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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM to .
COMMISSION FILE NO. 333-38689
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FOX/LIBERTY NETWORKS, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4577574
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1440 SOUTH SEPULVEDA BOULEVARD, LOS ANGELES, CA 90025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 444-8123
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Indicate by check mark whether the Registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days.
Yes X No
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In addition to historical information, this report contains forward-looking
statements which are subject to risks and uncertainties, including those that
are discussed in this report. Accordingly, the Company's actual results could
differ materially from those anticipated in such forward-looking statements.
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 8,851 $ 49,560
Trade and other receivables, net of allowance for doubtful accounts of $1,383 at
March 31, 1998 and $1,714 at December 31, 1997..................................... 157,102 136,661
Receivables from equity affiliates, net.............................................. 86,709 37,858
Program rights....................................................................... 53,609 50,373
Notes receivable, current............................................................ 2,757 3,376
Prepaid expenses and other current assets............................................ 12,754 7,886
---------- ----------
Total current assets.............................................................. 321,782 285,714
Property and equipment, net of accumulated depreciation of $23,525 at March 31, 1998
and $22,221 at December 31, 1997................................................... 46,166 46,531
Investments in affiliates.............................................................. 866,325 850,201
Note receivable, long-term............................................................. 4,430 4,432
Program rights......................................................................... 69,754 78,110
Excess cost, net of accumulated amortization of $75,684 at March 31, 1998 and
$72,170 at December 31, 1997....................................................... 506,608 510,104
Other assets........................................................................... 38,654 42,666
---------- ----------
Total Assets...................................................................... $1,853,719 $1,817,758
========== ==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................................ $ 213,757 $ 176,241
Program rights payable............................................................... 23,912 23,232
Current portion of long-term debt.................................................... 80,362 80,216
Accrued interest..................................................................... 11,617 17,413
Other current liabilities............................................................ 13,978 11,515
---------- ----------
Total current liabilities......................................................... 343,626 308,617
Non-current program rights payable..................................................... 102,338 110,693
Long-term debt, net of current portion................................................. 1,260,431 1,246,291
Minority interest...................................................................... 500 (114)
Commitments and contingencies
Members' equity........................................................................ 146,824 152,271
---------- ----------
Total Liabilities and Members' Equity............................................. $1,853,719 $1,817,758
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
1
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FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Programming........................................................................ $ 74,045 $48,819
Advertising........................................................................ 37,273 23,679
Direct broadcast................................................................... 29,735 11,350
Infomercial........................................................................ 5,808 3,071
Other.............................................................................. 9,748 5,402
-------- -------
156,609 92,321
-------- -------
Expenses:
Operating.......................................................................... 113,183 80,170
General and administrative......................................................... 20,968 12,458
Depreciation and amortization...................................................... 5,199 3,684
-------- -------
139,350 96,312
-------- -------
Operating income (loss).............................................................. 17,259 (3,991)
-------- -------
Other (income) expenses:
Interest, net...................................................................... 27,482 7,198
Subsidiaries' income tax expense................................................... 535 820
Equity income of affiliates, net................................................... (5,925) (4,479)
Minority interest.................................................................. 614 605
-------- -------
22,706 4,144
-------- -------
Net loss............................................................................. $ (5,447) $(8,135)
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
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FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
--------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................... $ (5,447) $ (8,135)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization.................................................. 5,199 3,684
Interest accretion and amortization of debt issuance costs..................... 7,436 --
Equity income of affiliates.................................................... (5,925) (4,479)
Minority interests............................................................. 614 605
Changes in operating assets and liabilities:
Trade and other receivables.................................................... (20,441) (20,665)
Program rights................................................................. 5,120 5,314
Prepaid expenses and other operating assets.................................... (1,581) 8,810
Accounts payable and accrued expenses.......................................... 37,522 25,640
Program rights payable......................................................... (7,675) (21,326)
Other operating liabilities.................................................... (3,333) 1,319
-------- --------
Net cash provided by (used in) operating activities......................... 11,489 (9,233)
-------- --------
Cash flows from investing activities:
Notes receivable collected from (issued to) third parties......................... 621 (217)
Purchases of property and equipment............................................... (1,320) (916)
Investments in equity affiliates.................................................. (10,226) --
-------- --------
Net cash used in investing activities....................................... (10,925) (1,133)
-------- --------
Cash flows from financing activities:
Advances from equity affiliates................................................... 12,127 28,653
Advances to equity affiliates..................................................... (60,978) (63,120)
Borrowings of long-term debt...................................................... 20,000 48,764
Repayment of long-term debt....................................................... (12,422) (6,300)
Distribution to minority interest in subsidiary................................... -- (240)
-------- --------
Net cash provided by (used in) financing activities......................... (41,273) 7,757
-------- --------
Net decrease in cash and cash equivalents........................................... (40,709) (2,609)
Cash and cash equivalents, beginning of period...................................... 49,560 7,964
-------- --------
Cash and cash equivalents, end of period............................................ $ 8,851 $ 5,355
======== ========
Supplemental Cash Flow disclosure:
Cash paid for interest $ 2,806
$ 26,414
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Fox/Liberty Networks, LLC (the "Company") have been prepared by the Company
pursuant to the instructions for Form 10-Q and, accordingly, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted where permitted by regulation. In management's opinion, the accompanying
unaudited condensed consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the consolidated results of operations for the interim periods presented. The
condensed consolidated results of operations for such interim periods are not
necessarily indicative of the results that may be expected for future interim
periods or for the year ended December 31, 1998. These interim condensed
consolidated financial statements and the notes thereto should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
The preparation of consolidated 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,
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
(2) DEBT
Debt at March 31, 1998 and December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------------- --------------
(UNAUDITED)
<S> <C> <C>
Turner Note Payable...................................................................... $ 65,334 $ 65,334
Chase Manhattan Bank--Term loan.......................................................... 400,000 400,000
Chase Manhattan Bank--Revolver........................................................... 70,000 60,000
Senior Notes............................................................................. 500,000 500,000
Senior Discount Notes.................................................................... 267,110 260,828
Other.................................................................................... 38,349 40,345
---------- ----------
1,340,793 1,326,507
Less current portion..................................................................... (80,362) (80,216)
---------- ----------
$1,260,431 $1,246,291
========== ==========
</TABLE>
4
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FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
(3) SUMMARIZED FINANCIAL INFORMATION
Summarized unaudited income statement information for subsidiaries accounted
for under the equity method for which separate financial information would be
required for annual periods, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue $208,631 $ 671
Operating Profit (4,586) (175)
Net Income 15,806 (175)
</TABLE>
(4) 401(k) PLAN
During 1997, the Company implemented a defined contribution plan under
section 401(k) of the Internal Revenue Code (the "401(k) Plan") covering most
of the employees of the Company. Under the 401(k) Plan, participating employees
may elect to defer a portion of their compensation. The Company makes
contributions to the 401(k) Plan based on a percentage of employee
contributions. Maximum employee and Company contributions are limited by
Internal Revenue Code regulations and by specific 401(k) Plan provisions. For
the three months ended March 31, 1998 and the year ended December 31, 1997, the
Company contributed $1,696 and $4,013, respectively, to the 401(k) Plan.
