<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the quarterly period ended September 30, 1999.
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 SPORTS NETWORKS, LLC
(Exact name of registrant as specified in its charter)
Delaware 95-4577574
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1440 South Sepulveda Boulevard, Los Angeles, CA 90025
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 444-8123
---------------------
Indicate by check mark whether the Registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days.
Yes X No
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FOX SPORTS NETWORKS, LLC
(A Delaware Limited Liability Company)
Condensed Consolidated Balance Sheets
September 30, 1999 and June 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- --------
<S> <C> <C>
(unaudited)
Assets
Current assets:
Cash and cash equivalents............................................................ $ 16,604 $ 59,145
Trade and other receivables, net of allowance for doubtful accounts of $27,111 at
September 30, 1999 and $21,925 at June 30, 1999.................................... 176,521 164,739
Receivables from equity affiliates, net.............................................. 18,634 43,892
Program rights....................................................................... 93,171 106,790
Notes receivable, current............................................................ 1,935 1,935
Prepaid expenses and other current assets............................................ 18,174 13,968
---------- ----------
Total current assets.............................................................. 325,039 390,469
Property and equipment, net............................................................ 55,458 53,794
Investments in equity affiliates....................................................... 934,088 856,948
Note receivable, long-term............................................................. 9,671 12
Program rights......................................................................... 136,217 103,567
Excess cost, net of accumulated amortization of $96,227 at September 30, 1999 and
$92,813 at June 30, 1999............................................................. 490,551 493,965
Other assets........................................................................... 36,343 33,743
---------- ----------
Total Assets...................................................................... $1,987,367 $1,932,498
========== ==========
Liabilities and Members' Equity
Current liabilities:
Accounts payable and accrued expenses................................................ $ 187,257 $ 195,961
Program rights payable............................................................... 69,836 73,061
Current portion of long-term debt.................................................... 2,806 13,253
Accrued interest..................................................................... 16,391 18,903
Other current liabilities............................................................ 13,024 9,168
---------- ----------
Total current liabilities......................................................... 289,314 310,346
Non-current program rights payable..................................................... 126,842 96,021
Long-term debt, net of current portion................................................. 1,507,044 1,488,178
Minority interest...................................................................... 24,029 2,207
Commitments and contingencies
Members' equity........................................................................ 40,138 35,746
---------- ----------
Total Liabilities and Members' Equity............................................. $1,987,367 $1,932,498
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
2
<PAGE>
FOX SPORTS NETWORKS, LLC
(A Delaware Limited Liability Company)
Condensed Consolidated Statements Of Operations
For the Three Months Ended September 30, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Programming........................................................................ $101,120 $ 77,173
Advertising........................................................................ 52,949 41,761
Direct broadcast................................................................... 31,940 29,390
Other.............................................................................. 20,489 18,120
-------- --------
206,498 166,444
-------- --------
Expenses:
Operating.......................................................................... 142,882 121,766
General and administrative......................................................... 17,612 20,203
Depreciation and amortization...................................................... 7,072 6,655
-------- --------
167,566 148,624
-------- --------
Operating income..................................................................... 38,932 17,820
-------- --------
Other (income) expenses:
Interest, net...................................................................... 30,628 27,343
Subsidiaries' income tax (benefit) expense, net.................................... (75) 131
Equity loss of affiliates, net..................................................... 2,044 5,820
Other, net......................................................................... 69 (35)
Minority interest.................................................................. 1,874 930
-------- --------
34,540 34,189
-------- --------
Net income (loss).................................................................... $ 4,392 $(16,369)
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
FOX SPORTS NETWORKS, LLC
(A Delaware Limited Liability Company)
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................. $ 4,392 $(16,369)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization.................................................. 7,072 6,655
Interest accretion and amortization of debt issuance costs..................... 8,797 7,653
Equity loss of affiliates, net................................................. 2,044 5,820
Minority interests............................................................. 1,874 930
Changes in operating assets and liabilities:
Trade and other receivables.................................................... (15,357) (16,244)
