<PAGE>
================================================================================
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 December 31, 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
--- ---
================================================================================
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FOX SPORTS NETWORKS, LLC
(A Delaware Limited Liability Company)
Condensed Consolidated Balance Sheets
December 31, 1999 and June 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ --------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................................................ $ 6,550 $ 59,145
Trade and other receivables, net of allowance for doubtful accounts of $29,025 at
December 31, 1999 and $21,925 at June 30, 1999..................................... 152,044 164,739
Receivables from equity affiliates, net.............................................. 13,565 43,892
Program rights....................................................................... 117,364 106,790
Notes receivable, current............................................................ 1,935 1,935
Prepaid expenses and other current assets............................................ 27,429 13,968
---------- ----------
Total current assets.............................................................. 318,887 390,469
Property and equipment, net............................................................ 52,974 53,794
Investments in affiliates.............................................................. 939,989 856,948
Note receivable, long-term............................................................. 6,501 12
Program rights......................................................................... 140,292 103,567
Excess cost, net of accumulated amortization of $99,692 at December 31, 1999 and
$92,813 at June 30, 1999............................................................. 487,086 493,965
Other assets........................................................................... 35,603 33,743
---------- ----------
Total Assets...................................................................... $1,981,332 $1,932,498
========== ==========
Liabilities and Members' Equity
Current liabilities:
Accounts payable and accrued expenses................................................ $ 168,588 $ 195,961
Program rights payable............................................................... 107,435 73,061
Current portion of long-term debt.................................................... 1,231 13,253
Accrued interest..................................................................... 17,267 18,903
Other current liabilities............................................................ 14,491 9,168
---------- ----------
Total current liabilities......................................................... 309,012 310,346
Non-current program rights payable..................................................... 131,536 96,021
Long-term debt, net of current portion................................................. 1,470,955 1,488,178
Minority interest...................................................................... 22,737 2,207
Commitments and contingencies..........................................................
Members' equity........................................................................ 47,092 35,746
---------- ----------
Total Liabilities and Members' Equity............................................. $1,981,332 $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 and Six Months Ended December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
------------------------------- -----------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Programming................................ $ 96,562 $ 76,312 $197,682 $153,485
Advertising................................ 54,904 36,605 107,853 78,366
Direct broadcast........................... 34,584 33,400 66,524 62,790
Other...................................... 16,896 16,411 37,385 34,531
-------- -------- -------- --------
202,946 162,728 409,444 329,172
-------- -------- -------- --------
Expenses:
Operating.................................. 131,271 109,842 274,144 232,732
General and administrative................. 18,469 29,117 36,081 49,319
Depreciation and amortization.............. 11,425 7,281 18,505 12,869
-------- -------- -------- --------
161,165 146,240 328,730 294,920
-------- -------- -------- --------
Operating income............................. 41,781 16,488 80,714 34,252
-------- -------- -------- --------
Other (income) expenses:
Interest, net.............................. 31,638 28,561 62,266 55,904
Subsidiaries' income tax expense........... 1,448 425 1,373 556
Equity loss of affiliates, net............. 1,666 6,493 3,710 12,257
Other...................................... (73) (1,519) (3) (1,554)
Minority interest.......................... 148 929 2,022 1,859
-------- -------- -------- --------
34,827 34,889 69,368 69,022
-------- -------- -------- --------
Net income (loss)............................ $ 6,954 $(18,401) $ 11,346 $(34,770)
======== ======== ======== ========
</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 Six Months Ended December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................. $ 11,346 $(34,770)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization.................................................. 18,505 12,869
Interest accretion and amortization of debt issuance costs..................... 46,386 15,305
Equity loss of affiliates, net................................................. 3,710 12,257
Minority interests............................................................. 2,022 1,859
Changes in operating assets and liabilities:
Trade and other receivables.................................................... 9,120 13,332
Program rights................................................................. (45,876) (68,041)
Prepaid expenses and other operating assets.................................... (16,011) (3,101)
Accounts payable and accrued expenses.......................................... (44,566) (38,554)
Program rights payable......................................................... 66,287 87,842
Other operating liabilities.................................................... 3,669 (8,122)
--------- --------
Net cash provided by (used in) operating activities......................... 54,592 (9,124)
--------- --------
Cash flows from investing activities:
Advances from equity affiliates................................................... 15,919 68,450
Advances to equity affiliates..................................................... (32,740) (40,012)
Notes receivable.................................................................. (6,489) 5,233
Purchases of property and equipment............................................... (5,471) (13,693)
Investments in equity affiliates.................................................. (15,765) (50,636)
Distributions from equity affiliates.............................................. 7,086 40,051
--------- --------
Net cash (used in) provided by investing activities......................... (37,460) 9,393
--------- --------
Cash flows from financing activities:
Borrowings of long-term debt...................................................... 178,693 105,000
Repayment of long-term debt....................................................... (246,500) (77,727)
Distribution to minority shareholder of subsidiary................................ (1,920) (1,320)
--------- --------
Net cash (used in) provided by financing activities......................... (69,727) 25,953
--------- --------
Net (decrease) increase in cash and cash equivalents................................ (52,595) 26,222
Cash and cash equivalents, beginning of period...................................... 59,145 16,696
--------- --------
Cash and cash equivalents, end of period............................................ $ 6,550 $ 42,918
========= ========
Supplemental Cash Flow disclosure:
Cash paid for interest $ 22,344 $ 42,111
========= ========
</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
December 31, 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 a regional
sports network ("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 six months
ended December 31, 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 (formerly Fox/Liberty Distribution LP)
(2) Reclassifications
Certain reclassifications have been made to the prior year financial
statements in order to conform to the current year presentation.