(5) EQUITY APPRECIATION RIGHTS PLAN
In October 1997, the Company adopted the Fox/Liberty Networks, LLC Equity
Appreciation Rights Plan for management and key employees (the "Plan"), with
an effective date of May 1, 1996. A committee has been appointed by the Company
to administer and interpret this Plan. The amount payable by the Company with
respect to any Appreciation Rights exercised will equal the excess, if any, of
the value at December 31 of the preceding year over the original grant value.
Based upon a valuation, the Company has recognized a non-cash charge to earnings
of approximately $6,500 in the three months ended March 31, 1998 to reflect its
estimated liability under the Plan as of March 31, 1998.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Management's Discussion and Analysis included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
INTRODUCTION
Fox/Liberty Networks, LLC (together with its subsidiaries, the "Company") was
formed as a holding company with ownership interests in two principal business
units: (i) a sports programming business, consisting of interests in regional
sports networks ("RSNs") and Fox Sports Net ("FSN"), a national sports
programming service that provides its affiliated RSNs with 24 hour per day
national sports programming featuring live and replay sporting events and
original programming, including a national sports news program, Fox Sports News,
and (ii) FX Network ("FX"), a general entertainment network. The Company was
formed in April 1996, pursuant to a 50%/50% joint venture (the "Fox/Liberty
Joint Venture") between The Fox Group ("Fox"), a division of News America
Incorporated, an indirect subsidiary of The News Corporation Limited ("News
Corporation") and Liberty Media Corporation ("Liberty"), a wholly-owned
subsidiary of Tele-Communications, Inc. ("TCI"). In establishing the Fox/Liberty
Joint Venture, Fox contributed $244 million in cash, certain assets related to
the operation of a regional sports business and all of the assets and
liabilities of FX. Liberty contributed its interests in regional sports
programming businesses (which then operated under the name "Prime Sports"),
interests in non-managed sports businesses, satellite distribution services and
technical facilities.
In December 1997, the Company consummated a transaction (the "Rainbow
Transaction") with Rainbow Media Sports Holdings, Inc. ("Rainbow"), an indirect
subsidiary of Cablevision Systems Corporation ("Cablevision"), pursuant to which
(i) the Company acquired a 40% interest in Regional Programming Partners ("RPP")
which was formed to hold interests in Rainbow's then existing RSNs and Madison
Square Garden, L.P. (which, in addition to owning two RSNs, owns the Madison
Square Garden entertainment complex, Radio City Productions LLC, the New York
Rangers, a professional hockey team, and the New York Knicks, a professional
basketball team), (ii) the Company and Rainbow formed National Sports Partners
(the "National Sports Partnership") as a 50%/50% partnership to operate FSN and
(iii) the Company and Rainbow formed National Advertising Partners (the
"National Advertising Partnership") as a 50%/50% partnership to act as a
national advertising sales representative for the RSNs which are affiliated with
FSN. RPP is managed by Rainbow, while the National Sports Partnership and the
National Advertising Partnership are managed by the Company.
After giving effect to the Rainbow Transaction, the Company's interests in the
sports programming business are derived through its 99% ownership interests in
Fox Sports Net, LLC ("Fox/Liberty Sports") and Fox Sports RPP Holdings, LLC
("Fox Sports RPP"), and its interest in FX is derived through its 99% ownership
interest in FX Networks, LLC ("Fox/Liberty FX").
In August 1997, the Company and FLN Finance, Inc. ("FLN"), a subsidiary of the
Company privately placed $500.0 million aggregate principal amount of their 8
7/8% Senior Notes due 2007 (the "Old Senior Notes") and $405.0 million aggregate
principal amount at maturity ($252.3 million gross proceeds) of their 9 3/4%
Senior Discount Notes due 2007 (the "Old Senior Discount Notes" and together
with the Old Senior Notes, the "Old Notes") in a transaction exempt from
registration under the Securities and Exchange Act of 1933, as amended ("1933
Act"), pursuant to Rule 144A promulgated thereunder (the "Offering"). The net
proceeds from the Offering were used, along with proceeds from the Bank Facility
(as defined below), to finance the Rainbow Transaction. In January 1998,
pursuant to an exchange offer (the "Exchange Offer"), the Company exchanged all
of the Old Notes for new notes (the "Notes") which were registered by the
Company under the 1933 Act. The terms of the Notes are substantially identical
to the terms of the Old Notes. The Company received no proceeds from the
issuance of the Notes in the Exchange Offer.
In connection with the consummation of the Rainbow Transaction, the Company
and a group of banks led by Chase Manhattan Bank, amended and restated an
existing credit agreement to permit borrowings by Fox/Liberty Sports, Fox Sports
RPP and Fox/Liberty FX, each a subsidiary of the Company (together, the "Co-
Borrowers"), in the amount of $800.0 million (the "Bank Facility"). The Bank
Facility is comprised of a $400.0 million revolving credit facility and a $400.0
million term loan facility. The proceeds of the loans under the Bank Facility
were used to finance, in part, the Rainbow Transaction. The Company currently
expects that remaining availability will primarily be used for investments in
certain subsidiaries of the Company and for working capital purposes.
6
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Borrowings under the Bank Facility are unconditionally guaranteed by certain
RSNs that are wholly owned, directly or indirectly, by the Co-Borrowers and by
certain of the Co-Borrowers' subsidiaries that hold the direct interest in
RSNs that are not wholly owned, directly or indirectly, by the Co-Borrowers. The
Company also provides a parent company guarantee of the borrowings under the
Bank Facility. In addition, borrowings under the Bank Facility and the
guarantees are secured by substantially all of the equity interests of the Co-
Borrowers (other than Fox Sports RPP) and the equity interests held by the Co-
Borrowers (other than Fox Sports RPP) and their subsidiaries in certain related
entities.
