<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
Form 10-K/A
[X]Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the fiscal year ended December 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
----------------
FOX/LIBERTY NETWORKS, LLC
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-4577574
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
1440 South Sepulveda Boulevard, Los Angeles, CA 90025
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 444-8123
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
----------------
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of Registrant's voting stock held by non-affiliates:
Not applicable
Number of shares of common stock outstanding as of the close of the period
covered by this report: None
Documents incorporated by reference: None
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The Following documents are filed as part of this Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
1.Financial Statements:
Financial Statements to this form are listed in the "Index to
Consolidated Financial Statements" at page F-1.
2.Schedules:
Financial statement schedules to this form are listed in the "Index
to Consolidated Financial Statements" at page F-1 herein.
3.Exhibits:
<TABLE>
<CAPTION>
Exhibit No Description of Exhibit
---------- ----------------------
<C> <S>
3.1* Certificate of Formation of Fox/Liberty Networks, LLC (f/k/a
Liberty/Fox U.S. Sports LLC), as amended.
4.1* Form of Notes (included in Exhibits 4(b) & 4(c)).
4.2(a)* Senior Notes Indenture, dated as of August 25, 1997 (the "Senior
Notes Indenture"), among Fox/Liberty Networks, LLC and FLN Finance,
Inc. as co-obligors, and the Bank of New York, as Trustee.
(b)** First Supplemental Indenture, dated as of March 31, 1998, among
Fox/Liberty Networks, LLC, FLN Finance, Inc. and the Bank of
New York, as Trustee.
4.3(a)* Senior Discount Notes Indenture, dated as of August 25, 1997 (the
"Senior Discount Notes Indenture"), among Fox/Liberty Networks, LLC
and FLN Finance, Inc., as co-obligors and The Bank of New York, as
Trustee.
(b)** First Supplemental Indenture, dated as of March 31, 1998, among
Fox/Liberty Networks, LLC, FLN Finance, Inc. and the Bank of
New York, as Trustee.
4.4* Senior Notes Registration Rights Agreement, dated as of August 25,
1997, among Fox/Liberty Networks, LLC and FLN Finance, Inc., as
Issuers and Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Bear, Stearns & Co. Inc., as Initial Purchasers.
4.5* Senior Discount Notes Registration Rights Agreement, dated as of
August 25, 1997, among Fox/Liberty Networks, LLC and FLN Finance,
Inc., as Issuers and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Bear, Stearns & Co. Inc., as Initial Purchasers.
4.6* Senior Notes Liquidated Damages Agreement, dated as of August 25,
1997, among Fox/Liberty Networks, LLC and FLN Finance, Inc., as
Issuers and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Bear, Stearns & Co. Inc., as Initial
Purchasers.
4.7* Senior Discount Notes Liquidated Damages Agreement, dated as of
August 25, 1997, among Fox/Liberty Networks, LLC and FLN Finance,
Inc., as Issuers and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Bear, Stearns & Co. Inc., as
Initial Purchasers. Senior Notes Deposit Agreement, dated as of
August 25, 1997, among Fox/Liberty Networks, LLC and FLN Finance,
Inc., and The Bank of New York, as Securities Intermediary and as
Trustee.
4.8* Senior Notes Deposit Agreement, dated as of August 25, 1997, among
Fox/Liberty Networks, LLC and FLN Finance, Inc., and The Bank of
New York, as Securities Intermediary and as Trustee.
4.9* Senior Discount Notes Deposit Agreement, dated as of August 25,
1997, among Fox/Liberty Networks, LLC and FLN Finance, Inc., and
The Bank of New York, as Securities Intermediary and as Trustee.
10.1(a)* Agreement Regarding Ownership Interests, dated April 29, 1996, by
and among Liberty Media Corporation, News America Holdings
Incorporated, Fox Regional Sports Holdings, Inc., LMC Newco U.S.,
Inc., and Liberty/Fox Sports Financing LLC.
</TABLE>
1
<PAGE>
<TABLE>
<C> <S>
(b)* First Amended and Restated Agreement Regarding Ownership
Interests, dated as of December 15, 1997, by and among Liberty
Media Corporation, News America Holdings Incorporated, Fox
Regional Sports Holdings, Inc., LMC Newco U.S., Inc., and
Liberty/Fox
10.2* Operating Agreement of Fox Sports RPP Holdings, LLC, dated June
20, 1997, by and among Fox/Liberty Networks LLC, Liberty Sports
Member, Inc. and Fox Regional Sports Member, Inc.
10.3* Operating Agreement of FX Networks, LLC (f/k/a Liberty/Fox FX
Operations LLC), dated April 29, 1996, by and among Liberty/Fox
U.S. Sports LLC, Liberty FX, Inc. and FX Holdings, Inc.
10.4(a)* Operating Agreement of Fox/Liberty Networks, LLC (f/k/a
Liberty/Fox U.S. Sports LLC), dated April 29, 1996, by and among
LMC Newco U.S., Inc., Fox Regional Sports Holdings, Inc. and
Liberty/Fox Sports Financing LLC.
(b)* First Amended and Restated Operating Agreement of Fox/Liberty
Networks, LLC, dated December 15, 1997 by and among LMC Newco
U.S., Inc., Fox Regional Sports Holdings, Inc. and Liberty/Fox
Sports Financing LLC.
10.5* Operating Agreement of Fox Sports Net, LLC (f/k/a Liberty/Fox
Regional Sports LLC), dated April 29, 1996, by and among
Liberty/Fox U.S. Sports LLC, Liberty Sports Member, Inc. and Fox
Regional Sports Member, Inc.
10.6* Formation Agreement, dated June 22, 1997, among Rainbow Media
Sports Holdings, Inc. and Fox Sports Net, LLC.
10.7* Form of General Partnership Agreement of Regional Programming
Partners between Rainbow Regional Holdings, Inc. and Fox Sports
RPP Holdings, LLC.
10.8* Form of General Partnership Agreement of National Sports Partners
between Rainbow National Sports Holdings, Inc. and Fox Sports
National Holdings, LLC.
10.9* Form of General Partnership Agreement of National Advertising
Partners between Rainbow Advertising Holdings, Inc. and Fox
Sports Ad Sales Holdings, LLC.
10.10(a)* Credit Agreement, dated as of September 12, 1997, among Fox
Sports Net, LLC and FX Networks, LLC, as Borrowers, and
Fox/Liberty Networks, LLC and Subsidiary Guarantors, as
Guarantors, and The Chase Manhattan Bank, as Administrative
Agent, and Chase Securities Inc., as Syndication Agent, and TD
Securities (USA) Inc., as Documentation Agent.
(b)* Form of Amendment and Restated Credit Agreement dated as of
December 15, 1997 among Fox Sports Net, LLC, FX Networks, LLC and
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.
(c)** 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.
(d)** 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.
(e)**** Third Amendment to the Credit Agreement, dated as of March 9,
1999, 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.
</TABLE>
2
<PAGE>
<TABLE>
<C> <S>
10.11*+ Employment Agreement among Fox/Liberty Networks, LLC, Anthony
F.E. Ball and T Entertainment Limited, dated April, 1997.
10.12***+ Employment Agreement between Fox/Liberty Networks, LLC (f/k/a
Liberty/Fox U.S. Sports LLC) and Jeff Shell, dated February 4,
1998.
10.13*+ Employment Agreement between Fox/Liberty Networks, LLC and Louis
LaTorre, dated January 27, 1997.
10.14(a)*+ Employment Agreement between Fox/Liberty Networks, LLC and
Robert L. Thompson, dated July 25, 1996, as amended on September
26, 1997.
(b)****+ Employment Agreement between Fox/Liberty Networks, LLC and
Robert L. Thompson, dated June 1, 1998.
10.15(a)*+ Employment Agreement between Fox Sports Net, LLC and Tracy
Dolgin, dated as of July 1, 1997.
(b)****+ Employment Agreement between Fox/Liberty Networks, LLC and Tracy
Dolgin, dated February 12, 1999.
10.16***++ Fox/Liberty Networks, LLC Equity Appreciation Rights Plan for
Management and Key Employees, effective as of May 1, 1996.
21**** Subsidiaries of Registrant.
27**** Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to the Company's Registration Statement on Form
S-4, as amended (File No. 333- 38689).
** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1998.
*** Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
**** Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
+ Denotes an employment contract.
++ Denotes a compensation plan.
(b)Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
3
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunder duly authorized.
FOX/LIBERTY NETWORKS, LLC
Dated: April 14, 1999
By: /s/ Jeff Shell
______________________________
Jeff Shell
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Anthony F.E. Ball President and Chief April 14, 1999
____________________________________ Executive Officer (Principal
Anthony F.E. Ball Executive Officer)
/s/ Jeff Shell Executive Vice President and April 14, 1999
____________________________________ Chief Financial Officer
Jeff Shell (Principal Financial Officer
and Principal Accounting
Officer)
LMC Newco U.S., Inc. Member of Fox/Liberty April 14, 1999
Networks, LLC
By: /s/ David J.A. Flowers
____________________________________
David J.A. Flowers
Vice President
Fox Regional Sports Holdings, Inc. Member of Fox/Liberty April 14, 1999
Networks, LLC
By: /s/ Jay Itzkowitz
____________________________________
Jay Itzkowitz
Senior Vice President
Liberty/Fox Sports Financing, LLC Member of Fox/Liberty April 14, 1999
Networks, LLC
By: LMC Newco U.S., Inc. Member of Liberty/Fox Sports April 14, 1999
Financing, LLC
By: /s/ David J.A. Flowers
____________________________________
David J.A. Flowers
Vice President
By: Fox Entertainment Group, Inc. Member of Liberty/Fox Sports April 14, 1999
Financing, LLC
By: /s/ Jay Itzkowitz
____________________________________
Jay Itzkowitz
Senior Vice President
</TABLE>
4
<PAGE>
FOX/LIBERTY NETWORKS, LLC
INDEX TO
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Fox/Liberty Networks, LLC
Consolidated Financial Statements....................................... F-2
Report of Independent Public Accountants................................ F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997............ F-4
Consolidated Statements of Operations for the years ended December 31,
1998 and 1997 and the eight months ended December 31, 1996............. F-5
Consolidated Statements of Members' Equity for the years ended December
31, 1998 and 1997 and the eight months ended December 31, 1996......... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1998 and 1997 and the eight months ended December 31, 1996............. F-7
Notes to Consolidated Financial Statements.............................. F-8
Liberty Sports, Inc. and subsidiaries--Domestic Operations
Financial Statements.................................................... F-22
Independent Auditors' Report............................................ F-23
Combined Statements of Operations and Equity for the period January 1,
1996 to April 29, 1996................................................. F-24
Combined Statements of Cash Flows for the period January 1, 1996 to
April 29, 1996......................................................... F-25
Notes to Combined Financial Statements.................................. F-26
FX Networks, LLC
Financial Statements.................................................... F-30
Report of Independent Public Accountants................................ F-31
Statements of Operations for the periods ended April 29, 1996........... F-32
Statements of Cash Flows for the periods ended April 29, 1996........... F-33
Notes to Financial Statements........................................... F-34
Liberty/Fox ARC, L.P.
