pro forma statements necessarily indicative of future
financial position or results of operations.
F-3
135
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNIVERSAL CITYSEARCH SF PRO FORMA PRO FORMA
USAI TRANSACTION(A) TRANSACTION(B) BROADCASTING(C) ADJUSTMENTS COMBINED
---- -------------- -------------- --------------- ----------- ---------
NET REVENUES:
Networks and television
production.................. $1,085,685 $157,364 $ -- $ -- $ -- $1,243,049
Electronic retailing.......... 1,098,634 -- -- -- 1,098,634
Ticketing operations.......... 386,555 -- -- -- 386,555
Internet services............. 26,645 -- 11,317 37,962
Broadcasting and other........ 36,617 -- -- (27,130) 9,487
---------- -------- -------- -------- -------- ----------
Total net revenues.......... 2,634,136 157,364 11,317 (27,130) -- 2,775,687
---------- -------- -------- -------- -------- ----------
Operating costs and expenses:
Cost of sales................. 749,638 -- 10,491 (3,528) -- 756,601
Program costs................. 597,681 100,479 -- -- (12,795)(d) 685,365
Other costs................... 822,454 29,892 28,107 (20,510) (4,222)(e) 855,721
Depreciation and
amortization................ 246,147 8,696 -- (5,374) 41,939(f) 291,408
---------- -------- -------- -------- -------- ----------
Total operating costs and
expenses.................. 2,415,920 139,067 38,598 (29,412) 24,922 2,589,095
---------- -------- -------- -------- -------- ----------
Operating income............ 218,216 18,297 (27,281) 2,282 (24,922) 186,592
Interest income (expense),
net......................... (105,078) 177 227 3,498 (1,546)(d) (110,708)
(7,986)(g)
Miscellaneous................. 170,676 (1,039) -- (9,247) -- 160,390
---------- -------- -------- -------- -------- ----------
Earnings (loss) before income
taxes and
minority interest............. 283,814 17,435 (27,054) (3,467) (34,454) 236,274
Income tax (expense) benefit.... (127,645) (526) -- 9,247 (7,873)(h) (123,804)
2,993(i)
Minority interest............... (79,295) -- -- (2,741) (12,883)(j) (74,064)
1,952(k)
18,903(l)
---------- -------- -------- -------- -------- ----------
NET EARNINGS (LOSS)............. $ 76,874 $ 16,909 $(27,054) $ 3,039 $(31,362) $ 38,406
========== ======== ======== ======== ======== ==========
Net earnings (loss) per common
share
Basic......................... $ 0.54 $ .25
========== ==========
Diluted....................... $ 0.43 $ .23
========== ==========
Weighted average shares
outstanding................... 143,073 152,263(m)
========== ==========
Weighted average diluted shares
outstanding................... 297,012 167,770(m)
========== ==========
F-4
136
HOLDCO
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
UNIVERSAL PRO FORMA PRO FORMA
HOLDCO TRANSACTION(A) ADJUSTMENTS COMBINED
---------- -------------- ----------- ----------
NET REVENUES:
Networks and television production.... $1,085,685 $157,364 $ -- $1,243,049
Electronic retailing.................. 1,098,634 -- 1,098,634
Internet services..................... 21,191 -- 21,191
---------- -------- -------- ----------
Total net revenues................. 2,205,510 157,364 -- 2,362,874
---------- -------- -------- ----------
Operating costs and expenses:
Cost of sales......................... 682,689 -- -- 682,689
Program costs......................... 592,095 100,479 (12,795)(d) 679,779
Other costs........................... 524,370 29,892 (4,222)(e) 550,040
Depreciation and amortization......... 174,626 8,696 4,659(f) 187,981
---------- -------- -------- ----------
Total operating costs and
expenses......................... 1,973,780 139,067 (12,358) 2,100,489
---------- -------- -------- ----------
Operating income................... 231,730 18,297 12,358 262,385
Interest income (expense), net........ (83,513) 177 (1,546)(d) (92,868)
(7,986)(g)
Miscellaneous......................... (19,077) (1,039) (20,116)
---------- -------- -------- ----------
Earnings before income taxes and
minority interest..................... 129,140 17,435 2,826 149,401
Income tax (expense) benefit............ (37,313) (526) 3,937(h) (33,902)
Minority interest....................... (87,262) -- (12,770)(j) (100,032)
---------- -------- -------- ----------
NET EARNINGS............................ $ 4,565 $ 16,909 $ (6,007) $ 15,467
========== ======== ======== ==========
F-5
137
USANi LLC
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
UNIVERSAL PRO FORMA PRO FORMA
USANI LLC TRANSACTION(A) ADJUSTMENTS COMBINED
---------- -------------- ----------- ----------
NET REVENUES:
Networks and television production...... $1,085,685 $157,364 $ -- $1,243,049
Electronic retailing.................... 1,098,634 -- 1,098,634
Internet services....................... 21,191 -- 21,191
---------- -------- -------- ----------
Total net revenues................... 2,205,510 157,364 -- 2,362,874
---------- -------- -------- ----------
Operating costs and expenses:
Cost of sales........................... 682,689 -- -- 682,689
Program costs........................... 592,095.. 100,479 (12,795)(d) 679,779
Other costs............................. 524,370 29,892 (4,222)(e) 550,040
Depreciation and amortization........... 174,626 8,696 4,659(f) 187,981
---------- -------- -------- ----------
Total operating costs and expenses... 1,973,780 139,067 (12,358) 2,100,489
---------- -------- -------- ----------
Operating income..................... 231,730 18,297 12,358 262,385
Interest income (expense), net.......... (82,632) 177 (1,546)(d) (91,987)
(7,986)(g)
Miscellaneous........................... (19,077) (1,039) -- (20,116)
---------- -------- -------- ----------
Earnings before income taxes.............. 130,021 17,435 2,826 150,282
Income tax (expense) benefit.............. (5,367) (526) 4,201(h) (1,692)
Minority interest......................... 881 881
---------- -------- -------- ----------
NET EARNINGS.............................. $ 125,535 $ 16,909 $ 7,027 $ 149,471
========== ======== ======== ==========
F-6
138
USA NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(a) Reflects the results of operations for Networks and Studios USA, which were
acquired in the Universal transaction on February 12, 1998.
(b) Reflects the results of operations of CitySearch, which was acquired on
September 28, 1998.
(c) Reflects the results of operations of SF Broadcasting, a subsidiary of
USAi, through July 16, 1998, the date the assets of SF Broadcasting were
sold.
(d) Reflects adjustments to programming cost for fair value adjustments and the
effects of imputed interest related to long term program commitments.
(e) Represents certain corporate overhead allocated charges from Universal to
Networks and Studios USA which are no longer being charged.
(f) 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 or 40 years. Shorter lives were assigned to Internet
related businesses (Ticketmaster Online and CitySearch).
The following table summarizes the goodwill resulting from the three
acquisitions.
UNIVERSAL TICKETMASTER CITYSEARCH
TRANSACTION MERGER MERGER
----------- ------------ ----------
($ IN THOUSANDS)
Purchase price, including cash, equity and
transaction costs............................... $4,115,531 $467,700 $163,162
Net identifiable assets acquired (liabilities
assumed)........................................ (20,842) (9,400) 2,517
---------- -------- --------
Unallocated excess of acquisition cost over net
assets acquired................................. $4,136,373 $477,100 $160,645
========== ======== ========
(g) 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% represents the estimated average interest rate USAi incurred under the
notes and the credit agreement used to finance the cash portion of the
Universal Transaction.
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 for the year ended December 31, 1998.
(h) 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.
(i) Represents income tax benefit of the CitySearch merger, as taxable income
of Ticketmaster Online is offset by tax losses of CitySearch.
(j) Reflects net adjustment to record Universal's and Liberty's minority
interest in the pro forma pre-tax results of operations of USANi LLC.
(k) Reflects the elimination of Ticketmaster minority interest recorded in the
historical USAi operations.
F-7
139
USA NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(l) Reflects net adjustment to minority interest in the pro forma after-tax
results of Ticketmaster Online-CitySearch.
(m) For the year ended December 31, 1998, basic pro forma net earnings (loss)
per common share adjusts the 143,073,000 USAi historical basic weighted
average shares by 1,558,000 shares, which reflects the incremental impact of
the shares issued in connection with the Universal transaction and 7,632,000
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, 1998, diluted pro forma net earnings
(loss) per common share adjusts the 297,012,000 USAi historical basic
weighted average shares to show a reduction of 129,242,000 shares due to
the effects of lower pro forma earnings which rendered certain common
stock equivalents anti-dilutive.
F-8
140
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. and subsidiaries (formerly HSN, Inc.) as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the three years in the period ended December 31, 1998. 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. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the three years in
the period ended December 31, 1998, 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
February 4, 1999
F-9
141
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
NET REVENUES
Networks and television production..................... $1,085,685 $ -- $ --
Electronic retailing................................... 1,098,634 1,024,203 30,588
Ticketing operations................................... 386,555 156,378 --
Internet services...................................... 26,645 12,857 --
Broadcasting........................................... 27,966 54,138 43,359
Other.................................................. 8,651 14,173 1,225
---------- ---------- --------
Total net revenues.................................. 2,634,136 1,261,749 75,172
---------- ---------- --------
Operating costs and expenses:
Cost of sales.......................................... 749,638 645,299 20,974
Program costs.......................................... 597,681 -- --
Selling and marketing.................................. 376,697 217,358 4,951
General and administrative............................. 227,662 129,700 28,254
Other operating costs.................................. 218,095 77,849 1,895
Depreciation and amortization.......................... 246,147 97,024 15,486
---------- ---------- --------
Total operating costs and expenses.................. 2,415,920 1,167,230 71,560
---------- ---------- --------
Operating profit.................................... 218,216 94,519 3,612
Other income (expense):
Interest income........................................ 16,188 5,313 3,238
Interest expense....................................... (121,266) (31,579) (11,841)
Gain on disposition of broadcast stations.............. 84,187 -- --
Gain on sale of subsidiary stock....................... 108,967 -- --
Miscellaneous.......................................... (22,478) (11,752) 44
---------- ---------- --------
65,598 (38,018) (8,559)
---------- ---------- --------
Earnings (loss) before income taxes and minority
interest............................................ 283,814 56,501 (4,947)
Income tax (expense)................................... (127,645) (41,051) (1,872)
Minority interest in (earnings) loss................... (79,295) (2,389) 280
---------- ---------- --------
NET EARNINGS (LOSS)...................................... $ 76,874 $ 13,061 $ (6,539)
========== ========== ========
Basic earnings (loss) per common share................. $ .54 $ .12 $ (.30)
========== ========== ========
Diluted earnings (loss) per common share............... $ .43 $ .12 $ (.30)
========== ========== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-10
142
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 445,356 $ 116,036
Accounts and notes receivable, net of allowance of $20,610
and $3,588, respectively.................................. 372,111 96,867
Inventories, net............................................ 421,570 151,100
Deferred income taxes....................................... -- 39,956
Other current assets, net................................... 28,501 16,723
---------- ----------
Total current assets...................................... 1,267,538 420,682
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 233,991 145,701
Buildings and leasehold improvements........................ 100,339 83,851
Furniture and other equipment............................... 55,653 39,498
---------- ----------
389,983 269,050
Less accumulated depreciation and amortization............ 168,727 120,793
---------- ----------
221,256 148,257
Land........................................................ 16,044 16,602
Projects in progress........................................ 18,130 15,262
---------- ----------
255,430 180,121
OTHER ASSETS
Intangible assets, net...................................... 6,342,646 1,862,128
Cable distribution fees, net ($39,650 and $46,459,
respectively, to related parties)......................... 100,416 111,292
Long-term investments....................................... 63,365 47,926
Notes and accounts receivable, net of current portion
($3,356 and $843, respectively, from related parties)..... 48,532 11,854
Inventories, net............................................ 151,828 --
Deferred income taxes....................................... 40,282 3,541
Deferred charges and other, net............................. 57,065 33,252
---------- ----------
$8,327,102 $2,670,796
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-11
143
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 36,538 $ 12,918
Accounts payable, trade..................................... 186,690 111,214
Accounts payable, client accounts........................... 70,817 73,887
Obligations for program rights and film costs............... 184,583 --
Cable distribution fees payable ($18,633 and $19,091,
respectively, to related parties)......................... 44,588 43,553
Deferred income taxes....................................... 17,269 --
Other accrued liabilities................................... 322,294 118,169
---------- ----------
Total current liabilities................................. 862,779 359,741
LONG-TERM OBLIGATIONS (net of current maturities)........... 775,683 448,346
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 409,956 --
OTHER LONG-TERM LIABILITIES................................. 73,682 43,132
MINORITY INTEREST........................................... 3,633,597 372,223
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, 127,272,032 and 87,430,586
shares, respectively...................................... 1,273 874
Class B -- convertible common stock -- $.01 par value;
authorized, 200,000,000 shares; issued and outstanding,
31,516,726 and 24,455,294 shares, respectively............ 315 244
Additional paid-in capital.................................. 2,594,043 1,558,037
Accumulated deficit......................................... (26,727) (103,601)
Unrealized gain in available for sale securities............ 10,353 --
Foreign currency translation................................ (1,501) --
Unearned compensation....................................... (1,353) (3,202)
Note receivable from key executive for common stock
issuance.................................................. (4,998) (4,998)
---------- ----------
Total stockholders' equity................................ 2,571,405 1,447,354
---------- ----------
$8,327,102 $2,670,796
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-12
144
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS B
CONVERTIBLE ADDITIONAL
COMMON COMMON PAID-IN ACCUMULATED UNREALIZED
TOTAL STOCK STOCK CAPITAL DEFICIT GAINS
---------- ------ ----------- ---------- ----------- ----------
(IN THOUSANDS)
BALANCE AT DECEMBER 31, 1995.................... $ 7,471 $ 140 $ 48 $ 126,025 $(110,123) $ --
Issuance of common stock upon exercise of stock
options........................................ 1,156 2 -- 1,154 -- --
Amortization of unearned compensation related to
grant of stock options to key executive........ 1,028 -- -- -- -- --
Income tax benefit related to stock options
exercised...................................... 841 -- -- 841 -- --
Issuance of common stock related to the Home
Shopping Merger................................ 1,044,812 494 156 1,044,162 -- --
Issuance of common stock related to the Savoy
Merger......................................... 112,717 84 -- 112,633 -- --
Unearned compensation related to employee equity
participation plan............................. (2,737) -- -- -- -- --
Net loss for year ended December 31, 1996....... (6,539) -- -- -- (6,539) --
BALANCE AT DECEMBER 31, 1996.................... 1,158,749 720 204 1,284,815 (116,662) --
---------- ------ ---- ---------- --------- -------
Issuance of common stock upon exercise of stock
options........................................ 7,227 10 -- 7,217 -- --
Income tax benefit related to stock options
exercised...................................... 3,372 -- -- 3,372 -- --
Issuance of Common Stock and Class B Common
Stock in connection with Ticketmaster
Acquisition.................................... 262,817 144 40 262,633 -- --
Amortization of unearned compensation related to
stock options and equity participation plan.... 2,128 -- -- -- -- --
Net earnings for year ended December 31,
1997........................................... 13,061 -- -- -- 13,061 --
---------- ------ ---- ---------- --------- -------
BALANCE AT DECEMBER 31, 1997.................... 1,447,354 874 244 1,558,037 (103,601) --
Comprehensive income:
Net earnings for the year ended December 31,
1998........................................... 76,874 -- -- -- 76,874 --
Increase in unrealized gains in available for
sale securities................................ 10,353 -- -- -- -- 10,353
Foreign currency translation.................... (1,501) -- -- -- -- --
----------
Comprehensive income........................... 85,726
----------
Issuance of common stock upon exercise of stock
options........................................ 26,070 24 -- 26,046 -- --
Income tax benefit related to stock options
exercised...................................... 6,959 -- -- 6,959 -- --
Issuance of Common Stock and Class B Common
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) -- -- --
Acquisition of interest in LLC shares in
exchange for Common Stock and Class B Common
Stock.......................................... 35,111 14 3 35,094 -- --
Amortization of unearned compensation related to
stock options and equity participation plans... 1,849 -- -- -- -- --
---------- ------ ---- ---------- --------- -------
BALANCE AT DECEMBER 31, 1998.................... $2,571,405 $1,273 $315 $2,594,043 $ (26,727) $10,353
========== ====== ==== ========== ========= =======
NOTE
RECEIVABLE
FROM KEY
EXECUTIVE
FOR
FOREIGN COMMON
CURRENCY UNEARNED STOCK
TRANSLATION COMPENSATION ISSUANCE
----------- ------------ ----------
(IN THOUSANDS)
BALANCE AT DECEMBER 31, 1995.................... $ -- $(3,621) $(4,998)
Issuance of common stock upon exercise of stock
options........................................ -- -- --
Amortization of unearned compensation related to
grant of stock options to key executive........ -- 1,028 --
Income tax benefit related to stock options
exercised...................................... -- -- --
Issuance of common stock related to the Home
Shopping Merger................................ -- -- --
Issuance of common stock related to the Savoy
Merger......................................... -- -- --
Unearned compensation related to employee equity
participation plan............................. -- (2,737) --
Net loss for year ended December 31, 1996....... -- -- --
BALANCE AT DECEMBER 31, 1996.................... -- (5,330) (4,998)
------- ------- -------
Issuance of common stock upon exercise of stock
options........................................ -- -- --
Income tax benefit related to stock options
exercised...................................... -- -- --
Issuance of Common Stock and Class B Common
Stock in connection with Ticketmaster
Acquisition.................................... -- -- --
Amortization of unearned compensation related to
stock options and equity participation plan.... -- 2,128 --
Net earnings for year ended December 31,
1997........................................... -- -- --
------- ------- -------
BALANCE AT DECEMBER 31, 1997.................... -- (3,202) (4,998)
Comprehensive income:
Net earnings for the year ended December 31,
1998........................................... -- -- --
Increase in unrealized gains in available for
sale securities................................ -- -- --
Foreign currency translation.................... (1,501) -- --
Comprehensive income...........................