SIGNIFICANT ACCOUNTING PRACTICES
Basis of Presentation
The Company's ownership interests in the RSNs are held either directly or
indirectly and have different voting rights attached thereto. The Company
consolidates all subsidiaries in which it has a majority interest and voting
control. The percentage of ownership, together with the degree to which the
Company controls the management and operation of an RSN, determines the
appropriate accounting treatment for the Company's interest in that particular
RSN. If the Company owns a majority interest in a particular RSN, but does not
have voting control, the ownership interest is accounted for using the equity
method of accounting. Under the equity method of accounting, the financial
condition and results of operations of entities are not reflected on a
consolidated basis and, accordingly, the consolidated revenues and expenses of
the Company, as reported on its consolidated statements of operations, do not
include revenues and expenses related to the entities accounted for under the
equity method.
The following RSNs, together with Fox Sports Direct and Fox/Liberty FX, are
consolidated in the financial statements of the Company, at March 31, 1998: West
RSN, West 2 RSN, Northwest RSN, Utah RSN, Arizona RSN, South RSN, Southwest RSN,
Rocky Mountain RSN, Midwest RSN and Detroit RSN.
As of March 31, 1998, the following are accounted for using the equity method
of accounting: Pittsburgh RSN, Sunshine RSN, Chicago RSN, Bay Area RSN,
D.C./Baltimore RSN, RPP, National Sports Partnership and National Advertising
Partnership.
In connection with the consummation of the Rainbow Transaction in December
1997, the Company contributed certain business interests and other assets
related to national sports programming to the National Sports Partnership and
certain assets related to advertising sales to the National Advertising
Partnership. The Company holds 50% partnership interests in each partnership.
Whereas the assets and liabilities, and the results of operations of FSN, the
national sports programming business and the national advertising sales
representation business were consolidated prior to the Rainbow Transaction, the
National Sports Partnership and the National Advertising Partnership are each
accounted for under the equity method.
On March 13, 1997, upon the acquisition of the remaining interests in
Affiliated Regional Communications, Ltd. and affiliates ("ARC") by Liberty/Fox
ARC LP ("ARC LP"), the Company assumed management control of the consolidated
subsidiaries of ARC LP, and from that date the consolidated subsidiaries of ARC
and their operations were consolidated with the Company.
Entities that are consolidated in the financial statements of the Company, at
March 31, 1997, therefore include subsidiary entities which own Fox/Liberty FX,
West RSN, West 2 RSN, Northwest RSN, Utah RSN, Arizona RSN, South RSN and Fox
Sports Ad Sales, as well as certain operations within Fox Sports Net and,
subsequent to March 13, 1997 Fox Sports Direct, Southwest RSN, Rocky Mountain
RSN and Midwest RSN. The Detroit RSN was launched in September 1997.
As of March 31, 1997, the following RSNs are accounted for using the equity
method of accounting: Pittsburgh RSN, Sunshine RSN, Chicago RSN, Bay Area RSN
and D.C./Baltimore RSN, as well as certain operations within Fox Sports Net.
7
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Because the Company reports the results of a significant number of its
subsidiary entities on the equity method, its financial results do not represent
the total combined revenues and expenses of the entire Company. As a result of
the various acquisitions and sales in recent years, which in turn impact the
accounting treatment of many of the Company's subsidiary entities, comparability
of the Company's historical financial results is affected.
RESULTS OF OPERATIONS
Three months ended March 31, 1998 as compared with the three months ended March
31, 1997
As discussed above, the Company has certain subsidiaries that are consolidated
and others, which are accounted for under the equity method of accounting. The
comparability of the three months ended March 31, 1998 to the three months ended
March 31, 1997 is affected significantly by three events: 1) on March 13, 1997,
upon the acquisition of the remaining interests in ARC by ARC LP, the Company
assumed management control of ARC and subsequent to that date Fox Sports Direct,
Southwest RSN, Midwest RSN and Rocky Mountain RSN were consolidated, 2) Detroit
RSN was launched in September 1997 and 3) the operations of FSN were contributed
to the National Sports Partnership in December 1997 and subsequent to the date
of the contribution were accounted for under the equity method.
Total revenues for the three months ended March 31, 1998 was $156.6 million,
an increase of $64.3 million, or 70%, over the three months ended March 31,
1997. Had the remaining interests in ARC been acquired at the beginning of the
three months ended March 31, 1997, total revenues would have increased by $29.9
million for the period. The impact of the launch of Detroit RSN and the
formation of the National Sports Partnership were substantially offsetting and
much less significant to total revenues. The increase in total revenue between
the three month periods would have been 26%, or $30.0 million, had ARC been
consolidated for the entire period, and excluding Detroit RSN and the impact of
FSN.
Programming revenue was the largest source of revenue, representing 47% of
total revenue, or $74.0 million, for the three months ended March 31, 1998.
Advertising and direct broadcast revenue represent 24% and 19%, respectively, of
total revenue, or $37.3 million and $29.7 million, respectively, for the three
months ended March 31, 1998. For the three months ended March 31, 1997,
programming revenue was $48.8 million and advertising and direct broadcast
revenue were $23.7 and $11.4 million, respectively. Had ARC been consolidated
for the entire period ended March 31, 1997 and excluding the impact of FSN,
programming, advertising and direct broadcast revenue would have been $54.4
million, $25.2 million and $28.0 million respectively in the three months ended
March 31, 1997. On this basis, as a percentage of total revenue for the three
months ended March 31, 1997, programming, advertising and direct broadcast
revenue represented 47%, 22% and 24%, respectively. Excluding the Detroit RSN
and the impact of FSN, programming, advertising and direct broadcast revenue for
the three months ended March 31, 1998 represented 46%, 25% and 20%,
respectively, of total revenue.
Had ARC been consolidated for the entire three months ended March 31, 1997,
and excluding Detroit RSN and the impact of FSN, programming and advertising
revenue would have increased by $12.1 million and $10.6 million, respectively in
the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997. These increases represent a 22% increase and 42% increase in
programming and advertising revenue, respectively, between the periods. On the
same basis, direct broadcast revenue would have increased by $0.9 million, or
3%, between the periods. The increase in programming revenue of 22% is comprised
primarily of an increase in subscribers at West 2 RSN which launched on January
31, 1997, a 4.5% subscriber growth in other RSNs and the continued subscriber
growth of FX, which reached 33.6 million subscribers as of March 31, 1998, a
9.4% increase over March 31, 1997. Rate increases comprised the balance of the
increase between periods. The increase in advertising revenue of 42% is
comprised of an 86% increase in advertising revenue by FX and a 28% increase by
RSNs, other than Detroit RSN. Primetime Monday through Sunday ratings on FX
increased by 54% in the three months ended March 31, 1998 over the same period
in the previous year due primarily to the addition of The X-Files and NYPD Blue
to the primetime schedule in the fall of 1997. The increased ratings together
with increased subscribers resulted in the significant increase in advertising
revenue. The RSNs growth in advertising revenue is due primarily to increased
advertising rates. Due to the Olympic hiatus, RSNs broadcast 21% fewer local NHL
games in the three months ended March 31, 1998 as compared to the three months
ended March 31, 1997. The number of NBA events increased between these same
periods. Advertising rates increased for both NHL and NBA events in the three
months ended March 31, 1998 as compared to the same period in the previous year.