Consolidated Financial Statements....................................... F-37
Consolidated Statement of Operations for the period from Inception
(April 30, 1996) to December 31, 1996 (unaudited)...................... F-38
Consolidated Statement of Cash Flows for the period from Inception
(April 30, 1996) to December 31, 1996 (unaudited)...................... F-39
Notes to Consolidated Financial Statements.............................. F-40
Regional Programming Partners
Consolidated Financial Statements....................................... F-46
Report of Independent Public Accountants................................ F-47
Consolidated Balance Sheet as of December 31, 1998 and December 31,
1997................................................................... F-48
Consolidated Statements of Income for the year ended December 31, 1998
and the period from December 18, 1997 (Inception) to December 31,
1997................................................................... F-49
Consolidated Statements of Partners' Capital for the year ended December
31, 1998 and the period from December 18, 1997 (Inception) to December
31, 1997............................................................... F-50
Statements of Cash Flows for the year ended December 31, 1998 and the
period from December 18, 1997 (Inception) to December 31, 1997......... F-51
Notes to Consolidated Financial Statements.............................. F-52
National Sports Partners
Financial Statements.................................................... F-62
Report of Independent Public Accountants................................ F-63
Balance Sheets as of December 31, 1998 and 1997......................... F-64
Statements of Operations for the year ended December 31, 1998 and for
the period from Inception (December 18, 1997) to December 31, 1997..... F-65
Statements of Venturers' Equity (Deficit) for the year ended December
31, 1998 and for the period from Inception (December 18, 1997) to
December 31, 1997...................................................... F-66
Statements of Cash Flows for the year ended December 31, 1998 and for
the period from Inception (December 18, 1997) to December 31, 1997..... F-67
Notes to Financial Statements........................................... F-68
Condensed Financial Statements of the Company on Schedule
Report of Independent Public Accountants on Schedule.................... S-2
Schedule I--Balance Sheets as of December 31, 1998 and 1997............. S-3
Schedule I--Statements of Operations for the periods ended December 31,
1998, 1997 and 1996.................................................... S-4
Schedule I--Statements of Cash Flows for the periods ended December 31,
1998, 1997 and 1996.................................................... S-5
Schedule I--Notes to Condensed Financial Statements..................... S-6
Schedule II--Valuation and Qualifying Accounts for the periods ended
December 31, 1998, 1997 and 1996....................................... S-7
</TABLE>
F-1
<PAGE>
FOX/LIBERTY NETWORKS, LLC
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998 and 1997
With Report of Independent Public Accountants
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Fox/Liberty Networks, LLC:
We have audited the accompanying consolidated balance sheets of FOX/LIBERTY
NETWORKS, LLC and subsidiaries, a Delaware limited liability company (the
"Company") as of December 31, 1998 and 1997, and the related consolidated
statements of operations, members' equity and cash flows for the years ended
December 31, 1998 and 1997 and the period from inception (April 30, 1996) to
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Fox/Liberty Networks, LLC and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the years ended
December 31, 1998 and 1997 and the period from inception (April 30, 1996) to
December 31, 1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 19, 1999
F-3
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents............................. $ 42,918 $ 49,560
Trade and other receivables, net of allowance for
doubtful accounts of $9,324 and $1,714 at December
31, 1998 and 1997.................................... 138,139 136,661
Receivables from equity affiliates, net............... 33,577 37,858
Program rights........................................ 88,620 50,373
Notes receivable, current............................. 1,928 3,376
Prepaid expenses and other current assets............. 9,939 7,886
---------- ----------
Total current assets................................ 315,121 285,714
Property and equipment, net............................. 49,306 42,027
Investments in affiliates............................... 871,432 850,201
Note receivable, long-term.............................. 24 4,432
Program rights.......................................... 106,459 78,110
Excess cost, net of accumulated amortization of $86,470
and $72,170 at December 31, 1998 and 1997.............. 521,133 514,608
Other assets............................................ 28,460 42,666
---------- ----------
Total Assets........................................ $1,891,935 $1,817,758
========== ==========
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Current liabilities:
Accounts payable and accrued expenses................. $ 164,329 $ 176,241
Program rights payable................................ 56,651 23,232
Current portion of long-term debt..................... 15,450 80,216
Accrued interest...................................... 24,833 17,413
Other current liabilities............................. 13,806 11,515
---------- ----------
Total current liabilities........................... 275,069 308,617
Non-current program rights payable...................... 123,581 110,693
Long-term debt, net of current portion.................. 1,401,891 1,246,291
Minority interest....................................... 1,191 (114)
Commitments and contingencies
Members' equity......................................... 90,203 152,271
---------- ----------
Total Liabilities and Members' Equity............... $1,891,935 $1,817,758
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Periods Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended Year ended April 30 to
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Programming........................... $301,734 $226,469 $ 85,288
Advertising........................... 160,499 117,874 37,685
Direct broadcast...................... 121,759 91,663 5,711
Infomercial........................... 23,270 16,420 4,261
Merchandising......................... -- -- 3,226
Other................................. 47,932 19,366 8,621
-------- -------- ---------
655,194 471,792 144,792
-------- -------- ---------
Expenses:
Operating............................. 485,276 420,888 197,445
General and administrative............ 90,662 65,558 31,609
Depreciation and amortization......... 21,662 18,968 8,507
-------- -------- ---------
597,600 505,414 237,561
-------- -------- ---------
Operating income (loss)................. 57,594 (33,622) (92,769)
-------- -------- ---------
Other (income) expenses:
Interest, net......................... 110,425 34,142 3,819
Subsidiaries' income tax expense
(benefit), net....................... 1,456 (1,590) 3,437
Loss on sale of assets................ 121 -- 4,913
Equity loss of affiliates, net........ 5,913 9,018 12,024
Other................................. (1,478) 401 --
Minority interest..................... 3,225 2,864 187
-------- -------- ---------
119,662 44,835 24,380
-------- -------- ---------
Net loss................................ $(62,068) $(78,457) $(117,149)
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
For the Periods Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
LMC Liberty/Fox Fox Regional Total
Newco Sports Financing, Sports Members'
US, Inc. LLC Holdings, Inc. Equity
-------- ----------------- -------------- ---------
<S> <C> <C> <C> <C>
BALANCE, APRIL 30, 1996.. $ 8,000 $243,577 $ 96,300 $ 347,877
(representing the
initial contributions
of the members)
Net loss............... (36,132) (44,885) (36,132) (117,149)
-------- -------- -------- ---------
BALANCE, DECEMBER 31,
1996.................... (28,132) 198,692 60,168 230,728
Net loss............... (24,199) (30,059) (24,199) (78,457)
-------- -------- -------- ---------
BALANCE, DECEMBER 31,
1997.................... (52,331) 168,633 35,969 152,271
Net loss............... (19,144) (23,780) (19,144) (62,068)
-------- -------- -------- ---------
BALANCE, DECEMBER 31,
1998.................... $(71,475) $144,853 $ 16,825 $ 90,203
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended Year ended April 30 to
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(62,068) $ (78,457) $(117,149)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Additional amortization of program
rights............................. -- -- 80,000
Depreciation and amortization....... 21,662 18,968 8,507
Interest accretion and amortization
of debt issuance costs............. 29,868 9,431 --
Loss on sale of assets.............. 121 -- 4,913
Equity loss of affiliates........... 5,913 9,018 12,024
Minority interests.................. 3,225 2,864 187
Changes in operating assets and
liabilities:
Trade and other receivables......... (1,373) (47,296) (8,029)
Program rights...................... (65,871) (77,266) (3,205)
Prepaid expenses and other operating
assets............................. (4,812) (10,715) (239)
Accounts payable and accrued
expenses........................... (14,529) 51,462 33,939
Program rights payable.............. 46,278 26,749 (1,149)
Other operating liabilities......... 9,553 18,517 4,512
-------- ---------- ---------
Net cash (used in) provided by
operating activities............. (32,033) (76,725) 14,311
-------- ---------- ---------
Cash flows from investing activities:
Advances from equity affiliates....... 96,084 102,497 56,666
Advances to equity affiliates......... (92,913) (106,555) (78,651)
Notes receivable collected from
(issued to) third parties............ 5,856 540 (1,700)
Purchases of property and equipment... (14,665) (31,321) (11,202)
Distributions from equity affiliates.. 40,051 4,704 563
Investments in equity affiliates...... (67,671) (857,325) (4,046)
Purchase of program rights and related
assets............................... -- (45,000) --
Acquisition of FIT TV, net of cash
acquired............................. (3,618) -- --
Proceeds from sale of investment...... 900 -- --
Cash sold upon sale of merchandising
assets............................... -- -- (429)
-------- ---------- ---------
Net cash used in investing
activities....................... (35,976) (932,460) (38,799)
-------- ---------- ---------
Cash flows from financing activities:
Cash overdraft, included in accounts
payable.............................. -- -- 2,133
Borrowings of long-term debt.......... 155,000 1,720,078 48,448
Repayment of long-term debt........... (91,713) (648,960) (24,800)
Deferred debt issuance costs.......... -- (18,357) --
Distribution to minority shareholder
of subsidiary........................ (1,920) (1,980) (600)
-------- ---------- ---------
Net cash provided by financing
activities....................... 61,367 1,050,781 25,181
-------- ---------- ---------
Net (decrease) increase in cash and cash
equivalents............................ (6,642) 41,596 693
Cash and cash equivalents, beginning of
period................................. 49,560 7,964 7,271
-------- ---------- ---------
Cash and cash equivalents, end of
period................................. $ 42,918 $ 49,560 $ 7,964
======== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Dollars in thousands)
(1) Organization
Fox/Liberty Networks, LLC, a Delaware limited liability company, (together
with its subsidiaries, the "Company") was formed in April 1996, to own and
operate programming services featuring predominantly sports and sports related
programming, as well as a national general entertainment programming service.
The Company's members as of December 31, 1998 and 1997, were:
<TABLE>
<CAPTION>
Interest
--------
<S> <C>
LMC Newco U.S., Inc. ("LMCI") .................................... 30.843%
(a wholly-owned subsidiary of Liberty Sports, Inc. ("LSI"), a
wholly-owned subsidiary of Liberty Media Corporation ("LMC"))
Fox Regional Sports Holdings, Inc. ("FRSH")....................... 30.843%
(a wholly-owned subsidiary of Fox Entertainment Group, Inc.
("Fox"), a majority owned subsidiary of News America Incorporated
("NAI"), a wholly-owned subsidiary of The News Corporation
Limited)
Liberty/Fox Sports Financing, LLC.................................
(50% owned by each of LMCI and Fox) 38.314%
-------
100.000%
=======
</TABLE>
Liberty Sports, Inc. (a predecessor operation) contributed its interest 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. Fox and its subsidiaries
contributed cash, all of its assets and liabilities in the FX cable network (a
predecessor operation), and certain assets related to regional sports
programming.
(2) Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements include the operations of
the Company and those majority-owned subsidiaries and entities for which there
is a controlling voting interest. All significant intercompany accounts and
transactions have been eliminated in consolidation. The subsidiaries
consolidated include the following intermediary holding companies (and their
subsidiaries):
Fox Sports Net, LLC, which is comprised of the following:
<TABLE>
<S> <C>
--Liberty/Fox West LLC --Liberty/Fox ARC LP
--Fox/Liberty Ad Sales LLC --Liberty/Fox Southeast LLC
--Liberty/Fox Northwest LP --Liberty/Fox Utah LLC
--Liberty/Fox Sunshine LLC --Liberty/Fox Arizona LLC
--Fox Sports Detroit, LLC --Fox/Liberty Network Programming LLC
</TABLE>
FX Networks, LLC
Fox Sports RPP Holdings, LLC
On March 13, 1997, upon the acquisition of the remaining interests in
Affiliated Regional Communications, Ltd. and affiliates ("ARC") by Liberty/Fox
ARC LP, the Company assumed management control of the consolidated
subsidiaries of Liberty/Fox ARC LP, and from that date the consolidated
subsidiaries of ARC and their operations were consolidated.
F-8
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
In September 1997, Fox Sports Detroit, LLC a majority-owned subsidiary of
the Company, was formed for the purpose of providing sports and sports related
programming in the Detroit, Michigan area (See Note 3(e)).
In December 1997, the Company consummated a transaction with Rainbow Media
Sports Holdings, Inc. ("Rainbow"), a subsidiary of CSC Holdings, Inc.
(formerly Cablevision Systems Corporation) ("Cablevision"), pursuant to which
(i) Fox Sports RPP Holdings, LLC was formed to hold an interest in Regional
Programming Partners ("RPP"), which in turn was formed to hold interests in
Rainbow's existing regional sports networks ("RSN's") and certain other
businesses, (ii) National Sports Partners ("NSP") was formed to operate Fox
Sports Net ("FSN") a national programming service, and (iii) National
Advertising Partners ("NAP") was formed to act as the national advertising
sales representative for the RSNs which are affiliated with FSN. The Company
contributed $850,000 for its 40 percent interest in RPP, which exceeded its
equity in the underlying net assets of RPP by $314,420 (See Note 6(b)). Had
the investment occurred at the beginning of the year ended December 31, 1997
(January 1, 1997) and the eight month period December 31, 1996 (April 30,
1996), pro-forma net loss would have increased by $2,234 and $9,099,
respectively. The pro-forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the investment occurred on the dates
indicated, or which may result in the future.
(b) Cash Equivalents
Cash equivalents consist of short-term investments with an original maturity
of less than 90 days. The carrying amounts of cash and cash equivalents
approximate their fair values due to their short maturities.
(c) Program Rights
The Company has multi-year contracts for the cable telecast rights of
syndicated entertainment programs and sporting events. Pursuant to these
contracts, an asset is recorded for the rights acquired and a liability is
recorded for the obligation incurred, at the gross amount of the liability
when the programs or sporting events are available for telecast. Program
rights for entertainment programs are amortized over the term of the contract
using the straight-line method. Program rights for sporting events which are
for a specified number of games are amortized on an event-by-event basis, and
those which are for a specified season are amortized over the term of the
season on a straight-line basis.
At the inception of these contracts and periodically thereafter, the Company
evaluates the recoverability of the costs associated therewith against the
advertising revenues directly associated with the program material and related
expenses. Where an evaluation indicates that a multi-year contract will result
in an ultimate loss, additional amortization is provided to currently
recognize that loss.
The Company and its predecessor, Liberty Sports, Inc., have entered into or
committed to contracts for program rights to telecast college football and
Major League Baseball games, respectively. In 1996, the Company performed an
in-depth evaluation and determined that these contracts would produce losses
over the term of the respective contracts. Accordingly, the Company and its
affiliates recorded $109,000 in additional amortization related to these
contracts during the period from inception (April 30, 1996) to December 31,
1996.
(d) Property and Equipment
Property and equipment are stated at cost, which includes acquisition costs
allocated to tangible assets acquired. Depreciation and amortization for
financial statement purposes are provided using the straight-line method over
an estimated useful life of five to ten years.
F-9
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
(e) Other Assets
At December 31, 1998 and 1997 other assets included $17,063 and $17,896,
respectively, of debt issuance costs related to the issuance of Senior Notes
and Senior Discount Notes (the "Notes"--See Note 7(c)). These costs are
amortized using the effective interest method over the term of the Notes.
Amortization expense was $1,358 and $461 for the years ended December 31, 1998
and 1997 and is included in interest expense.
(f) Income Taxes
No provision has been made for federal, state or foreign income taxes, as
the liability for such income taxes is the responsibility of the members.
(g) Investments in Affiliates
The consolidated financial statements include the operations of subsidiary
companies more than 50% owned. Investments in and advances to affiliates in
which the Company has a substantial ownership interest of approximately 20 to
50%, or for which the Company owns more than 50% but does not control policy
decisions, are accounted for by the equity method. Under this method of
accounting, the original investment is increased or decreased by the Company's
share of income or losses and dividends.
Partnerships in which the Company acts as a limited partner, but in which
the third party general partner exercises management control, are not
consolidated regardless of the ownership interest. If these investments meet
the conditions outlined in the paragraph above then the partnerships are
accounted for under the equity method.
(h) Excess Cost
Excess cost represents the difference between the cost of acquiring
programming entities and amounts assigned to their tangible and intangible
assets. Such amounts are amortized on a straight-line basis over 40 years.
Amortization expense was $14,300, $11,776 and $5,241 for the years ended
December 31, 1998 and 1997 and the period from inception (April 30, 1996) to
December 31, 1996, respectively.
The Company periodically reviews the propriety of the carrying amount of its
excess cost as well as the related amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value
and/or the estimates of useful lives. This evaluation consists of the
Company's projection of undiscounted operating cash flows over the remaining
lives of the excess cost. Based on its review, the Company believes that no
significant impairment of its excess cost has occurred.
(i) Revenue
Revenue from programming represents monthly subscriber fees received from
cable system operators and is recognized as earned. Advertising revenue is
recognized upon airing of commercials. The Company has sold advance
subscriptions to its direct broadcast satellite customers. Such amounts are
amortized to revenue monthly as revenue is earned. Infomercial revenue is
recognized when the program is aired.
(j) Non-Monetary Transactions
The Company trades commercial advertising spots in return for other
services, primarily programming. These trades are recorded at the fair value
of the asset surrendered or the fair value of the asset obtained, whichever is
more clearly evident. These transactions resulted in the recording of
approximately $4,173, $8,539
F-10
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
and $2,512 in both advertising revenue and programming expenses during the
years ended December 31, 1998 and 1997 and the period from inception (April
30, 1996) to December 31, 1996, respectively.
(k) Use of Estimates
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.
(l) Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 ("SFAS 121") on accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to assets to be held and
used. SFAS 121 also establishes accounting standards for long-lived assets and
certain identifiable intangibles to be disposed of. The Company adopted the
SFAS 121 from inception (April 30, 1996). See Note 2(h) for the policy on
excess cost.
(m) Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 ("SFAS 131") on the disclosure of segments of an enterprise. SFAS 131
establishes guidelines for determining operating segments within public
business enterprises. Based on these guidelines the Company reports
information under a single cable programming segment. The Company adopted SFAS
131 as of January 1, 1998.
(n) Major Customers
The Company recognized revenue from one customer which represented 14.3% of
consolidated revenues.
(o) Reclassifications
Certain reclassifications have been made to the prior year balances in order
to conform to the current year presentation.
F-11
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Supplemental disclosure of cash flow information and non-cash investing and
financing activities for the period from inception (April 30, 1996) to
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------
Acquisition Disposal Total
-------------------------- ---------------- --------
Prime Sports
Northwest(a) SportSouth(b) Merchandising(c)
------------ ------------- ----------------
<S> <C> <C> <C> <C>
Fair value of net assets
acquired/(disposed):
Cash.................. $ 1,328 $ 3,626 $ (429) $ 4,525
Accounts receivable... 4,663 10,691 (600) 14,754
Prepaid program
rights............... 425 -- -- 425
Prepaid expenses and
other current
assets............... 304 84 (10) 378
Inventory............. -- -- (3,064) (3,064)
Investment............ -- (2,135) -- (2,135)
Excess cost........... -- -- (5,771) (5,771)
Other assets.......... 46 102 (105) 43
Property, plant and
equipment, net....... 2,832 259 (1,064) 2,027
Notes receivable...... 40 -- -- 40
Accounts payable and
accrued expenses (809) (1,640) 2,330 (119)
Program rights
payable.............. (91) -- -- (91)
Notes payable......... -- (18,002) -- (18,002)
------- -------- ------- --------
8,738 (7,015) (8,713) (6,990)
Less: existing
investment in
affiliates............. (6,427) 471 -- (5,956)
------- -------- ------- --------
2,311 (6,544) (8,713) (12,946)
Satisfied by:
Cash.................. (9,000) -- -- (9,000)
Note payable.......... -- (65,334) -- (65,334)
Note receivable....... -- -- 3,800 3,800
------- -------- ------- --------
Subtotal................ -- -- -- (83,480)
------- -------- ------- --------
Excess cost............. $(6,689) $(71,878) $(78,567)
======= ======== ========
Loss on sale............ $(4,913) $ (4,913)
======= ========
</TABLE>
(a) In July 1996, the Company paid $9,000 to Viacom, Inc. to purchase an
additional 40% interest in its affiliate, Prime Sports Northwest Network.