Issuance of common stock upon exercise of stock
options........................................ -- -- --
Income tax benefit related to stock options
exercised...................................... -- -- --
Issuance of Common Stock and Class B Common
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................................ -- -- --
Acquisition of interest in LLC shares in
exchange for Common Stock and Class B Common
Stock.......................................... -- -- --
Amortization of unearned compensation related to
stock options and equity participation plans... -- 1,849 --
------- ------- -------
BALANCE AT DECEMBER 31, 1998.................... $(1,501) $(1,353) $(4,998)
======= ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-13
145
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
---------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net earnings (loss)....................................... $ 76,874 $ 13,061 $ (6,539)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 224,058 77,679 18,672
Amortization of cable distribution fees................. 22,089 19,261 --
Amortization of program rights and film costs........... 513,844 -- --
Amortization of deferred financing costs................ 7,303 2,256 1,778
Deferred income taxes................................... 94,466 22,474 418
Equity in losses of unconsolidated affiliates........... 18,220 12,007 367
Gain on disposition of broadcast stations............... (84,187) -- --
Gain on sale of subsidiary stock........................ (108,967) -- --
Non-cash interest....................................... 4,800 4,218 --
Inventory carrying adjustment........................... 3,561 (8,059) (420)
Non-cash stock compensation............................. 8,808 2,128 1,028
Minority interest....................................... 79,295 2,389 (280)
Changes in current assets and liabilities:
Accounts receivable................................... (144,472) (7,107) 511
Inventories........................................... (150,905) (37,443) 9,949
Accounts payable...................................... 91,172 (7,371) (11,910)
Accrued liabilities................................... 5,703 (35,859) (1,149)
Payment for program rights and film costs............... (427,106) -- --
Increase in cable distribution fees..................... (11,338) (16,959) (31,529)
Other, net.............................................. 3,538 4,998 31,072
---------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 226,756 47,673 11,968
---------- -------- --------
Cash flows from investing activities:
Acquisition of Universal Transaction, net of cash
acquired................................................ (1,297,233) -- --
Acquisitions, net of cash acquired........................ (102,873) (7,633) --
Capital expenditures...................................... (86,992) (45,869) (1,143)
Increase in long-term investments and notes receivable.... (26,626) (39,844) (8,369)
Proceeds from disposition of broadcast stations........... 356,769 -- --
Payment of merger and financing costs..................... (34,740) (6,349) (1,630)
Other, net................................................ (1,894) 17,402 8,520
---------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES............... (1,193,589) (82,293) (2,622)
---------- -------- --------
Cash flows from financing activities:
Borrowings................................................ 1,641,380 393,949 --
Net proceeds from issuance of Senior Notes................ 494,350 -- --
Principal payments on long-term obligations............... (1,700,073) (385,329) (39,763)
Cash acquired in Ticketmaster Transaction................. -- 89,663 --
Cash acquired in CitySearch Transaction................... 57,877 -- --
Advance to CitySearch for promissory note................. (50,000) -- --
Cash acquired in the Home Shopping and Savoy mergers...... -- -- 52,727
Proceeds from sale of subsidiary stock.................... 104,989 -- --
Redemption in minority interest in SF Broadcasting........ (81,664) -- --
Proceeds from issuance of common stock and LLC shares..... 831,701 7,227 1,156
Other, net................................................ (906) 2,540 --
---------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES........... 1,297,654 108,050 14,120
---------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................. (1,501) -- --
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 329,320 73,430 23,466
Cash and cash equivalents at beginning of period............ 116,036 42,606 19,140
---------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 445,356 $116,036 $ 42,606
========== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-14
146
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.
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 USAi common stock. See Note C.
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.
As of December 31, 1998, 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 United States,
and Ticketmaster Online, Ticketmaster's exclusive agent for online
ticket sales.
- INTERNET SERVICES, which represents the Company's on-line retailing
networks business and local city guide business.
- BROADCASTING, which owns and operates television stations.
On February 20, 1998, the Company declared and on March 26, 1998, paid, a
one-for-one stock dividend. 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 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
F-15
147
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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
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 commencement 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.
ELECTRONIC RETAILING
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.
TICKETING
Revenue from Ticketmaster primarily consists of revenue from ticketing
operations which is recognized as tickets are sold.
BROADCASTING AND OTHER
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-16
148
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (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.
MERCHANDISE 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 $23.4
million and $19.8 million at December 31, 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS
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.
F-17
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
ASSET CATEGORY DEPRECIATION/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 $51.3
million, $26.2 million and $4.3 million for the years ended December 31, 1998,
1997 and 1996, 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 goodwill and other
intangibles and property, plant and equipment, 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 projected undiscounted future cash flows, 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 $22.1 million and $19.3 million for the years ended
December 31, 1998 and 1997, respectively, and was not significant for the 11
days ending December 31, 1996.
ADVERTISING
Advertising costs are expensed in the period incurred. Advertising expense for
the years ended December 31, 1998 and 1997 were $90.2 million and $13.2 million,
respectively. Advertising expense for 1996 was not significant.
INCOME TAXES
The Company accounts for income taxes under the liability method, and 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.
F-18
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
EARNINGS (LOSS) 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
then shares 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.
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 include the inventory carrying adjustment, program rights and film
cost amortization, sales return and other revenue allowances, allowance for
doubtful accounts, recoverability of intangibles and other long-lived assets,
and various other operating allowances and accruals.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the 1998 presentation.
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
F-19
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- BUSINESS ACQUISITIONS -- (CONTINUED)
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 were issued in accordance with Liberty
Media Corporation's ("Liberty") contingent right to receive such shares as part
of the Home Shopping Merger in 1996.
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
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............................................ $ 459,718
Non-current assets........................................ 289,232
Goodwill.................................................. 4,136,373
Current liabilities....................................... 395,356
Non-current liabilities................................... 374,436
TICKETMASTER TRANSACTION
In the third quarter of 1997, the Company acquired a controlling interest in
Ticketmaster through the issuance of Common Stock to Paul G. Allen and purchases
of Ticketmaster shares in the open market for total consideration of $210.0
million (the "Ticketmaster Acquisition"). 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's contingent right to receive such
shares as part of the Home Shopping Merger in 1996.
In connection with the Ticketmaster tax-free merger, as of June 24, 1998, the
Company issued 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 $467.7
million. The acquisition of the controlling interest in Ticketmaster and the
tax-free merger are collectively referred to as the "Ticketmaster Transaction."
The Ticketmaster Transaction has been accounted for using the purchase method of
accounting. The acquisition price of $677.7 million, including expenses, was
allocated to the assets and liabilities of Ticketmaster based on respective
values at the acquisition date. The fair market values of the assets
F-20
152
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- BUSINESS ACQUISITIONS -- (CONTINUED)
acquired and liabilities assumed are summarized below, along with the excess of
the purchase price over the fair value of net assets, which has been assigned to
goodwill and other intangible assets:
(IN THOUSANDS)
Current assets............................................ $139,980
Non-current assets........................................ 178,160
Goodwill and other intangible assets...................... 667,100
Current liabilities....................................... 154,240
Non-current liabilities, including minority interest...... 153,300
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
allocated to Ticketmaster Online a total of $154.8 million of the goodwill
resulting from the Ticketmaster Transaction. 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 $120.8 million, substantially all of which was allocated to
goodwill.
In connection with the CitySearch Merger, the Company purchased 1,997,502 TMCS
shares pursuant to a 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 owned approximately 67.9% of TMCS outstanding shares.
In connection with the CitySearch Merger, the Company recorded a gain of $67.9
million by exchanging a 35.2% interest in Ticketmaster Online with a basis of
$52.9 million for a 50.7% interest in CitySearch, which had a fair value of
$120.8 million.
On December 8, 1998, TMCS completed an initial public offering of 8,050,000
shares of its common stock (the "CitySearch IPO"), which generated proceeds of
$105.0 million. In connection with the CitySearch IPO, the Company recognized a
gain of $41.1 million. The CitySearch Merger, the Tender Offer and the
CitySearch IPO are referred to as the "CitySearch Transaction".
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
F-21
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- BUSINESS ACQUISITIONS -- (CONTINUED)
stock at a .28 conversion ratio, adjusted for the March 1998 stock dividend. The
Savoy Merger has been accounted for using the purchase method of accounting.
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. The Home Shopping Merger has been accounted for using
the purchase method of accounting.
The following unaudited pro forma condensed consolidated financial information
for the years ended December 31, 1998 and 1997, is presented to show the results
of the Company, as if the Universal Transaction, Ticketmaster Transaction,
including significant acquisitions by Ticketmaster, the CitySearch Transaction
and the sale of SF Broadcasting had occurred as of January 1, 1998 and 1997. The
pro forma results include certain adjustments, including increased amortization
related to goodwill and other intangibles, changes in programming and film costs
amortization and an increase in interest expense, and are not necessarily
indicative of what the results would have been had the transactions actually
occurred on the aforementioned dates.
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net revenues.................................. $2,775,687 $2,527,922
Net earnings (loss)........................... 38,406 (77,443)
Basic earnings (loss) per common share........ $ .25 $ (.55)
========== ==========
Diluted earnings (loss) per common share...... $ .23 $ (.55)
========== ==========
The following unaudited pro forma condensed financial information for the year
ended December 31, 1996, is presented to show the results of the Company, as if
the Home Shopping Merger, the Ticketmaster Acquisition, and the Savoy 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 these
transactions actually occurred on January 1, 1996.
YEAR ENDED DECEMBER 31,
1996
-----------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net revenues....................................... $1,392,629
Net loss........................................... (19,099)
Basic loss per common share........................ $ (.17)
==========
Diluted loss per common share...................... $ (.17)
==========
F-22
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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,
----------------------------
1998 1997
---------- --------------
(IN THOUSANDS)
Intangible Assets, net:
Goodwill..................................... $6,232,975 $1,520,221
Broadcast licenses........................... 81,244 312,248
Other........................................ 28,427 29,659
---------- ----------
$6,342,646 $1,862,128
========== ==========
Goodwill primarily relates to the excess of purchase price over the fair value
of assets acquired in the Universal Transaction, Ticketmaster Transaction,
CitySearch Transaction and the Home Shopping and Savoy mergers, as discussed in
Note C, and is net of accumulated amortization of $192.1 million and $46.9
million at December 31, 1998 and 1997, respectively. Goodwill is generally
amortized over 40 years, except for goodwill associated with Internet businesses
which is amortized over 5 to 10 years.
Broadcast licenses represent the costs of acquiring FCC licenses related to
broadcast operations and is net of accumulated amortization of $23.6 million and
$41.3 million as of December 31, 1998 and 1997, respectively. Broadcast licenses
are generally amortized over 40 years.
Other intangibles are net of accumulated amortization of $16.2 million and $67.0
million as of December 31, 1998 and 1997, respectively, and are generally
amortized over 3 to 10 years. In 1998, other intangibles of $68 million which
were fully amortized were written off.
F-23
155
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LONG-TERM OBLIGATIONS
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
Unsecured Senior Credit Facility ("New Facility"); with a
$40,000,000 sub-limit for letters of credit, entered into
February 12, 1998, which matures on December 31, 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.
Interest rate at December 31, 1998 was 6.0% and ranged
from 6.0% to 7.45% during 1998............................ $250,000 $ --
$500,000,000 6 3/4% Senior Notes (the "Senior Notes") due
November 15, 2005; interest payable May 15 and November 15
commencing May 15, 1999. Interest rate at December 31,
1998 is 6.84%............................................. 496,896 --
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..................................................... 33,573 32,915
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. The interest rate was 6.51% at
December 31, 1997, and ranged from 6.47% to 6.53% and
6.16% to 8.50% during 1998 and 1997, respectively. The
facility was repaid on February 12, 1998.................. -- 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. The debentures were converted
into Common Stock on March 1, 1998........................ -- 106,338
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 facility was repaid on July
16, 1998.................................................. -- 69,844
Secured Revolving Credit Facility ("Ticketmaster Facility"),
which matures in December 1999. The facility was repaid on
June 24, 1998............................................. -- 134,000
Other long-term obligations maturing through 2007........... 31,752 18,167
-------- --------
Total long-term obligations................................. 812,221 461,264
Less current maturities..................................... 36,538 12,918
-------- --------
Long-term obligations, net of current maturities............ $775,683 $448,346
======== ========
On February 12, 1998, the Company, and certain of its subsidiaries, including
USANi LLC as borrower, entered into 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
F-24
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LONG-TERM OBLIGATIONS -- (CONTINUED)
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. Average borrowings on the revolving credit facility for the
period from February 12, 1998 to July 20, 1998, the period in which amounts were
outstanding, was $376 million. The average interest rate during this period was
7.91%. As of December 31, 1998, there was $599.9 million available for borrowing
after taking into account outstanding letters of credit. The Company pays a
commitment fee of .1875% on the unused portion of the New Facility.
On November 23, 1998, the Company completed an offering of $500.0 million 6 3/4%
Senior Notes due 2005. Net proceeds from the offering were $493.7 million, which
together with cash on hand, were used to repay, and permanently reduce, $500.0
million of the Tranche A Term Loan.
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.
Aggregate contractual maturities of long-term obligations are as follows:
YEARS ENDING DECEMBER 31,
- ------------------------- (IN THOUSANDS)
1999...................................................... $ 36,538
2000...................................................... 54,347
2001...................................................... 78,498
2002...................................................... 103,749
2003...................................................... 34,056
Thereafter................................................ 505,033
--------
$812,221
========
F-25
157
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INCOME TAXES
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,
------------------------------
1998 1997 1996
-------- ------- -------
(IN THOUSANDS)
Income tax expense (benefit) at the federal statutory rate
of 35% in 1998 and 1997 and 34% for 1996................. $ 99,335 $19,776 $(1,682)
Amortization of goodwill and other intangibles............. 32,423 13,690 548
State income taxes, net of effect of federal tax benefit... 17,404 2,896 581
Non-deductible portion of executive compensation........... -- -- 1,385
Increase (decrease) in valuation allowance for deferred tax
assets................................................... (3,665) 5,471 966
Impact of minority interest................................ (28,910) -- --
Other, net................................................. 11,058 (782) 74
-------- ------- -------
Income tax expense......................................... $127,645 $41,051 $ 1,872
======== ======= =======
The components of income tax expense are as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- ------- ------
(IN THOUSANDS)
Current income tax expense:
Federal................................................... $ 21,137 $21,603 $ 602
State..................................................... 10,820 3,029 852
Foreign................................................... 1,222 919 --
-------- ------- ------
Current income tax expense............................. 33,179 25,551 1,454
-------- ------- ------
Deferred income tax expense:
Federal................................................... $ 78,511 $13,614 $ 367
State..................................................... 15,955 1,886 51
-------- ------- ------
Deferred income tax expense............................ 94,466 15,500 418
-------- ------- ------
Total income tax expense............................... $127,645 $41,051 $1,872
======== ======= ======
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, 1998 and 1997, are presented below. The valuation allowance
represents items for which it is more likely than not that the tax benefit will
not be realized.
F-26
158
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- INCOME TAXES -- (CONTINUED)
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
Current deferred tax assets (liabilities):
Net federal operating loss carryforward................... $ 30,383 $ 46,291
Inventory costing......................................... 14,792 16,398
Provision for accrued expenses............................ 6,523 6,883
Amortization of broadcast related intangibles............. (10,912) 7,995
Investments in affiliates................................. 2,982 2,982
Deferred revenue.......................................... (25,901) --
Other..................................................... 21,190 25,604
-------- --------
Total current deferred tax assets...................... 39,057 106,153
Less valuation allowance............................... (56,326) (66,197)
-------- --------
Net current deferred tax assets (liabilities).......... $(17,269) $ 39,956
======== ========
Non-current deferred tax assets:
Broadcast and cable fee contracts......................... $ 10,311 $ 11,787
Depreciation for tax in excess of financial statements.... (9,663) (10,450)
Amortization of FCC licenses and broadcast related
intangibles............................................ (9,287) (17,847)
Programming costs......................................... 33,430 --
Investment in subsidiaries................................ 6,320 6,320
Gain on sale of subsidiary stock.......................... (46,405) --
Gain on sale of broadcast station......................... (16,743) --
Other..................................................... 76,218 17,068
-------- --------
Total non-current deferred tax assets.................. 44,181 6,878
Less valuation allowance............................... (3,899) (3,337)
-------- --------
Net non-current deferred tax assets.................... $ 40,282 $ 3,541
======== ========
Total deferred tax assets................................... $ 23,013 $ 43,497
======== ========
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
$7.0 million, $3.4 million and $.8 million for the years ended December 31,
1998, 1997 and 1996, respectively, were recorded as increases to additional
paid-in capital.
At December 31, 1998 and 1997, the Company has net operating loss carryforwards
("NOL") for federal income tax purposes of $87 million and $133.3 million,
respectively, which are available to offset future federal taxable income, if
any, through 2012. The NOL's as of December 31, 1998, are pre-acquisition losses
which are subject to certain tax loss limitations. Accordingly, the Company has
established a valuation allowance for the pre-acquisition NOL's.
The Company has Federal income tax returns under examination by the Internal
Revenue Service. The Company has received proposed adjustments related to
certain examinations. Management believes that the resolution of the proposed
adjustments will not have a material adverse effect on the Company's
consolidated financial statements.
F-27
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Future minimum payments under non-cancellable agreements are as follows:
YEARS ENDING DECEMBER 31,
- ------------------------- (IN THOUSANDS)
1999...................................................... $ 59,641
2000...................................................... 59,407
2001...................................................... 55,955
2002...................................................... 44,626
2003...................................................... 19,744
Thereafter................................................ 43,151
--------
$282,524
========
Expenses charged to operations under these agreements were $58.7 million, $37.7
million and $2.9 million for the years ended December 31, 1998, 1997 and 1996,
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 H -- INVENTORIES
DECEMBER 31, DECEMBER 31,
1998 1997
---------------------- ----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
-------- ---------- -------- ----------
(IN THOUSANDS)
Film costs:
Released, net of amortization.............. $ 98,082 $ 61,310
In process and unreleased.................. 138 --
Programming costs, net of amortization....... 156,789 90,518
Sales merchandise, net....................... 165,212 -- $151,100 $ --
Other........................................ 1,349 -- -- --
-------- -------- -------- --------
Total................................... $421,570 $151,828 $151,100 $ --
======== ======== ======== ========
The Company estimates that approximately 90% of unamortized film costs at
December 31, 1998 will be amortized within the next three years.
NOTE I -- STOCKHOLDERS' EQUITY
Share numbers and prices reflect the Company's one-for-one stock dividend to
holders of record as of the close of business on March 12, 1998.
DESCRIPTION OF COMMON STOCK AND CLASS B -- CONVERTIBLE COMMON STOCK
Holders of USAi Common Stock have the right to elect 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
F-28
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- STOCKHOLDERS' EQUITY -- (CONTINUED)
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 connection with Mr. Diller's employment in August 1995, 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.
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 11% (14,401,217 shares) of USAi's outstanding common stock, and
100% (31,516,726 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 74.5% 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, convertible debt securities pending
acquisitions and other matters, 244,184,256 shares of Common Stock were
reserved.
NOTE J -- 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 K -- BENEFIT PLANS
The Company offers various plans pursuant to Section 401(k) of the Internal
Revenue Code covering substantially all full-time employees who are not party to
collective bargaining agreements. The
F-29
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- BENEFIT PLANS
Company's share of the matching employer contributions is set at the discretion
of the Board of Directors or the applicable committee thereof.