8
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advertising revenue in the three months ended March 31, 1998 for these events,
as compared to the same period in the previous year.
Operating expenses totaled $113.2 million for the three months ended March 31,
1998, which represented 72% of total revenues. These expenses consist primarily
of programming and production costs. Operating expenses for the three months
ended March 31, 1997 totaled $80.2 million, or 87% of total revenues. Had ARC
been consolidated for the entire three months ended March 31, 1997, and
excluding Detroit RSN and the impact of FSN, operating expenses for the three
months ended March 31, 1998 and 1997 would have been $103.2 million and $85.3
million, respectively. On this basis, operating expenses represent 71% and 74%
of total revenues for the three months ended March 31, 1998 and 1997,
respectively. The increase in operating expenses is attributable to an increase
in the number of professional events, primarily NBA, as well as increased
programming rights fees of RSNs due to renegotiated and newly entered into
sports rights agreements. Additionally, programming expenses of FX increased
relating to newly launched programs subsequent to the three month period ended
March 31, 1997.
General and administrative expenses totaled $21.0 million for the three months
ended March 31, 1998, which represented 13% of total revenues. General and
administrative expenses for the three months ended March 31, 1997 totaled $12.5
million, or 13% of total revenues. A non-cash charge to earnings was taken in
the three months ended March 31, 1998 with respect to an equity appreciation
rights plan in the amount of $6.5 million. Had ARC been consolidated for the
entire three months ended March 31, 1997, and excluding Detroit RSN and the
benefit plan charge, general and administrative expenses would have increased by
2% in the three month period ended March 31, 1998 as compared to the same
period in the previous year.
Depreciation and amortization expenses totaled $5.2 million and $3.7 million
for the three months ended March 31, 1998 and 1997, respectively. Of these
amounts, $3.5 million and $2.3 million were related to amortization of excess
cost from acquisitions of programming entities consolidated with the Company.
The increase is primarily due to the consolidation of ARC.
Interest expense for the three months ended March 31, 1998 totaled $27.7
million as a result of $1.3 billion of debt outstanding as of March 31, 1998.
Interest expense for the three months ended March 31, 1997 totaled $7.7 million,
which related to $263.2 million of outstanding indebtedness as of March 31,
1997. The increase in the amount of debt is attributable to (i) the Offering,
pursuant to which the Company incurred $752.3 million of debt; (ii) the Bank
Facility and indebtedness thereunder in the amount of $470.0 million; (iii) the
acquisition of certain assets in connection with the commencement of operations
of the Detroit RSN, pursuant to which the Company incurred $25.7 million of
debt; and (iv) extinguishment of debt of $200 million.
Equity income of affiliates for the three months ended March 31, 1998 was $5.9
million, an increase of $1.4 million, or 32%, over equity income of $4.5 million
for the three months ended March 31, 1997. For the three months ended March 31,
1998, equity income of affiliates includes the Company's equity interest in the
operations of the National Sports Partnership and the National Advertising
Partnership, whose operations were consolidated prior to the Rainbow Transaction
and RPP. For the three months ended March 31, 1997, equity income of affiliates
included the Company's equity interest in ARC and its related subsidiaries
through March 13, 1997. For the three months ended March 31, 1998, equity
income of affiliates includes the effect of $1.9 million in amortization of
excess cost relating to the Company's investment in RPP and a $7.1 million gain
on sale of 50% of RPP's investment in New England RSN.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from (i) the funding of operating
losses and other general working capital needs, (ii) its strategic plan to
secure national distribution for its network programming, either through the
acquisition of existing third party-owned RSNs or through the launch of new
RSNs, (iii) the acquisition of additional programming rights, and (iv) its
capital expenditure requirements, which include the Company's plans to convert
to digital transmission.
9
<PAGE>
Net cash provided by operating activities of the Company for the three months
ended March 31, 1998 was $11.5 million. Net cash used in operating activities of
the Company for the three months ended March 31, 1997 was $9.2 million.
Net cash used in investing activities of the Company for the three months
ended March 31, 1998 and for the three months ended March 31, 1997 was $10.9
million and $1.1 million, respectively.
Net cash provided by financing activities of the Company for the three months
ended March 31, 1998 was $41.3 million. Net cash used in financing activities of
the Company for the three months ended March 31, 1997 was $7.8 million.
In August 1997, the Company issued $500.0 million aggregate principal amount
of its 8 7/8 % Senior Notes due 2007 and $405.0 million aggregate principal
amount at maturity of its 9 3/4 % Senior Discount Notes due 2007 through a
public debt offering. The indentures pursuant to which the Notes were issued
include certain covenants regarding, among other things, limitations on the
incurrence of debt and distributions to partners.
The Company has several credit facilities with different banks. The credit
facilities restrict the amount of distributions that can be made to Members, and
contain certain restrictive covenants regarding, among other things, the
maintenance of certain financial ratios and restrictions on the distribution of
assets. During the three months ended March 31, 1998, the Company incurred net
borrowings of $8.4 million bringing the total amount borrowed under these credit
facilities to $480.9 million as of March 31, 1998. The total unused commitments
pursuant to these credit facilities were $330.0 million as of March 31, 1998.
Future capital requirements will be substantial as the Company continues to
invest in developing networks, acquire sports programming rights and explore
opportunities to expand its distribution. Although no assurances can be given in
this regard, the Company believes that the proceeds from the Notes, together
with existing funds and the proceeds from borrowings under its credit
facilities, will be sufficient to meet its plan to secure national distribution,
maintain and/or acquire programming, make anticipated capital expenditures, and
meet its projected working capital requirements.