Subsequent to the purchase, Prime Sports Northwest Network was
consolidated with the Company. Had the additional 40% interest been
acquired at inception (April 30, 1996), the consolidated pro forma revenue
and income would have increased by $5,886 and $648, respectively. These
pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which actually
would have resulted had the acquisitions occurred on the date indicated,
or which may result in the future.
(b) In October 1996, the Company purchased an additional 44% interest in its
affiliate, SportSouth Network, Ltd. ("SportSouth"), through the issuance
of a note in the amount of $65,334. SportSouth was then
F-12
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
consolidated with the Company. Had the additional 44% interest been
acquired at inception (April 30, 1996), the consolidated pro forma revenue
and income would have increased by $19,490 and $5,072, respectively. These
pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of results of operations which actually would
have resulted had the acquisitions occurred on the date indicated, or which
may result in the future.
(c) In September 1996, the Company received a note receivable for
approximately $3,800 in connection with the sale of its merchandising
assets.
Supplemental disclosure of cash flow information and non-cash investing and
financing activities for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
December 31,
1997(e)(f)
ARC Ltd(d)
------------
<S> <C>
Fair value of net assets acquired:
Cash.......................................................... $ --
Accounts receivable........................................... 26,793
Prepaid program rights........................................ 4,764
Prepaid expenses and other current assets..................... 19,249
Investment.................................................... 6,739
Excess cost................................................... 103,806
Other assets.................................................. 305
Property, plant and equipment, net............................ 11,818
Notes receivable.............................................. 6,869
Accounts payable and accrued expenses......................... (25,520)
Program rights payable........................................ (3,522)
Unearned revenue.............................................. (4,744)
Notes payable................................................. (49,000)
--------
97,557
Satisfied by:
Original investment........................................... (97,557)
--------
Excess cost..................................................... $ --
========
</TABLE>
(d) In March 1997, Liberty/Fox ARC LP, an affiliate of the Company, paid
$40,000 to Group W to purchase the remaining 12.78% interest in Affiliated
Regional Communications, LTD and Affiliates ("ARC"). This transaction
resulted in Liberty/Fox ARC LP recording $25,785 in excess costs. In
conjunction with this transaction, the Company assumed management control
of the consolidated subsidiaries of Liberty/Fox ARC LP. Subsequent to the
purchase, the consolidated subsidiaries of ARC were consolidated with the
Company (see Note 2(a)). Had the additional 12.78% interest been acquired
at January 1, 1997 with respect to the year ended December 31, 1997 and
April 30, 1996 with respect to the eight months ended December 31, 1996,
the pro forma consolidated revenue would have increased by $29,913 and
$107,531, respectively, and pro forma consolidated income would have
increased by $372 and $482, respectively. These pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of the results of operations which actually would have resulted
had the acquisitions occurred on the date indicated, or which may result
in the future.
(e) In September 1997, the Company formed Fox Sports Detroit, LLC for the
purpose of providing sports and sports related programming to the Detroit,
Michigan area. Fox Sports Detroit, LLC entered into agreements to pay cash
of $45,000 and issue notes payable totaling $25,558 to secure certain
sports programming rights
F-13
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
and other assets. Amounts remaining as excess cost will be amortized over
40 years. Had the acquisition occurred at the beginning of the period
(January 1, 1997), and assuming that the full $70,713 is recorded as excess
cost and amortized over 40 years, the pro-forma consolidated revenue would
have increased, and loss would have decreased, by $17,940 and $2,143,
respectively. These pro-forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions occurred
on the date indicated, or which may result in the future.
(f) In December 1997, the Company contributed net assets of $14,926 and $2,741
to NSP and NAP, respectively, for a 50% interest in each partnership. The
net assets contributed were comprised of certain accounts receivables,
fixed assets, investments and accrued liabilities.
Supplemental disclosure of cash flow information and non-cash investing and
financing activities for the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Fit TV(g)
---------
<S> <C>
Fair value of net assets acquired:
Cash............................................................. $ 132
Accounts receivable.............................................. 650
Prepaid program rights........................................... 725
Prepaid expenses................................................. 200
Fixed assets..................................................... 11
Other assets..................................................... 156
Accounts payable and accrued expenses............................ (3,762)
Program rights payable........................................... (29)
Other current liabilities........................................ (158)
-------
(2,075)
Satisfied by:
Cash............................................................. 18,750
-------
Excess cost........................................................ $20,825
=======
</TABLE>
(g) In April 1998, the Company completed the acquisition of Fit TV
Partnership, with an effective date as of January 1, 1998, in which the
Company paid $15,000 to Cable Health TV, Inc. in 1997 and $1,875 each to
Reebok CHC, Inc. and Liberty CHC, Inc., representing 100% capital interest
and a 92% profit interest in Fit TV Partnership, and accordingly, has been
consolidated with the Company. An 8% minority profit interest in Fit TV
Partnership was acquired by a third party. Had the capital interest been
acquired at January 1, 1997 with respect to the year ended December 31,
1997, and April 30, 1996 with respect to the eight months ended December
31, 1996, the pro forma revenue would have increased by $4,074 and $2,855,
respectively, and net loss would have increased by $7,561 and $4,429,
respectively. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition occurred
on the date indicated, or which may result in the future.
Cash paid for interest was $76,154, $24,848 and $5,330 for the years ended
December 31, 1998 and 1997 and the period from inception (April 30, 1996) to
December 31, 1996, respectively.
F-14
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
(4) Related Party Transactions
For the years ended December 31, 1998 and 1997 and the period from inception
(April 30, 1996) to December 31, 1996, the Company recognized the following
revenue and expenses as a result of arms-length transactions with affiliates
of LMCI and Fox:
<TABLE>
<CAPTION>
Year ended Year ended April 30, to
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Programming......................... $93,922 $92,244 $23,229
Advertising......................... 1,523 3,183 326
Direct broadcast.................... -- 2,082 5,711
Interest income..................... 351 2,719 108
Other............................... 19,606 -- 3,358
Expenses:
Operating........................... 62,216 65,736 12,631
General and administrative.......... 2,775 4,156 2,340
Interest expense.................... 25 1,570 293
</TABLE>
At December 31, 1998 and 1997, receivables from related parties were $19,962
and $29,293, respectively, and payables to related parties were $19,631 and
$21,476, respectively.
The Company has a non exclusive, royalty-free license from affiliates of Fox
to use the "FOX" brand name and certain related artwork in connection with the
Company's business.
(5) Property and Equipment
Property and equipment at December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Studio and production equipment.......................... $ 50,455 $ 26,847
Office equipment......................................... 16,733 14,823
Construction in progress................................. 11,450 21,357
Other.................................................... 6,518 5,614
-------- --------
85,156 68,641
Accumulated depreciation................................. (35,850) (26,614)
-------- --------
$ 49,306 $ 42,027
======== ========
</TABLE>
F-15
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
(6) Investments Accounted for Under the Equity Method
(a) Significant Subsidiaries
Summarized unaudited financial information for significant subsidiaries, as
defined in Rule 1-02(w) of Regulation S-X, accounted for under the equity
method is as follows:
Combined Financial Position
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Current Assets........................................ $ 523,347 $ 584,433
Non-Current Assets.................................... 1,883,399 1,820,560
---------- ----------
Total Assets.......................................... $2,406,746 $2,404,993
========== ==========
Current Liabilities................................... $ 356,004 $ 400,986
Non-Current Liabilities............................... 573,111 588,881
Minority Interest..................................... 64,117 129,495
Partners' Equity...................................... 1,413,514 1,285,631
---------- ----------
Total Liabilities and Equity.......................... $2,406,746 $2,404,993
========== ==========
</TABLE>
Combined Operations
<TABLE>
<CAPTION>
Year ended Year ended April 30, to
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenue......................... $783,156 $ 66,167 $125,373
Operating (Loss) Profit............... (65,062) (24,647) 14,270
Net (Loss) Income..................... (29,834) (24,663) 7,205
</TABLE>
Liberty/Fox ARC LP was formed on April 30, 1996 and was accounted for under
the equity method for the period until March 1997. In March 1997, the Company
assumed management control of the consolidated subsidiaries of Liberty/Fox ARC
LP and, subsequent to this event, the consolidated subsidiaries of ARC were
consolidated with the Company.
F-16
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
(b) Unconsolidated Affiliates
The following table reflects the Company's ownership interests in majority
and minority owned affiliates as of:
<TABLE>
<CAPTION>
December 31,
-------------
Entity 1998 1997
------ ------ ------
<S> <C> <C>
Majority Owned Affiliates
Liberty/Fox Chicago LP....................................... 98.0% 98.0%
Liberty/Fox KBL LP........................................... 60.0% 60.0%
Liberty/Fox Bay Area LP...................................... 98.0% 98.0%
Liberty/Fox Upper Midwest LP................................. 98.0% 98.0%
Liberty/Fox Distribution LP.................................. 98.0% 98.0%
Minority Owned Affiliates
LMC Sunshine Inc............................................. 48.5% 48.5%
Cable Ad Partners-cost method................................ 0.0% 8.0%
Sunshine Network Joint Venture............................... 49.0% 49.0%
Prime Sports Network-Upper Midwest Joint Venture............. 33.0% 33.0%
Home Team Sports Limited Partnership......................... 34.3% 34.3%
Prime Sports Channel Prism Associates........................ 0.0% 33.3%
Mountain Mobile TV........................................... 33.3% 33.3%
Regional Programming Partners................................ 40.0% 40.0%
National Sports Partners..................................... 50.0% 50.0%
National Advertising Partners................................ 50.0% 50.0%
CTV Sports Net............................................... 20.0% 0.0%
</TABLE>
The following table reflects the carrying value of the Company's investments
accounted for under the equity method and the Company's equity in earnings
(losses) of its majority and minority owned affiliates:
<TABLE>
<CAPTION>
Investment
-------------------------
December 31, December 31,
Entity 1998 1997
------ ------------ ------------
<S> <C> <C>
Majority Owned Affiliates............................. $( 7,734) $(20,845)
Minority Owned Affiliates............................. 879,166 871,046
-------- --------
$871,432 $850,201
======== ========
</TABLE>
<TABLE>
<CAPTION>
Equity in Earnings (Losses)
---------------------------------------------
Period from
Year ended Year ended Inception
December 31, December 31, (April 30, 1996) to
Entity 1998 1997 December 31, 1996
------ ------------ ------------ -------------------
<S> <C> <C> <C>
Majority Owned Affiliates........ $ 13,111 $(2,288) $(17,163)
Minority Owned Affiliates........ (19,024) (6,730) 5,139
-------- ------- --------
$ (5,913) $(9,018) $(12,024)
======== ======= ========
</TABLE>
F-17
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
Prior to the contribution of the above majority owned entities to the
Company (see Note 1), there were certain regional networks that were wholly
owned and consolidated by Liberty Sports, Inc. (a predecessor company and a
Company shareholder). Upon contribution of these entities to the Company,
Liberty Sports, Inc. retained management control through a general partnership
minority interest. Hence, these operations are not consolidated by the
Company, although it owns the majority of the limited partnership interests.
The Company's investment in several of its affiliates exceeded its equity in
the underlying net assets by a total of $334,096 and $342,302 at December 31,
1998 and 1997, respectively. These excess amounts are being amortized on a
straight-line basis over 40 years. The amortization aggregated $7,876, $1,025
and $574 during the years ended December 31, 1998 and 1997 and the period from
inception (April 30, 1996) to December 31, 1996, respectively, and is included
in the Company's share of equity income of affiliates.
(7) Debt
Debt at December 31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
------------ ----------
<S> <C> <C>
Turner Note Payable(a)........................... $ -- $ 65,334
Chase Manhattan Bank--Term(b).................... 400,000 400,000
Chase Manhattan Bank--Revolver(b)................ 205,000 60,000
Senior Notes(c).................................. 500,000 500,000
Senior Discount Notes(c)......................... 286,878 260,828
Other............................................ 25,463 40,345
------------ ----------
1,417,341 1,326,507
Less current portion............................. (15,450) (80,216)
------------ ----------
$ 1,401,891 $1,246,291
============ ==========
Annual future minimum maturities of debt are as
follows:
1999........................................... $ 15,450
2000........................................... 22,344
2001........................................... 85,052
2002........................................... 100,223
2003........................................... 227,394
Thereafter..................................... 966,878
------------
$ 1,417,341
============
</TABLE>
The fair value of the Company's debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities. Rates on the Company's debt
approximate current market rates, and as such, the carrying amount of
borrowings outstanding approximates fair value.
(a) On October 10, 1996, LMC Southeast Sports, Inc. purchased Turner Sports
Programming, Inc.'s 44% partnership interest in SportSouth. LMC Southeast
Sports, Inc. signed a promissory note to Turner Broadcasting Company for
$65,334, plus interest at a rate of 7.5% per annum. The Note was paid in
full at maturity on October 10, 1998.
F-18
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
(b) On December 15, 1997, Fox Sports Net, LLC, FX Networks, LLC and Fox Sports
RPP Holdings, LLC (together, the "Co-Borrowers"), entered into a credit
agreement (the "Credit Agreement") with a group of banks. The Credit
Agreement provides for a $400,000 term loan and a $400,000 revolving
credit facility ("the Facilities"). Borrowings under the Facilities are
guaranteed by the Company, the Co-Borrowers and certain subsidiaries of
Fox Sports Net, LLC and are secured by substantially all of the assets of
the Company. Borrowings under the facilities bear interest, at the option
of the Co-Borrowers, at a rate based upon the prime rate of interest or
eurodollar rates. The Co-Borrowers also pay a commitment fee on the unused
and available amounts under the revolving credit facility. The revolving
credit commitments will reduce on a quarterly basis commencing December
31, 2000; principal payments under the term loan will also be required
quarterly commencing December 31, 2000. The Credit Agreement provides for
the maintenance of several financial and other covenants, including a
leverage ratio, an interest coverage ratio and a fixed charge coverage
ratio, among others. The Company was in compliance with the debt covenants
as of December 31, 1998.
(c) In August 1997, Fox/Liberty Networks, LLC (the "Issuer") privately sold
$500,000 aggregate principal amount of its 8 7/8% Senior Notes due 2007
and $405,000 aggregate principal amount at maturity ($252.3 million gross
proceeds) of its 9 3/4% Senior Discount Notes due 2007 (collectively the
"Old Notes") in a transaction (the "Offering") exempt from registration
under the Securities Act of 1933, as amended ("1933 Act"). In January
1998, pursuant to an exchange offer (the "Exchange Offer"), the Issuer
exchanged all of the Old Notes for new notes (the "Notes") which were
registered by the Issuer under the 1933 Act. The terms of the Notes are
substantially identical to the terms of the Old Notes. The Issuer received
no proceeds from the issuance of the Notes in the Exchange Offer. Interest
on the Senior Notes is payable semi-annually. Interest payments on the
Senior Discount Notes commence in February 2003. Interest accretes to
principal prior to the commencement of interest payments. At December 31,
1998 and 1997 the unamortized discount on the Senior Discount Notes was
$118,122 and $144,669, respectively. Interest expense, resulting from the
amortization of the discount, was $26,547 and $8,053 for the years ended
December 31, 1998 and 1997, respectively. 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 Notes are unsecured.
Interest expense was $112,961, $49,183 and $4,235 for the years ended
December 31, 1998 and 1997 and the period from inception (April 30, 1996) to
December 31, 1996, respectively. Interest income was $2,536, $15,041 and $416
for the years ended December 31, 1998 and 1997 and the period from inception
(April 30, 1996) to December 31, 1996, respectively.