NOTE L -- STOCK OPTION PLANS
The following describes the stock option plans. Share numbers, prices and
earnings per share reflect the Company's one-for-one stock dividend 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. Four 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. 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,
--------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
PRICE PRICE PRICE
SHARES RANGE SHARES RANGE SHARES RANGE
------ ------ ------ ------ ------ ------
(SHARES IN THOUSANDS)
Outstanding at beginning of
period...................... 32,936 $1--74 22,872 $1--74 4,538 $1--16
Granted or issued in
connection with
mergers.................. 9,453 $12--29 11,580 $10--19 18,580 $4--74
Exercised................... (2,345) $1--22 (968) $1--16 (238) $1--10
Cancelled................... (830) $5--74 (548) $5--74 (8) $11--13
------ ------ ------
Outstanding at end of
period................... 39,214 $1--74 32,936 $1--74 22,872 $1--74
====== ====== ======
Options exercisable......... 19,903 $1--74 10,840 6,650
====== ====== ======
Available for grant......... 7,524 12,192 3,432
====== ====== ======
The weighted average exercise prices during the year ended December 31, 1998,
were $24.18, $10.92 and $23.58 for options granted, exercised and cancelled,
respectively. The weighted average fair value of options granted during the year
was $24.11.
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, options exercised and options
cancelled, respectively. The weighted average fair value of options granted
during the year was $7.92.
F-30
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- STOCK OPTION PLANS -- (CONTINUED)
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ----------------------------------
WEIGHTED WEIGHTED WEIGHTED
OUTSTANDING AT AVERAGE REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF EXERCISE PRICE DECEMBER 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1998 EXERCISE PRICE
- ----------------------- ----------------- ----------------- -------------- ----------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
$1.00 to $5.00......... 109 2.6 $ 2.94 109 $ 2.94
$5.01 to $10.00........ 13,161 6.9 9.43 9,597 9.42
$10.01 to $15.00....... 7,880 7.2 11.93 6,209 12.02
$15.01 to $20.00....... 12,545 8.5 18.63 3,866 18.05
$20.01 to $25.00....... 3,916 9.8 24.68 39 24.57
$25.01 to $30.00....... 1,547 9.2 25.80 27 25.71
Over $30.00............ 56 3.2 42.94 56 42.94
------ ------
39,214 7.8 15.02 19,903 12.02
====== ======
In connection with Mr. Diller's employment in August 1995, the Company granted
Mr. Diller an option (the "Diller Option") to acquire 3,791,694 shares of common
stock and recorded unearned compensation of $4.0 million. 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 following
weighted-average assumptions for 1998, 1997 and 1996: risk-free interest rates
of 5.0%, 5.5% and 6.4%, respectively; a dividend yield of zero; a volatility
factor of .56, .71 and .60, 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,
------------------------------
1998 1997 1996
------- ------- --------
Pro forma net income (loss) (in thousands)................. $42,906 $(4,871) $(21,225)
Pro forma basic earnings (loss) per share.................. $ .30 $ (.05) $ (.98)
Pro forma diluted earnings (loss) per share................ $ .14 $ (.05) $ (.98)
F-31
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- STOCK OPTION PLANS -- (CONTINUED)
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 NON-CASH TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31,
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 Home Shopping Merger.
During the year ended December 31, 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.
On December 30, 1998, the Company acquired from Universal an entity which owned
1,705,654 Class B LLC shares in exchange for issuing to Universal 335,000 shares
of Class B Common Stock and 1,370,654 shares of Common Stock. The transaction
resulted in the Class B LLC shares being converted into Class A LLC shares with
a corresponding reduction in minority interest.
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS FOR THE YEARS ENDED DECEMBER
31, 1997 AND 1996:
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- STATEMENTS OF CASH FLOWS -- (CONTINUED)
During July 1997, the Company acquired a controlling interest in Ticketmaster by
issuing Common Stock as discussed in Note C.
In connection with the Ticketmaster Acquisition, the Company issued 4,005,182
shares of Class B Common Stock in accordance with Liberty's contingent right to
receive such shares as part of the Home Shopping Merger in 1996.
During December 1996, the Company acquired Savoy and Home Shopping by issuing
stock as discussed in Note C.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
YEARS ENDED
DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
CASH PAID DURING THE PERIOD FOR:
Interest.................................................. $78,873 $26,798 $ 8,939
Income tax payments....................................... 31,366 21,453 458
Income tax refund......................................... 666 5,822 --
NOTE N -- RELATED PARTY TRANSACTIONS
As of December 31, 1998, the Company was involved in several agreements with
related parties as follows:
The Company has a secured, non-recourse note receivable of $5.0 million from its
Chairman and Chief Executive Officer. See Note I.
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 1998 and 1997, the Company
paid a total of $2.0 million and $2.7 million, respectively, related to the use
of the aircraft.
Universal provides certain support services to the Company under a Transition
Services agreement entered into in connection with the Universal Transaction.
For these services, which include use of pre-production, production and
post-production facilities, information technology services, physical
distribution, contract administration, legal services and office space,
Universal charged the Company $15.0 million for the year ended December 31,
1998, of which $8.5 million was capitalized to production costs.
Universal and the Company entered into an International Television Distribution
Agreement under which the Company pays to Universal a distribution fee of 10% on
all programming owned or controlled by the Company distributed outside of the
United States. For the year ended December 31, 1998, the fee totaled $1.3
million.
In addition, the Company and Universal entered into a Domestic Television
Distribution Agreement under which the Company distributes in the United States
certain of Universal's television programming. For the year ended December 31,
1998, Universal paid the Company $1.5 million.
F-33
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
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 for the year ended December 31, 1996. 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 Network and Networks enter into
agreements with the operators of cable television systems and operators of
broadcast television stations for the carriage of Home Shopping, USA Network and
The Sci-Fi Channel programming. Home Shopping Network and Networks have entered
into agreements with a number of cable operators that are affiliates of TCI. The
long-term contracts for Home Shopping Network provide for a minimum subscriber
guarantee and incentive payments based on the number of subscribers. Cash paid
by Home Shopping Network to TCI and certain of its affiliates under these
contracts for cable commissions and advertising was $9.5 million, $9.6 million,
and $.8 million for calendar years 1998, 1997 and the 11 days in 1996 subsequent
to the Home Shopping Merger, respectively. The long-term contracts for Networks
provide for subscriber fee payments to Networks. For the year ended December 31,
1998, TCI paid $62.2 million to Networks under these agreements.
Under the USANi LLC Operating Agreement, USANi LLC is obligated to make a
distribution to each of the LLC members in an amount equal to each member's
share of USANi LLC's taxable income at a specified tax rate. The first such
payment is scheduled to be made on March 1, 1999 covering the year ended
December 31, 1998.
NOTE O -- 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, 1998
Net revenues.............................. $767,118 $640,514 $703,393 $523,111
Operating profit.......................... 57,969 50,002 75,475 34,770
Net earnings (loss)(a).................... 50,832 (4,849) (3,040) 33,931
Basic earnings (loss) per common
share(b)................................ .33 (.03) (.02) .28
Diluted earnings per common share(b)...... .22 (.03) (.02) .17
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(b)...... .03 .03 .02 .04
- ---------------
(a) In the first quarter of 1998, the Company recorded a pre-tax gain of $74.9
million on the sale of a broadcast station. In the second quarter of 1998,
the Company recorded a pre-tax gain of $9.2 million on the sale of SF
Broadcasting. In the fourth quarter of 1998, the Company recorded pre-tax
gains totaling $109.0 million related to the CitySearch Transaction.
(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.
F-34
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- INDUSTRY SEGMENTS
For the year ended December 31, 1996, net revenue from a significant customer,
Home Shopping, accounted for 57.3% 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.
For the year ended December 31, 1998, the Company operated principally in five
industry segments; Networks and television production, electronic retailing,
ticketing operations, internet services and broadcasting. Networks and
television production consists of the cable networks USA Network and The Sci-Fi
Channel and Studios USA, which produces and distributes television programming.
The electronic retailing segment consists of Home Shopping Network and America's
Store, which are engaged in 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 which principally transmit Home
Shopping Network programming. Through July 17, 1998, the broadcasting segment
included the operations of SF Broadcasting, the owner of network-affiliated
television stations. Internet services represents the Company's on-line
retailing networks business and local city guide business.
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
Revenue
Networks and television production................. $1,085,685 $ -- $ --
Electronic retailing............................... 1,098,634 1,024,203 30,588
Ticketing operations............................... 386,555 156,378 --
Internet services.................................. 26,645 12,857 --
Broadcasting....................................... 27,966 54,138 43,359
Other.............................................. 8,651 14,173 1,225
---------- ---------- ----------
$2,634,136 $1,261,749 $ 75,172
========== ========== ==========
Operating profit (loss)
Networks and television production................. $ 190,191 $ -- $ --
Electronic retailing............................... 100,721 108,676 (522)
Ticketing operations............................... 14,307 12,241 --
Internet services.................................. (33,025) (9,851) --
Broadcasting....................................... (30,329) (8,997) 4,175
Other.............................................. (23,649) (7,550) (41)
---------- ---------- ----------
$ 218,216 $ 94,519 $ 3,612
========== ========== ==========
Assets
Networks and television production................. $5,030,762 $ -- $ --
Electronic retailing............................... 1,737,275 1,657,312 1,626,541
Ticketing operations............................... 1,008,808 518,273 --
Internet services.................................. 279,166 6,197 2,277
Broadcasting....................................... 147,876 367,052 355,926
Other.............................................. 123,215 121,962 131,488
---------- ---------- ----------
$8,327,102 $2,670,796 $2,116,232
========== ========== ==========
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- INDUSTRY SEGMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
Depreciation and amortization
Networks and television production................. $ 99,225 $ -- $ --
Electronic retailing............................... 72,836 63,249 1,871
Ticketing operations............................... 47,077 13,180 --
Internet services.................................. 10,146 1,903 --
Broadcasting....................................... 9,110 15,838 13,187
Other.............................................. 7,753 2,854 428
---------- ---------- ----------
$ 246,147 $ 97,024 $ 15,486
========== ========== ==========
Capital expenditures
Networks and television production................. $ 5,616 $ -- $ --
Electronic retailing............................... 42,505 25,687 447
Ticketing operations............................... 18,476 7,788 --
Internet services.................................. 3,825 2,125 --
Broadcasting....................................... 15,574 8,262 696
Other.............................................. 996 2,007 --
---------- ---------- ----------
$ 86,992 $ 45,869 $ 1,143
========== ========== ==========
The Company operates principally within the United States. In 1997 and 1998,
broadcasting revenue was principally derived from the SF Broadcasting stations.
Prior to 1997, broadcasting revenue was principally derived from the
broadcasting of Home Shopping programming.
NOTE Q -- 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, 1998 DECEMBER 31, 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
Cash and cash equivalents..................... $445,356 $445,356 $116,036 $116,036
Long-term investments......................... 10,353 10,353 -- --
Long-term obligations......................... (812,221) (812,221) (461,264) (461,264)
F-36
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE R -- SAVOY SUMMARIZED FINANCIAL INFORMATION (UNAUDITED)
The Company has not prepared separate financial statements and other disclosures
concerning Savoy because management has determined that such information is not
material to holders of the Savoy Debentures, all of which have been assumed by
the Company as a joint and several obligor. The information presented is
reflected at Savoy's historical cost basis.
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Net sales............................................. $ 34,383 $ 67,107 $ 117,951
Cost of sales......................................... 31,465 65,200 254,009
Operating income (loss)............................... 2,918 1,907 (136,058)
Net income (loss)..................................... 36,256 (5,972) (156,074)
SUMMARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
Current assets.............................................. $ 24,115 $ 31,898
Non-current assets.......................................... 132,937 289,381
Current liabilities......................................... 12,596 32,836
Non-current liabilities..................................... 52,532 110,470
Minority interest........................................... -- 119,427
For the year ended December 31, 1998, net income includes an after-tax gain of
$36.3 million for the sale of the SF Broadcasting television stations. This gain
has been eliminated in the consolidation of the Company's financial statements
due to the fair value adjustments recorded in connection with the Savoy Merger.
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 T.
NOTE S -- PROGRAM RIGHTS AND FILM COSTS
As of December 31, 1998, the liability for program rights, representing future
payments to be made under program contract agreements amounted to $540.2
million. Annual payments required are $173.1 million in 1999, $112.9 million in
2000, $79.1 million in 2001, $62.9 million in 2002, $49.5 million in 2003 and
$62.7 million in 2004 and thereafter. Amounts representing interest are $70.2
million and the present value of future payments is $470.0 million.
As of December 31, 1998, the liability for film costs amounted to $124.5
million. Annual payments are $51.0 million in 1999 and $73.5 million in 2000.
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 December 31, 1998, the unrecorded commitments amounted to $730.2 million.
Annual commitments are $99.0 million in 1999, $136.2 million in 2000, $146.7
million in 2001, $126.6 million in 2002, $27.7 million in 2003 and $194.0
million in 2004 and thereafter.
F-37
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE T -- 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 U -- 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 one-for-one stock
dividend to holders of record as of the close of business on March 12, 1998:
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net earnings (loss)...................................... $ 76,874 $ 13,061 $ (6,539)
Elimination of minority interest......................... 50,841 -- --
-------- -------- --------
Numerator for diluted earnings per share................. $127,715 $ 13,061 (6,539)
======== ======== ========
Denominator:
Denominator for basic earnings per share -- weighted
average shares......................................... 143,073 104,780 21,572
Effect of dilutive securities:
Stock options....................................... 15,507 7,464 --
LLC shares exchangeable into Common Stock........... 138,432 -- --
-------- -------- --------
Diluted weighted average shares.......................... 297,012 112,244 21,572
======== ======== ========
Basic earnings (loss) per share.......................... $ .54 $ .12 $ (.30)
======== ======== ========
Diluted earnings (loss) per share........................ $ .43 $ .12 $ (.30)
======== ======== ========
The effect of the convertible debentures is excluded from the computation of
Diluted EPS for all periods presented above as their effect is antidilutive.
NOTE V -- SUBSEQUENT EVENTS (UNAUDITED)
On February 8, 1999, the Company entered into a Contribution Agreement (the
"Contribution Agreement") and an Agreement and Plan of Reorganization among
Lycos, Inc. ("Lycos"), TMCS and USA/Lycos Interactive Networks, Inc. ("USAL"), a
newly formed entity controlled by the
F-38
170
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE V -- SUBSEQUENT EVENTS (UNAUDITED) -- (CONTINUED)
Company. Pursuant to the two agreements, Lycos will be merged into USAL in
exchange for 30% of USAL's common stock, TMCS will be merged into USAL in
exchange for 8.5% of USAL's common stock and the Company will contribute the
assets of Home Shopping Network, Internet Shopping Network and Ticketmaster,
including Ticketmaster's ownership stake in TMCS (Home Shopping Network,
Internet Shopping Network and Ticketmaster being referred to as the "Contributed
Businesses") in exchange for 61.5% of USAL's common stock. In addition to the
common shares, each party (except for holders of TMCS Class A Common Stock) will
receive shares of convertible preferred stock of USAL. The preferred stock is
convertible into common stock of USAL at the 39-month anniversary of the closing
of the transaction based on a weighted average of the total fair market value of
USAL, beginning at $25 billion and capping at $45 billion. At the low end of the
range, the preferred stock would convert into no shares of common stock of USAL.
At the high end of the range, upon full conversion, the Lycos shareholders would
own 35%, the TMCS shareholders would own 8.65% and USAi would own 56.35%. At
closing, USAi would own approximately 96% of the voting stock, since its share
holdings will be in high vote stock.
USAi will contribute the Contributed Businesses to USAL at their historical book
basis since USAi will control USAL subsequent to the transaction. The
acquisition of Lycos and the remaining interest of TMCS will be accounted for
under the purchase method of accounting. Preliminarily, USAi has estimated it
will record a pre-tax gain on the transaction of approximately $1.0 billion,
which represents the exchange of 38.5% of the Contributed Businesses with a
carrying value of $.8 billion for 61.5% of Lycos which has a fair value of $3.5
billion. The gross gain of $2.7 billion will be partially offset by the minority
interest to Universal and Liberty resulting in a pre-tax gain of $1.0 billion.
The parties have also entered into option agreements, which under certain
circumstances provide USAi and TMCS with the right to acquire, in the aggregate,
up to 19.9% of the outstanding Lycos common stock.
The transaction is subject to various approvals, including a vote of the Lycos
shareholders and is expected to close in June 1999.
The Contribution Agreement requires USAi to contribute the Contributed
Businesses to USAL free of any guarantees, liens or security interests. A
substantial number of entities holding the Contributed Businesses are guarantors
of the Senior Notes and of obligations under the New Facility. The Company
expects to reach agreement with the lenders under the New Facility to release
guarantees of the Contributed Businesses to the extent necessary to allow USAi
to comply with the Contribution Agreement. The obligations of a guarantor of the
Senior Notes automatically terminate if the obligations of the same guarantor
terminate under the New Facility.
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 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
F-39
171
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE W -- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL
INFORMATION -- (CONTINUED)
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 Home Shopping 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.
F-40
172
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE W -- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL
INFORMATION -- (CONTINUED)
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, 1998 (in thousands).