Program rights................................................................. (17,608) (70,110)
Prepaid expenses and other operating assets.................................... 4,276 (77)
Accounts payable and accrued expenses.......................................... (25,897) 10,619
Program rights payable......................................................... 23,994 52,427
Other operating liabilities.................................................... 1,326 (20,785)
-------- --------
Net cash used in operating activities....................................... (5,087) (39,481)
-------- --------
Cash flows from investing activities:
Advances from equity affiliates................................................... 6,826 24,378
Advances to equity affiliates..................................................... (28,716) (12,675)
Notes receivable collected from third parties..................................... 2 5,201
Notes receivable.................................................................. (9,661) --
Purchases of property and equipment............................................... (4,482) (4,916)
Investments in equity affiliates.................................................. (6,827) (5,601)
Distributions from equity affiliates.............................................. 5,715 50
-------- --------
Net cash (used in) provided by investing activities......................... (37,143) 6,437
-------- --------
Cash flows from financing activities:
Borrowings of long-term debt...................................................... 93,738 45,000
Repayment of long-term debt....................................................... (93,569) (10,831)
Distribution to minority shareholder of subsidiary................................ (480) --
-------- --------
Net cash (used in) provided by financing activities......................... (311) 34,169
-------- --------
Net (decrease) increase in cash and cash equivalents................................ (42,541) 1,125
Cash and cash equivalents, beginning of period...................................... 59,145 16,696
-------- --------
Cash and cash equivalents, end of period............................................ $ 16,604 $ 17,821
======== ========
Supplemental Cash Flow disclosure:
Cash paid for interest............................................................ $ 22,321 $ 31,658
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
FOX SPORTS NETWORKS, LLC
(A Delaware Limited Liability Company)
Notes to Condensed Consolidated Financial Statements
September 30, 1999 (unaudited)
(Dollars in thousands)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Fox Sports Networks, LLC (the "Company") have been prepared by the Company
pursuant to the instructions for Form 10-Q and, accordingly, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted where permitted by regulation. In management's opinion, the accompanying
unaudited condensed consolidated financial statements reflect all adjustments,
primarily consisting of normal recurring accruals, necessary for a fair
presentation of the consolidated results of operations for the interim periods
presented. The condensed consolidated results of operations for such interim
periods are not necessarily indicative of the results that may be expected for
future interim periods or for the year ended June 30, 2000. These interim
condensed consolidated financial statements and the notes thereto should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Transition Report on Form 10-K for the six
months ended June 30, 1999.
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.
The Company consolidates all subsidiaries in which it has a majority
interest and voting control is held by either the Company or Fox Entertainment
Group, Inc. ("Fox"), its parent. The percentage of ownership, together with the
degree to which the Company controls the management and operation of an RSN,
determines the appropriate accounting treatment for the Company's interest in
that particular RSN. If the Company owns a majority interest in a particular
RSN, but neither the Company nor Fox have voting control, the ownership interest
is accounted for using the equity method of accounting.
In July 1999, The News Corporation Limited acquired from Liberty Media
Corporation ("Liberty") substantially all of Liberty's 50% interest in the
Company and transferred that interest to Fox in exchange for common stock. In
connection with this transaction, voting control of certain majority-owned
subsidiaries of the Company, previously held by Liberty, has been acquired by
Fox and, accordingly, these subsidiaries are consolidated for the three months
ended September 30, 1999. (See Note 5.) These majority-owned subsidiaries which
were previously accounted for using the equity method of accounting, are:
Fox Sports Net Pittsburgh, LP (formerly Liberty/Fox KBL LP)
Fox Sports Net Chicago Holdings, LLC (formerly Fox/Liberty Chicago LP)
Fox Sports Net Bay Area Holdings, LLC (formerly Fox/Liberty Bay Area LP)
Fox Sports Net Upper Midwest Holdings, LP (formerly Fox/Liberty Upper
Midwest LP)
Fox Sports Net Distribution, LP (Fox/Liberty Distribution LP)
(2) Debt
Debt at September 30, 1999 and June 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- ----------
(unaudited)
<S> <C> <C>
19/th/ Holdings--Term loan............................................................... $ 400,000 $ 400,000
19/th/ Holdings--Revolver................................................................ 287,891 277,000
Senior Notes............................................................................. 500,000 500,000
Senior Discount Notes.................................................................... 308,027 300,786
Other.................................................................................... 13,932 23,645
---------- ----------
1,509,850 1,501,431
Less current portion..................................................................... (2,806) (13,253)
---------- ----------
$1,507,044 $1,488,178
========== ==========
</TABLE>
In July 1999, 19/th/ Holdings Corporation ("19/th/ Holdings"), a wholly-
owned subsidiary of Fox, acquired the debt outstanding under a bank facility
from a group of banks, led by Chase Manhattan Bank (the "19/th/ Facility").