(8) Additional Interests Earned by Company's Members
The Company consists of numerous limited liability companies, general and
limited partnerships and corporations. The equity ownership of individual
entities in the chain of entities holding interests in regional sports
networks and FX Networks, LLC include interests held directly by affiliates of
LMC and Fox. Generally, each regional sports network is owned by the Company
through a chain of entities in which the Company has a direct or indirect
interest of approximately 98%, with the remaining fractional interests being
held equally by the affiliates of Fox and LMC.
F-19
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
(9) 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 years, ended December 31, 1998 and 1997, the Company contributed $4,757
and $4,013, respectively to the 401(k) Plan.
(10) 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 maximum number of
Appreciation Rights available for grant under this plan is 300,000. Unless
otherwise determined by the committee, the rights vest over five years and can
be exercised over a period ending on the tenth anniversary of the granting of
the rights. The amount payable by the Company with respect to any Appreciation
Right exercised will equal the excess, if any, of the value at December 31 of
the preceding year over the original grant value. The valuation may be
performed by the Company or by a third party.
During 1998, the Company granted 28,000 and 18,000 rights at $185 and $135,
respectively. During 1997, the Company granted 185,100 rights at $135. The
value of the 1998 grants were based on an independent valuation and the value
of the 1997 grants were based on the initial value determined by the Company's
members. At December 31, 1998 and 1997, 118,260 and 74,040 rights had vested,
respectively, with a weighted average exercise period of 7.3 years at December
31, 1998. A valuation at December 31, 1998 has not been completed.
Compensation expense of $13,526 has been recorded through December 31, 1998
with respect to vested Appreciation Rights.
(11) Commitments and Contingencies
(a) Operating Leases
The Company leases transponders, office facilities, and equipment and
microwave channels used to carry its broadcast signals. These leases, which
are classified as operating leases, expire at various dates through 2010.
Future minimum payments, by year under noncancelable operating leases with a
term of one year or more consist of the following at December 31, 1998:
<TABLE>
<S> <C>
1999............................................................ $ 20,291
2000............................................................ 13,794
2001............................................................ 11,768
2002............................................................ 10,752
2003............................................................ 10,193
Thereafter...................................................... 24,481
--------
Total minimum lease payments.................................... $ 91,279
========
</TABLE>
Total lease expense was approximately $27,396, $17,137 and $7,881 for the
years ended December 31, 1998 and 1997 and the period from inception (April
30, 1996) to December 31, 1996, respectively.
F-20
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(Dollars in thousands)
(b) Long-term Program Rights Contracts
The Company has long-term program rights contracts which require payments
through 2009. Future minimum payments, including unrecorded amounts, by year
are as follows at December 31, 1998:
<TABLE>
<S> <C>
1999.......................................................... $ 258,529
2000.......................................................... 262,390
2001.......................................................... 211,470
2002.......................................................... 208,479
2003.......................................................... 182,773
Thereafter.................................................... 530,380
----------
Total minimum program rights payments......................... $1,654,021
==========
</TABLE>
The Company licenses television and feature film programming on a long-term
basis from various related parties, and accordingly records a program rights
asset and payable for the contractual amounts. At December 31, 1998 and 1997,
the unamortized program rights were $150,771 and $108,672, respectively, and
the program rights payable were $134,652 and $103,444, respectively.
(c) Employment Agreements
The Company has employment agreements with certain executives providing for
compensation payable through 2001.
(d) Litigation
In the ordinary course of business, the Company has become involved in
disputes or litigation. While the result of such disputes cannot be predicted
with certainty, in management's opinion, based in part on the advice of
counsel, the ultimate resolution of these disputes will not have a material
effect on the Company's financial position or results of operations.
(12) Subsequent Events
In March 1999, the Company agreed to sell its investment in Fit TV to an
affiliate of Fox for $6 million in cash. The Company expects to record a loss
from the sale of this investment in the amount of the excess of the Company's
carrying value of the investment in these net assets at the date of sale,
including any related unamortized excess cost, over the selling price.
F-21
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
FINANCIAL STATEMENTS
F-22
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
FINANCIAL STATEMENTS
With Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fox/Liberty Networks, LLC:
We have audited the accompanying combined statements of operations and
equity and cash flows of Liberty Sports, Inc. and subsidiaries--Domestic
Operations for the period from January 1, 1996 to April 29, 1996. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Liberty Sports, Inc. and subsidiaries--Domestic Operations for the period from
January 1, 1996 to April 29, 1996, in conformity with generally accepted
accounting principles.
KPMG LLP
Dallas, Texas
June 28, 1996
F-23
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
COMBINED STATEMENT OF OPERATIONS AND EQUITY
(amounts in thousands)
<TABLE>
<CAPTION>
January
1, 1996
to April
29, 1996
--------
<S> <C>
Revenues (note 4):
Programming......................................................... $ 37,484
Advertising......................................................... 27,696
Direct broadcast.................................................... 23,709
Network support..................................................... 2,471
Other............................................................... 8,393
--------
99,753
--------
Operating costs and expenses (notes 4 and 7):
Operating........................................................... 60,664
General and administrative.......................................... 27,993
Depreciation and amortization....................................... 10,788
--------
99,445
--------
Operating income (loss)........................................... 308
--------
Other income (expense):
Interest expense.................................................... (1,963)
Interest income..................................................... 91
Equity in earnings of affiliates (note 5)........................... 219
Minority interest in earnings of subsidiaries....................... (1,076)
Other, net.......................................................... 1,467
--------
(1,262)
--------
Loss before income taxes.......................................... (954)
Income tax benefit (note 6)........................................... 217
--------
Net loss.......................................................... (737)
Equity, beginning of period........................................... 236,788
Net change in Parent's investment..................................... (11,570)
--------
Equity, end of period................................................. $224,481
========
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
COMBINED STATEMENT OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
January 1,
1996
to April 29,
1996
------------
<S> <C>
Cash flows from operating activities:
Net loss........................................................ $ (737)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 10,788
Equity in earnings of affiliates.............................. (219)
Minority interest............................................. 1,076
Deferred income taxes......................................... (1,176)
Changes in operating assets and liabilities:
Receivables................................................. (9,198)
Inventories................................................. (167)
Prepaid program rights...................................... 1,197
Other assets................................................ (1,906)
Payables, accruals and unearned revenue..................... (2,881)
--------
Net cash used in operating activities..................... (3,223)
--------
Cash flows from investing activities:
Capital expended for property and equipment..................... (4,544)
Additional investments in and loans to affiliates............... (2,500)
Return of capital from affiliates............................... 1,000
--------
Net cash used in investing activities..................... (6,044)
--------
Cash flows from financing activities:
Borrowings of long-term debt.................................... 28,600
Repayments of long-term debt.................................... (8,956)
Change in Parent's investment................................... (11,570)
--------
Net cash provided by financing activities................. 8,074
--------
Decrease in cash and cash equivalents............................. (1,193)
Cash and cash equivalents at beginning of period.................. 10,453
--------
Cash and cash equivalents at end of period........................ $ 9,260
========
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) Organization
Liberty Sports, Inc. was incorporated on November 13, 1989 as TCI Sports,
Inc., a wholly-owned subsidiary of Tele-Communications, Inc. ("TCI"). On March
29, 1991, the name was changed to Liberty Sports, Inc. and the ownership was
transferred to Liberty Media Corporation ("LMC"), an affiliate of TCI. On
August 4, 1994, LMC became a wholly-owned subsidiary of TCI.
Liberty Sports, Inc. and subsidiaries--Domestic Operations primarily provide
television sports programming services to customers throughout the United
States, sell advertising time in such programming and provide management and
technical services to other sports networks.
(2) Significant Accounting Policies
(a) Basis of Presentation
The accompanying combined financial statements include the accounts of
Liberty Sports, Inc. and its domestic majority-owned subsidiaries and other
entities in which it has a controlling voting interest (collectively, "LSI--
Domestic" or the "Company"). All significant intercompany accounts and
transactions have been eliminated in combination.
(b) Investments in Affiliates
Investments in affiliates are accounted for under the equity method. Under
this method, the investment, originally recorded at cost, is adjusted to
recognize LSI-Domestic's share of net earnings or losses of the affiliate as
they occur rather than as dividends or other distributions are received,
limited to the extent of LSI-Domestic's investment in, advances to and
guarantees on behalf of, the investee. LSI's share of net earnings or losses
of affiliates includes the amortization of purchase adjustments.
(c) Revenues
Revenue from programming represents affiliate fees received from cable
system operators and is recognized monthly as earned. Advertising revenue is
recognized upon airing of commercials.
Network support revenue is received from related parties for network,
traffic and master control operation services provided by the Company. Such
revenue is recognized as earned.
The Company has sold advance subscriptions to its direct broadcast satellite
customers. Such amounts are amortized to revenue monthly as revenue is earned.
(d) Nonmonetary Transactions
The Company trades commercial advertising spots in return for other
services, primarily programming. These trades are recorded at the fair value
of the asset surrendered or the fair value of the asset obtained, whichever is
more clearly evident. These transactions resulted in the recording of
approximately $2,050,000 in both advertising revenue and expenses during the
period January 1, 1996 to April 29, 1996.
(e) 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 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. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
F-26
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(3) Supplemental Disclosures to Combined Statements of Cash Flows
Cash paid for interest was $1,805,000 for the period January 1, 1996 to
April 29, 1996. Cash paid for income taxes during the period January 1, 1996
to April 29, 1996 was not material.
(4) Related Party Transactions
For the period January 1, 1996 to April 29, 1996, the Company recognized the
following revenue and expenses as a result of transactions with related
parties, primarily TCI and its affiliates (amounts in thousands):
<TABLE>
<S> <C>
Revenues and other:
Programming....................................................... $12,213
Direct broadcast.................................................. 5,908
Network support................................................... 2,375
Other............................................................. 824
Expenses:
Programming fees.................................................. 2,865
Direct broadcast programming fees................................. 3,094
</TABLE>
(5) Investments in Affiliates
The following table reflects LSI Domestic's share of earnings (losses)
(principally accounted for under the equity method) of each of these
affiliates (amounts in thousands):
<TABLE>
<CAPTION>
Entity
------
<S> <C>
SportsChannel Chicago Associates ("SC--CHI")........................ $ 2,877
Prime SportsChannel Network Associates.............................. (2,169)
Sunshine Network Joint Venture ("Sunshine")......................... 669
SportsSouth Network Ltd............................................. 2,026
Prime Sports Network--Upper Midwest Joint Venture................... --
SportsChannel Prism Associates...................................... 139
Rocky Mountain Mobile TV............................................ 93
Home Team Sports Limited Partnership ("HTS")........................ 397
SportsChannel Pacific............................................... --
Global Music Channel................................................ (3,813)
-------
$ 219
=======
</TABLE>
The Company's investment in three of these affiliates (Sunshine, HTS, and
SC-CHI) exceeded its equity in the underlying net assets. These excess amounts
are being amortized over the estimated useful lives of the investment
affiliate agreements and sports contracts. This amortization aggregated
$222,000 for the period January 1, 1996 to April 29, 1996 and is included in
LSI Domestic's share of earnings.
F-27
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Summarized financial operating results for affiliates accounted for under
the equity method is as follows:
Combined Operations
(amounts in thousands)
<TABLE>
<CAPTION>
January 1,
1996 to
April 29,
1996
----------
<S> <C>
Revenues.......................................................... $ 90,170
Operating, general and administrative expenses.................... (80,772)
Depreciation and amortization..................................... (1,290)
--------
Operating income................................................ 8,108
Interest income................................................... (144)
Other, net........................................................ (30)
--------
Net income...................................................... $ 7,934
========
</TABLE>
(6) Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes."
SFAS No. 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the estimated 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. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
The Company is included in the consolidated federal income tax returns filed
by TCI. Federal income taxes are calculated on a separate return basis in the
accompanying consolidated financial statements.
Income tax benefit (expense) attributable to loss before income taxes for
the period January 1, 1996 to April 29, 1996 consists of the following:
<TABLE>
<S> <C>
Current:
Federal............................................................. $(921)
State............................................................... (38)
Deferred.............................................................. 1,176
-----
Total................................................................. $ 217
=====
</TABLE>
Actual income tax benefit differs from the "expected" income tax benefit for
the period January 1, 1996 to April 29, 1996 (computed by applying the U.S.
federal corporate tax rate of 35% to loss before income taxes) as follows
(amounts in thousands):
<TABLE>
<S> <C>
Computed "expected" tax benefit...................................... $ 334
Minority interest in earnings of consolidated subsidiary............. (640)
Other, net........................................................... 523
-----
$ 217
=====
</TABLE>
(7) Commitments and Contingencies
The Company leases transponders, office facilities, and equipment and
microwave channels used to carry its broadcast signals. These leases, which
are classified as operating leases, expire at various dates through 2000.
F-28
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under noncancellable operating leases by
calendar year are summarized as follows (amounts in thousands):
<TABLE>
<S> <C>
1996................................................................. $15,791
1997................................................................. 15,196
1998................................................................. 15,073
1999................................................................. 13,561
2000................................................................. 10,177
Thereafter........................................................... 5,500
</TABLE>
Total lease expense was approximately $4,049,000 for the period January 1,
1996 to April 29, 1996.
The Company has long-term sports program rights contracts which require
payments through 2005. Future minimum payments by calendar year are as follows
(amounts in thousands):
<TABLE>
<S> <C>
1996................................................................ $ 58,051
1997................................................................ 59,854
1998................................................................ 56,999
1999................................................................ 53,166
2000................................................................ 45,736
Thereafter.......................................................... 128,187
</TABLE>
The Company has guaranteed obligations of certain equity affiliates under
program rights agreements aggregating $3,331,000 in 1996; $3,598,000 in 1997;
and $2,857,000 in 1998.
Liberty Sports, Inc. and its domestic affiliates are parties to various
lawsuits and claims arising in the ordinary course of business. While the
outcome of such claims, lawsuits or other proceedings against the Company
cannot be predicted with certainty, management expects that such liability, to
the extent not provided through insurance or otherwise, will not have a
material adverse effect on the operating results or financial condition of the
Company.
(8) Subsequent Event
Effective April 29, 1996, Liberty Sports, Inc. contributed substantially all
of its domestic assets and liabilities to certain limited liability companies
and limited partnerships (collectively, the "Domestic Venture"). The members
of the Domestic Venture are certain affiliates of Liberty Sports, Inc. and
certain affiliates of The News Corporation Limited, each of which owns,
through its affiliates, 50% of the Domestic Venture. The Domestic Venture was
formed to provide sports programming services in the United States and Canada.
F-29
<PAGE>
FX NETWORKS, LLC
(A Limited Liability Company)
FINANCIAL STATEMENTS
For the Ten Months Ended April 29, 1996
Together with Report of Independent Public Accountants
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Fox/Liberty Networks, LLC:
We have audited the accompanying statements of Operations and Cash Flows of
FX NETWORKS, LLC (the Company, a Delaware limited liability company) for the
ten months ended April 29, 1996. 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. The financial
statements of FX Networks, LLC for the four months ended April 29, 1996 were
not audited by us and, accordingly, we do not express an opinion on them.