5
<PAGE>
FOX SPORTS NETWORKS, LLC
(A Delaware Limited Liability Company)
Notes to Condensed Consolidated Financial Statements -- (Continued)
December 31, 1999 (unaudited)
(Dollars in thousands)
(3) Debt
Debt at December 31, 1999 and June 30, 1999 is summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ --------
(unaudited)
<S> <C> <C>
19/th/ Holdings--Term loan........................................................... $ 400,000 $ 400,000
19/th/ Holdings--Revolver............................................................ 245,448 277,000
Senior Notes......................................................................... 500,000 500,000
Senior Discount Notes................................................................ 315,114 300,786
Other................................................................................ 11,624 23,645
---------- ----------
1,472,186 1,501,431
Less current portion................................................................. (1,231) (13,253)
---------- ----------
$1,470,955 $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 The 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%.
(4) Summarized Financial Information
Summarized unaudited statement of operations information for subsidiaries
accounted for under the equity method for which separate financial information
would be required for annual periods, is as follows:
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues................................. $340,582 $240,386 $497,944 $389,892
Operating income (loss).................. 11,629 (22,238) (3,114) (49,775)
Net income (loss)........................ 9,344 (13,128) (3,598) (37,789)
</TABLE>
(5) Supplemental 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 increases 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 six months ended
December 31, 1999. Such increases primarily consisted of a $78,072 increase in
investments in equity affiliates, a $48,148 decrease in receivables from equity
affiliates and a $20,428 increase in minority interest.
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.
In July 1999, The News Corporation Limited ("News Corporation") acquired
from Liberty Media Corporation ("Liberty") substantially all of Liberty's 50%
interest in the Company and its businesses. News Corporation transferred the
acquired interests to Fox Entertainment Group, Inc. ("Fox") in exchange for
common stock of Fox.
In connection with the acquisition of a 40% interest in Regional
Programming Partners ("RPP") and the formation of National Sports Partners and
National Advertising Partners, 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 acquisition of the interest in RPP.
In July 1999, 19/th/ Holdings Corporation ("19/th/ Holdings"), 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
subsequently amended and restated the Bank Facility to provide, among other
things, a fixed rate of interest, determined by 19/th/ Holdings 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.
7
<PAGE>
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 December 31, 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 December 31,
1999.
As of December 31, 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 Partners and National Advertising
Partners. The Pittsburgh RSN is accounted for using the equity method of
accounting at December 31, 1998.
Because the Company reports the results of a significant number of its
unconsolidated 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 December 31, 1999 as compared with the three months ended
December 31, 1998
Total revenues for the three months ended December 31, 1999 were $202.9
million, an increase of $40.2 million, or 25%, over the three months ended
December 31, 1998. Programming revenue was the largest source of revenue,
representing 48% of total revenue, or $96.6 million, for the three months ended
December 31, 1999. Advertising and direct broadcast revenue represented 27% and
17%, respectively, of total revenue, or $54.9 million and $34.6 million,
respectively, for the three months ended December 31, 1999. For the three months
ended December 31, 1998, programming revenue was $76.3 million and advertising
and direct broadcast revenue were $36.6 and $33.4 million, respectively, or 47%,
22% and 21%, respectively, of total revenues.