Borrowings under the 19/th/ Facility bear interest at a fixed rate determined on
an annual basis by 19/th/ Holdings. 19/th/ Holdings has determined that the rate
of interest on this debt through June 2000 shall be 8%.
5
<PAGE>
FOX SPORTS NETWORKS, LLC
(A Delaware Limited Liability Company)
Notes to Condensed Consolidated Financial Statements -- (Continued)
September 30, 1999 (unaudited)
(Dollars in thousands)
(3) Summarized Financial Information
Summarized unaudited income statement information for subsidiaries
accounted for under the equity method for which separate financial information
would be required for annual periods, is as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Revenue $157,362 $149,506
Operating loss (14,743) (27,627)
Net loss (12,942) (24,661)
</TABLE>
(4) Equity Appreciation Rights Plan
In October 1997, the Company adopted the Fox Sports Networks, LLC Equity
Appreciation Rights Plan for Management and Key Employees (the ''Plan''), with
an effective date of May 1, 1996. In August 1999, the Plan was amended, with an
effective date of June 30, 1999, to provide that no further Appreciation Rights
could be granted under the Plan after such effective date and the value of
Appreciation Rights was fixed at $250 as of the effective date. All outstanding
Appreciation Rights will continue to vest over time, provided that as
Appreciation Rights vest, the participants shall be deemed to have exercised
their rights to receive cash payments equal to the excess of $250 over the grant
value of such vested Appreciation Rights.
(5) Supplemented Disclosure to Condensed Consolidated Statements of Cash Flows
The consolidation of certain majority-owned subsidiaries previously
accounted for using the equity method (see Note 1) is a non-cash investing
activity that resulted in changes to various assets and liabilities on the
Company's condensed consolidated balance sheet that are not reflected in the
condensed consolidated statements of cash flows for the three months ended
September 30, 1999. Such changes consisted of a $78,072 increase in investments
in equity affiliates, a $47,148 decrease in receivables from equity affiliates,
a $6,251 increase in trade and other receivables, a $17,193 increase in accounts
payable and accrued expenses, a $20,428 increase in minority interest and a $446
increase in other net assets.
6
<PAGE>
This document contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The words
"expect," "estimate," "anticipate," "predict," "believe" and similar expressions
and variations thereof are intended to identify forward-looking statements.
These statements appear in a number of places in this document and include
statements regarding the intent, belief or current expectations of the Company,
its members or its officers with respect to, among other things, trends
affecting the Company's financial condition or results of operations. The
readers of this document are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
including those risks and uncertainties discussed in this document under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and in the Company's Transition Report on Form 10-K for the six
months ended June 30, 1999 under the headings "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company does not ordinarily make projections of its future operating results and
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Readers should carefully review the risk factors discussed in the other
documents filed by the Company with the Securities and Exchange Commission. This
report should be read in conjunction with the unaudited condensed consolidated
financial statements of the Company and related notes set forth elsewhere
herein.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
Management's Discussion and Analysis included in the Company's Transition Report
on Form 10-K for the six months ended June 30, 1999.
Introduction
Fox Sports Networks, LLC (together with its subsidiaries, the "Company")
was formed to provide cable programming through its interests in regional sports
networks ("RSNs") and Fox Sports Net ("FSN"), a national sports programming
service, and through FX Network ("FX"), a general entertainment network. The
Company's interests in the sports programming business are derived through its
99% ownership interests in Fox Sports Net, LLC and Fox Sports RPP Holdings, LLC,
while its interest in FX is derived through its 99% ownership interest in FX
Networks, LLC. The Company was formed in April 1996, pursuant to a 50%/50% joint
venture between Fox Entertainment Group, Inc. ("Fox"), a majority owned
subsidiary of The News Corporation Limited ("News Corporation") and Liberty
Media Corporation ("Liberty"), a wholly-owned subsidiary of Tele-Communications,
Inc. ("TCI").