NON-GUARANTOR USAI
USAI GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------ ------------
Current assets........... $ 1,791 $ 991,106 $ 274,641 $ -- $ 1,267,538
Property and equipment
net.................... -- 198,798 56,632 -- 255,430
Goodwill and other
intangible assets,
net.................... 77,883 5,865,824 398,939 -- 6,342,646
Investment in
subsidiaries........... 2,591,170 -- -- (2,591,170) --
Other assets............. -- 281,379 180,109 -- 461,488
---------- ----------- ----------- ------------ -----------
Total assets........... $2,670,844 $ 7,337,107 $ 910,321 $ (2,591,170) $ 8,327,102
========== =========== =========== ============ ===========
Current liabilities...... $ -- $ 602,870 $ 259,909 $ -- $ 862,779
Long-term debt, less
current portion........ -- 732,307 43,376 -- 775,683
Other liabilities........ 99,439 355,484 28,715 -- 483,638
Minority interest........ -- 3,519,476 114,121 -- 3,633,597
Interdivisional equity... -- 2,126,970 464,200 2,591,170 --
Stockholders' equity..... 2,571,405 -- -- -- 2,571,405
---------- ----------- ----------- ------------ -----------
Total liabilities and
shareholders'
equity.............. $2,670,844 $ 7,337,107 $ 910,321 $ (2,591,170) $ 8,327,102
========== =========== =========== ============ ===========
Revenue.................. $ -- $ 2,176,554 $ 457,582 -- $ 2,634,136
Operating expenses....... (8,822) (1,974,742) (432,356) -- (2,415,920)
Interest expense, net.... (7,121) (82,793) (15,164) -- (105,078)
Gain on disposition of
broadcast stations..... -- 74,940 9,247 -- 84,187
Gain on sale of
subsidiary stock....... -- 108,967 -- -- 108,967
Other income (expense),
net.................... 115,719 (20,162) 1,116 (119,151) (22,478)
Provision for income
taxes.................. (22,902) (94,534) (10,209) -- (127,645)
Minority interest........ -- (90,093) 10,798 -- (79,295)
---------- ----------- ----------- ------------ -----------
Net (loss) income........ $ 76,874 $ 98,137 $ 21,014 $ (119,151) $ 76,874
========== =========== =========== ============ ===========
Cash flows from
operations............. $ (30,787) $ 289,010 $ (31,467) $ -- $ 226,756
Cash flows used in
investing activities... (47,382) (1,438,555) 292,348 -- (1,193,589)
Cash flows from financing
activities............. 78,127 1,388,918 (169,391) -- 1,297,654
Effect of exchange
rate................... -- -- (1,501) -- (1,501)
Cash at the beginning of
the period............. 42 14,093 101,901 -- 116,036
---------- ----------- ----------- ------------ -----------
Cash at the end of the
period................. $ -- $ 253,466 $ 191,890 $ -- $ 445,356
========== =========== =========== ============ ===========
F-41
173
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE W -- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL
INFORMATION -- (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. 1997.
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......... 1,352,952 -- -- (1,352,952) --
Other assets........... 21,699 151,948 34,218 -- 207,865
---------- ---------- --------- ----------- -----------
Total assets......... $1,436,467 $1,959,294 $ 627,987 $(1,352,952) $ 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...... (6,952) 43,346 6,738 -- 43,132
Minority interest...... -- 270,455 101,768 -- 372,223
Interdivisional
equity............... -- 1,199,804 153,148 (1,352,952) --
Stockholders' equity... 1,447,354 -- -- -- 1,447,354
---------- ---------- --------- ----------- -----------
Total liabilities and
shareholders'
equity............ $1,436,467 $1,959,294 $ 627,987 $(1,352,952) $ 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.................. 62,579 (11,825) 439 (62,945) (11,752)
Provision for income
taxes................ (41,051) -- -- -- (41,051)
Minority interest...... -- (2,994) 605 -- (2,389)
---------- ---------- --------- ----------- -----------
Net (loss) income...... $ 13,061 $ 58,049 $ 4,896 $ (62,945) $ 13,061
========== ========== ========= =========== ===========
Cash flows from
operations........... $ (8,338) $ 31,058 $ 24,953 $ -- $ 47,673
Cash flows used in
investing
activities........... (30,064) (52,000) (229) -- (82,293)
Cash flows from
financing
activities........... 38,444 15,461 54,145 -- 108,050
Cash at the beginning
of the period........ -- 19,574 23,032 -- 42,606
---------- ---------- --------- ----------- -----------
Cash at the end of the
period............... $ 42 $ 14,093 $ 101,901 $ -- $ 116,036
========== ========== ========= =========== ===========
F-42
174
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE W -- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL
INFORMATION -- (CONTINUED)
The following are summarized statements setting forth certain financial
information concerning the Guarantors and Non-Guarantor Subsidiaries for the
year ended December 31, 1996 (in thousands).
NON-GUARANTOR USAI
USAI GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ------------ ------------
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
Provision for income taxes... (1,872) -- -- -- (1,872)
Minority interest............ -- 165 115 -- 280
------- -------- -------- ------ --------
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..................... -- 1,663 17,477 -- 19,140
------- -------- -------- ------ --------
Cash at the end of the
period..................... $ -- $ 19,574 $ 23,032 $ -- $ 42,606
======= ======== ======== ====== ========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
F-43
175
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, 1998 and 1997, 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. The statement of operations,
stockholders' equity and cash flows for the year ended December 31, 1996, were
audited by other auditors whose report dated February 25, 1997, expressed an
unqualified opinion on those statements prior to restatement.
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, 1998 and 1997, 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 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.
We also audited the adjustments described in Note A that were applied to restate
the statement of stockholders' equity at December 31, 1996. In our opinion, such
adjustments are appropriate and have been properly applied.
/s/ ERNST & YOUNG LLP
New York, New York
February 4, 1999
F-44
176
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 the year 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 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 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 audit provides 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 the year ended December 31,
1996 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
St. Petersburg, Florida
February 25, 1997
F-45
177
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ------------
(PREDECESSOR
COMPANY)
(In thousands) ------------
NET REVENUES
Networks and television production................... $1,085,685 -- --
Electronic retailing................................. 1,098,634 $1,024,203 $1,003,683
Internet services.................................... 21,191 12,857 11,022
---------- ---------- ----------
Total net revenues......................... 2,205,510 1,037,060 1,014,705
---------- ---------- ----------
Operating costs and expenses:
Cost related to revenues........................... 682,689 614,799 625,697
Program costs...................................... 592,095 -- --
Selling and marketing.............................. 164,649 134,101 146,897
General and administrative......................... 140,009 80,838 70,244
Other operating costs.............................. 219,712 81,028 97,198
Depreciation and amortization...................... 174,626 65,152 33,483
---------- ---------- ----------
Total operating costs and expenses......... 1,973,780 975,918 973,519
---------- ---------- ----------
Operating income........................... 231,730 61,142 41,186
Other income (expense)
Interest income.................................... 19,745 1,684 1,826
Interest expense................................... (103,258) (9,728) (9,918)
Miscellaneous...................................... (19,077) (11,799) (1,937)
Litigation settlements............................. -- -- 2,105
---------- ---------- ----------
(102,590) (19,843) (7,924)
---------- ---------- ----------
Earnings before income taxes and minority interest... 129,140 41,299 33,262
Income tax expense................................... (37,313) (27,490) (12,641)
Minority interest.................................... (87,262) -- (1)
---------- ---------- ----------
NET EARNINGS......................................... $ 4,565 $ 13,809 $ 20,620
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-46
178
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents................................... $ 234,903 $ 23,022
Accounts and notes receivable, net of allowance of $20,572
and $2,177, respectively.................................. 317,298 39,044
Inventories, net............................................ 411,727 145,975
Deferred income taxes....................................... -- 24,975
Other current assets, net................................... 14,685 3,838
---------- ----------
Total current assets.............................. 978,613 236,854
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 79,465 26,398
Buildings and leasehold improvements........................ 55,136 40,898
Furniture and other equipment............................... 45,616 16,525
---------- ----------
180,217 83,821
Less accumulated depreciation and amortization............ 43,262 12,479
---------- ----------
136,955 71,342
Land........................................................ 10,242 10,111
Projects in progress........................................ 14,587 10,617
---------- ----------
161,784 92,070
OTHER ASSETS
Intangible assets, net...................................... 5,231,776 1,169,570
Cable distribution fees, net ($39,650 and $46,459,
respectively, to related parties)......................... 100,416 111,292
Inventories, net............................................ 150,293 --
Deferred income taxes....................................... 119,110 32,579
Long-term investments and receivables....................... 99,338 16,174
Advances to USAi and subsidiaries........................... 120,436 --
Deferred charges and other, net............................. 39,075 4,969
---------- ----------
$7,000,841 $1,663,508
========== ==========
The accompanying notes are an integral part of these financial statements.
\
F-47
179
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(In thousands)
CURRENT LIABILITIES
Current maturities of long-term debt........................ $ 28,223 $ 270
Accounts payable............................................ 159,288 80,105
Obligation for program rights and film costs................ 184,074 --
Cable distribution fees payable ($18,633 and $19,091,
respectively, to related parties)......................... 44,588 43,553
Deferred income taxes....................................... 10,016 --
Sales returns............................................... 14,240 12,579
Obligation for makegoods.................................... 24,959 --
Deferred revenue............................................ 30,813 --
Other accrued liabilities................................... 209,503 56,478
---------- ----------
Total current liabilities......................... 705,704 192,985
LONG-TERM DEBT (net of current maturities).................. 732,307 106,628
OBLIGATION FOR PROGRAM RIGHTS AND FILM COSTS, NET OF
CURRENT................................................... 409,716 --
OTHER LONG-TERM LIABILITIES................................. 49,857 33,678
DUE TO PARENT............................................... -- 25,813
MINORITY INTEREST........................................... 3,783,085 --
SHAREHOLDERS' EQUITY
Common stock................................................ 1,221,408 1,221,408
Additional paid-in capital.................................. 70,755 70,755
Retained earnings........................................... 18,379 13,814
Unearned compensation....................................... (723) (1,573)
Unrealized gain in available for sale securities............ 10,353 --
---------- ----------
Total stockholders' equity........................ 1,320,172 1,304,404
---------- ----------
$7,000,841 $1,663,508
========== ==========
The accompanying notes are an integral part of these financial statements.
F-48
180
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B
CONVERTIBLE ADDITIONAL UNEARNED
COMMON COMMON PAID-IN RETAINED TREASURY COMPENSATION UNREALIZED
TOTAL STOCK STOCK CAPITAL EARNINGS STOCK TOTAL GAINS
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
PREDECESSOR COMPANY
BALANCE AT JANUARY 1,
1996..................... $ 125,061 $ 777 $200 $169,057 $ 7,677 $(48,718) $(3,932) --
Issuance of common stock
upon exercise of stock
options.................. 18,075 17 -- 18,058 -- -- -- --
Income tax benefit related
to executive stock award
program, stock options
exercised and employee
equity participation
plan..................... 1,591 -- -- 1,591 -- -- -- --
Amortization of unearned
compensation related to
stock options and equity
participation plans...... 1,227 -- -- -- -- -- 1,227 --
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..... $ 166,574 $ 794 $200 $188,706 $28,297 $(48,718) $(2,705) $ --
========== ========== ==== ======== ======= ======== ======= ==========
Initial capitalization of
Company due to Home
Shopping Merger.......... $1,289,463 $1,221,408 $ -- $ 70,755 $ 5 -- $(2,705) $ --
---------- ---------- ---- -------- ------- -------- ------- ----------
BALANCE AT DECEMBER 31,
1996..................... 1,289,463 1,221,408 -- 70,755 5 -- (2,705) --
Amortization of unearned
compensation related to
stock options and equity
participation plans...... 1,132 -- -- -- -- -- 1,132 --
Net earnings for the year
ended December 31,
1997..................... 13,809 -- -- -- 13,809 -- -- --
---------- ---------- ---- -------- ------- -------- ------- ----------
BALANCE AT DECEMBER 31,
1997..................... 1,304,404 1,221,408 -- 70,755 13,814 -- (1,573) --
Comprehensive Income:
Net earnings for the year
ended December 31,
1998................... 4,565 -- -- -- 4,565 -- -- --
Increase in unrealized
gains in available for
sale securities........ 10,353 -- -- -- -- -- -- $ 10,353
----------
Comprehensive
income............. 14,918
Amortization of unearned
compensation related to
stock options and equity
participation plans...... 850 -- -- -- -- -- 850 --
---------- ---------- ---- -------- ------- -------- ------- ----------
BALANCE AT DECEMBER 31,
1998..................... $1,320,172 $1,221,408 -- $ 70,755 $18,379 $ -- $ (723) $ 10,353
========== ========== ==== ======== ======= ======== ======= ==========
The accompanying notes are an integral part of these statements.
F-49
181
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
---- ---- ----
(PREDECESSOR
COMPANY)
---------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings.............................................. $ 4,565 $ 13,809 $ 20,620
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization........................... 152,537 45,222 16,562
Amortization of cable distribution fees................. 22,089 19,261 17,095
Amortization for program rights and film costs.......... 509,397 -- --
Amortization of deferred financing costs................ 5,503 825 61
Deferred income taxes................................... 12,500 13,583 20,675
Equity in losses of unconsolidated affiliates........... 18,238 12,492 5,607
Inventory carrying value adjustment..................... 3,561 (8,059) (5,400)
Non-cash interest....................................... 4,800 4,218 --
Minority interest....................................... 87,262 -- 1
Change in current assets and liabilities:
Accounts and notes receivable......................... (115,955) (5,290) (15,408)
Inventories........................................... (136,160) (37,389) 6,437
Accounts payable...................................... 75,058 14,839 (19,031)
Accrued liabilities................................... 84,152 3,174 3,041
Payment for program rights and film costs............... (426,949) -- --
Increase in cable distribution fees..................... (11,338) (16,959) (31,529)
Other, net.............................................. (10,986) (25,658) 4,392
----------- -------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 278,274 34,068 23,123
----------- -------- ---------
Cash flows from investing activities:
Acquisition of Universal Transaction, net of cash
acquired................................................ (1,297,233) -- --
Increase in long-term investments......................... (23,226) (26,979) (6,645)
Capital expenditures...................................... (52,085) (27,812) (5,381)
Payment of merger and financing costs..................... (24,105) -- --
Other, net................................................ (3,910) 5,000 1,293
----------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,400,559) (49,791) (10,733)
----------- -------- ---------
Cash flows from financing activities:
Advances (to) from USAi................................... (105,105) 23,390 --
Borrowings................................................ 1,641,380 -- 10,000
Net proceeds from issuance of Senior Notes................ 494,350 -- --
Principal payments on long-term obligations............... (1,491,484) (919) (146,555)
Proceeds from issuance of LLC shares...................... 795,025 -- --
Net proceeds from issuance of Convertible Subordinated
Debentures.............................................. -- -- 97,200
Proceeds from issuance of common stock.................... -- -- 18,075
----------- -------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES....................................... 1,334,166 22,471 (21,280)
----------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 211,881 6,748 (8,890)
Cash and cash equivalents at beginning of year............ 23,022 16,274 25,164
----------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 234,903 $ 23,022 $ 16,274
=========== ======== =========
The accompanying notes are an integral part of these statements.
F-50
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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, 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 (the
"Home Shopping Merger").
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
USANi LLC 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. See Note C.
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 one-for-one USAi 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 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 rights of Home Shopping, and Liberty HSN owned
19.9% of the equity and 9.2% of the voting rights of Home Shopping. Liberty HSN
is an indirect, wholly-owned subsidiary of Liberty.
F-51
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Home Shopping Merger has been accounted for using the purchase method of
accounting. The assets and liabilities of Home Shopping were restated 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.
The accompanying consolidated balance sheets as of December 31, 1998 and 1997
and the consolidated statement of operations, cash flows and stockholders'
equity for the years ended December 31, 1998 and 1997 are prepared to reflect
the acquisition of Home Shopping by USAi. The consolidated statements of
operations, cash flows and stockholders' equity for the year ended December 31,
1996 are prepared based on the predecessor company's basis of accounting.
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.
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 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
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
F-52
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 commencement 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.
Electronic Retailing
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.
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
F-53
185
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
MERCHANDISE INVENTORIES, NET
Merchandise 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 $23.4
million and $19.8 million at December 31, 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS
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.
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 $35.0
million, $15.3 million and $14.6 million for the years ended December 31, 1998,
1997 and 1996, 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 goodwill and other
intangibles and property, plant and equipment, 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 projected undiscounted future cash flows, 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
F-54
186
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expense for cable distribution fees was $22.1 million, $19.3 million and $17.1
million for the years ended December 31, 1998, 1997 and 1996, respectively.
ADVERTISING COSTS
Advertising costs are expensed in the period incurred. Advertising expense for
the years ended December 31, 1998 and 1997 were $88.8 million, $13.2 million and
$12.0 million, respectively.
INCOME TAXES
The Company accounts for income taxes under the liability method, and 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.
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
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, program rights
and film cost amortization, sales return and other revenue allowances, allowance
for doubtful accounts, recoverability of intangibles and other long-lived
assets, and various other operating allowances and accruals.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the 1998 presentation.
NOTE C -- BUSINESS ACQUISITIONS
UNIVERSAL TRANSACTION
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 allocated to the assets acquired and liabilities assumed based on their
respective fair values at the date of purchase. The fair
F-55
187
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.............................................. $ 459,718
Non-current assets.......................................... 289,232
Goodwill.................................................... 4,136,373
Current liabilities......................................... 395,356
Non-current liabilities..................................... 374,436
HOME SHOPPING MERGER
On December 20, 1996, USAi consumated the merger with Home Shopping (the "Home
Shopping Merger"), which has been accounted for using the purchase method of
accounting.
The following unaudited pro forma consolidated financial information for the
year ended December 31, 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, changes in programming and
film costs amortization and an increase in interest expense, and are not
necessarily indicative of what the results would have been had the Universal
Transaction actually occurred on the aforementioned dates.
- ---------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------
(In thousands)
Net revenues................................................ $2,362,874 $1,530,115
Net earnings (loss)......................................... 21,363 (28,562)
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.
F-56
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill represents the excess of purchase price over the fair value of assets
acquired in the Universal Transaction and the Home Shopping Merger and is net of
accumulated amortization of $150.7 million and $38.4 million at December 31,
1998 and 1997, respectively.
NOTE E -- LONG-TERM OBLIGATIONS
- ---------------------------------------------------------------------------------
DECEMBER 31,
-------------------
1998 1997
- ---------------------------------------------------------------------------------
(In thousands)
Unsecured Senior Credit Facility ("New Facility"); with a
$40 million sub-limit for letters of credit, entered into
February 12, 1998, which matures on December 31, 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.
Interest rate at December 31, 1998 was 6.0% and ranged
from 6.0% to 7.45% during 1998............................ $250,000 $ --
$500,000,000 6 3/4% Senior Notes due November 15, 2005;
interest payable May 15 and November 15 commencing May 15,
1999. Interest rate at December 31, 1998 is 6.84%......... 496,896 --
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. The debentures were converted
into USAi Common Stock on March 1, 1998................... -- 106,338
Capitalized lease obligation, providing for monthly payments
of $313,000, including interest, due January 2003......... 13,344 --
Other long-term obligations................................. 290 560
-------- --------
Total long-term obligations................................. 760,530 106,898
Less current maturities..................................... (28,223) (270)
-------- --------
Long-term obligations, net of current maturities............ $732,307 $106,628
======== ========
On February 12, 1998, USAi and USANi LLC entered into 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.
Average borrowings under the revolving credit facility for the period from
February 12, 1998 to July 20, 1998, the period in which amounts were
outstanding, was $376 million. The average interest rate during this period was
7.91%.
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. As of December 31, 1998, there was $250.0 million in
outstanding borrowings under the New Facility and $599.9 million was available
for borrowing after taking into account outstanding letters of credit.
F-57
189
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 23, 1998, the Company completed an offering of $500.0 million 6 3/4%
Senior Notes due 2005. Net proceeds from the offering were $493.7 million, which
together with cash on hand, were used to repay, and permanently reduce, the
Tranche A Term Loan.