YEAR 2000
The Company has begun to develop plans to address the changes that need to be
made to its computer systems and applications for the implications of the Year
2000 date change. These changes are necessary to ensure that the systems and
applications will recognize and process dates with the Year 2000 and beyond. The
Company is also communicating with its application vendors, suppliers, financial
institutions and others with which it is doing business to address the impact of
the Year 2000. The Company does not anticipate that the financial impact of
making the required changes to its systems and applications will be material to
the Company's consolidated financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1998 there are no material pending legal proceedings against
the Company, other than routine litigation incidental to the Company's business,
except as described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
On November 24, 1997, Echostar Communications Corporation ("Echostar") filed a
complaint with the Federal Communications Commission ("FCC") against the Company
alleging that the Company had violated Section 548 of the Communications Act of
1934, as amended (the "Communications Act") and Section 76.1000 et seq. of the
FCC Rules (the "FCC Rules") by refusing to provide certain programming to
Echostar due to exclusive distribution rights it had previously granted cable
operators. The complaint alleges that even though the exclusive contracts were
valid when executed, such contracts cannot be enforced because the Company
became a "vertically integrated programming vendor" and is therefore obligated
by law to make its programming available to all distributors. Echostar
requested the FCC to declare that the Company's exclusive contracts violate the
Communications Act and the FCC Rules, to immediately require the Company to make
its programming available to Echostar on nondiscriminatory terms and conditions,
and for damages in an unspecified amount. On December 24, 1997, the Company
filed a response to the Echostar complaint denying any violation of the
Communications Act and the FCC Rules. On April 7, 1998, Corporate Media
Partners filed an identical complaint with the FCC, which the Company answered
on April 16, 1998. On April 17, 1998, the FCC decided the Echostar complaint by
concluding that the exclusivity provisions in the Company's contracts violated
the Communications Act and FCC Rules, and ordering the Company to make its
programming available to Echostar. The FCC refused to grant Echostar's request
for damages. On April 24, 1998, the FCC reached the same conclusion in the
Corporate Media Partners proceeding. The Company believes that neither decision
will have a material adverse effect on the Company's consolidated financial
position or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 1998, the Company and FLN Finance, Inc. ("FLN"), a subsidiary of
the Company, exchanged (i) $500.0 million aggregate principal amount of 8 7/8%
Senior Notes Due 2007 (the "Senior Notes") of the Company and FLN, for a like
amount of the privately placed Old Senior Notes of the Company and FLN issued on
August 25, 1997, and (ii) $405.0 million aggregate principal amount at maturity
of 9 3/4% Senior Discount Notes Due 2007 (the "Senior Discount Notes") of the
Company and FLN for a like amount of the privately placed Old Senior Discount
Notes of the Company and FLN issued on August 25, 1997. The Senior Notes and
the Senior Discount Notes were offered by the Company and FLN in exchange for
the Old Senior Notes and the Old Senior Discount Notes, respectively, to satisfy
the obligations of the Company under two separate and substantially identical
registration rights agreements with respect to the Old Senior Notes and the Old
Senior Discount Notes, respectively, each dated August 25, 1997 (together, the
"Registration Rights Agreement"), and each by and among the Company, FLN and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bear, Stearns & Co. Inc.
The form and terms of the Senior Notes and the Senior Discount Notes are
identical in all material respects to the form and terms of the Old Senior Notes
and Old Senior Discount Notes, respectively, except that (i) the Senior Notes
and the Senior Discount Notes have been registered under the 1933 Act, as
amended, and (ii) holders of the Senior Notes and the Senior Discount Notes are
not entitled to certain rights of holders of the Old Senior Notes and the Old
Senior Discount Notes under the Registration Rights Agreement (which rights
terminated upon consummation of the exchange).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
4.1 First Supplemental Indenture, dated as of March 31, 1998 to the Senior
Notes Indenture, dated as of August 25, 1997, among Fox/Liberty Networks,
LLC and FLN Finance, Inc., as co-obligors, and the Bank of New York, as
Trustee.
4.2 First Supplemental Indenture, dated as of March 31, 1998 to the Senior
Discount Notes Indenture, dated as of August 25, 1997, among Fox/Liberty
Networks, LLC and FLN Finance, Inc., as co-obligors, and the Bank of New
York, as Trustee.
10.1 First Amendment to the Credit Agreement, dated as of April 20, 1998,
among Fox Sports Net, LLC, FX Networks, LLC, Fox Sports RPP Holdings,
LLC, as Borrowers and Fox/Liberty Networks, LLC and The Chase Manhattan
Bank, as Administrative Agent, Chase Securities Inc., as Syndication
Agent and TD Securities (USA) Inc., as Documentation Agent.
10.2 Second Amendment to the Credit Agreement, dated April 24, 1998, among Fox
Sports Net, LLC, FX Networks, LLC, Fox Sports RPP Holdings, LLC, as
Borrowers and Fox/Liberty Networks, LLC and The Chase Manhattan Bank, as
Administrative Agent, Chase Securities Inc., as Syndication Agent and TD
Securities (USA) Inc., as Documentation Agent.
27 Financial Data Schedule (for SEC purposes only).
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last three months of the
period covered by this report.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOX/LIBERTY NETWORKS, LLC
Dated: May 15, 1998
By: /s/ Jeff Shell
-----------------------------
Jeff Shell
Executive Vice President and
Chief Financial Officer
Dated: May 15, 1998
By: /s/ Jeff Shell
-----------------------------
Jeff Shell
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
- -----------
4.1 First Supplemental Indenture, dated as of March 31, 1998 to the Senior
Notes Indenture, dated as of August 25, 1997, among Fox/Liberty Networks,
LLC and FLN Finance, Inc., as co-obligors, and the Bank of New York, as
Trustee.
4.2 First Supplemental Indenture, dated as of March 31, 1998 to the Senior
Discount Notes Indenture, dated as of August 25, 1997, among Fox/Liberty
Networks, LLC and FLN Finance, Inc., as co-obligors, and the Bank of New
York, as Trustee.
10.1 First Amendment to the Credit Agreement, dated as of April 20, 1998 among
Fox Sports Net, LLC, FX Networks, LLC, Fox Sports RPP Holdings, LLC, as
Borrowers and Fox/Liberty Networks, LLC and The Chase Manhattan Bank, as
Administrative Agent, Chase Securities Inc., as Syndication Agent and TD
Securities (USA) Inc., as Documentation Agent.
10.2 Second Amendment to the Credit Agreement, dated as of April 24,1998,
among Fox Sports Net, LLC, FX Networks, LLC, Fox Sports RPP Holdings,
LLC, as Borrowers and Fox/Liberty Networks, LLC and The Chase Manhattan
Bank, as Administrative Agent, Chase Securities Inc., as Syndication
Agent and TD Securities (USA) Inc., as Documentation Agent.