In July 1999, News Corporation acquired from Liberty substantially all of
Liberty's 50% interest in the Company and its businesses. News Corporation
transferred the acquired interests to Fox in exchange for common stock of Fox.
In August 1997, the Company issued $500.0 million aggregate principal
amount of its 8 7/8% Senior Notes due 2007 and $405.0 million aggregate
principal amount at maturity ($252.3 million gross proceeds) of its 9 3/4 %
Senior Discount Notes due 2007 (together, the "Offering"). The net proceeds from
these notes were used, along with proceeds from the Bank Facility (as defined
below), to finance the Company's acquisition of a 40% interest in Regional
Programming Partners ("RPP") which was formed to hold interests in RSNs and
related businesses then owned by Rainbow Media Sports Holdings, Inc.
("Rainbow"). In connection with this transaction ("the Rainbow Transaction"),
the Company and Rainbow also formed National Sports Partners (the "National
Sports Partnership") as a 50%/50% partnership to operate FSN, and National
Advertising Partners (the "National Advertising Partnership") as a 50%/50%
partnership to act as a national advertising sales representative for the RSNs
which are affiliated with FSN. RPP is managed by Rainbow, while the National
Sports Partnership and the National Advertising Partnership are managed by the
Company.
7
<PAGE>
In connection with the consummation of the Rainbow Transaction, the Company
and a group of banks led by Chase Manhattan Bank, amended and restated an
existing credit agreement to permit borrowings by Fox Sports Net, LLC, Fox
Sports RPP Holdings, LLC and FX Networks, LLC, each a subsidiary of the Company
(together, the "Co-Borrowers"), in the amount of $800.0 million (the "Bank
Facility"). The Bank Facility was comprised of a $400.0 million revolving credit
facility and a $400.0 million term loan facility. The proceeds of the loans
under the Bank Facility were used to finance, in part, the Rainbow Transaction.
In July 1999, 19/th/ Holdings Corporation, a wholly-owned subsidiary of
Fox, acquired the debt outstanding under the Bank Facility from the group of
banks, and in so doing, assumed the rights and obligations of the group of banks
under the Bank Facility. The Company and 19/th/ Holdings Corporation
subsequently amended and restated the Bank Facility to provide, among other
things, a fixed rate of interest, determined by 19/th/ Holdings Corporation on
an annual basis, and eliminated substantially all of the affirmative and
negative covenants other than with respect to the payment of principal and
interest (the "19/th/ Facility"). The Company currently expects that remaining
availability under the 19/th/ Facility will primarily be used for investments in
certain subsidiaries of the Company and for working capital purposes.
Significant Accounting Practices
Basis of Presentation
The Company's ownership interests in the RSNs are held either directly or
indirectly and have different voting rights attached thereto. The Company
consolidates all subsidiaries in which it has a majority interest and voting
control is held by either the Company or Fox, its parent. The percentage of
ownership, together with the degree to which the Company controls the management
and operation of an RSN, determines the appropriate accounting treatment for the
Company's interest in that particular RSN. If the Company owns a majority
interest in a particular RSN, but neither the Company nor Fox have voting
control, the ownership interest is accounted for using the equity method of
accounting. Under the equity method of accounting, the financial condition and
results of operations of entities are not reflected on a consolidated basis and,
accordingly, the consolidated revenues and expenses of the Company, as reported
on its consolidated statements of operations, do not include revenues and
expenses related to the entities accounted for under the equity method.
The following RSNs, together with Fox Sports Direct and FX Networks, LLC
are consolidated in the financial statements of the Company, at September 30,
1999 and 1998: West RSN, West 2 RSN, Northwest RSN, Utah RSN, Arizona RSN, South
RSN, Southwest RSN, Rocky Mountain RSN, Midwest RSN and Detroit RSN. The
Pittsburgh RSN is consolidated in the financial statements of the Company at
September 30, 1999.