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 financial statements referred to above present fairly,
in all material respects, the results of FX NETWORKS, LLC's operations and its
cash flows for the ten months ended April 29, 1996 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
August 4, 1997
F-31
<PAGE>
FX NETWORKS, LLC
(A Delaware Limited Liability Company)
STATEMENTS OF OPERATIONS
For the Periods Ended April 29, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Four Ten
Months Ended Months Ended
April April 29,
29, 1996 1996
------------ ------------
(unaudited)
<S> <C> <C>
Revenue:
Programming......................................... $24,291 $ 55,934
Advertising......................................... 8,287 17,358
Infomercial......................................... 947 2,109
------- --------
33,525 75,401
------- --------
Expenses:
Operating........................................... 26,220 63,369
General and administrative.......................... 7,941 19,936
Depreciation and amortization....................... 201 480
------- --------
34,362 83,785
------- --------
Interest expense...................................... 3,354 7,898
------- --------
Net Loss.......................................... $(4,191) $(16,282)
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
FX NETWORKS, LLC
(A Delaware Limited Liability Company)
STATEMENTS OF CASH FLOWS
For the Periods Ended April 29, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Four months Ten months
ended April 29, Ended April 29,
1996 1996
--------------- ---------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income................................... $(4,191) $(16,282)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 201 480
Changes in operating assets and liabilities:
Accounts receivables....................... (3,998) (9,110)
Program rights............................. (6,785) (7,194)
Other assets............................... 359 (167)
Accounts payable and accrued expenses...... (1,136) (927)
Program rights payable..................... 6,263 6,254
------- --------
Net cash used in operating activities.... (9,287) (26,946)
------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment.......... (191) (521)
------- --------
Net cash used in investing activities.... (191) (521)
------- --------
Cash Flows from Financing Activities:
Related Party Payable........................ 9,478 27,467
------- --------
Net cash provided by financing
activities.............................. 9,478 27,467
------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents................................... -- --
Cash and Cash Equivalents, beginning of year... -- --
------- --------
Cash and Cash Equivalents, end of year......... $ -- $ --
======= ========
Supplemental Cash Flow Information
Cash paid for interest....................... $ 3,354 $ 7,898
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
FX NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
(Information for the four month period ended April 29, 1996 is unaudited)
For the Ten Months Ended April 29, 1996
(Dollars in thousands)
(1) Organization
FX Networks, LLC was formed on July 1, 1993 as a division of Fox, Inc.
("Fox"), a subsidiary of The News Corporation Limited, as a basic cable
exclusive service distributed on a per subscriber basis, to provide general
entertainment and sports programming services and sell commercial advertising
time during its programming.
(2) Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements of the Company present the operations
and cash flows for the interim four month period ended April 29, 1996
(unaudited) for the purpose of comparison to the year ended December 31, 1997
for its successor company, Fox/Liberty Networks, LLC.
(b) Program Rights
The Company has multi-year contracts for broadcast rights of syndicated
entertainment programs. Program rights are amortized over the term of the
contract using the straight-line method.
At the inception of these contracts and periodically thereafter, the Company
evaluates the recoverability of the costs associated therewith against the
advertising revenues directly associated with the program material and related
expenses. Where an evaluation indicates that a multi-year contract will result
in an ultimate loss, additional amortization is provided to recognize that
loss currently.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation for financial
statement purposes is provided using the straight-line method over estimated
useful lives of 3 to 5 years.
(d) Income Taxes
No provision has been made for income tax expense or benefit in the
accompanying consolidated financial statements as the income or losses of the
Company are reported in the respective income tax returns of the partners.
(e) Revenue
Programming revenue represents monthly subscriber fees received from cable
system operations and is recognized as earned. Advertising revenue is
recognized as earned.
(f) 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,
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. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
F-34
<PAGE>
FX NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the four month period ended April 29, 1996 is unaudited)
For the Ten Months Ended April 29, 1996
(Dollars in thousands)
(g) Allocation of expenses
Fox allocates costs, such as rent and payroll, incurred on behalf of the
Company based on the percentage of services rendered to the Company. These
allocated expenses are included in general and administrative expenses in the
Statements of Operations. Management believes the allocation method used is
reasonable.
(h) Interim Financial Data (unaudited)
The interim financial data for the period ended April 29, 1996 has been
prepared by the Company and is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results of
operations and cash flows for the interim period. Results for the interim
period are not necessarily indicative of the results to be achieved for the
full year.
(3) Related Party Transactions
The Company recognized the following revenue and expenses as a result of
arms-length transactions with related parties (amounts in thousands):
<TABLE>
<CAPTION>
Four Months Ten Months
Ended April 29, Ended April 29,
1996 1996
--------------- ---------------
(unaudited)
<S> <C> <C>
Revenue:
Advertising.............................. $ 159 $ 248
Expenses:
Interest expense......................... 3,354 7,898
Production............................... 7,932 23,068
Programming fees......................... 3,604 7,695
</TABLE>
TCI, which became a related party as a result of the Joint Venture (see Note
5), had transactions with the Company resulting in revenues of $25,310 for the
ten month period ended April 29, 1996.
(4) Commitments and Contingencies
(a) Leases
The Company leases transponders and equipment used to carry its broadcast
signals. These leases, which are classified as operating leases, expire at
various dates through 2006.
Total lease expense was approximately $3,912, and $1,564, for the ten months
and four months ended April 29, 1996 (unaudited).
(b) Long-term Program Rights Contracts
The Company has long-term program rights contracts which require payments
through 1999.
F-35
<PAGE>
FX NETWORKS, LLC
(A Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the four month period ended April 29, 1996 is unaudited)
For the Ten Months Ended April 29, 1996
(Dollars in thousands)
(c) Litigation
The Company is a party to various lawsuits and claims arising in the
ordinary course of business. While the outcome of such claims, lawsuits or
other proceedings against the Company cannot be predicted with certainty,
management expects that such liability will not have a material adverse effect
on the operating results or financial position of the Company.
(5) Subsequent Event
On April 30, 1996, The News Corporation Limited contributed a majority of
the assets and liabilities of the Company to Fox/Liberty Networks, LLC as part
of a joint venture formed by The News Corporation Limited and Tele-
Communications, Inc.
F-36
<PAGE>
LIBERTY/FOX ARC L.P.
(A Delaware Limited Partnership)
CONSOLIDATED FINANCIAL STATEMENTS
For the period from inception (April 30, 1996) to December 31, 1996
(Unaudited)
F-37
<PAGE>
LIBERTY/FOX ARC L.P.
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period from Inception (April 30, 1996) to December 31, 1996 (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
April 30 to
December 31,
1996
------------
(Unaudited)
<S> <C>
Revenue:
Programming...................................................... $ 27,895
Advertising...................................................... 9,598
Infomercial...................................................... 1,763
Direct broadcast................................................. 57,319
Other............................................................ 10,956
--------
107,531
--------
Expenses:
Operating........................................................ 73,074
General and administrative....................................... 7,171
Depreciation and amortization.................................... 2,407
--------
82,652
--------
Operating Income................................................... 24,879
--------
Other (income) expense:
Interest, net.................................................... 267
Loss on sale of assets........................................... 34
Equity income of affiliates, net................................. (1,148)
Other............................................................ 211
Minority interest................................................ 1,468
--------
832
--------
Net Income......................................................... $ 24,047
========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-38
<PAGE>
LIBERTY/FOX ARC L.P.
(A Delaware Limited Partnership)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period from Inception (April 30, 1996) to December 31, 1996 (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
April 30 to
December 31,
1996
------------
(Unaudited)
<S> <C>
Cash flows from operating activities:
Net income...................................................... $ 24,047
Adjustments to reconcile net income to net cash provided by
operating activities:
Bad debt expense.............................................. 240
Depreciation and amortization................................. 2,407
Loss on sale of assets........................................ 34
Equity income of affiliates................................... (1,148)
Minority interest............................................. 1,468
Changes in operating assets and liabilities:
Trade and other receivables................................... (7,983)
Prepaid program rights........................................ 278
Prepaid expenses and other current assets..................... 889
Other assets.................................................. 49
Accounts payable and accrued expenses......................... (14,290)
Program rights payable........................................ 4,422
Unearned revenue.............................................. (733)
--------
Net cash provided by operating activities................... 9,680
--------
Cash flows from investing activities:
Purchases of property and equipment............................. (1,886)
Note receivable issued to third parties......................... (4,381)
Distribution from affiliates.................................... 4,759
Additional investment in affiliates............................. (1,160)
Advances to related parties..................................... (18,608)
Advances from related parties................................... 35,569
--------
Net cash provided by operating activities................... 14,293
--------
Cash flows from financing activities:
Repayment of long-term debt..................................... (22,275)
Principal payments on capital lease obligations................. (71)
Cash overdraft, included in accounts payable.................... 3,529
--------
Net cash used in financing activities....................... (18,817)
--------
Net increase in cash and cash equivalents......................... 5,156
Cash and cash equivalents, at inception........................... 6,119
--------
Cash and cash equivalents, end of year............................ $ 11,275
========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-39
<PAGE>
LIBERTY/FOX ARC L.P.
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the period ended December 31, 1996 is unaudited)
December 31, 1996
(Dollars in thousands)
1. Organization
On April 30, 1996, Liberty/Fox ARC L.P. (the "Partnership"), a Delaware
limited partnership, was formed to own and operate programming services
featuring predominantly sports and sports related programming.
The partnership interests for the Partnership as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Partnership
Interest
-----------
<S> <C>
Fox Sports Net, LLC.............................................. 98%(l.p.)
Fox Regional Sports Member, Inc.................................. 1%(1.p.)
New LMC ARC, Inc................................................. 1%(g.p.)
</TABLE>
Fox/Liberty Networks, LLC, a Delaware limited liability company, through its
subsidiary Fox Sports Net, LLC, and New LMC ARC, Inc., a Delaware corporation,
each contributed interests in Affiliated Regional Communications, Ltd., a
Colorado limited partnership, and Rocky Mountain Prime Sports Network, a
Colorado general partnership. Fox Regional Sports Member, Inc. contributed
cash.
The Partnership provides television sports programming services, sells
advertising time in its programming, provides management services to other
sports networks, and provides technical services to other networks.
2. Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements include the operations of
the Partnership and its domestic majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(b) Cash Equivalents
Cash equivalents consist of short-term investments with an original maturity
of less than 90 days.
(c) Program Rights
The Partnership has multi-year contracts for broadcast rights of sporting
events. Pursuant to these contracts, an asset is recorded for the rights
acquired and a liability is recorded for the obligation incurred, at the gross
amount of the liability when the programs of sporting events are available for
broadcast. Program rights which are for a specified number of games are
amortized on an event-by-event basis, and those which are for a specified
season are amortized over the term of the season on a straight-line basis. At
the inception of these contracts and periodically thereafter, the Partnership
evaluates the recoverability of the costs associated therewith against the
advertising revenues directly associated with the program material and related
expenses. Where an evaluation indicates that a multi-year contract will result
in an ultimate loss, additional amortization is provided to currently
recognize that loss.
F-40
<PAGE>
LIBERTY/FOX ARC L.P.
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the period ended December 31, 1996 is unaudited)
December 31, 1996
(Dollars in thousands)
(d) Property and Equipment
Property and equipment are stated at cost, which include acquisition costs
allocated to tangible assets acquired. Depreciation and amortization for
financial statement purposes are provided using the straight-line method over
an estimated useful life of five to ten years.
(e) Excess Cost
Excess cost represents the difference between the costs of acquiring
programming entities and amounts assigned to their tangible assets. Such
amounts are amortized on a straight-line basis over 40 years. Amortization
expense for the period from inception (April 30, 1996) to December 31, 1996
was $1,468 (Unaudited).
The Partnership continually reevaluates the propriety of the carrying amount
of its intangible assets as well as the related amortization period to
determine whether current events or circumstances warrant adjustments to the
carrying value and/or the estimates of useful lives. This evaluation consists
of the Partnership's projection of undiscounted operating income before
interest over the remaining lives of the related intangible assets. Based on
its review, the Partnership believes that no significant impairment of the
intangible assets has occurred and that no reduction of the estimated useful
lives is warranted.
(f) Income Taxes
No provision has been made for income tax expense or benefit in the
accompanying consolidated financial statements as the income or losses of the
Partnership are reported in the respective income tax returns of the partners.
(g) Allocation of Partnership of Net Income or Net Losses
Income or losses from the Partnership are allocated to the partners in
accordance with their respective profit interests.
(h) Investments in Affiliates
Investments in affiliates are accounted for under the equity method. Under
this method, the investment originally recorded at cost is adjusted to
recognize the Partnership's share of net income or losses of the affiliate as
they occur, rather than as dividends or other distributions are received,
limited to the extent of the Partnership's investment, advances to and
guarantees on behalf of the investee. The Partnership's share of net income or
losses of affiliates includes the amortization of excess cost.
(i) Revenue
Revenue from programming represents monthly subscriber fees received from
cable system operations and is recognized as earned. Advertising revenue is
recognized as earned. The Partnership has sold advance subscriptions to its
direct broadcast satellite customers. Such amounts are amortized to revenue in
the month such revenue is earned.
Network support revenue is received from related parties for network,
traffic, and master control operation services provided by the Partnership.
Such revenue is recognized as earned.
F-41
<PAGE>
LIBERTY/FOX ARC L.P.
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the period ended December 31, 1996 is unaudited)
December 31, 1996
(Dollars in thousands)
(j) Nonmonetary Transactions
The Partnership trades commercial advertising sports in return for other
services, primarily programming. These trades are recorded at the fair value
of the asset surrendered or the fair value of the asset obtained, whichever is
more clearly evident. These transactions resulted in the recording of
approximately $2,322 (Unaudited) in both advertising revenue and programming
expenses during the period from inception (April 30, 1996) to December 31,
1996.
(k) Use of Estimates
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.
(l) Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 ("SFAS 121") on accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to assets to be held and
used. SFAS 121 also establishes accounting standards for long-lived assets and
certain identifiable intangibles to be disposed of. The Partnership adopted
SFAS 121 from inception (April 30, 1996). The adoption of the statement did
not have any material impact on the Partnership's financial statements.
3. Supplemental Cash Flow Information
Cash paid for interest for the period from inception (April 30, 1996) to
December 31, 1996 was $983 (Unaudited).
4. Related Party Transactions
For the period from inception (April 30, 1996) to December 31, 1996 the
Partnership recognized the following revenue and expenses as a result of arms-
length transactions with related parties:
<TABLE>
<CAPTION>
April 30 to
December 31,
1996
(Unaudited)
------------
<S> <C>
Revenue:
Programming................................................. $13,117
Network support, which is included in other revenue on the
statement of operations.................................... 2,456
Expenses:
Interest expense............................................ 32
DBS......................................................... 546
Production.................................................. 24
Advertising commissions..................................... 974
Programming fees............................................ 1,735
</TABLE>
F-42
<PAGE>
LIBERTY/FOX ARC L.P.
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the period ended December 31, 1996 is unaudited)
December 31, 1996
(Dollars in thousands)
5. Investments in Affiliates
The following table reflects the Partnership's equity in income (losses) of
these affiliates, accounted for under the equity method, for the period from
inception (April 30, 1996) to December 31, 1996 (Unaudited):
<TABLE>
<CAPTION>
Equity in
Ownership income
Entity percentage (losses)
------ ---------- ---------
<S> <C> <C>
Sunshine Network Joint Venture......................... 49.0% $ 1,306
Prime Sports Network--Upper Midwest Joint Venture...... 33.0% 5
Home Team Sports Limited Partnership................... 34.3% 699
Prime Sports Channel Prism Associates.................. 33.3% 869
Prime Sports Channel Network Associates................ 50.0% (1,953)
Mountain Mobile TV..................................... 33.3% 222
-------
$ 1,148
=======
</TABLE>
The Partnership's investment in Sunshine Network Joint Venture exceeded its
equity in the underlying net assets. These excess amounts are being amortized
on a straight-line basis over 40 years. The amortization aggregated $67
(Unaudited) for the period from inception (April 30, 1996) to December 31,
1996 and is included in the Partnership's share of equity in income of
affiliates.