Aggregate contractual maturities of long-term obligations are as follows:
- ----------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
- ----------------------------------------------------------------------------
(In thousands)
1999........................................................ $ 28,223
2000........................................................ 53,140
2001........................................................ 78,361
2002........................................................ 103,599
2003........................................................ 311
Thereafter.................................................. 496,896
--------
$760,530
========
NOTE F -- 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 before income taxes is shown
as follows:
- ------------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
----------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------
(In thousands)
Income tax expense at the federal statutory rate of 35% in
1998 and 1997 and 34% in 1996............................. $ 45,199 $14,454 $11,641
Amortization of goodwill and other intangibles.............. 12,369 10,916 612
State income taxes, net of effect of federal tax benefit.... 4,363 723 1,209
Impact of minority interest................................. (26,509) -- --
Other, net.................................................. 1,891 1,397 (821)
-------- ------- -------
Income tax expense.......................................... $ 37,313 $27,490 $12,641
======== ======= =======
F-58
190
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income tax expense are as follows:
- -----------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
---------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------
(In thousands)
Current income tax expense (benefit):
Federal................................................... $20,061 $12,795 $(8,703)
State..................................................... 4,752 1,112 669
------- ------- -------
Current income tax expense (benefit).............. 24,813 13,907 (8,034)
------- ------- -------
Deferred income tax expense:
Federal................................................... 10,541 12,955 19,719
State..................................................... 1,959 628 956
------- ------- -------
Deferred income tax expense....................... $12,500 13,583 20,675
------- ------- -------
Total income tax expense.......................... $37,313 $27,490 $12,641
======= ======= =======
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, 1998 and 1997, 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,
-------------------
1998 1997
- ---------------------------------------------------------------------------------
(In thousands)
Current deferred tax assets (liabilities):
Inventory costing......................................... $ 6,860 $ 6,348
Provision for accrued expenses............................ 5,742 6,074
Amortization of broadcast intangibles..................... (19,464) --
Deferred revenue.......................................... (20,212) --
Other..................................................... 17,058 12,553
-------- -------
Total current deferred tax assets (liabilities)... $(10,016) $24,975
======== =======
Non-current deferred tax assets:
Broadcast and cable fee contracts......................... $ 10,381 $19,833
Programming costs......................................... 31,847 --
Other..................................................... 86,963 22,254
-------- -------
Total non-current deferred tax assets............. 129,191 42,087
Less valuation allowance.......................... (3,597) (3,061)
-------- -------
Net non-current deferred tax assets............... $125,594 $39,026
Deferred tax liabilities:
Depreciation for tax in excess of financial statements.... (6,484) (6,447)
-------- -------
Net non-current deferred tax assets............... $119,110 $32,579
======== =======
The Company has Federal income tax returns under examination by the Internal
Revenue Service. The Company has received proposed adjustments related to
certain examinations. Management believes that the resolution of the proposed
adjustments will not have a material adverse effect on the Company's
consolidated financial statements.
F-59
191
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Future minimum payments under non-cancellable agreements are as follows:
- ----------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
- ----------------------------------------------------------------------------
(In thousands)
1999........................................................ $ 42,203
2000........................................................ 43,023
2001........................................................ 41,136
2002........................................................ 31,560
2003........................................................ 16,283
Thereafter.................................................. 23,771
--------
$197,976
========
Expenses charged to operations under these agreements were $45.9 million, $20.0
million, and $14.2 million for the years ended December 31, 1998, 1997 and 1996,
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 H -- OTHER CHARGES
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.
For the year ended December 31, 1996, miscellaneous expense included $1.7
million related to the write-down of fulfillment center equipment.
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 I -- 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 J -- BENEFIT PLANS
The Company offers various plans pursuant to Section 401(k) of the Internal
Revenue Code 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.
F-60
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- 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.
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,
------------------------------------------------------
1998 1997 1996
--------------- ---------------- ---------------
PRICE PRICE PRICE
SHARES RANGE SHARES RANGE SHARES RANGE
------ ------ ------- ------ ------ ------
Outstanding at beginning of period.... 32,936 $ 4-74 16,299 $ 1-74 18,142 $ 4-16
Granted or issued in connection with
mergers.......................... 3,669 $17-29 11,580 $10-19 501 $ 7-16
Exercised........................... (1,537) $ 4-16 (968) $ 1-16 (1,482) $ 4-13
Cancelled........................... (610) $ 5-26 (548) $ 5-74 (862) $ 5-16
Options held by employees and
outside directors of USAi........ -- $ -- 6,573 $ 1-16 -- --
------ ------ ------
Outstanding at end of period.......... 34,458 $ 4-74 32,936 $ 1-74 16,299 $ 1-16
------ ------ ------
------ ------ ------
Options exercisable................... 16,711 10,840 4,650
------ ------ ------
------ ------ ------
The weighted average exercise prices during the year ended December 31, 1998
were $25.23, $10.08, and $24.67 for options granted, exercised and cancelled,
respectively. The weighted average fair value of options granted during the year
was $25.17.
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.
F-61
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1998 CONTRACTUAL LIFE EXERCISE PRICE 1998 EXERCISE PRICE
- ----------------------- -------------- ----------------- -------------- -------------- --------------
(in
(in thousands) thousands)
$1.00 to $5.00............... 37 2.0 $ 4.12 37 $ 4.12
$5.01 to $10.00.............. 13,159 6.9 9.43 9,595 9.42
$10.01 to $15.00............. 4,785 6.7 11.40 3,329 11.39
$15.01 to $20.00............. 12,147 8.6 18.70 3,664 18.13
$20.01 to $25.00............. 2,817 9.8 24.84 30 24.63
Over $25.00.................. 1,513 8.9 26.44 56 42.94
------ ------
34,458 7.8 14.97 16,711 11.85
====== ======
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
1998, 1997 and 1996: risk-free interest rates of 5.0%, 5.5% and 6.4%,
respectively; a dividend yield of zero; a volatility factor of .562, .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,
-------------------
1998 1997
---- ----
(in thousands)
Pro forma net earnings (loss)........... $(31,960) $(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.
F-62
194
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31,
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 year ended December 31, 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.
On December 30, 1998, USAi acquired from Universal an entity which owned
1,705,654 Class B LLC Shares in exchange for issuing to Universal 335,000 shares
of USAi Class B Common Stock and 1,370,654 shares of USAi Common Stock.
Supplemental disclosure of cash flow information:
- ------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------
(In thousands)
CASH PAID DURING THE PERIOD FOR:
Interest.................................................. $68,751 $ 5,875 $9,118
Income tax payments....................................... 457 6,339 1,017
Income tax refund......................................... -- 5,732 14,648
NOTE M -- INVENTORIES
- --------------------------------------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
INVENTORIES CURRENT NONCURRENT CURRENT NONCURRENT
- -----------------------------------------------------------------------------------------------
(In thousands)
Film costs:
Released, net of amortization........... $ 98,082 $ 61,283
In process and unreleased............... 138 --
Programming rights, net of amortization...... 151,192 88,983
Sales merchandise, net....................... 162,315 -- $145,975 $ --
Other........................................ -- 27 -- --
-------- -------- -------- --------
Total.............................. $411,727 $150,293 $145,975 $ --
======== ======== ======== ========
F-63
195
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company estimates that approximately 90% of unamortized film costs at
December 31, 1998 will be amortized within the next three years.
NOTE N -- PROGRAM RIGHTS AND FILM COSTS
As of December 31, 1998, the liability for program rights, representing future
payments to be made under program contract agreements amounted to $539.5
million. Annual payments required are $172.6 million in 1999, $112.7 million in
2000, $79.1 million in 2001, $62.9 million in 2002, $49.5 million in 2003, and
$62.7 million in 2004 and thereafter. Amounts representing interest are $70.2
million and the present value of future payments is $469.3 million.
As of December 31, 1998, the liability for film costs amounted to $124.5
million. Annual payments are $51.0 million in 1999 and $73.5 million in 2000.
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 December 31, 1998, the unrecorded commitments amounted to $730.2 million.
Annual commitments are $99.0 million in 1999, $136.2 million in 2000, $146.7
million in 2001, $126.6 million in 2002, $27.7 million in 2003 and $194.0
million in 2004 and thereafter.
NOTE O -- RELATED PARTY TRANSACTIONS
Certain corporate overhead costs were allocated to the Company from USAi 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, 1998, the Company was involved in several agreements with
related parties as follows:
Universal provides certain support services to the Company under a Transition
Services Agreement. For these services, which include use of pre-production,
production and post-production facilities, information technology services,
physical distribution, contract administration, legal services and office space,
Universal charged the Company $15.0 million for the year ended December 31,
1998, of which $8.5 million was capitalized to production costs.
Universal and the Company entered into an International Television Distribution
Agreement under which the Company pays to Universal a distribution fee of 10% on
all programming owned or controlled by the Company distributed outside of the
United States. For the year ended December 31, 1998, the fee totaled $1.3
million.
In addition, the Company and Universal entered into a Domestic Television
Distribution Agreement under which the Company distributes in the United States
certain of Universal's television programming. For the year ended December 31,
1998, Universal paid the Company $1.5 million.
In the normal course of business, Home Shopping Network and Networks enter into
agreements with the operators of cable television systems and operators of
broadcast television stations for the carriage of Home Shopping, USA Network and
The Sci-Fi Channel programming. Home Shopping Network and Networks have entered
into agreements with a number of cable operators that are affiliates of TCI. The
long-term contracts for Home Shopping Network provide for a minimum subscriber
guarantee and incentive payments based on the number of subscribers. Cash paid
by Home Shopping Network to TCI and certain of its affiliates under these
contracts for cable commissions and advertising was $9.5 million, $9.6 million,
and $11.9 million for calendar years 1998, 1997, and 1996,
F-64
196
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively. The long-term contracts for Networks provide for subscriber fee
payments to Networks. For the year ended December 31, 1998, TCI paid $62.2
million to Networks under these agreements.
Home Shopping has affiliation agreements with USA Broadcasting ("USAB"), a
wholly owned subsidiary of USAi, which provide for USAB's broadcast television
stations to air Home Shopping's programming on a full-time basis. Expense
related to affiliation agreements with USAB for the years ended December 31,
1998, 1997 and 1996 was $38.7 million, $41.7 million and $41.6 million
respectively.
Under the USANi LLC Operating Agreement, USANi LLC is obligated to make a
distribution to each of the LLC members in an amount equal to each members'
share of USANi LLC's taxable income of a specified tax rate. The first such
payment is scheduled to be made on March 1, 1999 covering the year ended
December 31, 1998.
NOTE P -- TRANSACTIONS WITH USAi AND SUBSIDIARIES
Advances to USAi and subsidiaries as of December 31, 1998 generally represent
net amounts transferred from USANi LLC 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 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 the
Company's borrowing rate under the New Facility.
During the year ended December 31, 1998, net cash transfers totaling
approximately $118.2 million were made to repay USAi's revolving credit
facility, repay Ticketmaster's bank credit facility, and fund the operations of
USAi's broadcast operation, offset by proceeds from the sale of the assets of SF
Broadcasting and USAi's Baltimore television station. The interest incurred on
the net transfers for the year ended December 31, 1998 was approximately $9.5
million.
In accordance with the Investment Agreement, certain transfers of funds between
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 the
Company and to equity contributions.
NOTE Q -- 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, 1998 DECEMBER 31, 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------
(In thousands)
Cash and cash equivalents......................... $234,903 $234,903 $ 23,022 $ 23,022
Long-term investments............................. 10,353 10,353 -- --
Long-term obligations............................. 760,530 760,530 106,898 106,898
NOTE R -- INDUSTRY SEGMENTS
For the year ended December 31, 1998, the Company operated principally in three
industry segments; Networks and television production, retailing, and internet
services. Networks and television
F-65
197
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
production consists of the cable networks the USA Network and The Sci-Fi Channel
and Studios USA, which produces and distributes television programming. The
electronic retailing segment consists of Home Shopping Network and America's
Store, which are engaged in the sale of merchandise through electronic
retailing. Internet services consists of on-line retailing networks businesses.
- -----------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------
(in thousands)
Revenue
Networks and television production................... $1,085,685 $ -- $ --
Electronic retailing................................. 1,098,634 1,024,203 1,003,683
Internet services.................................... 21,191 12,857 11,022
Other................................................ -- -- --
---------- ---------- ----------
$2,205,510 $1,037,060 $1,014,705
========== ========== ==========
Operating income
Networks and television production................... $ 190,191 $ -- $ --
Electronic retailing................................. 73,222 78,410 49,676
Internet services.................................... (17,296) (9,851) (8,490)
Other................................................ (14,387) (7,417) --
---------- ---------- ----------
$ 231,730 $ 61,142 $ 41,186
========== ========== ==========
Assets
Networks and television production................... $5,190,669 $ -- $ --
Electronic retailing................................. 1,782,437 1,657,311 1,626,541
Internet services.................................... 12,711 6,197 2,277
Other................................................ 15,024 -- 16,290
---------- ---------- ----------
$7,000,841 $1,663,508 $1,645,108
========== ========== ==========
Depreciation and amortization
Networks and television production................... $ 99,225 $ -- $ --
Electronic retailing................................. 72,836 63,249 31,457
Internet services.................................... 1,436 1,903 2,026
Other................................................ 1,129 -- --
---------- ---------- ----------
$ 174,626 $ 65,152 $ 33,483
========== ========== ==========
Capital expenditures
Networks and television production................... $ 5,616 $ -- $ --
Electronic retailing................................. 42,505 25,687 5,000
Internet services.................................... 2,969 2,125 381
Other................................................ 995 -- --
---------- ---------- ----------
$ 52,085 $ 27,812 $ 5,381
========== ========== ==========
NOTE S -- 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
F-66
198
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
severally guaranteed USAi's indebtedness. Certain subsidiaries of USANi LLC do
not guarantee the indebtedness.
NOTE T -- SUBSEQUENT EVENTS (UNAUDITED)
On February 8, 1999, USAi and USANi LLC entered into a Contribution Agreement
(the "Contribution Agreement") and an Agreement and Plan of Reorganization among
Lycos, Inc. ("Lycos"), Ticketmaster Online--City Search, Inc. ("TMCS"), a
subsidiary of Ticketmaster Group, Inc., which is a subsidiary of USAi
("Ticketmaster") and USA/Lycos Interactive Networks, Inc. ("USAL"), a newly
formed entity controlled by USANi LLC. Pursuant to the two agreements, Lycos
will be merged into USAL in exchange for 30% of USAL's common stock, TMCS will
be merged into USAL in exchange for 8.5% of USAL's common stock and USANi LLC
will contribute the assets of Home Shopping Network, Internet Shopping Network
and Ticketmaster, including Ticketmaster's ownership stake in TMCS (Home
Shopping Network, Internet Shopping Network and Ticketmaster being referred to
as the "Contributed Businesses") in exchange for 61.5% of USAL's common stock.
It is contemplated that USAi will contribute the Ticketmaster entities to USANi
LLC in exchange for approximately 31,425,300 Class A LLC shares simultaneous to
the merger with Lycos and TMCS.
In addition to the common shares, each party (except for holders of TMCS Class A
Common Stock) will receive shares of convertible preferred stock of USAL. The
preferred stock is convertible into common stock of USAL at the 39-month
anniversary of the closing of the transaction based on a weighted average of the
total fair market value of USAL, beginning at $25 billion and capping at $45
billion. At the low end of the range, the preferred stock would convert into no
shares of common stock of USAL. At the high end of the range, upon full
conversion, the Lycos shareholders would own 35%, the TMCS shareholders would
own 8.65% and USAi would own 56.35%. At closing, USANi LLC would own
approximately 96% of the voting stock, since its share holdings will be in high
vote stock.
USANi LLC will contribute the Contributed Businesses to USAL at their historical
book basis since USAi will control USAL subsequent to the transaction. The
acquisition of Lycos and the remaining interest of TMCS will be accounted for
under the purchase method of accounting. Preliminarily, Holdco has estimated it
will record a pre-tax gain on the transaction of approximately $1.2 billion,
which represents the exchange of 38.5% of the Contributed Businesses with a
carrying value of $.8 billion for 61.5% of Lycos which has a fair value of $3.5
billion. The gross gain of $2.7 billion will be partially offset by the minority
interest to Universal and Liberty, resulting in a pre-tax gain of $1.2 billion.
The parties have also entered into option agreements, which under certain
circumstances provide USAi and TMCS with the right to acquire, in the aggregate,
up to 19.9% of the outstanding Lycos common stock.
The transaction is subject to various approvals, including a vote of the Lycos
shareholders and is expected to close in June 1999.
The Contribution Agreement requires USAi to contribute the Contributed
Businesses to USAL free of any guarantees, liens or security interests. A
substantial number of entities holding the Contributed Businesses are guarantors
of the Senior Notes and of obligations under the New Facility. The Company
expects to reach agreement with the leaders under the New Facility to release
guarantees of the Contributed Businesses to the extent necessary to allow USAi
to comply with the Contribution Agreement. The obligations of a guarantor of the
Senior Notes automatically terminate if the obligations of the same guarantor
terminate under the New Facility.
F-67
199
REPORT OF INDEPENDENT AUDITORS
The Members of USANi LLC
We have audited the accompanying consolidated balance sheets of USANi LLC and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, members' 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 USANi
LLC and subsidiaries at December 31, 1998 and 1997, and the related 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
February 4, 1999
F-68
200
USANi LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------
1998 1997
---- ----
(PREDECESSOR
COMPANY)
(In thousands)
NET REVENUES
Networks and television production........................ $1,085,685 $ --
Electronic retailing...................................... 1,098,634 1,024,203
Internet services......................................... 21,191 12,857
---------- ----------
Total net revenues................................ 2,205,510 1,037,060
---------- ----------
Operating costs and expenses:
Cost related to revenues.................................. 682,689 614,799
Program costs............................................. 592,095 --
Selling and marketing..................................... 164,649 134,101
General and administrative................................ 140,009 80,838
Other operating costs..................................... 219,712 81,028
Depreciation and amortization............................. 174,626 65,152
---------- ----------
Total operating costs and expenses................ 1,973,780 975,918
---------- ----------
Operating income.................................. 231,730 61,142
---------- ----------
Other income (expense):
Interest income........................................... 19,745 1,684
Interest expense.......................................... (102,377) (4,464)
Miscellaneous............................................. (19,077) (11,799)
---------- ----------
(101,709) (14,579)
---------- ----------
Earnings before income taxes................................ 130,021 46,563
Minority interest benefit................................... 881 --
Income tax expense.......................................... (5,367) (30,308)
---------- ----------
NET EARNINGS................................................ $ 125,535 $ 16,255
========== ==========
The accompanying notes are an integral part of these statements.