As of September 30, 1999 and 1998, the following are accounted for using
the equity method of accounting: Sunshine RSN, Chicago RSN, Bay Area RSN,
D.C./Baltimore RSN, RPP, National Sports Partnership and National Advertising
Partnership. The Pittsburgh RSN is accounted for using the equity method of
accounting at September 30, 1998.
Because the Company reports the results of a significant number of its
subsidiary entities on the equity method, its financial results do not represent
the total combined revenues and expenses of all the businesses in which the
Company holds ownership interests.
Results of Operations
Three months ended September 30, 1999 as compared with the three months ended
September 30, 1998
Total revenues for the three months ended September 30, 1999 were $206.5
million, an increase of $40.1 million, or 24%, over the three months ended
September 30, 1998. Programming revenue was the largest source of revenue,
representing 49% of total revenue, or $101.1 million, for the three months ended
September 30, 1999. Advertising and direct broadcast revenue represented 26% and
15%, respectively, of total revenue, or $52.9 million and $31.9 million,
respectively, for the three months ended September 30, 1999. For the three
months ended September 30, 1998, programming revenue was $77.2 million and
advertising and direct broadcast revenue were $41.8 and $29.4 million,
respectively, or 46%, 25% and 18%, respectively of total revenues.
8
<PAGE>
Programming and advertising revenue increased by $23.9 million and $11.2
million, respectively in the three months ended September 30, 1999 as compared
to the three months ended September 30, 1998. These increases represent a 31%
and 27% increase in programming and advertising revenue, respectively, between
the periods. The increase in programming revenue is comprised primarily of a 5%
increase in subscribers at the RSNs, the continued subscriber growth of FX,
which reached 43.5 million households as of September 30, 1999, a 18% increase
over September 30, 1998 and a significant non-recurring affiliate rate
adjustment arising from a recently completed carriage arrangement. Rate
increases, primarily at the RSNs, comprised the balance of the increase between
periods. The increase in advertising revenue of 27% is comprised of a 61%
increase in advertising revenue by FX and a 14% increase by the RSNs. Increased
total day Monday through Sunday ratings on FX, coupled with the significant
increase in subscribers, resulted in a 38% increase in average audience during
the three months ended September 30, 1999, as compared to the same period in the
prior year. The increase in ratings is due primarily to the strengthening of the
program schedule throughout all dayparts. The increased total day ratings
together with increased subscribers provided the basis for the 61% increase in
advertising revenue. Higher advertising revenues throughout most of the RSNs due
to a 6% increase in the number of professional events and increased advertising
revenues on Fox Sports News and other non-professional event programming
contributed to the RSNs' 14% increase in advertising revenue in the current
period.
Operating expenses totaled $142.9 million for the three months ended
September 30, 1999, representing 69% of total revenues and an increase of $21.1
million, or 17%, over the same period in the prior year. These expenses consist
primarily of rights fees, programming and production costs. Operating expenses
for the three months ended September 30, 1998 totaled $121.8 million, or 73% of
total revenues. Rights fees and production expenses of the RSNs increased as
compared to the three months ended September 30, 1998 due to the increase in the
number of professional events as described above and a write-down of
entertainment program rights to net realizable value in the three months ended
September 30, 1999 without a comparable charge in the prior year.
General and administrative expenses totaled $17.6 million for the three
months ended September 30, 1999, which represented 9% of total revenues. General
and administrative expenses for the three months ended September 30, 1998
totaled $20.2 million, or 12% of total revenues. The primary reason for the
decrease in general and administrative expenses is due to a decrease in the non-
cash charge to earnings with respect to an equity appreciation rights plan
between the periods .
Depreciation and amortization expenses totaled $7.1 million and $6.7
million for the three months ended September 30, 1999 and 1998, respectively. Of
these amounts, $3.8 million and $3.6 million were related to amortization of
excess cost from acquisitions of programming entities consolidated with the
Company.