27 Financial Data Schedule (for SEC purposes only).
14
<PAGE>
EXHIBIT 4.1
This FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental Indenture")
among FOX/LIBERTY NETWORKS, LLC ("Networks"), a Delaware limited
liability company, FLN FINANCE, INC. ("FLN"), a Delaware corporation,
and THE BANK OF NEW YORK, a New York banking corporation (the
"Trustee"), as trustee, is made and entered into as of March 31, 1998.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Networks and FLN have executed and delivered to the Trustee an
Indenture dated as of August 25, 1997 (the "Original Indenture" and, as
supplemented by this First Supplemental Indenture, the "Indenture"), providing
for the issuance and sale by Networks and FLN of Series A Senior Notes Due 2007
(the "Initial Notes") and Series B Senior Notes Due 2007 issued pursuant to an
exchange for Initial Notes; and
WHEREAS, all capitalized items used herein which are defined in the
Original Indenture shall have the meanings assigned to them in the Original
Indenture unless otherwise defined herein; and
WHEREAS, Section 9.1 of the Original Indenture permits amendments to the
Original Indenture without the consent of the Holders under certain conditions;
and
WHEREAS, Networks and FLN, pursuant to the foregoing authority, propose in
and by this First Supplemental Indenture, to supplement and amend the Original
Indenture as set forth herein; and
WHEREAS, Networks and FLN have duly authorized the execution and delivery
of this First Supplemental Indenture;
AGREEMENT OF THE PARTIES
NOW, THEREFORE, Networks, FLN and the Trustee, acting pursuant to Section
9.1 of the Original Indenture, hereby agree that the following Articles amend
and supplement the Original Indenture as set forth herein:
<PAGE>
ARTICLE I
---------
The following definition contained in Section 1.1 of the Original Indenture
is hereby amended to read in its entirety as follows:
"Unrestricted Subsidiary" means, as of the date of the Indenture,
Liberty/Fox Arizona LLC, Prime Ticket Networks, L.P., Liberty/Fox
Distribution L.P., Liberty/Fox Network Programming, LLC, Rocky
Mountain Prime Sports Network, SportsChannel Chicago Associates,
SportsChannel Pacific Associates, Fox Sports Detroit, LLC, Sunshine
Network, Fox/Liberty Ad Sales, LLC, Liberty/Fox Upper Midwest, LLC,
Liberty/Fox Canada, LLC and each other Subsidiary of the Company
designated as such pursuant to and in compliance with Section 10.18.
Any such Designation may be revoked by Board Resolution of the Company
delivered to the Trustee, subject to the provisions of Section 10.18.
ARTICLE II
----------
The final paragraph of Section 10.18(a) is hereby amended to read in its
entirety as follows:
The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, at any time (x) provide credit support for
or subject any of its property or assets (other than the Capital Stock
of any Unrestricted Subsidiary) to the satisfaction of, any
Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness),
(y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary or (z) be directly or indirectly liable for
any Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the
payment thereof to be accelerated or payable prior to its final
scheduled maturity upon the occurrence of a default with respect to
any Indebtedness of any Unrestricted Subsidiary (including any right
to take enforcement action against such Unrestricted Subsidiary),
except as part of or in connection with a Permitted Investment or any
non-recourse guarantee given solely to support the pledge by the
Company or any Restricted Subsidiary of the Capital Stock of an
Unrestricted Subsidiary. No Unrestricted Subsidiary shall at any time
guarantee or otherwise provide credit support for any obligation of
the Company or any Restricted Subsidiary, except as provided in the
Bank Credit Agreement. All Subsidiaries of Unrestricted
2
<PAGE>
Subsidiaries shall automatically be deemed to be Unrestricted
Subsidiaries.
Except as specifically modified herein, the Original Indenture is and shall
continue to be in full force and effect and is hereby in all respects ratified
and confirmed.
This First Supplemental Indenture may be executed in two or more
counterparts, all of which shall be considered the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the date first above written.
FOX/LIBERTY NETWORKS, LLC
By: /s/ Jeff Shell
-------------------------------------
Name: Jeff Shell
Title: Executive Vice President and Chief
Financial Officer
FLN FINANCE, INC.
By: /s/ Jeff Shell
-------------------------------------
Name: Jeff Shell
Title: Executive Vice President and Chief
Financial Officer
THE BANK OF NEW YORK
By: /s/ Michael Culhane
-------------------------------------
Name: Michael Culhane
Title: Vice President
3
<PAGE>
EXHIBIT 4.2
This FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental Indenture")
among FOX/LIBERTY NETWORKS, LLC ("Networks"), a Delaware limited
liability company, FLN FINANCE, INC. ("FLN"), a Delaware corporation,
and THE BANK OF NEW YORK, a New York banking corporation (the
"Trustee"), as trustee, is made and entered into as of March 31, 1998.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Networks and FLN have executed and delivered to the Trustee an
Indenture dated as of August 25, 1997 (the "Original Indenture" and, as
supplemented by this First Supplemental Indenture, the "Indenture"), providing
for the issuance and sale by Networks and FLN of Series A Senior Discount Notes
Due 2007 (the "Initial Notes") and Series B Senior Discount Notes Due 2007
issued pursuant to an exchange for Initial Notes; and
WHEREAS, all capitalized items used herein which are defined in the
Original Indenture shall have the meanings assigned to them in the Original
Indenture unless otherwise defined herein; and
WHEREAS, Section 9.1 of the Original Indenture permits amendments to the
Original Indenture without the consent of the Holders under certain conditions;
and
WHEREAS, Networks and FLN, pursuant to the foregoing authority, propose in
and by this First Supplemental Indenture, to supplement and amend the Original
Indenture as set forth herein; and
WHEREAS, Networks and FLN have duly authorized the execution and delivery
of this First Supplemental Indenture;
AGREEMENT OF THE PARTIES
NOW, THEREFORE, Networks, FLN and the Trustee, acting pursuant to Section
9.1 of the Original Indenture, hereby agree that the following Articles amend
and supplement the Original Indenture as set forth herein:
<PAGE>
ARTICLE I
---------
The following definition contained in Section 1.1 of the Original Indenture
is hereby amended to read in its entirety as follows:
"Unrestricted Subsidiary" means, as of the date of the Indenture,
Liberty/Fox Arizona LLC, Prime Ticket Networks, L.P., Liberty/Fox
Distribution L.P., Liberty/Fox Network Programming, LLC, Rocky
Mountain Prime Sports Network, SportsChannel Chicago Associates,
SportsChannel Pacific Associates, Fox Sports Detroit, LLC, Sunshine
Network, Fox/Liberty Ad Sales, LLC, Liberty/Fox Upper Midwest, LLC,
Liberty/Fox Canada, LLC and each other Subsidiary of the Company
designated as such pursuant to and in compliance with Section 10.18.