Programming and advertising revenue increased by $20.3 million and $18.3
million, respectively in the three months ended December 31, 1999 as compared to
the three months ended December 31, 1998. These increases represent a 27% and
50% increase in programming and advertising revenue, respectively, between the
periods. The increase in programming revenue is comprised primarily of increases
in the average rate per subscriber at the RSNs, a 4% increase in subscribers at
the RSNs, and the continued subscriber growth of FX, which reached 45.1 million
households as of December 31, 1999, a 19% increase over December 31, 1998. The
increase in advertising revenue of 50% is comprised of a 58% increase in
advertising revenue by FX and a 44% increase by the RSNs. Increased total day
Monday through Sunday ratings on FX, coupled with the increase in subscribers,
resulted in a 33% increase in average audience during the three months ended
December 31, 1999, as compared to the same period in the prior year. The
increased total day ratings together with increased subscribers provided the
basis for the significant increase in advertising revenue at FX. The RSNs
generated significantly higher advertising revenues in the current period as
compared to the same period in the prior year primarily due to an increase in
the number of NBA events in the current period. There were no NBA events in the
prior period due to the cancellation of all regular season games scheduled
during this period as a result of the lockout by the NBA league owners of the
8
<PAGE>
players. The 1998 - 1999 NBA regular season did not commence until February
1999. In the current period, the RSNs carried in excess of 170 NBA events.
Operating expenses totaled $131.3 million for the three months ended
December 31, 1999, representing 65% of total revenues and an increase of $21.4
million, or 20%, 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 December 31, 1998 totaled $109.8 million, or 68% of
total revenues. The increase in operating expenses in the current period is
primarily due to the increase in rights fees and production expenses of the RSNs
resulting from the increase in the number of NBA events as described above as
well as the recognition of an advertising sales commitment shortfall.
General and administrative expenses totaled $18.5 million for the three
months ended December 31, 1999, which represented 9% of total revenues. General
and administrative expenses for the three months ended December 31, 1998 totaled
$29.1 million, or 18% of total revenues. 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 and a
decrease in the provision for potentially unrealizable accounts.
Depreciation and amortization expenses totaled $11.4 million and $7.3
million for the three months ended December 31, 1999 and 1998, respectively. The
increase between the periods is primarily due to increased amortization of cable
carriage fees in the current period.
Interest expense for the three months ended December 31, 1999 and 1998
totaled $31.6 million and $28.6 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 December 31, 1999 and
1998 was $1.7 million and $6.5 million, respectively. The improvements were
primarily at RPP, resulting from increased programming and advertising revenues
at its RSNs and improved performance of certain start up businesses, and
National Sports Partnership, as compared to the same period in the prior year.
Six months ended December 31, 1999 as compared with the six months ended
December 31, 1998
Total revenues for the six months ended December 31, 1999 were $409.4
million, an increase of $80.3 million, or 24%, over the six months ended
December 31, 1998. Programming revenue was the largest source of revenue,
representing 48% of total revenue, or $197.7 million, for the six months ended
December 31, 1999. Advertising and direct broadcast revenue represented 26% and
16%, respectively, of total revenue, or $107.9 million and $66.5 million,
respectively, for the six months ended December 31, 1999. For the six months
ended December 31, 1998, programming revenue was $153.5 million and advertising
and direct broadcast revenue were $78.4 and $62.8 million, respectively, or 47%,
24% and 19%, respectively, of total revenues.
Programming and advertising revenue increased by $44.2 million and $29.5
million, respectively in the six months ended December 31, 1999 as compared to
the six months ended December 31, 1998. These increases represent a 29% and 38%
increase in programming and advertising revenue, respectively, between the
periods. The increase in programming revenue is comprised primarily of increases
in the average rate per subscriber at the RSNs, a 4% increase in subscribers at
the RSNs and the continued subscriber growth of FX. The increase in advertising
revenue of 38% is comprised of a 60% increase in advertising revenue by FX and a
26% increase by the RSNs. Increased total day Monday through Sunday ratings on
FX, coupled with the increase in subscribers, resulted in a 35% increase in
average audience during the six months ended December 31, 1999, as compared to
the same period in the prior year. The increased total day ratings together with
increased subscribers provided the basis for the 60% increase in advertising
revenue at FX. Higher advertising revenues throughout most of the RSNs due to
the increase in the number of NBA events and increased advertising revenues on
Fox Sports News and other non-professional event programming contributed to the
RSNs' 26% increase in advertising revenue in the current period.
Operating expenses totaled $274.1 million for the six months ended
December 31, 1999, representing 67% of total revenues and an increase of $41.4
million, or 18%, over the same period in the prior year. These expenses
9
<PAGE>
consist primarily of rights fees, programming and production costs. Operating
expenses for the six months ended December 31, 1998 totaled $232.7 million, or
71% of total revenues. The increase in operating expenses in the current period
is primarily due to the increase in rights fees and production expenses of the
RSNs resulting from the increase in the number of NBA events as described above.
General and administrative expenses totaled $36.1 million for the six
months ended December 31, 1999, which represented 9% of total revenues. General
and administrative expenses for the six months ended December 31, 1998 totaled
$49.3 million, or 15% of total revenues. 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 and a
decrease in the provision for potentially unrealizable accounts.
Depreciation and amortization expenses totaled $18.5 million and $12.9
million for the six months ended December 31, 1999 and 1998, respectively. The
increase between the periods is primarily due to increased amortization of cable
carriage fees in the current period.