Interest expense for the three months ended September 30, 1999 and 1998
totaled $30.9 million and $27.3 million, respectively. The increase in interest
expense is primarily due to higher interest rates on debt outstanding under the
19th Facility and additional borrowings.
Equity loss of affiliates for the three months ended September 30, 1999 and
1998 was $2.0 million and $5.8 million, respectively. The decreased losses were
primarily due to programming and advertising revenue improvements at RPP as
compared to the same period in the prior year.
Liquidity and Capital Resources
The Company's liquidity requirements arise from (i) the funding of
operating losses and other general working capital needs, (ii) its strategic
plan to secure national distribution for its network sports and general
entertainment programming, (iii) the acquisition of programming rights, and (iv)
its capital expenditure requirements.
Net cash used in operating activities of the Company for the three months
ended September 30, 1999 and 1998 was $5.1 million and $39.5 million,
respectively.
Net cash (used in) provided by investing activities of the Company for the
three months ended September 30, 1999 and 1998 was ($37.1) million and $6.4
million, respectively.
Net cash (used in) provided by financing activities for the Company for the
three months ended September 30, 1999 and 1998 was ($0.3) million and $34.2
million, respectively.
9
<PAGE>
In August 1997, the Company issued $500.0 million aggregate principal
amount of its 8 7/8 % Senior Notes due 2007 and $405.0 million aggregate
principal amount at maturity ($252.3 million gross proceeds) of its 9 3/4 %
Senior Discount Notes due 2007 (collectively, the "Notes") through the Offering.
The indentures pursuant to which the Notes were issued include certain covenants
regarding, among other things, limitations on the incurrence of debt and
distributions to partners.
The Company has a credit facility with 19/th/ Holdings Corporation, a
wholly-owned subsidiary of Fox. Borrowings under the 19/th/ Facility bear
interest at a fixed rate determined on an annual basis by 19/th/ Holdings.
19/th/ Holdings has determined that the rate of interest on this debt through
June 2000 shall be 8%. During the three months ended September 30, 1999, the
Company incurred net borrowings of $10.9 million bringing the total amount
borrowed under the 19/th/ Facility to $687.9 million as of September 30, 1999.
The total unused commitment pursuant to the 19/th/ Facility was $112.1 million
as of September 30, 1999.
Future capital requirements will be substantial as the Company continues to
invest in developing networks, acquire sports programming rights and explore
opportunities to expand its distribution. Although no assurances can be given in
this regard, the Company believes that its existing funds and the proceeds from
borrowings under its credit facility, will be sufficient to meet its plan to
secure national distribution, maintain and/or acquire programming, make
anticipated capital expenditures, and meet its projected working capital
requirements.
Year 2000
The following disclosure is a Year 2000 readiness disclosure statement
pursuant to the Year 2000 Readiness and Disclosure Act.
The Company is devoting significant resources throughout its business
operations to resolve the potential impact of the Year 2000 ("Y2K") on the
processing of date-sensitive information by its computerized information
technology ("IT") systems. The Y2K problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Certain programs may recognize a date using "00" as the year 1900 rather than
the year 2000, which could result in miscalculations or system failures. The
problem also extends to non-IT systems including: operating and control systems
that rely on embedded chip systems.
The Company's standard for compliance requires that for a computer system
or a business process to be Year 2000 compliant, it must be designed to be used
prior to, on and after January 1, 2000. Such systems or processes must be able
to operate without error in dates and date-related data, including without
limitation, calculating, comparing, indexing and sequencing prior to, on and
after January 1, 2000.
The Company has established a dedicated Y2K Steering Committee to oversee
the Company's Y2K internal IT application and infrastructure readiness
activities. The Y2K Steering Committee is charged with raising awareness
throughout the Company, developing tools and methodologies for addressing the
Y2K issue, monitoring the development and implementation of business and
infrastructure plans to bring non-compliant applications into compliance on a
timely basis and identifying and assisting in resolving high risk issues. The
Y2K Steering Committee is focused on the following major areas:
Internal IT Systems. The Company is approaching its Y2K internal readiness
program in the following five phases: (1) assessment, (2) strategy, (3)
planning, (4) implementation and (5) testing and management. The assessment
phase involves taking an inventory of the Company's internal IT applications.