F-69
201
USANi LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------
DECEMBER 31,
----------------------------
1998 1997
---------- ----------
PREDECESSOR
COMPANY
----------
(In thousands)
CURRENT ASSETS
Cash and cash equivalents................................... $ 234,903 $ 23,022
Accounts and notes receivable, net of allowance of $20,572
and $2,177, respectively.................................. 317,298 39,044
Inventories, net............................................ 411,727 145,975
Deferred income taxes....................................... -- 24,975
Other current assets, net................................... 14,685 3,838
---------- ----------
Total current assets.............................. 978,613 236,854
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 79,465 26,398
Buildings and leasehold improvements........................ 55,136 40,898
Furniture and other equipment............................... 45,616 16,525
---------- ----------
180,217 83,821
Less accumulated depreciation and amortization............ 43,262 12,479
---------- ----------
136,955 71,342
Land........................................................ 10,242 10,111
Projects in progress........................................ 14,587 10,617
---------- ----------
161,784 92,070
OTHER ASSETS
Intangible assets, net...................................... 5,307,517 1,163,597
Cable distribution fees, net ($39,650 and $46,459,
respectively, to related parties)......................... 100,416 111,292
Long-term investments and receivables....................... 106,835 16,174
Inventories, net............................................ 150,293 --
Advances to USAi and subsidiaries........................... 158,152 --
Deferred income taxes....................................... -- 28,819
Deferred charges and other, net............................. 39,075 4,969
---------- ----------
$7,002,685 $1,653,875
========== ==========
The accompanying notes are an integral part of these statements.
F-70
202
USANi LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY
- ---------------------------------------------------------------------------------------
DECEMBER 31,
1998 1997
---------- ----------
PREDECESSOR
COMPANY
-----------
(In thousands)
CURRENT LIABILITIES
Current maturities of long-term debt........................ $ 28,223 $ --
Accounts payable............................................ 159,288 80,105
Obligations for program rights and film costs............... 184,074 --
Cable distribution fees payable ($18,633 and $19,091,
respectively, to related parties)......................... 44,588 43,553
Obligation for makegoods.................................... 24,959 --
Deferred revenue............................................ 30,813 --
Other accrued liabilities................................... 223,312 71,875
---------- ----------
Total current liabilities......................... 695,257 195,533
LONG-TERM DEBT (net of current maturities).................. 732,307 --
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 409,716 --
OTHER LONG-TERM LIABILITIES................................. 49,857 33,678
ADVANCES FROM USAI.......................................... -- 16,302
MINORITY INTEREST........................................... 143 --
MEMBERS' EQUITY
Class A (113,778,742 Shares)................................ 1,753,618 1,393,425
Class B (133,689,889 Shares)................................ 2,736,363 --
Class C (22,887,354 Shares)................................. 466,252 --
Retained earnings........................................... 142,045 16,510
Unrealized gain in available for sale securities............ 17,850 --
Unearned compensation....................................... (723) (1,573)
---------- ----------
Total members' equity............................. 5,115,405 1,408,362
---------- ----------
$7,002,685 $1,653,875
========== ==========
The accompanying notes are an integral part of these statements.
F-71
203
USANi LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF MEMBERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
ADDITIONAL UNEARNED
MEMBERS' PAID-IN RETAINED COMPENSATION
TOTAL EQUITY CAPITAL EARNINGS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands)
INITIAL CAPITALIZATION OF COMPANY DUE TO HOME SHOPPING
MERGER AS OF DECEMBER 31, 1996............................ $1,390,975 $1,393,425 -- $ 255 $(2,705)
---------- ---------- ---------- ------- -------
Net earnings for the twelve months ended December 31,
1997...................................................... 16,255 -- -- 16,255 --
Amortization of unearned compensation related to stock
options and equity participation plans.................... 1,132 -- -- -- 1,132
---------- ---------- ---------- ------- -------
BALANCE AT DECEMBER 31, 1997................................ $1,408,362 $1,393,425 -- $16,510 $(1,573)
========== ========== ========== ======= =======
- --------------------------------------------------------------------------------
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 year ended
December 31, 1998.............. 125,535 -- -- -- 125,535 -- --
Increase in unrealized gains in
available for sale
securities..................... 17,850 -- -- -- -- 17,850 --
----------
Comprehensive income......... 143,385
----------
Distribution of net deferred tax
assets to USAi on February 12,
1998............................. (46,765) (46,765) -- -- -- -- --
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 -- -- --
Exchange of Class B LLC Shares for
Class A LLC Shares (See Note
K)............................... -- 35,111 (35,111) -- -- -- --
Amortization of unearned
compensation related to stock
options and equity participation
plans............................ 850 -- -- -- -- -- 850
---------- ---------- ---------- -------- -------- ------- -------
BALANCE AT DECEMBER 31, 1998....... $5,115,405 $1,753,618 $2,736,363 $466,252 $142,045 $17,850 $ (723)
========== ========== ========== ======== ======== ======= =======
The accompanying notes are an integral part of these statements.
F-72
204
USANi LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------
1998 1997
---- ----
(In thousands)
Cash flows from operating activities:
Net earnings................................................ $ 125,535 $16,255
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 152,537 45,222
Amortization of cable distribution fees................... 22,089 19,261
Amortization of program rights and film costs............. 509,397 --
Amortization of deferred financing costs.................. 5,423 188
Deferred income taxes..................................... -- 13,583
Equity in losses of unconsolidated affiliates............. 18,238 12,492
Inventory carrying value adjustment....................... 3,561 (8,059)
Non-cash interest......................................... 4,800 4,218
Minority interest......................................... (881) --
Changes in current assets and liabilities:
Accounts receivable.................................... (115,955) (5,290)
Inventories............................................ (136,160) (37,389)
Accounts payable....................................... 75,058 14,839
Accrued liabilities.................................... 92,932 5,992
Payment for program rights and film costs................. (426,949) --
Increase in cable distribution fees....................... (11,338) (16,959)
Other, net................................................ (40,013) (24,116)
----------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 278,274 40,237
----------- -------
Cash flows from investing activities:
Acquisition of Universal Transaction, net of cash
acquired............................................... (1,297,233) --
Capital expenditures...................................... (52,085) (27,812)
Increase in long-term investments......................... (23,226) (26,979)
Payment of merger and financing costs..................... (24,105) --
Other, net................................................ (3,910) 5,000
----------- -------
NET CASH USED IN INVESTING ACTIVITIES............. (1,400,559) (49,791)
----------- -------
Cash flows from financing activities:
Advances (to)/from USAi................................... (105,105) 16,302
Borrowings................................................ 1,641,380 --
Net proceeds from issuance of Senior Notes................ 494,350 --
Principal payments on long-term obligations............... (1,491,484) --
Proceeds from issuance of LLC Shares...................... 795,025 --
----------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 1,334,166 16,302
----------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 211,881 6,748
Cash and cash equivalents at beginning of period.......... 23,022 16,274
----------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 234,903 $23,022
=========== =======
The accompanying notes are an integral part of these statements.
F-73
205
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. ("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.
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, USAi 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.
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.
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.
COMPANY BUSINESS
The Company is a holding company, the subsidiaries of which are engaged in
diversified media and electronic commerce businesses.
F-74
206
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
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 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
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 commencement date of the license agreement,
provided the program is available for exhibition.
F-75
207
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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.
Electronic Retailing
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.
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-76
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USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MERCHANDISE INVENTORIES, NET
Merchandise 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 $23.4
million and $19.8 million at December 31, 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS
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.
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 $35.0
million and $15.3 million for the years ended December 31, 1998 and 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 goodwill and other
intangibles and property, plant and equipment, 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 projected undiscounted future cash flows, 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 $22.1 million and $19.3 million for the years ended
December 31, 1998 and 1997.
ADVERTISING
Advertising costs are expensed in the period incurred. Advertising expense for
the years ended December 31, 1998 and 1997 were $88.8 million and $13.2 million,
respectively.
F-77
209
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method, and 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.
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
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, program rights
and film cost amortization, sales return accrual and other revenue allowance,
allowances for doubtful accounts, recoverability of intangibles and other
long-lived assets, and various other operating allowances and accruals.
RECLASSIFICATIONS
Certain amounts in the prior year consolidated financial statements have been
reclassified to conform to the 1998 presentation.
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.
F-78
210
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $ 459,718
Non-current assets.......................................... 207,518
Goodwill.................................................... 4,218,087
Current liabilities......................................... 395,356
Non-current liabilities..................................... 374,436
On December 20, 1996, USAi consummated the merger with Home Shopping (the "Home
Shopping Merger"). The Home Shopping Merger has been accounted for using the
purchase method of accounting.
The following unaudited pro forma consolidated financial information for the
year ended December 31, 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, changes in programming and
film costs amortization and an increase in interest expense, and are not
necessarily indicative of what the results would have been had the Universal
Transaction actually occurred on the aforementioned dates.
- --------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------
1998 1997
- --------------------------------------------------------------------------------------
(In thousands)
Net revenues................................................ $2,362,874 $1,530,115
Net earnings................................................ 149,471 17,881
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 $150.7 million and $38.4 million at December 31,
1998 and 1997, respectively.
NOTE E -- LONG-TERM OBLIGATIONS
- ----------------------------------------------------------------------------
DECEMBER 31,
--------------
1998
- ----------------------------------------------------------------------------
(In thousands)
Unsecured Senior Credit Facility ("New Facility"); with a
$40 million sub-limit for letters of credit, entered into
February 12, 1998, which matures on December 31, 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.
Interest rate at December 31, 1998 was 6.0% and ranged
from 6.0% to 7.45% during
1998...................................................... $250,000
$500,000,000 6 3/4% Senior Notes due November 15, 2005;
interest payable May 15 and November 15 commencing May 15,
1999. Interest rate at December 31, 1998 is 6.84%......... 496,896
Capitalized lease obligation, providing for monthly payments
of $313,000, including interest, due January 2003......... 13,344
Other long-term obligations................................. 290
--------
Total long-term obligations................................. 760,530
Less current maturities..................................... (28,223)
--------
Long-term obligations, net of current maturities............ $732,307
========
F-79
211
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 12, 1998, USAi and the Company entered into 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 6.0% at
December 31, 1998. As of December 31, 1998, there was $250.0 million in
outstanding borrowings under the New Facility and $599.9 million was available
for borrowing after taking into account outstanding letters of credit.
Average borrowings under the revolving credit facility for the period from
February 12, 1998 to July 20, 1998, the period in which amounts were
outstanding, was $376 million. The average interest rate during this period was
7.91%.
On November 23, 1998, the Company completed an offering of $500.0 million 6 3/4%
Senior Notes due 2005. Net proceeds from the offering were $493.7 million, which
together with cash on hand, were used to repay, and permanently reduce, the
Tranche A Term Loan.
F-80
212
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate contractual maturities of long-term obligations are as follows:
- ----------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
- ----------------------------------------------------------------------------
(In thousands)
1999........................................................ $ 28,223
2000........................................................ 53,140
2001........................................................ 78,361
2002........................................................ 103,599
2003........................................................ 311
Thereafter.................................................. 496,896
--------
$760,530
========
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 period January 1, 1998 to February 11, 1998
and the year ended December 31, 1997, the Company and its predecessor were
subject to Federal and state taxation.
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.......................................... $30,308
=======
F-81
213
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
Federal................................................... 12,955
State..................................................... 628
-------
Deferred income tax expense....................... 13,583
-------
Total income tax expense.......................... $30,308
=======
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 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
- --------------------------------------------------------------------------
(In
thousands)
Current deferred tax assets:
Inventory costing......................................... $ 6,348
Provision for accrued expenses............................ 6,074
Other..................................................... 12,553
-------
Total current deferred tax assets................. $24,975
=======
Non-current deferred tax assets (liabilities):
Broadcast and cable fee contracts......................... $19,833
Other..................................................... 18,594
-------
Total non-current deferred tax assets............. 38,427
Less valuation allowance.......................... (3,061)
-------
Net non-current deferred tax assets............... $35,366
Deferred tax liabilities:
Depreciation for tax in excess of financial statements.... (6,447)
-------
Net non-current deferred tax assets............... $28,919
=======
The Company has Federal income tax returns under examination by the Internal
Revenue Service. The Company has received proposed adjustments related to
certain examinations. Management believes that the resolution of the proposed
adjustments will not have a material adverse effect on the Company's
consolidated financial statements.
F-82
214
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Future minimum payments under non-cancellable agreements are as follows:
- ----------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
- ----------------------------------------------------------------------------
(In thousands)
1999........................................................ $ 42,203
2000........................................................ 43,023
2001........................................................ 41,136
2002........................................................ 31,560
2003........................................................ 16,283
Thereafter.................................................. 23,771
--------
$197,976
========
Expenses charged to operations under these agreements were $45.9 million and
$20.0 million for the years ended December 31, 1998 and 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.
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 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.
F-83
215
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31,
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 December 31, 1998, the Company acquired computer
equipment through a capital lease totaling $15.5 million.
On December 30, 1998, the Company acquired from Universal an entity which owned
1,705,654 Class B LLC Shares in exchange for issuing to Universal 335,000 shares
of USAi Class B Common Stock and 1,370,654 shares of USAi Common Stock. The
transaction resulted in the Class B LLC Shares being converted into Class A LLC
Shares.
Supplemental disclosure of cash flow information:
- -------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
-----------------
1998 1997
- -------------------------------------------------------------------------------
(In thousands)
CASH PAID DURING THE PERIOD FOR:
Interest.................................................. $68,751 $5,875
Income tax payments....................................... -- 6,339
Income tax refund......................................... -- 5,732
NOTE K -- 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 Class C LLC Shares for $308.5 million. USAi, Home Shopping, 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 $539.3
million in the form of $234.7 million in cash and $304.6 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
F-84
216
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4,697,450 Class A LLC Shares. In addition, Liberty exercised certain of its
preemptive rights and acquired 7,887,354 Class C LLC Shares 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.
On December 30, 1998, USAi acquired from Universal an entity which owned
1,705,654 Class B LLC shares in exchange for issuing to Universal 335,000 shares
of USAi Class B Common Stock and 1,370,654 shares of USAi Common Stock. The
transaction resulted in the Class B LLC Shares being converted into Class A LLC
Shares.
NOTE L -- 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, 1998, the Company was involved in several agreements with
related parties as follows:
Universal provides certain support services to the Company under a Transition
Services Agreement. For these services, which include use of pre-production,
production and post-production facilities, information technology services,
physical distribution, contract administration, legal services and office space,
Universal charged the Company $15.0 million for the year ended December 31,
1998, of which $8.5 million was capitalized to production costs.
Universal and the Company entered into an International Television Distribution
Agreement under which the Company pays to Universal a distribution fee of 10% on
all programming owned or controlled by the Company distributed outside of the
United States. For the year ended December 31, 1998, the fee totaled $1.3
million.
In addition, the Company and Universal entered into a Domestic Television
Distribution Agreement under which the Company distributes in the United States
certain of Universal's television programming. For the year ended December 31,
1998, Universal paid the Company $1.5 million.
In the normal course of business, Home Shopping Network and Networks enter into
agreements with the operators of cable television systems and operators of
broadcast television stations for the carriage of Home Shopping, USA Network and
The Sci-Fi Channel programming. Home Shopping Network and Networks have entered
into agreements with a number of cable operators that are affiliates of TCI.
These long-term contracts for Home Shopping provide for a minimum subscriber
guarantee and incentive payments based on the number of subscribers. Cash paid
by Home Shopping Network to TCI and certain of its affiliates under these
contracts for cable commissions and advertising was $9.5 million and $9.6
million for the years ended December 31, 1998 and 1997. The long-term contracts
for Networks provide for subscriber fee payments to Networks. For the year ended
December 31, 1998, TCI paid $62.2 million to Networks under these agreements.
Home Shopping has affiliation agreements with USA Broadcasting ("USAB") a wholly
owned subsidiary which provide for USAB's broadcast television stations to air
Home Shopping's
F-85
217
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
programming on a full-time basis. Expense related to affiliation agreements with
USAB for the years ended December 31, 1998 and 1997 was $38.7 million and $41.7
million respectively.
Under the USANi LLC Operating Agreement, USANi LLC is obligated to make a
distribution to each of the LLC members in an amount equal to each member's
share of USANi LLC's taxable income at a specified tax rate. The first such
payment is scheduled to be made on March 1, 1999 covering the year ended
December 31, 1998.
NOTE M -- TRANSACTIONS WITH USAi AND SUBSIDIARIES
Advances to USAi and subsidiaries as of December 31, 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 year ended December 31, 1998, net cash transfers totaling
approximately $118.2 million were made to repay USAi's revolving credit
facility, repay Ticketmaster's bank credit facility, and fund the operations of
USAi's broadcast operation, offset by proceeds from the sale of the assets of SF
Broadcasting and USAi's Baltimore television station. The interest incurred on
the net transfers for the year ended December 31, 1998 was approximately $9.5
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.
NOTE N -- 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 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.
F-86
218
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
--------------------------------------
1998 1997
----------------- -----------------
PRICE PRICE
SHARES RANGE SHARES RANGE
------- ------ ------- ------
Outstanding at beginning of period................... 32,936 $ 4-74 16,299 $ 1-74
Granted or issued in connection with mergers....... 3,669 $17-29 11,580 $10-19
Exercised.......................................... (1,537) $ 4-16 (968) $ 1-16
Cancelled.......................................... (610) $ 5-26 (548) $ 5-74
Options transferred to employees and outside
directors of USAi............................... 6,573 $ 1-16
------ ------
Outstanding at end of period......................... 34,458 $ 4-74 32,936 $ 1-74
------ ------
------ ------
Options exercisable.................................. 16,711 10,840
======= =======
The weighted average exercise prices during the year ended December 31, 1998
were $25.23, $10.08 and $24.67 for options granted, exercised and cancelled,
respectively. The weighted average fair value of options granted during the year
was $25.17.