6. Debt
ARC Holding, Ltd., a wholly-owned subsidiary of the Partnership ("Holding"),
is a party to a credit agreement, as amended, at December 31, 1996. Borrowings
bear interest at the agent bank's base rate, the London Interbank Offered
Rate, a CD rate or a combination thereof as selected by Holding plus a margin
depending on Holding's ratio of total debt to cash flow (as defined). The
effective interest rate at December 31, 1996 was 6.45 percent (Unaudited).
Beginning June 30, 1995, and quarterly thereafter through December 31, 2000,
the commitment amount is reduced in equal quarterly amounts. Holding must pay
an annual commitment fee of .375 percent of the unfunded portion of the
commitment. Borrowings under the credit agreement are secured by the assets of
Holding, including affiliate interests, and the stock and assets of its
existing and future subsidiaries.
The credit agreement contains certain provisions which limit Holding as to
additional indebtedness, sale of assets, liens, guarantees and distributions.
Additionally, Holding must attain certain specified financial ratios. Holding
was in compliance with the debt covenants as of December 31, 1996 (Unaudited).
7. Commitments and Contingencies
(a) Leases
The Partnership leases transponders, office facilities, equipment and
microwave channels used to carry its broadcast signals. These leases, which
are classified as operating leases, expire at various dates through 2001.
F-43
<PAGE>
LIBERTY/FOX ARC L.P.
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the period ended December 31, 1996 is unaudited)
December 31, 1996
(Dollars in thousands)
Future minimum payments by year under noncancelable operating leases with a
term of one year or more consist of the following:
<TABLE>
<CAPTION>
December 31,
1996
------------
(Unaudited)
<S> <C>
1997........................................................... $ 7,095
1998........................................................... 7,733
1999........................................................... 7,273
2000........................................................... 5,114
2001........................................................... 690
-------
Total minimum lease payments................................. $27,905
=======
</TABLE>
The Partnership has a capital lease related to equipment, which expires in
1999.
Future minimum payments by year under the capital lease consist of the
following:
<TABLE>
<CAPTION>
December
31, 1996
-----------
(Unaudited)
<S> <C>
1997............................................................. $104
1998............................................................. 114
1999............................................................. 115
----
Total minimum lease payments................................... $333
====
</TABLE>
Total lease expense was approximately $2,012 (Unaudited) for the period from
inception (April 30, 1996) to December 31, 1996.
(b) Long-term Sports Program Rights Contracts
The Partnership has long-term sports program rights contracts which require
payments through 2001. Future minimum payments by year are as follows:
<TABLE>
<CAPTION>
December 31,
1996
------------
(Unaudited)
<S> <C>
1997............................................................ $25,780
1998............................................................ 24,559
1999............................................................ 21,658
2000............................................................ 13,365
2001............................................................ 4,566
-------
Total minimum program rights payments......................... $89,928
=======
</TABLE>
F-44
<PAGE>
LIBERTY/FOX ARC L.P.
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the period ended December 31, 1996 is unaudited)
December 31, 1996
(Dollars in thousands)
The Partnership has guaranteed obligations of certain equity affiliates
under program rights agreements of:
<TABLE>
<CAPTION>
December 31,
1996
------------
(Unaudited)
<S> <C>
1997............................................................ $3,598
1998............................................................ 2,857
------
Total guaranteed obligations.................................. $6,455
======
</TABLE>
(c) Litigation
The Partnership and its affiliates are parties to various lawsuits and
claims arising in the ordinary course of business. While the outcome of such
claims, lawsuits or other proceedings against the Partnership cannot be
predicted with certainty, management expects that such liability will not have
a material adverse effect on the operating results or financial position of
the Partnership.
11. Subsequent Event
In March 1997, the partnership paid $40,000 (Unaudited) to Group W to
purchase the 12.78% partnership interest in ARC.
The Partnership amended the credit agreement in March 1997, and June 1997,
which increased the borrowings ceiling to $75,000 (Unaudited). The Company
repaid the outstanding principal balance on September 12, 1997.
F-45
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1998 and
Period from December 18, 1997 (Inception) to December 31, 1997
(With Independent Auditors' Report Thereon)
F-46
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Regional Programming Partners:
We have audited the accompanying consolidated balance sheets of Regional
Programming Partners and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, partners' capital and cash
flows for the year ended December 31, 1998 and for the period from December
18, 1997 (Inception) to December 31, 1997. These consolidated financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Regional
Programming Partners and subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for year ended December 31,
1998 and for the period from December 18, 1997 (Inception) to December 31,
1997, in conformity with generally accepted accounting principles.
March 12, 1999
Melville, New York
F-47
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 148,852 $ 402,978
Trade accounts receivable (less allowance for doubtful
accounts of $9,067 and $9,943)........................ 75,364 93,568
Trade accounts receivable-affiliates................... 18,329 26,674
Notes and other receivables-affiliates................. 180,519 450
Notes and other receivables............................ 1,734 3,632
Inventory.............................................. 2,483 3,486
Prepaid expenses and other current assets.............. 30,725 25,922
---------- ----------
Total current assets................................. 458,006 556,710
Notes receivable....................................... 41,320 44,085
Property and equipment, net............................ 259,175 245,395
Investments in affiliates.............................. 19,006 8,410
Other assets........................................... 4,905 7,163
Deferred costs, net of accumulated amortization of
$2,249 and $826....................................... 32,492 31,028
Intangible assets, net of accumulated amortization of
$249,700 and $149,695................................. 1,475,270 1,434,388
---------- ----------
$2,290,174 $2,327,179
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable....................................... $ 30,897 $ 21,532
Accrued expenses....................................... 69,794 60,356
Accrued payroll and related benefits................... 39,974 49,393
Deferred revenue....................................... 121,135 104,347
Accounts payable-affiliates, net....................... 10,114 7,338
Contractual rights obligations......................... 28,451 28,676
---------- ----------
Total current liabilities............................ 300,365 271,642
Long-term debt......................................... 330,000 380,000
Deferred compensation.................................. 8,747 11,079
Contractual rights obligations......................... 103,041 131,417
Other liabilities...................................... 117,442 44,485
Minority interest...................................... 64,117 129,495
---------- ----------
Total liabilities........................................ 923,712 968,118
Commitments and contingencies
Partners' capital...................................... 1,366,462 1,359,061
---------- ----------
$2,290,174 $2,327,179
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1998 and the Period from
December 18, 1997 (Inception) to December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Revenues, net (including affiliate amounts of $93,811 and
$3,305).................................................... $708,043 $56,957
Expenses:
Technical and operating (including affiliate amounts of
$12,853 and $529)........................................ 479,550 32,091
Selling, general and administrative (including affiliate
amounts of $12,104 and $295)............................. 122,276 9,472
Depreciation and amortization............................. 123,410 3,884
-------- -------
725,236 45,447
-------- -------
Operating (loss) income................................... (17,193) 11,510
-------- -------
Other income (expense):
Share of affiliates' net income (loss).................... 11,839 (359)
Interest income........................................... 24,318 973
Interest expense.......................................... (29,876) (1,395)
Gain on sale of partnership interest...................... 17,648 --
Write-off of deferred financing fees...................... -- (6,538)
Minority interest......................................... 758 (561)
Miscellaneous, net........................................ (93) (1,520)
-------- -------
24,594 (9,400)
-------- -------
Net income................................................ $ 7,401 $ 2,110
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
Year Ended December 31, 1998 and the Period from
December 18, 1997 (Inception) to December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
RMHI FOX TOTAL
-------- --------- ----------
<S> <C> <C> <C>
Balance, December 18, 1997...................... $ -- $ -- $ --
Net assets contributed........................ 506,951 -- 506,951
Capital contributions......................... -- 850,000 850,000
Adjustment of partnership capital............. 307,220 (307,220) --
Net income.................................... 1,266 844 2,110
-------- --------- ----------
Balance, December 31, 1997...................... 815,437 543,624 1,359,061
Net income.................................... 4,441 2,960 7,401
-------- --------- ----------
Balance, December 31, 1998...................... $819,878 $ 546,584 $1,366,462
======== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1998 and the Period from
December 18, 1997 (inception) to December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 7,401 $ 2,110
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of deferred costs........................ 1,423 (195)
Depreciation and amortization......................... 123,410 3,884
Share of affiliates net income (loss)................. (11,839) 359
Minority interest..................................... (758) 561
Gain on sale of partnership interest.................. (17,648) --
Write off of deferred financing costs................. -- 6,538
Loss on sales of equipment............................ 100 --
Changes in assets and liabilities:
Trade accounts receivable, net...................... 16,106 6,160
Trade accounts receivable-affiliates................ 6,709 (7,072)
Notes and other receivables-affiliates.............. (69) --
Notes and other receivables......................... 3,899 232
Prepaid expenses and other current assets........... (5,359) (641)
Deferred costs and other assets..................... (1,263) --
Accounts payable and accrued liabilities............ (13,950) 35,189
Deferred revenue.................................... 16,788 (39,377)
Accounts payable-affiliates, net.................... 3,496 (8,770)
Deferred compensation............................... (2,332) --
Contractual rights obligations...................... (28,601) --
Other liabilities................................... (3,887) --
--------- ---------
Net cash provided by (used in) operating
activities....................................... 93,626 (1,022)
--------- ---------
Cash flows from investing activities:
Capital expenditures................................... (32,812) --
Loan to affiliates..................................... (180,000) --
Decrease in investments in affiliates, net............. 170 --
Partial redemption of partnership interest............. (94,000) --
Net proceeds from sale of partnership interest......... 19,884 --
Proceeds from sale of equipment........................ 16 --
Additions to intangible assets......................... (11,010) --
--------- ---------
Net cash used in investing activities............. (297,752) --
--------- ---------
Cash flows from financing activities:
Debt repayments........................................ (50,000) (812,000)
Proceeds from debt..................................... -- 366,000
Cash capital contributions from partners............... -- 850,000
--------- ---------
Net cash (used in) provided by financing
activities....................................... (50,000) 404,000
--------- ---------
Net (decrease) increase in cash and cash equivalents..... (254,126) 402,978
Cash and cash equivalents at beginning of period......... 402,978 --
--------- ---------
Cash and cash equivalents at end of year................. $ 148,852 $ 402,978
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-51
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Dollars in thousands)
1. The Partnership and Nature of Operations
Regional Programming Partners (the "Partnership") is a general partnership
organized as of December 18, 1997, under the provisions of the New York State
Partnership Law. In exchange for a 60% interest in the Partnership issued to a
subsidiary of Rainbow Media Holdings, Inc. ("RMHI"), affiliates of RMHI,
through various indirect transfers, contributed to the Partnership their
interests in Madison Square Garden, L.P. ("MSG"), six additional regional
sports networks, and Metro Channel LLC. MSG is a sports and entertainment
company that owns and operates the Madison Square Garden arena and the
adjoining Theater at Madison Square Garden, the New York Knickerbockers
professional basketball team, the New York Rangers professional hockey team,
the New York Liberty professional women's basketball team, the New England
Seawolves professional arena football team, the Hartford Wolf Pack
professional hockey team, the Madison Square Garden Network, Fox Sports New
York and Radio City Entertainment (which operates Radio City Music Hall in New
York City). The regional sports networks in which the Partnership owns
interests provide regional sports programming to the New York, New England,
Chicago, Cincinnati, Cleveland, San Francisco and Florida areas. Metro Channel
LLC provides regional and local sports, news and educational programming to
the New York metropolitan area. A subsidiary of Fox/Liberty Networks, LLC
("Fox") contributed $850,000 in cash to the Partnership in exchange for a 40%
interest in the Partnership.
RMHI is a 75% owned subsidiary of CSC Holdings, Inc. (formerly Cablevision
Systems Corporation) ("CSC") and Fox is a joint venture between subsidiaries
of The News Corporation Limited and Liberty Media Corporation ("Liberty"). A
subsidiary of RMHI is the managing partner of the Partnership. Summary
financial information (at historical cost) for the net assets contributed to
the Partnership by affiliates of RMHI is as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 138,086
Other assets................................................ 316,997
Intangible assets, net...................................... 1,437,338
Current liabilities......................................... (259,400)
Bank debt................................................... (826,000)
Other liabilities........................................... (209,136)
Minority interest........................................... (90,934)
----------
$ 506,951
==========
</TABLE>
In order to align the partners' capital accounts to balances in accordance
with their ownership percentages after the initial contributions, an
adjustment was made to transfer $307,220 from Fox's capital account to RMHI's
capital account.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the
Partnership and its majority-owned partnership interests. The Partnership's
interests in less than majority-owned entities are accounted for under the
equity method. All significant intercompany transactions and balances are
eliminated in consolidation. Minority interest represents ITT Corporation's
("ITT") share of net equity of MSG.
F-52
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
Revenue Recognition
The Partnership derives revenues principally from programming services
provided by its pay television networks, ticket sales and distributions of
league-wide revenue from its sports teams, advertising on its other sports
network and advertising and event sponsorships related to the MSG arena.
Programming revenue is recognized as services are provided to pay television
systems. Network advertising revenue is recognized as commercials are
telecast. Ticket sales and league-wide revenue are recognized as each team
plays its games. Revenues from the sale of advertising in the form of signage
and license fees from rental of MSG's luxury suites are recognized ratably
over the term of the respective agreements. Event-related revenues are
recognized as the underlying event occurs.
Inventory
Inventory consists of retail merchandise carried on a FIFO basis and stated
at the lower of cost or market.
Deferred Financing Costs
Costs incurred to obtain debt financing are deferred and amortized, on a
straight-line basis, over the life of the related debt.
Long-Lived Assets
Property and equipment are carried at cost and depreciated on the straight-
line basis over the estimated useful lives of the assets or, with respect to
leasehold improvements, amortized over the shorter of the lease term or the
assets' useful lives.
The Partnership reviews its long-lived assets (property and equipment, and
intangible assets) for impairment whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable. If the sum of the
expected future cash flows, undiscounted and without interest, is less than
the carrying amount of the asset, an impairment loss is recognized as the
amount by which the carrying amount of the asset exceeds its fair value.
Income Taxes
The Partnership operates as a general partnership; accordingly, its taxable
income or loss is included in the tax returns of the individual partners and
no provision for income taxes is made by the Partnership.
Cash Equivalents
The Partnership considers temporary cash investments with original
maturities of three months or less at the time of purchase to be cash
equivalents. The Partnership paid cash interest expense of approximately
$26,464 for the year ended December 31, 1998. There was no cash paid for
interest during the period from December 18, 1997 (Inception) to December 31,
1997. On December 31, 1997, ITT made a capital contribution to MSG of
transportation equipment valued at $38,000.
Contractual Rights Obligations
Contractual rights obligations represent the remaining reserves on
unfavorable contracts established prior to the formation of the Partnership.
Such reserves are being amortized as a reduction of technical expense over the
life of the contracts.
Accounting 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 financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the 1998 presentation.
F-53
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
3. Acquisitions and Dispositions
In June 1998, the Partnership redeemed one-half of ITT Corporation's
remaining 7.8% limited partnership interest in Madison Square Garden, L.P. for
$94 million. Such redemption was accounted for as a purchase whereby the
excess of redemption price paid over the equity redeemed of $29,400 was
allocated based upon an independent appraisal as follows:
<TABLE>
<S> <C>
Property, plant and equipment.................................... $ 3,200
Player contracts................................................. 5,600
Franchises....................................................... 7,500
Excess costs over fair value of net assets acquired.............. 13,100
--------
$ 29,400
========
</TABLE>
On January 29, 1998, the Partnership sold a 50% interest in SportsChannel
New England Limited Partnership for $19,884. The Partnership recognized a
gain, net of expenses, of $17,648.