Any such Designation may be revoked by Board Resolution of the Company
delivered to the Trustee, subject to the provisions of Section 10.18.
ARTICLE II
----------
The final paragraph of Section 10.18(a) is hereby amended to read in its
entirety as follows:
The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, at any time (x) provide credit support for
or subject any of its property or assets (other than the Capital Stock
of any Unrestricted Subsidiary) to the satisfaction of, any
Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness),
(y) be directly or indirectly liable for any Indebtedness of any
Unrestricted Subsidiary or (z) be directly or indirectly liable for
any Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the
payment thereof to be accelerated or payable prior to its final
scheduled maturity upon the occurrence of a default with respect to
any Indebtedness of any Unrestricted Subsidiary (including any right
to take enforcement action against such Unrestricted Subsidiary),
except as part of or in connection with a Permitted Investment or any
non-recourse guarantee given solely to support the pledge by the
Company or any Restricted Subsidiary of the Capital Stock of an
Unrestricted Subsidiary. No Unrestricted Subsidiary shall at any time
guarantee or otherwise provide credit support for any obligation of
the Company or any Restricted Subsidiary, except as provided in the
Bank Credit Agreement. All Subsidiaries of Unrestricted
2
<PAGE>
Subsidiaries shall automatically be deemed to be Unrestricted
Subsidiaries.
Except as specifically modified herein, the Original Indenture is and shall
continue to be in full force and effect and is hereby in all respects ratified
and confirmed.
This First Supplemental Indenture may be executed in two or more
counterparts, all of which shall be considered the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the date first above written.
FOX/LIBERTY NETWORKS, LLC
By: /s/ Jeff Shell
--------------------------------------
Name: Jeff Shell
Title: Executive Vice President and Chief
Financial Officer
FLN FINANCE, INC.
By: /s/ Jeff Shell
--------------------------------------
Name: Jeff Shell
Title: Executive Vice President and Chief
Financial Officer
THE BANK OF NEW YORK
By: /s/ Michael Culhane
--------------------------------------
Name: Michael Culhane
Title: Vice President
3
<PAGE>
EXHIBIT 10.1
------------
FIRST AMENDMENT, dated as of April 20, 1998 (this "Amendment"), to the CREDIT
---------
AGREEMENT, dated as of December 15, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among Fox Sports Net, LLC,
----------------
fX Networks, LLC, Fox Sports RPP Holdings, LLC (collectively, the "Borrower"),
--------
Fox/Liberty Networks, LLC, the Lenders parties to the Credit Agreement, the
Syndication Agent and Documentation Agent named therein and The Chase Manhattan
Bank, as Administrative Agent. Terms defined in the Credit Agreement shall be
used in this Amendment with their defined meanings unless otherwise defined
herein.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower and Fox/Liberty have requested certain amendments to the
Credit Agreement as set forth herein; and
WHEREAS, the parties hereto are willing to agree to such amendments on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
I. AMENDMENTS.
----------
1. Section 6.2. Paragraph (e) of Section 6.2 of the Credit Agreement is
-----------
hereby amended and restated in its entirety as follows:
"(e) Guarantee Obligations incurred in the ordinary course of business by
any Loan Party in respect of obligations permitted by this Agreement to be
incurred by (i) the Borrower or any Wholly Owned Restricted Group
Subsidiary or (ii) any Limited Group Member so long as, in the case of this
clause (ii), (x) except in the case of Fox Sports Net, the obligations so
guaranteed consist of obligations related to an RSN, (y) the maximum amount
(the "Stated Maximum Guarantee Amount") available to be drawn in respect
thereof is expressly stated in the documents pursuant to which such
Guarantee Obligation is created and (z) such Guarantee Obligation is
permitted by Section 6.7(g) (it being understood that, for the purposes of
clause (iii) of said Section, the amount of the Investment resulting from
such Guarantee Obligation shall equal the Stated Maximum Guarantee
Amount);"
2. Section 6.7. Section 6.7 of the Credit Agreement is hereby amended by
-----------
adding the following new paragraph (m) to the end thereof:
"(m) (i) the acquisition of an approximately 92% profits interest and a
100% capital interest in FIT TV Partnership, a Delaware general
partnership ("FIT TV"), for an aggregate purchase price not to exceed
$18,000,000, (ii) the acquisition of a 20% membership interest in Body By
Jake Enterprises, L.L.C., a Delaware limited liability company ("BBJ"),
for an aggregate purchase price not to exceed $1,000,000 and (iii)
subsequent Investments in FIT TV and BBJ in an aggregate amount not to
exceed $35,000,000 during the term of this Agreement"
3. Section 6.14. Section 6.14 of the Credit Agreement is hereby amended
------------
by adding the following sentence to the end thereof:
"Notwithstanding anything to the contrary in this Section 6.14, the Loan
Parties shall be permitted to incur Guarantee Obligations of the type
described in Section 6.2(e)(ii)."
15
<PAGE>
4. Schedule 3.15. Schedule 3.15 of the Credit Agreement is hereby amended
-------------
as follows:
(a) by deleting MASN Holdings, LLC from the list of Unrestricted Group
Subsidiaries and adding it to the list of Restricted Group Subsidiaries
under its new name, SportSouth Holdings, LLC, reflecting a change in its
common ownership interest to 50% Liberty/Fox Southeast LLC and 50% LMC
Southeast Sports Inc. and reflecting further Liberty/Fox Southeast, LLC's
preferred interest in an amount equal to its capital contributions to
SportSouth Holdings, LLC plus a 15% return, compounded monthly;
(b) by reflecting a change in the ownership of SportSouth Network, Ltd.
to evidence the transfer by LMC Southeast Sports Inc. of a 44% profits
interest in SportSouth Network, Ltd. to SportSouth Holdings, LLC; and
(c) by adding to the list of Unrestricted Group Subsidiaries, BB Fit
Holdings, LLC, a Delaware limited liability company 100% of the membership
interest of which is owned by SportSouth Holdings, LLC, FIT TV Holdings,
LLC, a Delaware limited liability company 100% of the membership interest
of which is owned by BB Fit Holdings, LLC, and FIT TV Partnership, a
Delaware general partnership of which 100% of the capital interest and 92%
of the profits interest are owned by FIT TV Holdings, LLC and the remaining
8% profits interest is held by third parties.