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.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -------------------------------
OUTSTANDING AT WEIGHTED WEIGHTED EXERCISABLE AT WEIGHTED
DECEMBER 31, AVERAGE REMAINING AVERAGE DECEMBER 31, AVERAGE
RANGE OF EXERCISE PRICE 1998 CONTRACTUAL LIFE EXERCISE PRICE 1998 EXERCISE PRICE
- ----------------------- -------------- ----------------- -------------- -------------- --------------
(in thousands) (in thousands)
$1.00 to $5.00.............. 37 2.0 $ 4.12 37 $ 4.12
$5.01 to $10.00............. 13,159 6.9 9.43 9,595 9.42
$10.01 to $15.00............ 4,785 6.7 11.40 3,329 11.39
$15.01 to $20.00............ 12,147 8.6 18.70 3,664 18.13
$20.01 to $25.00............ 2,817 9.8 24.84 30 24.63
Over $25.00................. 1,513 8.9 26.44 56 42.94
------ ------
34,458 7.8 14.97 16,711 11.85
====== ======
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
1998 and 1997: risk-free interest rates of 5.0% and 5.5%, respectively; a
dividend yield of zero; a volatility factor of .562 and .713, 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
F-87
219
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
-----------------
1998 1997
------- -------
(in thousands)
Pro forma net earnings (loss).............................. $89,010 $(1,137)
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 -- INVENTORIES
- --------------------------------------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
INVENTORIES CURRENT NONCURRENT CURRENT NONCURRENT
- ---------------------------------------------------------------------------------------------
(In thousands)
Film costs:
Released, net of amortization......... $ 98,082 $ 61,283
In process and unreleased............. 138 --
Programming rights, net of amortization.... 151,192 88,983
Sales merchandise, net..................... 162,315 -- $145,975 $ --
Other...................................... -- 27
-------- -------- -------- --------
Total............................ $411,727 $150,293 $145,975 $ --
======== ======== ======== ========
The Company estimates that approximately 90% of unamortized film costs
(including amounts allocated under purchase accounting) at December 31, 1998
will be amortized within the next three years.
NOTE P -- 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, 1998 DECEMBER 31, 1997
------------------- --------------------
- ------------------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------
(In thousands)
Cash and cash equivalents........................... $234,903 $234,903 $ 23,022 $ 23,022
Long-term investments............................... 17,850 17,850 -- --
Long-term obligations............................... 760,530 760,530 -- --
F-88
220
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE Q -- PROGRAM RIGHTS AND FILM COSTS
As of December 31, 1998, the liability for program rights, representing future
payments to be made under program contract agreements amounted to $539.5
million. Annual payments required are $172.6 million in 1999, $112.7 million in
2000, $79.1 million in 2001, $62.9 million in 2002, $49.5 million in 2003 and
$62.7 million in 2004 and thereafter. Amounts representing interest are $70.2
million and the present value of future payments is $469.3 million.
As of December 31, 1998, the liability for film costs amounted to $124.5
million. Annual payments are $51.0 million in 1999 and $73.5 million in 2000.
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 December 31, 1998, the unrecorded commitments amounted to $730.2 million.
Annual commitments are $99.0 million in 1999, $136.2 million in 2000, $146.7
million in 2001, $126.6 million in 2002, $27.7 million in 2003 and $194.0
million in 2004 and thereafter.
NOTE R -- INDUSTRY SEGMENTS
For the year ended December 31, 1998, the Company operated principally in three
industry segments: Networks and television production, electronic retailing, and
internet services. Networks and television production consists of the cable
channels USA Network and The Sci-Fi Channel and Studios USA, which produces and
distributes television programming. The electronic retailing segment consists of
Home Shopping Network and America's Store, which are engaged in the sale of
merchandise through electronic retailing. Internet services consists of on-line
retailing networks businesses.
F-89
221
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
- --------------------------------------------------------------------------------------
(In thousands)
Revenue
Networks and television production........................ $1,085,685 $ --
Electronic retailing...................................... 1,098,634 1,024,203
Internet services......................................... 21,191 12,857
---------- ----------
$2,205,510 $1,037,060
========== ==========
Operating profit (loss)
Networks and television production........................ $ 190,191 $ --
Electronic retailing...................................... 73,222 78,410
Internet services......................................... (17,296) (9,851)
Other..................................................... (14,387) (7,417)
---------- ----------
$ 231,730 $ 61,142
========== ==========
Assets
Networks and television production........................ $5,190,669 $ --
Electronic retailing...................................... 1,784,281 1,647,678
Internet services......................................... 12,711 6,197
Other..................................................... 15,024 --
---------- ----------
$7,002,685 $1,653,875
========== ==========
Depreciation and amortization
Networks and television production........................ $ 99,225 $ --
Electronic retailing...................................... 72,836 63,249
Internet services......................................... 1,436 1,903
Other..................................................... 1,129 --
---------- ----------
$ 174,626 $ 65,152
========== ==========
Capital expenditures
Networks and television production........................ $ 5,616 $ --
Electronic retailing...................................... 42,505 25,687
Internet services......................................... 2,969 2,125
Other..................................................... 995 --
---------- ----------
$ 52,085 $ 27,812
========== ==========
NOTE S -- 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, 1998 financial statements for
F-90
222
USANI LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
summarized statements setting forth certain financial information concerning
Guarantor and Non-Guarantor Subsidiaries.
NOTE T -- SUBSEQUENT EVENTS (UNAUDITED)
On February 8, 1999, the Company and USAi entered into a Contribution Agreement
(the "Contribution Agreement") and an Agreement and Plan of Reorganization among
Lycos, Inc. ("Lycos"), Ticketmaster Online -- CitySearch, Inc. ("TMCS"),
Ticketmaster Group, Inc. which is a subsidiary of USAi ("Ticketmaster") and
USA/Lycos Interactive Networks, Inc. ("USAL"), a newly formed entity controlled
by the Company. Pursuant to the two agreements, Lycos will be merged into USAL
in exchange for 30% of USAL's common stock, TMCS will be merged into USAL in
exchange for 8.5% of USAL's common stock and the Company will contribute the
assets of Home Shopping Network, Internet Shopping Network and Ticketmaster,
including Ticketmaster's ownership stake in TMCS (Home Shopping Network,
Internet Shopping Network and Ticketmaster being referred to as the "Contributed
Businesses") in exchange for 61.5% of USAL's common stock. It is contemplated
that USAi will contribute the Ticketmaster entities to the Company in exchange
for 31,425,300 Class A LLC shares simultaneous to the merger with Lycos and
TMCS.
In addition to the common shares, each party (except for holders of TMCS Class A
Common Stock) will receive shares of convertible preferred stock of USAL. The
preferred stock is convertible into common stock of USAL at the 39-month
anniversary of the closing of the transaction based on a weighted average of the
total fair market value of USAL, beginning at $25 billion and capping at $45
billion. At the low end of the range, the preferred stock would convert into no
shares of common stock of USAL. At the high end of the range, upon full
conversion, the Lycos shareholders would own 35%, the TMCS shareholders would
own 8.65% and USAi would own 56.35%. At closing, USANi LLC would own
approximately 96% of the voting stock, since its share holdings will be in high
vote stock.
The Company will contribute the Contributed Businesses to USAL at their
historical book basis since USAi will control USAL subsequent to the
transaction. The acquisition of Lycos and the remaining interest of TMCS will be
accounted for under the purchase method of accounting. Preliminarily, the
Company has estimated it will record a pre-tax gain on the transaction of
approximately $2.7 billion, which represents the exchange of 38.5% of the
Contributed Businesses with a carrying value of $.8 billion for 61.5% of Lycos
which has a fair value of $3.5 billion.
The parties have also entered into option agreements, which under certain
circumstances provide USAi and TMCS with the right to acquire, in the aggregate,
up to 19.9% of the outstanding Lycos common stock.
The transaction is subject to various approvals, including a vote of the Lycos
shareholders and is expected to close in June 1999.
The Contribution Agreement requires USANi LLC to contribute the Contributed
Businesses to USAL free of any guarantees, liens or security interests. A
substantial number of entities holding the Contributed Businesses are guarantors
of the Senior Notes and of obligations under the New Facility. The Company
expects to reach agreement with the lenders under the New Facility to release
guarantees of the Contributed Businesses to the extent necessary to allow USANi
LLC to comply with the Contribution Agreement. The obligations of a guarantor of
the Senior Notes automatically terminate if the obligations of the same
guarantor terminate under the New Facility.
F-91
223
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-92
224
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-93
225
USA NETWORKS
COMBINED STATEMENTS OF INCOME
(in thousands)
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995
--------------- ---------------
Revenues
Advertising, net of agency commissions................. $ 358,455 $ 322,739
Affiliate fees......................................... 299,377 243,714
Other income........................................... 8,640 3,528
--------------- ---------------
666,472 569,981
--------------- ---------------
Costs and expenses
Program................................................ 202,146 132,861
Program-related party.................................. 156,767 172,005
Broadcast
Operating............................................ 19,035 15,128
Affiliate relations, marketing and research.......... 80,091 58,405
Selling, general and administrative.................... 52,464 45,600
Depreciation........................................... 6,647 6,243
Amortization of goodwill and Sci-Fi investment......... 1,930 1,930
--------------- ---------------
519,080 432,172
--------------- ---------------
Operating income.................................. 147,392 137,809
Interest income............................................. 827 1,191
Taxes....................................................... 2,661 3,363
--------------- ---------------
Net income........................................ $ 145,558 $ 135,637
=============== ===============
The accompanying notes are an integral part of these combined financial
statements.
F-94
226
USA NETWORKS
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995
--------------- ---------------
Cash flows from operating activities
Net income............................................. $ 145,558 $ 135,637
Adjustments to reconcile net income to net cash
provided by operations:
Amortization of program rights....................... 160,194 104,074
Amortization of program rights-related party......... 156,767 172,005
Increase (decrease) in makegoods..................... 20,182 (3,769)
Depreciation......................................... 6,647 6,243
Amortization of goodwill and Sci-Fi investment....... 1,930 1,930
Provision for affiliate rate reserve................. 2,694 8,447
Provision for bad debts and other noncash charges.... 5,100 4,887
Change in operating assets and liabilities
Acquisition of program rights........................ (161,805) (68,898)
Acquisition of program rights-related party.......... (172,372) (174,525)
(Decrease) increase in liability for program
rights............................................ (29,996) (29,171)
Increase in accounts receivable...................... (13,961) (34,463)
Increase in prepaid expenses and other assets........ (3,447) (2,015)
(Decrease) increase in accounts payable.............. (5,527) 6,265
Increase (decrease) in accrued liabilities and other
noncurrent liabilities............................ 4,179 9,078
--------------- ---------------
Net cash provided by operating activities......... 116,143 135,725
--------------- ---------------
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)
Payments for satellite transponder..................... -- --
--------------- ---------------
Net cash used in investing activities................ (9,725) (2,971)
--------------- ---------------
Cash flows from financing activities
Distribution to Partners............................... (116,000) (130,100)
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)
--------------- ---------------
Effect of exchange rate changes on cash..................... (52) (21)
--------------- ---------------
(Decrease) increase in cash and cash equivalents....... (5,934) 73
Cash and cash equivalents at beginning of year.............. 10,087 10,014
--------------- ---------------
Cash and cash equivalents at end of year.................... $ 4,153 $ 10,087
=============== ===============
Supplemental disclosures of cash flow information:
Taxes paid............................................. $ 4,525 $ --
=============== ===============
The accompanying notes are an integral part of these combined financial
statements.
F-95
227
USA NETWORKS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
(in thousands)
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-96
228
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-97
229
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-98
230
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 and $9,963,000 in 1996 and 1995,
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 and 1995 was $2,739,000 and $2,722,000, respectively.
Combined USAN also maintains nonqualified executive and nonexecutive
supplemental benefit plans for certain key executive officers and employees.
During 1996 and 1995, the annual expenses under these plans were approximately
$996,000 and $564,000, 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 balance
F-99
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USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
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 and $942,000 for the years ended December
31, 1996 and 1995 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 and 1995, Sci-Fi Channel and Sci-Fi
Europe, collectively, had net revenues of $87,626,000 and $48,600,000,
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 to carry and
distribute the network in its own and contiguous countries. Advertising and
affiliate
F-100
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USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
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
Programming expense...................... 1996 63,377 93,390 156,767
1995 67,329 104,676 172,005
Liability for program rights at
year-end............................... 1996* 97,194 125,626 222,820
Unrecorded program commitments........... 1996* 139,643 163,826 303,469
- ---------------
* 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 and $217,000 in 1996 and 1995, 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.
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
F-101
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USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
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 adjustment,
resulting from a rate determination proceeding before that court should such a
proceeding be initiated.
F-102
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USA NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
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.
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.
F-103
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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-104
236
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-105
237
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-106
238
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-107
239
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-108
240
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-109
241
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-110
242
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-111
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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-112
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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
=============== ===============
F-113
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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-114
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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-115
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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-116
248
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-117
249
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-118
250
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-119
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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 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-120
252
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 USA Networks, Inc.'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."
USA Networks, Inc.'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.
USA Networks, Inc. maintains insurance on behalf of any person who is or was a
director, employee or agent of USA Networks, Inc., or is or was serving at the
request of USA Networks, Inc. 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 USA Networks, Inc.
would have the power to indemnify him against such liability under provisions of
USA Networks, Inc.'s Restated Certificate of Incorporation.
II-1
253
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 USA Networks,
Inc.'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 USA Networks,
Inc.'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 USA
Networks, Inc.'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 USA Networks, Inc.'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 USA
Networks, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, is incorporated herein by
reference.
2.6 Agreement and Plan of Reorganization, dated as of February
8, 1999, by and among USA Networks, Inc., Ticketmaster
Online-CitySearch, Inc., Lycos, Inc., USA Interactive Inc.,
Lemma, Inc. and Tycho, Inc., including Form of Certificate
of Designations, Preferences and Rights of Series A
Convertible Redeemable Preferred Stock of USA/Lycos
Interactive Networks, Inc., filed as Exhibit 2.1 to USA
Networks, Inc.'s Form 8-K, dated February 25, 1999, is
incorporated herein by reference.
2.7 Contribution Agreement, dated as of February 8, 1999, by and
among USA Networks, Inc., USANi LLC and USA Interactive
Inc., filed as Exhibit 2.2 to USA Networks, Inc.'s Form 8-K,
dated February 25, 1999, is incorporated herein by
reference.
2.8 Stock Option Agreement, dated February 8, 1999, between
Lycos, Inc. and USA Networks, Inc., filed as Exhibit 2.3 to
USA Networks, Inc.'s Form 8-K, dated February 25, 1999, is
incorporated herein by reference.
2.9 Stock Option Agreement, dated February 8, 1999, between
Lycos, Inc. and Ticketmaster Online-CitySearch, Inc., filed
as Exhibit 2.4 to USA Networks, Inc.'s Form 8-K, dated
February 25, 1999, is incorporated herein by reference.
3.1 Restated Certificate of Incorporation of USA Networks, Inc.
filed as Exhibit 3.1 to USA Networks, Inc.'s Form 8-K, dated
February 23, 1998, is incorporated herein by reference.
3.2 Amended and Restated By-Laws of USA Networks, Inc. filed as
Exhibit 3.1 to USA Networks, Inc.'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 USA Networks, Inc.'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.+
II-2
254
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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.+
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 Joint Venture Agreement of USA Network
(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.+
II-3
255
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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.+
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.+
II-4
256
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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.+
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.+
II-5
257
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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).+
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 USA
Networks, Inc., 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 USA Networks, Inc., 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 Savoy Pictures
Entertainment, Inc.'s 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.
II-6
258
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.5 First Supplemental Indenture, dated as of October 24, 1993,
for Savoy Pictures Entertainment, Inc.'s 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 Savoy Pictures Entertainment, Inc.'s 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 Savoy Pictures Entertainment, Inc.'s 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.
5 Opinion of Howard, Smith & Levin LLP, regarding the legality
of the securities being issued.++
10.1 Form of Affiliation Agreements between USA Networks, Inc.
and Home Shopping, filed as Exhibit 10.2 to USA Networks,
Inc.'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
USA Networks, Inc. and Home Shopping, filed as Exhibit 10.6
to USA Networks, Inc.'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 USA Networks, Inc.'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
USA Networks, Inc.'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 USA Networks,
Inc.'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 USA Networks, Inc.'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 USA Networks,
Inc., 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 USA
Networks, Inc.'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 Network,
Inc.'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 Network, Inc.'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 Network, Inc.'s Annual Report on Form 10-K, for the
fiscal year ended August 31, 1991, is incorporated herein by
reference.
II-7
259
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.11 Stock Purchase Agreement by and between Home Shopping
Network, Inc. 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.
10.14 Home Shopping Network, Inc. 1996 Stock Option Plan for
Employees, filed as Exhibit A to Home Shopping's 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 Home Shopping's
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 USA Networks, Inc.'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 USA Networks, Inc. and Liberty HSN, Inc. filed as
Exhibit 10.25 to USA Networks, Inc.'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 USA Networks, Inc. filed
as Exhibit 10.26 to USA Networks, Inc.'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 USA Networks, Inc.'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 USA Networks, Inc.'s Definitive
Proxy Statement, dated November 20, 1996, is incorporated
herein by reference.
10.21 Employment Agreement between Home Shopping Network, Inc. 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 USA Networks, Inc.'s Annual Report on Form
10-K, for the fiscal year ended December 31, 1996, is
incorporated herein by reference.
II-8
260
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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 USA Networks, Inc.'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 USA
Networks, Inc.'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 USA Networks,
Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, is incorporated herein by reference.
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
USA Networks, Inc.'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 USA Networks,
Inc.'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 USA Networks,
Inc.'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 USA Networks, Inc.'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
Pictures Entertainment, Inc. 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.
II-9
261
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.36 Amended and Restated Stock Option Plan (including form of
Stock Options Agreement) filed as Exhibit 4.1 to Savoy
Pictures Entertainment, Inc.'s Registration Statement No.
33-70740, is incorporated herein by reference.
10.37 Savoy Pictures Entertainment, Inc.'s 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 USA Networks, Inc., 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
USA Networks, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 is incorporated herein
by reference.
10.39 First Amendment and Consent, dated as of June 24, 1998, to
the Credit Agreement, dated February 12, 1998, among USA
Networks, Inc., 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 USA Networks,
Inc., 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 USA
Networks, Inc.'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 USA Networks, Inc.'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 USA Networks, Inc.'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 USA Networks, Inc.'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 USA
Networks, Inc.'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 USA Networks, Inc.'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 USA Networks, Inc.'s 10-Q for the quarter ended March 31,
1998, is incorporated herein by reference.
10.48 HSN, Inc. Retirement Savings Plan, filed as Exhibit 10.58 to
USA Networks, Inc.'s Form 10-K for the fiscal year ended
December 31, 1997 is incorporated herein by reference.
10.49 Amendment to the Savings Plan.+
II-10
262
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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 USA Networks, Inc.'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 USA Networks, Inc. and Fredric D. Rosen,
dated as of March 9, 1998, filed as Exhibit 6 to Amendment
No. 4 to USA Networks, Inc.'s report on Schedule 13D for
Ticketmaster Group, Inc., dated March 23, 1998, is
incorporated herein by reference.
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.
10.53 Employment Agreement, effective as of February 19, 1999,
between USA Networks, Inc. and Barry Baker.
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 USAi filed as Exhibit 21.1 to USA Networks,
Inc. Annual Report on Form 10-K, for the fiscal year ended
December 31, 1998, is incorporated herein by reference.