4. Notes Receivable
Notes receivable includes a $40,000 loan made by Garden Programming, Inc.
("Garden Programming"), a wholly owned subsidiary of MSG, to a broadcast
content provider entered into on July 11, 1997. The loan matures on November
1, 2011, and bears interest at a rate which approximates MSG's borrowing rate.
The loan is secured by certain assets of the borrower and a guarantee by an
affiliate of the borrower.
5. Property and Equipment
Property and equipment at December 31, 1998 and 1997, consist of the
following:
<TABLE>
<CAPTION>
Estimated
1998 1997 Useful Lives
--------- -------- -------------
<S> <C> <C> <C>
Land...................................... $ 23,193 $ 22,746
Building.................................. 117,809 115,476 23 years
Program, service and test equipment....... 14,182 9,346 2 to 9 years
Microwave and other equipment............. 6,664 7,323 2 to 9 years
Furniture and fixtures.................... 102,109 87,046 1 to 8 years
Leased assets and leasehold improvements.. 22,239 11,793 Life of lease
Transportation equipment.................. 39,166 38,525 5 to 15 years
--------- --------
325,362 292,255
Less accumulated depreciation and
amortization............................. 66,187 46,860
--------- --------
$ 259,175 $245,395
========= ========
</TABLE>
F-54
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
6. Investment in Affiliates
The Partnership has a 50% ownership interest in each of SportsChannel
Chicago Associates, SportChannel New England Limited Partnership,
SportsChannel Pacific Associates and the broadway production of the Scarlet
Pimpernel, a 30% partnership interest in SportsChannel Florida Associates and
a 10% interest in the broadway production of Footloose. The investment balance
and income (loss) of investees is comprised of the following:
<TABLE>
<CAPTION>
Investment Income (Loss)
December 31, December 31,
--------------- --------------
Investments 1998 1997 1998 1997
----------- ------- ------- ------- -----
<S> <C> <C> <C> <C>
SportsChannel Chicago Associates........... $12,149 $ 9,416 $10,233 $ 219
SportsChannel Pacific Associates........... 5,853 2,461 2,142 (443)
Other...................................... 1,004 (3,467) (536) (135)
------- ------- ------- -----
$19,006 $ 8,410 $11,839 $(359)
======= ======= ======= =====
</TABLE>
Several of the partnership agreements governing the operations of the
Partnership's investees contain buy-sell arrangements (generally providing for
a fair market determination of value) that may be initiated by one or more of
the partners under certain circumstances (as described in the partnership
agreements). Therefore, the Partnership's ownership interests in these
entities are subject to change.
7. Intangible Assets
At December 31, 1998 and 1997, intangible assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Player contracts, net of accumulated amortization of
$106,444
and $74,747......................................... $ 86,287 $ 112,420
Franchises, broadcast rights and affiliation
agreements, net of accumulated amortization of
$17,269 and $5,991.................................. 195,150 198,918
Excess costs over fair value of net assets acquired,
net of
accumulated amortization of $125,987 and $68,957.... 1,193,833 1,123,050
---------- ----------
$1,475,270 $1,434,388
========== ==========
</TABLE>
Player contracts, which represent the value assigned to the total compliment
of players included on the professional hockey and basketball teams, are
amortized over a six-year period on the straight-line basis. Costs incurred to
acquire individual players, including signing bonuses, are amortized over the
contract period of the respective player.
Franchises, broadcast rights and affiliation agreements represent the value
assigned to MSG's professional hockey and basketball franchises, telecast
rights to certain sporting events and agreements with cable systems to carry a
certain programming service of the Partnership. These assets are being
amortized over a weighted average period of approximately thirty one years on
the straight-line basis.
Excess costs over fair value of net assets acquired resulting from RMHI's
pre-inception purchases of interests in MSG, Radio City Entertainment and a
sports network are being amortized over a weighted average period of
approximately thirty seven years on a straight-line basis. During 1998, an
independent appraisal was completed of the assets and liabilities of Radio
City Entertainment. The valuation resulted in additional excess costs of
approximately $93 million being recorded, principally related to unfavorable
leaseholds.
F-55
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
8. Accrued Expenses
Included in accrued expenses at December 31, 1998 and 1997, are the
following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Production and programming costs............................ $ 4,800 $22,944
Litigation reserves......................................... 3,967 15,112
Other....................................................... 61,027 22,300
------- -------
Total....................................................... $69,794 $60,356
======= =======
</TABLE>
9. Long-Term Debt
Long-term debt at December 31, 1998 and 1997, consists of borrowings made by
MSG as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
MSG Credit Facility:
Due December 31, 2004..................................... $310,000 $360,000
Garden Programming Promissory Notes:
Due July 11, 2002......................................... 20,000 20,000
-------- --------
Total..................................................... $330,000 $380,000
======== ========
</TABLE>
MSG's has a credit facility with various lending institutions consisting of
a $500 million revolving facility (the "Revolver") which expires on December
31, 2004. Loans under the Revolver bear interest at current market rates plus
a margin (6.038% at December 31, 1998 and 6.875% at December 31, 1997) based
on MSG's consolidated leverage ratio. Borrowings outstanding as of December
31, 1998 and 1997 of $310,000 and $360,000, respectively. MSG is required to
pay a fee based on the unutilized commitment which as of December 31, 1998 and
1997, was $185,278 and $131,392, respectively. The carrying amount of the debt
approximates fair value.
Deferred financing costs of $6,538 associated with a term loan of $650
million which was repaid on December 18, 1997 were expensed. The deferred
financing costs related to the Revolver of approximately $10,800 and $10,743
as of December 31, 1998 and 1997, respectively, are being amortized over the
term of the Revolver.
The Revolver contains certain covenants and restrictions including the
maintenance of certain financial ratios. MSG was in compliance with these
covenants and restrictions as of December 31, 1998 and 1997.
Additionally, Garden Programming borrowed $20,000 under promissory notes
with various lending institutions (the "Promissory Notes"). The Promissory
Notes bear interest at a margin above LIBOR (7.22% and 7.85% at December 31,
1998 and 1997). These funds were used to partially finance a $40,000 secured
loan to a broadcast content provider (see Note 3).
MSG is party to letters of credit totaling $4,722 and $8,608 as of December
31, 1998 and 1997, respectively, which have been issued against the Revolver
to guarantee certain insurance and other operating activities. Management does
not expect performance to be required.
F-56
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
10. Leases
The Partnership has various long term noncancelable operating lease
agreements with nonaffiliates for office space and practice facilities for its
professional sports teams and Radio City Music Hall which expire at various
dates through 2023. The leases generally provide for fixed annual rentals plus
certain other costs. Rent expense, net of amortization of the liability
established for unfavorable leaseholds, for the year ended December 31, 1998
and for the period from December 18, 1997 (Inception) to December 31, 1997
approximated $16,559 and $275, respectively. The following is a schedule of
future minimum payments for these operating leases (with initial or remaining
terms in excess of one year) as of December 31, 1998:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999............................................................ $ 19,788
2000............................................................ 17,431
2001............................................................ 15,514
2002............................................................ 16,808
2003............................................................ 16,803
Thereafter...................................................... 267,502
--------
Total minimum lease payments..................................... $353,846
========
</TABLE>
11. Affiliate Transactions
Notes and other receivables--affiliates includes a $180,000 loan made on
June 1, 1998 by the Partnership to its parent, Rainbow Media Holdings, Inc.
Such loan is due on the earlier of demand by the Partnership or March 31,
2002, and bears interest at a rate of LIBOR plus 7/8% per annum.
The Partnership distributes certain programming to the pay television
industry under contracts called affiliation agreements. For the year ended
December 31, 1998 and for the period December 18, 1997 (Inception) to December
31, 1997, approximately $93,811 and $3,305, respectively, was earned under
affiliation agreements with companies owned or managed by affiliates of the
partners in the Partnership.
National Sports Partners, which is managed by Fox and in which Fox and RMHI
each indirectly own a 50% interest, provides certain programming to the
Partnership. The Partnership was charged approximately $3,783 and $130 for the
year ended December 31, 1998 and for the period from December 18, 1997
(Inception) to December 31, 1997, respectively, for this programming.
Rainbow Network Communications, an affiliate of the Partnership, provides
certain transmission and production services to the Partnership. The
Partnership was charged approximately $7,114 and $263 for the year ended
December 31, 1998 and for the period from December 18, 1997 (Inception) to
December 31, 1997, respectively, for these services.
CSC, RMHI and certain of its subsidiaries provide the Partnership with
certain administrative, advertising billing, computer, and creative services.
The Partnership was charged approximately $12,104 and $295 for the year ended
December 31, 1998 and for the period from December 18, 1997 (Inception) to
December 31, 1997, respectively, for such services.
The Partnership has an arrangement with National Advertising Partners
("NAP"), which is managed by Fox and in which Fox and RMHI each indirectly own
a 50% interest, to provide national advertising services to the Partnership in
exchange for a fee of 15% of the gross revenue, net of agency commissions,
from advertising
F-57
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
sold by this partnership. Fees charged by NAP on advertising revenues amounted
to approximately $1,956 and $136 for the year ended December 31 and for the
period from December 18, 1997 (Inception) to December 31, 1997, respectively.
The Partnership has non-majority ownership interests in several regional
sports networks as follows: 50% interest in SportsChannel Chicago Associates,
50% interest in SportsChannel Pacific Associates, 50% interest in
SportsChannel New England Limited Partnership (see note 1) and a 30% interest
in SportsChannel Florida Associates. A subsidiary of the Partnership has non-
majority ownership interests in several Broadway theater productions. The
Partnership's and subsidiary's investments in these entities are accounted for
on the equity method of accounting. Accordingly, the Partnership recorded
income of $11,838 for the year ended December 31, 1998 and a loss of $359 for
the period from December 18, 1997 (Inception) to December 31, 1997,
representing its share of the results of operations of these entities.
12. Pension and Other Postretirement Benefit Plans
CSC maintains a pension plan and 401(k) savings plan (collectively, the
"Plan") for each of the regional sports networks and Metro Channel, LLC
pursuant to which the Partnership contributes a percent of eligible employees'
annual compensation, as defined, to the defined contribution portion of the
Plan and prior to April 1998, an equivalent amount to the Section 401(k)
portion of the Plan. The Partnership also makes matching contributions for
employee voluntary contributions to the 401(k) portion of the Plan. The cost
associated with the Plan was approximately $130 and $7 for the year ended
December 31, 1998 and for the period from December 18, 1997 (Inception) to
December 31, 1997, respectively.
MSG sponsors several non-contributory pension plans covering the
Partnership's non-union employees and certain union employees. Benefits
payable to retirees under these plans are based upon years of service and
participant's compensation and are funded through trusts established under the
plans. MSG's funding policy is to meet the minimum funding requirements of the
Employee Retirement Income Security Act of 1974. Plan assets are invested in
common stocks, bonds, United States government securities and cash.
Components of MSG's net periodic pension cost for defined benefit plans for
the year ended December 31, 1998 and for the period from December 18, 1997
(Inception) to December 31, 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
------- ----
<S> <C> <C>
Service cost.................................................. $ 2,126 $ 52
Interest cost................................................. 1,796 63
Actual return on plan assets.................................. (1,707) (78)
Net amortization and deferral................................. 8 25
Recognized loss............................................... 31 --
------- ----
Net periodic pension cost..................................... $ 2,254 $ 62
======= ====
</TABLE>
F-58
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The funded status and the amounts recorded for the defined pension plans at
December 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
Change in benefit obligation -------- -------
<S> <C> <C>
Benefit obligation at beginning of year/period........ $25,518 $25,370
Service cost.......................................... 2,126 52
Interest cost......................................... 1,796 63
Actuarial loss........................................ 2,415 33
Benefit paid.......................................... (667) --
-------- -------
Benefit obligation at year end........................ $31,188 $25,518
======== =======
<CAPTION>
1998 1997
Change in plan assets -------- -------
<S> <C> <C>
Fair value of plan assets at beginning of
year/period.......................................... $17,172 $17,094
Actual return on plan assets.......................... 2,065 78
Employer contributions................................ 1,166 --
Benefits paid......................................... (667) --
-------- -------
Fair value of plan assets at end of year.............. $19,736 $17,172
======== =======
Funded status......................................... $(11,452) $(8,346)
Unrecognized transition amount........................ (43) (47)
Unrecognized prior service cost....................... 21 34
Unrecognized net actuarial loss....................... 2,591 564
-------- -------
Accrued benefit cost.................................. $ (8,883) $(7,795)
======== =======
</TABLE>
Assumptions used to determine pension costs and the projected benefit
obligation are as follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Discount rate.................................................. 6.75% 7.25%
Rate of return on plan assets.................................. 10.00% 10.00%
Rate of increase in future compensation levels................. 5.00% 5.00%
</TABLE>
In addition, MSG contributes to various multiemployer defined benefit
pension plans. Pension expense recognized for these multiemployer plans for
the year ended December 31, 1998 and for the period from December 18, 1997
(Inception) to December 31, 1997 was approximately $3,083 and $63,
respectively.
MSG also sponsors a welfare plan which provides certain postretirement
health care and life insurance benefits to certain non-union employees and
their dependents who are eligible for early or normal retirement under MSG's
retirement plan. The welfare plan is insured through a managed care provider
and MSG funds these benefits with premium payments.
Components of MSG's cost for postretirement benefits for the year ended
December 31, 1998 and for the period from December 18, 1997 (Inception) to
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
Service cost.................................................... $ 160 $ 6
Interest cost................................................... 140 6
Amortization of unrecognized prior service benefit.............. (179) (7)
Recognized gain................................................. (37) --
----- ----
Periodic postretirement benefit cost............................ $ 84 $ 5
===== ====
</TABLE>
F-59
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
The funded status and the amounts recorded on the Partnership's balance
sheet with respect to MSG's sponsored welfare plans are as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Benefit obligation at beginning of year/period............ $ 2,446 $ 2,430
Service cost.............................................. 160 6
Interest cost............................................. 140 6
Actuarial (gain)/loss..................................... (472) 4
Amendments................................................ 163 --
Plan participant contributions............................ 14 --
Benefit paid.............................................. (47) --
------- -------
Benefit obligation at end of year......................... $ 2,404 $ 2,446
======= =======
Plan assets............................................... -- --
Funded status............................................. $(2,404) $(2,446)
Unrecognized prior service cost........................... (2,884) (3,225)
Unrecognized net actuarial gain........................... (799) (365)
------- -------
Accrued benefit cost...................................... $(6,087) $(6,036)
======= =======
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 6.75% and 7.25% for 1998 and 1997, respectively. For
measurement purposes, a 6.1% annual rate of increase in the cost of covered
health care benefits was assumed for 1999. The rate was assumed to decrease
gradually to 5% for 2004 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effect:
<TABLE>
<CAPTION>
1-Percentage-Point 1-Percentage-Point
Increase Decrease
------------------ ------------------
<S> <C> <C>
Effect on the total of service and
interest cost components........... $ 55 $ (45)
Effect on postretirement benefit
obligations........................ $348 $(292)
</TABLE>
In addition, MSG contributes to multiemployer plans which provide health and
welfare benefits to active as well as retired employees. MSG incurred costs of
$5,006 and $116 related to those plans for the year ended December 31, 1998
and for the period from December 18, 1997 (Inception) to December 31, 1997,
respectively.