II. MISCELLANEOUS.
-------------
1. Representations and Warranties. The Borrower hereby represents and
------------------------------
warrants as of the date hereof that, after giving effect to this Amendment, (a)
no Default or Event of Default has occurred and is continuing and (b) each of
the representations and warranties made by any Loan Party in or pursuant to the
Loan Documents shall be true and correct in all material respects on and as of
such date as if made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case such representations and warranties shall have been true and correct in all
material respects on and as of such earlier date.
2. Expenses. The Borrower agrees to pay or reimburse the Administrative
--------
Agent on demand for all its reasonable out-of-pocket costs and expenses incurred
in connection with the preparation and execution of this Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
3. No Change. Except as expressly provided herein, no term or
---------
provision of the Credit Agreement shall be amended, modified or supplemented,
and each term and provision of the Credit Agreement shall remain in full force
and effect.
4. Effectiveness. This Amendment shall become effective as of the date
-------------
hereof upon receipt by the Administrative Agent of (a) an executed counterpart
of this Amendment from Fox/Liberty and the Borrower and (b) executed Lender
Consent Letters (or facsimile transmissions thereof) from the Required Lenders
consenting to the execution of this Amendment by the Administrative Agent.
5. Counterparts. This Amendment may be executed by the parties hereto
------------
in any number of separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ITS CONFLICT OF LAWS RULES.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
date first above written.
FOX SPORTS NET, LLC
By: /s/ Jeff Shell
--------------
Name: Jeff Shell
Title: Executive Vice President and
Chief Financial Officer
FX NETWORKS, LLC
By: /s/ Jeff Shell
--------------
Name: Jeff Shell
Title: Executive Vice President and
Chief Financial Officer
FOX SPORTS RPP HOLDINGS, LLC
By: /s/ Jeff Shell
--------------
Name: Jeff Shell
Title: Executive Vice President and
Chief Financial Officer
FOX/LIBERTY NETWORKS, LLC
By: /s/ Jeff Shell
--------------
Name: Jeff Shell
Title: Executive Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK, as Administrative Agent
By: /s/ John Haltmaier
------------------
Name: John Haltmaier
Title: Vice President
17
<PAGE>
EXHIBIT 10.2
------------
SECOND AMENDMENT, dated as of April 24, 1998 (this "Amendment"), to the CREDIT
---------
AGREEMENT, dated as of December 15, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among Fox Sports Net, LLC,
----------------
fX Networks, LLC, Fox Sports RPP Holdings, LLC (collectively, the "Borrower"),
--------
Fox/Liberty Networks, LLC, the Lenders parties to the Credit Agreement, the
Syndication Agent and Documentation Agent named therein and The Chase Manhattan
Bank, as Administrative Agent. Terms defined in the Credit Agreement shall be
used in this Amendment with their defined meanings unless otherwise defined
herein.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower and Fox/Liberty have requested certain amendments to the
Credit Agreement as set forth herein; and
WHEREAS, the parties hereto are willing to agree to such amendments on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
II. AMENDMENTS.
----------
1. Section 6.7. Paragraph (c) of Section 6.7 of the Credit Agreement is
-----------
hereby amended and restated in its entirety as follows:
"(c) Guarantee Obligations permitted by Section 6.2 and Guarantee
Obligations of Fox/Liberty in connection with Programming Liabilities
incurred by or on behalf of the RSN currently known as Fox Sports
Detroit;"
2. Section 6.15. Clause (b) of Section 6.15 of the Credit Agreement is
------------
hereby amended by adding the following new clause (iv) to the end thereof:
"and (iv) in the case of Fox/Liberty, Guarantee Obligations of
Fox/Liberty in connection with Programming Liabilities incurred by or on
behalf of the RSN currently known as Fox Sports Detroit;"
II. MISCELLANEOUS.
-------------
1. Representations and Warranties. The Borrower hereby represents and
------------------------------
warrants as of the date hereof that, after giving effect to this Amendment, (a)
no Default or Event of Default has occurred and is continuing and (b) each of
the representations and warranties made by any Loan Party in or pursuant to the
Loan Documents shall be true and correct in all material respects on and as of
such date as if made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case such representations and warranties shall have been true and correct in all
material respects on and as of such earlier date.
2. Expenses. The Borrower agrees to pay or reimburse the Administrative
--------
Agent on demand for all its reasonable out-of-pocket costs and expenses incurred
in connection with the preparation and execution of this Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
18
<PAGE>
3. No Change. Except as expressly provided herein, no term or provision
---------
of the Credit Agreement shall be amended, modified or supplemented, and each
term and provision of the Credit Agreement shall remain in full force and
effect.
4. Effectiveness. This Amendment shall become effective as of the date
-------------
hereof upon receipt by the Administrative Agent of (a) an executed counterpart
of this Amendment from Fox/Liberty and the Borrower and (b) executed Lender
Consent Letters (or facsimile transmissions thereof) from the Required Lenders
consenting to the execution of this Amendment by the Administrative Agent.
5. Counterparts. This Amendment may be executed by the parties hereto
------------
in any number of separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
ITS CONFLICT OF LAWS RULES.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers as of the
date first above written.
FOX SPORTS NET, LLC
By: /s/ Jeff Shell
---------------
Name: Jeff Shell
Title: Executive Vice President and
Chief Financial Officer
FX NETWORKS, LLC
By: /s/ Jeff Shell
---------------
Name: Jeff Shell
Title: Executive Vice President and
Chief Financial Officer
FOX SPORTS RPP HOLDINGS, LLC
By: /s/ Jeff Shell
---------------
Name: Jeff Shell
Title: Executive Vice President and
Chief Financial Officer
FOX/LIBERTY NETWORKS, LLC
By: /s/ Jeff Shell
---------------
Name: Jeff Shell
Title: Executive Vice President
and Chief Financial Officer
THE CHASE MANHATTAN BANK, as Administrative Agent
By: /s/ John Haltmaier
-------------------
Name: John Haltmaier
Title: Vice President
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001048002
<NAME> FOX/LIBERTY NETWORKS, LLC
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> MAR-31-1997 MAR-31-1998
<CASH> 0 8,851
<SECURITIES> 0 0
<RECEIVABLES> 0 247,951
<ALLOWANCES> 0 (1,383)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 321,728
<PP&E> 0 69,691
<DEPRECIATION> 0 (23,525)
<TOTAL-ASSETS> 0 1,853,719
<CURRENT-LIABILITIES> 0 343,626
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0 0
0 0
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<SALES> 92,321 156,609
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<CGS> 80,170 113,183
<TOTAL-COSTS> 96,312 139,350
<OTHER-EXPENSES> (1,425) (1,149)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,198 27,482
<INCOME-PRETAX> (8,135) (5,447)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (8,135) (5,447)
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