21.2 Subsidiaries of USANi LLC.**
21.3 Subsidiaries of Holdco.**
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 PricewaterhouseCoopers LLP
23.6 Consent of PricewaterhouseCoopers LLP
23.7 Consent of KPMG LLP
23.8 Consent of KPMG LLP
23.11 Consent of Counsel (included in Exhibit 5.1).
24.1 Powers of Attorney of USAi and USANi LLC 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 USA Networks, Inc. Financial Data Schedule for the year
ended December 31, 1998 (for SEC use only)++
27.2 Holdco Financial Data Schedule for the year ended December
31, 1998 (for SEC use only)++
27.3 USANi LLC Financial Data Schedule for the year ended
December 31, 1998 (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.++
II-11
263
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
99.5 Form of Exchange Agent Agreement.**
99.6 Consent of Barry Baker.++
- -------------------------
+ Previously filed with this Registration Statement on January 27, 1999.
++ Previously filed with Amendment No. 1 to this Registration Statement on
March 5, 1999.
** Previously filed with Amendment No. 2 to this Registration Statement on March
26, 1999.
(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
264
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA NETWORKS, INC.
By: /s/ BARRY DILLER
------------------------------------
Name: Barry Diller
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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, April 9, 1999
- --------------------------------------------------- Chief Executive Officer
Barry Diller and Director
* Vice President and April 9, 1999
- --------------------------------------------------- Controller (Chief
Michael P. Durney Accounting Officer)
* Director, Office of the April 9, 1999
- --------------------------------------------------- Chairman and Chief
Victor A. Kaufman Financial Officer
(Principal Financial
Officer)
* Director April 9, 1999
- ---------------------------------------------------
Paul G. Allen
* Director April 9, 1999
- ---------------------------------------------------
Edgar Bronfman, Jr.
* Director April 9, 1999
- ---------------------------------------------------
Donald R. Keough
* Director April 9, 1999
- ---------------------------------------------------
Robert W. Matschullat
* Director April 9, 1999
- ---------------------------------------------------
Samuel Minzberg
* Director April 9, 1999
- ---------------------------------------------------
William D. Savoy
II-13
265
SIGNATURE TITLE DATE
--------- ----- ----
* Director April 9, 1999
- ---------------------------------------------------
H. Norman Schwarzkopf
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-14
266
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USANi LLC
By: /s/ BARRY DILLER
------------------------------------
Name: Barry Diller
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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, April 9, 1999
- --------------------------------------------------- Chief Executive Officer
Barry Diller and Director
* Vice President and April 9, 1999
- --------------------------------------------------- Controller (Chief
Michael P. Durney Accounting Officer)
* Director, Office of the April 9, 1999
- --------------------------------------------------- Chairman and Chief
Victor A. Kaufman Financial Officer
(Principal Financial
Officer)
* Director April 9, 1999
- ---------------------------------------------------
Paul G. Allen
* Director April 9, 1999
- ---------------------------------------------------
Robert R. Bennett
* Director April 9, 1999
- ---------------------------------------------------
Edgar Bronfman, Jr.
* Director April 9, 1999
- ---------------------------------------------------
Donald R. Keough
* Director April 9, 1999
- ---------------------------------------------------
John C. Malone
* Director April 9, 1999
- ---------------------------------------------------
Robert W. Matschullat
II-15
267
SIGNATURE TITLE DATE
--------- ----- ----
* Director April 9, 1999
- ---------------------------------------------------
Samuel Minzberg
* Director April 9, 1999
- ---------------------------------------------------
William D. Savoy
* Director April 9, 1999
- ---------------------------------------------------
H. Norman Schwarzkopf
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-16
268
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St.
Petersburg, State of Florida, on April 9, 1999.
HOME SHOPPING NETWORK, INC.
By: /s/ ROBERT ROSENBLATT
------------------------------------
Name: Robert Rosenblatt
Title: Executive Vice President,
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Mark Bozek
* Executive Vice President, April 9, 1999
- --------------------------------------------------- Chief Financial Officer and
Robert Rosenblatt Treasurer
* Vice President and Controller April 9, 1999
- ---------------------------------------------------
Brian Feldman
* Director April 9, 1999
- ---------------------------------------------------
Jed B. Trosper
* Director April 9, 1999
- ---------------------------------------------------
James G. Gallagher
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-17
269
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USANi SUB LLC
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Victor A. Kaufman
/s/ THOMAS J. KUHN President April 9, 1999
- ---------------------------------------------------
Thomas J. Kuhn
* Vice President, Chief April 9, 1999
- --------------------------------------------------- Financial Officer and
Michael P. Durney Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
USANi LLC Member and Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-18
270
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USAi SUB, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Victor A. Kaufman
* Vice President, Treasurer April 9, 1999
- --------------------------------------------------- and Director (Principal
Michael P. Durney Financial Officer and
Principal Accounting
Officer)
/s/ THOMAS J. KUHN Director April 9, 1999
- ---------------------------------------------------
Thomas J. Kuhn
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-19
271
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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, this Amendment No. 3 to the
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 April 9, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
USANi Sub LLC Limited Partner April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
II-20
272
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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, this Amendment No. 3 to the
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 April 9, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
USANi Sub LLC Limited Partner April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
II-21
273
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
INTERNET SHOPPING NETWORK LLC
By: /s/ JED B TROSPER
------------------------------------
Name: Jed B. Trosper
Title: Secretary and Treasurer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- (Principal Executive
Jed B. Trosper Officer, Principal Financial
Officer and Principal
Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
USANi Sub LLC Member April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
HSN General Partner LLC Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-22
274
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
HSN CAPITAL LLC
By: /s/ JOHN S. TRUE
------------------------------------
Name: John S. True
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
John S. True
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Jed B. Trosper Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
USANi Sub LLC Member April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
HSN General Partner LLC Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Attorney-in-fact
II-23
275
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
HSN FULFILLMENT LLC
By: /s/ CHARLES M. HOPKINS
------------------------------------
Name: Charles M. Hopkins
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Charles M. Hopkins
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Jed B. Trosper Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Senior Vice President and
General Counsel
USANi Sub LLC Member April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
HSN General Partner LLC Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Attorney-in-fact
II-24
276
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
HSN REALTY LLC
By: /s/ JED B. TROSPER
------------------------------------
Name: Jed B. Trosper
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jed B. Trosper
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Brian J. Feldman Accounting Officer)
USANi Sub LLC Member and Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
HSN General Partner LLC Member and Manager April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Attorney-in-fact
II-25
277
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
HSN OF NEVADA LLC
By: /s/ JOHN S. TRUE
------------------------------------
Name: John S. True
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Jed B. Trosper Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
HSN Capital LLC Member April 9, 1999
By: *
----------------------------------------------
John S. True, President
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Attorney-in-fact
II-26
278
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
NEW-U STUDIOS HOLDINGS, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Victor A. Kaufman
* Vice President, Chief April 9, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
* Vice President and April 9, 1999
- --------------------------------------------------- Controller
Brian Feldman
* Director April 9, 1999
- ---------------------------------------------------
Jed B. Trosper
* Director April 9, 1999
- ---------------------------------------------------
James G. Gallagher
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Attorney-in-fact
II-27
279
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
HSN HOLDINGS, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Victor A. Kaufman
* Vice President, Chief April 9, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
* Vice President and April 9, 1999
- --------------------------------------------------- Controller
Brian Feldman
* Director April 9, 1999
- ---------------------------------------------------
Jed B. Trosper
* Director April 9, 1999
- ---------------------------------------------------
James G. Gallagher
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Attorney-in-fact
II-28
280
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA NETWORKS HOLDINGS, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Victor A. Kaufman
* Vice President, Chief April 9, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
* Vice President and April 9, 1999
- --------------------------------------------------- Controller
Brian Feldman
* Director April 9, 1999
- ---------------------------------------------------
Jed B. Trosper
* Director April 9, 1999
- ---------------------------------------------------
James G. Gallagher
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Attorney-in-fact
II-29
281
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
NEW-U STUDIOS, INC.
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Victor A. Kaufman
* Vice President, Chief April 9, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
* Vice President and Controller April 9, 1999
- ---------------------------------------------------
Brian Feldman
* Director April 9, 1999
- ---------------------------------------------------
Jed B. Trosper
* Director April 9, 1999
- ---------------------------------------------------
James G. Gallagher
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Attorney-in-fact
II-30
282
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
HSN GENERAL PARTNER LLC
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Victor A. Kaufman
* Vice President, Chief April 9, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
USANi Sub LLC Member April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
HSN Holdings, Inc. Member April 9, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-31
283
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Robert T. Fleming
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Melissa Leffler Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
USANi Sub LLC Member April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
New-U Studios, Inc. Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-32
284
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA NETWORKS PARTNER LLC
By: /s/ VICTOR A. KAUFMAN
------------------------------------
Name: Victor A. Kaufman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Victor A. Kaufman
* Vice President, Chief April 9, 1999
- --------------------------------------------------- Financial Officer and
Robert Rosenblatt Treasurer
* Vice President and Controller April 9, 1999
- ---------------------------------------------------
Brian Feldman
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
USANi Sub LLC Member April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
USA Networks Holdings, Inc. Member April 9, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-33
285
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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, this Amendment No. 3 to the
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 April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn, President
USA Networks Partner, LLC General Partner April 9, 1999
By: /s/ VICTOR A. KAUFMAN
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
II-34
286
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA TELEVISION LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Kenneth A. Soloman
* Treasurer (Principal April 9, 1999
- --------------------------------------------------- Financial Officer and
Richard Wong Principal Accounting
Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
Studios USA LLC Member April 9, 1999
By: *
----------------------------------------------
Robert T. Fleming, President
New-U Studios, Inc. Member April 9, 1999
By: *
---------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-35
287
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA FIRST-RUN
TELEVISION LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Lonnie Burstein
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Melissa Leffler Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
Studios USA LLC Member April 9, 1999
By: *
----------------------------------------------
Robert T. Fleming, President
New-U Studios, Inc. Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in fact
II-36
288
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA PICTURES LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Robert T. Fleming
* Treasurer (Principal April 9, 1999
- --------------------------------------------------- Financial
Melissa Leffler Officer and Principal
Accounting Officer)
USANI LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
Studios USA LLC Member April 9, 1999
By: *
----------------------------------------------
Robert T. Fleming,
President
New-U Studios, Inc. Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-37
289
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA DEVELOPMENT LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Steven T. Brunell
* Treasurer (Principal April 9, 1999
- --------------------------------------------------- Financial Officer and
Elizabeth Chell Principal Accounting
Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
Studios USA LLC Member April 9, 1999
By: *
----------------------------------------------
Robert T. Fleming,
President
New-U Studios, Inc. Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-38
290
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA REALITY TELEVISION LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTINE HEDGECOCK Secretary April 9, 1999
- ---------------------------------------------------
Christine Hedgecock
* Treasurer (Principal April 9, 1999
- --------------------------------------------------- Financial Officer and
Leonard Dirisio Principal Accounting
Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
Studios USA LLC Member April 9, 1999
By: *
----------------------------------------------
Robert T. Fleming,
President
New-U Studios, Inc. Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-39
291
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA TALK TELEVISION LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTINE HEDGECOCK Secretary April 9, 1999
- ---------------------------------------------------
Christine Hedgecock
* Treasurer (Principal April 9, 1999
- --------------------------------------------------- Financial Officer and
Jane Knapp Principal Accounting
Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
Studios USA LLC Member April 9, 1999
By: *
----------------------------------------------
Robert T. Fleming,
President
New-U Studios, Inc. Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-40
292
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA PICTURES DEVELOPMENT LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Joan Whitehead Evans
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Charles Killian Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
Studios USA LLC Member April 9, 1999
By: *
----------------------------------------------
Robert T. Fleming, President
New-U Studios, Inc. Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-41
293
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA TELEVISION
DISTRIBUTION LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Steven S. Rosenberg
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Melissa Leffler Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and
General Counsel
Studios USA LLC Member April 9, 1999
By: *
----------------------------------------------
Robert T. Fleming, President
New-U Studios, Inc. Member April 9, 1999
By: *
----------------------------------------------
Victor A. Kaufman,
Chief Executive Officer
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-42
294
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
STUDIOS USA TALK VIDEO LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTINE HEDGECOCK Secretary April 9, 1999
- ---------------------------------------------------
Christine Hedgecock
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Jane Knapp Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and General Counsel
Studios USA Talk Television LLC Member April 9, 1999
By: /s/ CHRISTINE HEDGECOCK
----------------------------------------------
Christine Hedgecock,
Secretary
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-43
295
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
NEW-U PICTURES FACILITIES LLC
By: /s/ CHRISTINE HEDGECOCK
------------------------------------
Name: Christine Hedgecock
Title: Secretary
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Joan Whitehead Evans
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Charles Killian Accounting Officer)
USANi LLC Manager April 9, 1999
By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn,
Senior Vice President and General Counsel
Studios USA Pictures Development LLC Member April 9, 1999
By: *
----------------------------------------------
Joan Whitehead Evans,
President
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-44
296
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St.
Petersburg, State of Florida, on April 9, 1999.
SK HOLDINGS, INC.
By: /s/ LYNN KRALL
------------------------------------
Name: Lynn Krall
Title: Treasurer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* President April 9, 1999
- ---------------------------------------------------
Richard Lyon
/s/ LYNN KRALL Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Lynn Krall Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Jed B. Trosper
* Director April 9, 1999
- ---------------------------------------------------
James G. Gallagher
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-45
297
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA BROADCASTING, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-46
298
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF HOUSTON, INC.
By: /s/ JOHANTHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-Fact
II-47
299
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
SILVER KING CAPITAL
CORPORATION, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-Fact
II-48
300
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF DALLAS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-Fact
II-49
301
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF ILLINOIS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-Fact
II-50
302
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF MASSACHUSETTS,
INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-Fact
II-51
303
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF NEW JERSEY,
INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-Fact
II-52
304
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF OHIO, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-53
305
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF
VINELAND, INC.
By: /s/ JONATHAN MILLER
-----------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-54
306
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF ATLANTA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-55
307
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF
SOUTHERN CALIFORNIA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-56
308
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF VIRGINIA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-57
309
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF
TAMPA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal April 9, 1999
- --------------------------------------------------- Financial Officer and
Helen Rosenberg Principal Accounting
Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-58
310
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF HOLLYWOOD
FLORIDA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal April 9, 1999
- --------------------------------------------------- Financial Officer and
Helen Rosenberg Principal Accounting
Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-59
311
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
TELEMATION, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-60
312
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP OF NORTHERN
CALIFORNIA, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-61
313
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA STATION GROUP, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-62
314
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
USA BROADCASTING
PRODUCTIONS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-63
315
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
MIAMI, USA BROADCASTING STATION
PRODUCTIONS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal April 9, 1999
- --------------------------------------------------- Financial Officer and
Helen Rosenberg Principal Accounting
Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-64
316
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
MIAMI, USA BROADCASTING
PRODUCTIONS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-65
317
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
SILVER KING INVESTMENT
HOLDINGS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-66
318
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 1999.
SKC INVESTMENTS, INC.
By: /s/ JONATHAN MILLER
------------------------------------
Name: Jonathan Miller
Title: President
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- ---------------------------------------------------
Jonathan Miller
* Treasurer (Principal Financial April 9, 1999
- --------------------------------------------------- Officer and Principal
Helen Rosenberg Accounting Officer)
* Director April 9, 1999
- ---------------------------------------------------
Douglas Binzak
* Director April 9, 1999
- ---------------------------------------------------
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-67
319
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal
Accounting Officer)
* Director of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc.
Douglas Binzak
* Director of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-68
320
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial
Officer and Principal
Accounting Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-69
321
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-70
322
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-71
323
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-72
324
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-73
325
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-74
326
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-75
327
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
----------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-76
328
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-77
329
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the 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 April 9, 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
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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 April 9, 1999
- --------------------------------------------------- Station Group, Inc.
Jonathan Miller
* Treasurer of USA Station April 9, 1999
- --------------------------------------------------- Group, Inc. (Principal
Helen Rosenberg Financial Officer and
Principal Accounting
Officer)
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Douglas Binzak
* Director of USA Station Group, April 9, 1999
- --------------------------------------------------- Inc.
Julius Genachowski
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-78
330
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on April 9, 1999.
TICKETMASTER GROUP, INC.
By: /s/ TERRY BARNES
------------------------------------
Name: Terry Barnes
Title: Chairman of the Board,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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, April 9, 1999
- --------------------------------------------------- President, Chief Executive
Terry Barnes Officer and Director
* Senior Vice President, April 9, 1999
- --------------------------------------------------- Treasurer, Chief Financial
Stuart DePina Officer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Director April 9, 1999
- ---------------------------------------------------
Eugene Cobuzzi
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-79
331
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on April 9, 1999.
TICKETMASTER CORPORATION
By: /s/ TERRY BARNES
------------------------------------
Name: Terry Barnes
Title: Chairman of the Board,
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to the
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, April 9, 1999
- --------------------------------------------------- President, Chief Executive
Terry Barnes Officer and Director
* Senior Vice President, April 9, 1999
- --------------------------------------------------- Treasurer, Chief Financial
Stuart DePina Officer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
* Director April 9, 1999
- ---------------------------------------------------
Eugene Cobuzzi
*By: /s/ THOMAS J. KUHN
---------------------------------------------
Thomas J. Kuhn
Attorney-in-fact
II-80
332
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, 1998......... $3,588 $19,092 $ 3,755 $(5,825) $20,610
====== ======= ======= ======= =======
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
====== ======= ======= ======= =======
- -------------------------
(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, the
acquisition of USA Networks, Inc.'s interest in Ticketmaster Group, Inc. in
1997 and the acquisition of USA Networks as part of the Universal
Transaction in 1998.
S-1
333
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(2) DESCRIBE(1) OF PERIOD
----------- --------- --------- ----------- ------------- ---------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended December 31, 1998......... $2,177 $18,289 $3,755 $(3,649) $20,572
====== ======= ====== ======= =======
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
====== ======= ====== ======= =======
- -------------------------
(1) Write-off fully reserved accounts receivable.
(2) Amount relates to the acquisition of USA Network as part of the Universal
Transaction in 1998.
S-2
334
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(2) DESCRIBE(1) OF PERIOD
----------- --------- --------- ----------- ------------- ---------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended December 33, 1998......... $2,177 $18,289 $3,755 $(3,649) 20,572
====== ======= ====== ======= ======
Year ended December 31, 1997......... $2,291 $ 3,008 $ -- $(3,122) $2,177
====== ======= ====== ======= ======
- -------------------------
(1) Write-off fully reserved accounts receivable.
(2) Amount relates to the acquisition of USA Networks as part of the Universal
Transaction in 1998.
S-3