The strategy phase involves prioritizing risk, identifying failure dates,
defining a solution strategy, estimating repair costs and communicating across
the Company the magnitude of the problem and the need to address Y2K issues. The
planning phase consists of identifying the tasks necessary to ensure readiness,
scheduling remediation plans for applications and infrastructure, and
determining resource requirements and allocations. The fourth phase,
implementation, involves readying the development and testing environments, and
piloting the remediation process. Testing and management, the last phase,
consists of executing the Company's plan to fix, test and implement critical
applications and associated infrastructure, and putting in place contingency
plans for processes that have a high impact on the Company's business. The
Company's critical IT application systems are either Y2K compliant or have had
contingency plans put into place.
Internal Non-IT Systems. The Company has also focused on internal non-IT
systems. Non-IT systems include those systems that are not commonly thought of
as IT systems, such as broadcast equipment, satellite transmission
10
<PAGE>
equipment telephone/PBX systems, fax machines, facilities systems regulating
alarms, building access and other miscellaneous systems that depend on date-
related processing. The Company's Y2K Steering Committee is providing
standardized tools and is monitoring the progress of these readiness efforts to
ensure business continuity.
Material Third Party Relationships. The Company has developed a Y2K process
for dealing with its key suppliers, contract producers, distributors, vendors
and partners. The process generally involves the following steps: (i) initial
supplier survey, (ii) risk assessment and contingency planning, (iii) follow-up
supplier reviews and escalation, if necessary, and where relevant, (iv) testing.
To date, the Company has received responses from many of its critical suppliers,
most of whom responded that they expect to address all their significant Y2K
issues on a timely basis. The Company is following up with those significant
vendors and service providers that either did not respond initially or whose
responses were unsatisfactory. The company is working to identify and analyze
the most reasonably likely worst case scenarios for third party relationships
affected by Y2K.
The Company has focused efforts on identifying and remedying Y2K exposures
throughout its enterprise. In addition, the Company is developing and will have
tested, where practical, contingency and business continuity plans. These plans
include, but are not limited to identification of alternative suppliers, vendors
and service providers. Contingency plans have been or will be developed for
areas that include broadcast technical operations, live event telecasts,
programming, application systems, business processes, and potential issues
relative to facilities.
Based on the Company's current assessment, the costs of addressing
potential problems are not currently expected to have a material adverse impact
on the Company's financial position, results of operations or cash flows in
future periods. However, if the Company, its customers or vendors identify Y2K
issues in the future and are unable to resolve such issues in a timely manner,
it could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant Y2K issues in a timely
manner. The estimated costs of the project are currently expected to be
approximately $2.5 million in the aggregate.
The costs of the project and the date on which the Company believes it will
complete the Y2K modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third-party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of the Company's Y2K compliance project. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, timely responses to and
correction by third parties and suppliers, the ability to implement interfaces
between the new systems and the systems not being replaced, and similar
uncertainties. Due to the general uncertainty inherent in the Y2K readiness of
third parties and the interconnection of national businesses, the Company cannot
ensure that its ability to timely and cost effectively resolve problems
associated with the Y2K issue will not affect its operations and business, or
expose it to third party liability.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
11
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is filed as part of this report:
27 Financial Data Schedule (for SEC purposes only).
(b) Reports on Form 8-K
The following reports on Form 8-K have been filed during the period covered
by this report.
Form 8-K filed on July 27, 1999 relating to a change of control of the Company,
the assignment of the Company's principal credit facility to a subsidiary of The
News Corporation Limited and the change in the Company's name from Fox/Liberty
Networks, LLC to Fox Sports Networks, LLC.
Form 8-K filed on August 10, 1999 relating to a change in the Company's fiscal
year end.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOX SPORTS NETWORKS, LLC
Dated: November 10, 1999
By: /s/ Dennis Farrell
---------------------------------
Dennis Farrell
Senior Vice President, Finance
(Principal Financial Officer
and Principal Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit No.
- -----------
27 Financial Data Schedule (for SEC purposes only).
14
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