F-60
<PAGE>
REGIONAL PROGRAMMING PARTNERS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
13. Commitments
Subsidiaries of the Partnership have entered into long-term agreements with
several professional sports teams and others which provide such subsidiaries,
among other things, certain exclusive distribution rights to certain live
sporting events and obligate such subsidiaries to make minimum contractual
payments when the events are provided for distribution. Certain of these
contracts provide for payments which are guaranteed. MSG also has employment
agreements with players and coaches of its professional sports teams. Certain
of these contracts provide for payments which are guaranteed regardless of
employee injury or termination. MSG has obtained disability insurance on
certain players which provide benefits payable to MSG in the event of injury.
The approximate aggregate minimum contractual payments under these agreements
as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1999.......................................................... $ 229,933
2000.......................................................... 217,752
2001.......................................................... 153,717
2002.......................................................... 113,925
2003.......................................................... 98,150
Thereafter..................................................... 1,093,373
----------
$1,906,850
==========
</TABLE>
14. Contingencies
The Partnership is a party to various lawsuits arising out of the ordinary
conduct of its business. Management believes that the final outcome of these
matters will not have a material adverse effect on the financial position of
the Partnership.
In March, 1999, ITT Corporation and CSC entered into an agreement under
which ITT Corporation would exercise its right to require CSC to repurchase
its remaining interest in MSG for a purchase price of $87,000. Consummation of
this transaction is subject to league and regulatory approvals.
15. Fair Value of Financial Instruments
The Partnerships' financial instruments principally consist of cash and cash
equivalents, trade accounts receivable, notes receivable, accounts payable,
accrued expenses, long-term debt and contractual rights obligations. For all
instruments other than notes receivable, long-term debt and contractual rights
obligations, the carrying value of the instruments approximate their fair
value due to their short maturities. For notes receivable, long-term debt and
contractual rights obligations, carrying value approximates fair value as the
underlying instruments earn or bear interest at rates which approximate market
rates for the same or similar instruments.
F-61
<PAGE>
NATIONAL SPORTS PARTNERS
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-62
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Joint Venturers of
National Sports Partners:
We have audited the accompanying balance sheets of NATIONAL SPORTS PARTNERS
(the "Joint Venture") as of December 31, 1998 and 1997, and the related
statements of operations, venturers' equity (deficit), and cash flows for the
year ended December 31, 1998 and the period from inception (December 18, 1997)
to December 31, 1997. These financial statements are the responsibility of the
Joint Venture's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Sports Partners
as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for the year ended December 31, 1998 and the period from inception
to December 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 19, 1999
F-63
<PAGE>
NATIONAL SPORTS PARTNERS
BALANCE SHEETS
As of December 31, 1998 and 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................. $ 3,209 $ 2,266
Accounts receivable, net of allowance for doubtful
accounts of $3,760 and $0 at December 31, 1998 and 1997.. 32,257 2,115
Prepaid program rights.................................... 3,453 1,313
Other assets.............................................. 900 413
------- -------
Total current assets.................................... 39,819 6,107
Property and equipment, net of accumulated depreciation of
$6,197 and $144 at December 31, 1998 and 1997.............. 9,717 15,222
Long-term receivable........................................ 5,000 --
------- -------
TOTAL ASSETS................................................ $54,536 $21,329
======= =======
LIABILITIES AND VENTURERS' DEFICIT
----------------------------------
Current liabilities:
Accounts payable and accrued expenses..................... $28,343 $ 7,299
Program rights payable.................................... 9,232 3,066
Accrued production costs.................................. 8,001 1,442
Other liabilities......................................... 4,942 2,883
------- -------
Total current liabilities............................... 50,518 14,690
Long-term program rights payable............................ 13,881 13,550
Commitments and contingencies
Venturers' deficit.......................................... (9,863) (6,911)
------- -------
TOTAL LIABILITIES AND VENTURERS' DEFICIT.................... $54,536 $21,329
======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-64
<PAGE>
NATIONAL SPORTS PARTNERS
STATEMENTS OF OPERATIONS
For The Year Ended December 31, 1998
And For The Period From Inception
(December 18, 1997) To December 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
REVENUE:
Programming.............................................. $ 28,690 $ 841
Advertising.............................................. 34,589 215
Other.................................................... 11,834 24
-------- --------
75,113 1,080
EXPENSES:
Operating................................................ 110,645 21,096
General and administrative............................... 6,284 235
Depreciation............................................. 6,053 144
-------- --------
OPERATING LOSS............................................. (47,869) (20,395)
INTEREST INCOME............................................ 401 5
-------- --------
NET LOSS................................................... $(47,468) $(20,390)
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
NATIONAL SPORTS PARTNERS
STATEMENTS OF VENTURERS' EQUITY (DEFICIT)
For The Year Ended December 31, 1998
And For The Period From Inception
(December 18, 1997) To December 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Fox Sports National Rainbow National
Holdings, LLC Sports Holdings, LLC Total
------------------- -------------------- --------
<S> <C> <C> <C>
BALANCE--DECEMBER 18, 1997
(representing the initial
contributions of the
venturers)................ $ 10,405 $ 3,074 $ 13,479
Net loss.................. (10,195) (10,195) (20,390)
-------- -------- --------
BALANCE--DECEMBER 31, 1997.. 210 (7,121) (6,911)
Contributions from
venturers................ 22,258 22,258 44,516
Net loss.................. (23,734) (23,734) (47,468)
-------- -------- --------
BALANCE--DECEMBER 31, 1998.. $ (1,266) $ (8,597) $ (9,863)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
NATIONAL SPORTS PARTNERS
STATEMENTS OF CASH FLOWS
For The Year Ended December 31, 1998
And For The Period From Inception
(December 18, 1997) To December 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $(47,468) $(20,390)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 6,053 144
Additional amortization of program rights.............. -- 16,616
Changes in operating assets and liabilities:
Accounts receivable.................................... (30,142) 321
Prepaid program rights................................. (2,140) (1,313)
Other assets and long term receivable.................. (5,487) --
Accounts payable and accrued expenses.................. 21,044 2,048
Program rights payable................................. 6,497 --
Accrued production costs............................... 6,559 --
Other liabilities...................................... 2,059 2,574
-------- --------
Net cash used in operating activities................ (43,025) --
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchase of property and equipment....................... (548) --
-------- --------
Net cash provided by investing activities............ (548) --
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES --
Contributions from ventures.............................. 44,516 --
-------- --------
Net cash provided by financing activities............ 44,516 --
-------- --------
Net change in cash and cash equivalents.................... 943 --
CASH AND CASH EQUIVALENTS, beginning of period............. 2,266 2,266
-------- --------
CASH AND CASH EQUIVALENTS, end of period................... $ 3,209 $ 2,266
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
NATIONAL SPORTS PARTNERS
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
(Amounts in thousands)
1. Organization
National Sports Partners (the "Joint Venture") is a 50%-50% joint venture
between Fox Sports National Holdings, LLC ("Fox"), a Delaware limited
liability company, and Rainbow National Sports Holdings, LLC ("Rainbow"), a
Delaware limited liability company. Fox is the managing venturer.
The Joint Venture was organized on December 18, 1997, when both Fox and
Rainbow contributed certain programming interests to operate a national sports
programming service, Fox Sports Net ("FSN"). FSN provides affiliated regional
sports networks ("RSN's") with 24 hours per day national sports programming
featuring live sporting events and original programming, as well as a national
sports news program, Fox Sports News, which telecasts pre-game and post-game
programming.
Fox contributed nonmonetary assets of $10,405, comprised primarily of
certain fixed assets, net of accrued liabilities assumed by the Joint Venture.
Rainbow contributed cash of $2,266 and nonmonetary assets of $808, consisting
primarily of certain accounts receivable, fixed assets, net of accrued
liabilities assumed by the Joint Venture.
During 1998, the Joint Venture incurred net losses of $47,468. In accordance
with the Joint Venture Agreement dated December 18, 1997, Fox and Rainbow
contributed $22,258 each to the Joint Venture during 1998. In addition, Fox
and Rainbow have approved the 1999 operating budget of the Joint Venture.
2. Significant Accounting Policies
a. Cash Equivalents
Cash equivalents consist of short-term investments with an original maturity
of less than 90 days. The carrying amounts of cash equivalents approximate
their fair values due to their short maturities.
b. Program Rights
The Joint Venture has multi-year contracts for broadcast rights of sporting
events. Program rights are amortized on an event-by-event basis. At the
inception of these contracts and periodically thereafter, the Joint Venture
evaluates the recoverability of the costs associated therewith against the
advertising revenues directly associated with the program material and related
expenses. Where an evaluation indicates that a multi-year contract will result
in an ultimate loss, additional amortization is provided to currently
recognize that loss. In 1997, the Joint Venture recorded $16,616 of additional
amortization relating to its long-term program rights contracts.
c. Property and Equipment
Property and equipment are stated at cost. Depreciation for financial
statement purposes are provided using the straight-line method over an
estimated useful life of 3 to 5 years.
d. Income Taxes
No provision has been made for income tax expense or benefit in the
accompanying financial statements as the income or losses of the Joint Venture
are reported in the respective income tax returns of the venturers.
e. Allocation of Joint Venturers' Net Income or Net Losses
Income or losses from the Joint Venture are allocated to the venturers in
accordance with their respective contractual interests of 50% each.
f. Revenue
Revenue from programming represents monthly subscriber fees received from
the RSN's and is recognized when earned. Advertising revenue is recognized
upon airing of commercials.
F-68
<PAGE>
NATIONAL SPORTS PARTNERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(Amounts in thousands)
g. 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,
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. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
h. Reclassifications
Certain reclassifications have been made to the prior year balances to
conform to the current year presentation.
3. Property and equipment
Property and equipment at December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Studio and production equipment............................ $ 5,613 $ 5,765
Office equipment........................................... 10,301 9,365
Other...................................................... -- 236
------- -------
15,914 15,366
Accumulated depreciation................................... (6,197) (144)
------- -------
$ 9,717 $15,222
======= =======
</TABLE>
4. Related Party Transactions
For the year ended December 31, 1998 and the period from inception (December
18, 1997) to December 31, 1997, the Joint Venture recognized the following
revenues and expenses as a result of arms-length transactions with affiliates
of Fox and Rainbow:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Revenue:
Programming................................................ $27,461 $ 810
Other...................................................... 3,750 --
Expenses:
Operating.................................................. 17,397 1,207
General and administrative................................. 5,127 198
</TABLE>
The Joint Venture had the following related party balances as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Accounts receivable........................................... $11,776 $1,352
Accounts payable.............................................. 10,234 935
</TABLE>
F-69
<PAGE>
NATIONAL SPORTS PARTNERS
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1997
(Amounts in thousands)
5. Commitments
Long-term Sports Program Rights Commitments
The Joint Venture has long-term sports program rights contracts which
require payments through 2007. Future minimum payments, including unrecorded
amounts, by year are as follows at December 31, 1998:
<TABLE>
<S> <C>
1999............................................................... $ 59,660
2000............................................................... 68,672
2001............................................................... 55,776
2002............................................................... 40,102
2003............................................................... 38,833
Thereafter......................................................... 151,583
--------
Total minimum program rights payments.............................. $414,626
========
</TABLE>
F-70
<PAGE>
FOX/LIBERTY NETWORKS, LLC
CONDENSED FINANCIAL STATEMENTS OF THE COMPANY
WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To the Members of
Fox/Liberty Networks, LLC:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of FOX/LIBERTY NETWORKS, LLC (the
"Company") included elsewhere in this Form 10-K and have issued our report
thereon dated February 19, 1999. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. Schedules I and
II are the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
Los Angeles, California
February 19, 1999
S-2
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF COMPANY
BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
-------- ----------
(Restated)
----------
<S> <C> <C>
ASSETS
------
Cash........................................................ $ 137 $ --
Investments in subsidiaries................................. 891,006 911,489
Other assets................................................ 17,063 18,083
-------- --------
Total Assets.............................................. $908,206 $929,572
======== ========
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Accrued liabilities......................................... $ 31,125 $ 16,473
Long-term debt.............................................. 786,878 760,828
Members' Equity............................................. 90,203 152,271
-------- --------
Total Liabilities and Members' Equity..................... $908,206 $929,572
======== ========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
S-3
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF COMPANY
STATEMENTS OF OPERATIONS
For the Periods ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended Year Ended April 30 To
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
(Restated)
------------
<S> <C> <C> <C>
Interest expense, net.................. $ 71,783 $ 12,914 $ --
Other expenses......................... 13,531 -- --
Equity in (income) loss of
subsidiaries.......................... (23,246) 65,543 117,149
-------- -------- ---------
Net loss............................... $(62,068) $(78,457) $(117,149)
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
S-4
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF COMPANY
STATEMENTS OF CASH FLOWS
For the Periods ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended Year ended April 30 to
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
(Restated)
------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $(62,068) $ (78,457) $(117,149)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Interest accretion.................. 26,050 8,550 --
Equity in (income) loss of
affiliates......................... (23,246) 65,543 117,149
Changes in operating assets and
liabilities:
Other assets........................ 1,020 (18,083) --
Accrued liabilities................. 14,652 16,473 --
-------- --------- ---------
Net cash used in operating
activities....................... (43,592) (5,974) --
-------- --------- ---------
Cash flows from investing activities:
Distributions from equity affiliates.. 144,267 58,040 --
Investments in equity affiliates...... (100,538) (804,344) --
-------- --------- ---------
Net cash provided by (used in)
investing activities............. 43,729 (746,304) --
-------- --------- ---------
Cash flows from financing activities:
Proceeds from notes................... -- 752,278 --
-------- --------- ---------
Net cash provided by financing
activities....................... -- 752,278 --
-------- --------- ---------
Net increase in cash and cash
equivalents............................ 137 -- --
Cash and cash equivalents, beginning of
period................................. -- -- --
-------- --------- ---------
Cash and cash equivalents, end of
period................................. $ 137 $ -- $ --
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
S-5
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF COMPANY
NOTES TO CONDENSED FINANCIAL INFORMATION
December 31, 1998 and 1997
(Dollars in thousands)
(1) Restatement of Financial Information
The December 31, 1997 condensed financial information has been restated to
be comparative with December 31, 1998. This restatement had no effect on net
loss.
(2) Debt
Annual future minimum maturities of debt are as follows:
<TABLE>
<S> <C>
1999................................................................ $ --
2000................................................................ --
2001................................................................ --
2002................................................................ --
2003................................................................ --
Thereafter.......................................................... 786,878
--------
$786,878
========
</TABLE>
(3) Commitments and Contingencies
The Company has guaranteed certain obligations of its subsidiaries.
S-6
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A Delaware Limited Liability Company)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance
at Balance
Beginning Charged to at
of Costs and End of
Period Expenses Deductions Other Period
--------- ---------- ---------- ----- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1998
Allowance for doubtful
accounts.............. $ (1,714) $ (9,109) $ 1,570 $ (71)(1) $ (9,324)
Program rights
reserve............... (38,344) -- 19,617 -- (18,727)
YEAR ENDED DECEMBER 31,
1997
Allowance for doubtful
accounts.............. (957) (1,586) 1,029 (200)(1) (1,714)
Program rights reserve (80,000) -- 41,656 -- (38,344)
EIGHT MONTHS ENDED
DECEMBER 31, 1996
Allowance for doubtful
accounts.............. (454) (535) 32 -- (957)
Program rights
reserve............... -- (80,000) -- -- (80,000)
</TABLE>
- --------
(1) Represents balances acquired during the period.
S-7