Interest expense for the six months ended December 31, 1999 and 1998
totaled $62.3 million and $55.9 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 six months ended December 31, 1999 and
1998 was $3.7 million and $12.3 million, respectively. The improvements were
primarily at RPP, resulting from increased programming and advertising revenues
at its RSNs and improved performance of certain start up businesses, and
National Sports Partnership, 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 general
working capital needs, (ii) its strategic plan to invest in and 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 provided by (used in) operating activities of the Company for the
six months ended December 31, 1999 and 1998 was $54.6 million and ($9.1
million), respectively.
Net cash (used in) provided by investing activities of the Company for the
six months ended December 31, 1999 and 1998 was ($37.5 million) and $9.4
million, respectively.
Net cash (used in) provided by financing activities for the Company for
the six months ended December 31, 1999 and 1998 was ($69.7 million) and $26.0
million, respectively.
The Company has a credit facility with 19th Holdings, a wholly-owned
subsidiary of Fox. Borrowings under the 19th Facility bear interest at a fixed
rate determined on an annual basis by 19th Holdings. 19th Holdings has
determined that the rate of interest on this debt through June 2000 shall be 8%.
During the six months ended December 31, 1999, the Company made net repayments
of $31.6 million bringing the total amount borrowed under the 19th Facility to
$645.4 million as of December 31, 1999. The total unused commitment pursuant to
the 19th Facility was $154.6 million as of December 31, 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.
10
<PAGE>
Year 2000
The Company, like most large companies, depends on many different computer
systems and other chip-based devices for the continuing conduct of its business.
Many of the computer systems and chip-based devices traditionally used may be
unable to correctly process data or may not operate at all after December 31,
1999 because those systems recognize the year within a date only by the last two
digits. Some programs may interpret the year "00" as 1900, instead of 2000,
causing errors in calculations or the value "00" may be considered invalid by
the computer program, causing the system to fail.
To date, the Company is not aware of any material Year 2000 ("Y2K")
problems within the Company or with any third party upon which the Company
depends in any significant way. The Company, however, will continue to monitor
computer systems and other chip-based devices to ensure that Year 2000 issues,
if any, are detected and corrected in a timely manner.
The Company's exposure to potential Year 2000 ("Y2K") problems exists in
two general areas: technological operations within the Company's sole control
and technological operations dependent in some way on one or more third parties.
These technological operations include information technology ("IT") systems and
non-IT systems, including those with embedded technology, hardware and software.
The Company has identified the potential impacts of Y2K and distinguished
those that may affect business continuity from those that may not. An item is
considered to have a business continuity impact on the Company if its Y2K-
related failure would significantly impair the ability of one of its major
business units to (1) produce, market and distribute the products or services
that generate significant revenues for that business, (2) meet its obligations
to pay its employees, artists, vendors and other obligations or (3) meet its
obligations under regulatory requirements. Based upon its efforts to date, the
Company believes that all critical IT and non-IT systems will not experience any
significant Y2K issues.
Most of the Company's potential Y2K exposures, however, are in the area of
technological operations dependent on one or more third parties. The financial
impact on the Company of such third parties not achieving levels of Y2K
readiness cannot be estimated with any degree of accuracy. In the area of
business continuity, technological operations dependent in some way on one or
more third parties, the situation is much less in the Company's ability to
predict or control. In addition, many of the Company's businesses are dependent
on third parties that are themselves heavily dependent on technology. The
Company has included in its "mission critical" inventory significant service
providers, vendors, suppliers and customers that are believed to be critical to
business operations. The ability to continue to deliver services to customers is
dependent, like all large companies, on the continued functioning of basic,
heavily computerized services such as banking, telephony, power, and various
distribution mechanisms ranging from the mail to high-speed data and broadcast
transmissions.
The Company has developed practical contingency plans in the event
significant Y2K issues are experienced. The contingency plans include, but are
not limited to identification of alternative suppliers, vendors and service
providers. The Company believes that it has established an effective program to
resolve all significant Y2K issues in its sole control in a timely manner. The
Company recognizes that system failures resulting from the Y2K problem could
adversely affect operations and financial resources in all of its business
units. The amount of potential liability and lost revenue that might result
because of such difficulty cannot be reasonably estimated at this time.
Through December 1999, the Company has incurred approximately $2.1 million
in costs related to its Y2K readiness program, which has been funded from its
operating cash flow. The Company currently estimates that the total costs of its
Y2K readiness program will not exceed $2.5 million. The total cost estimate is
based on the current assessment of the Company's Y2K readiness needs and is
subject to change as the program progresses.
The Company has made forward-looking statements regarding its Y2K Program.
Those statements include: the Company's expectations about future Year 2000
issues; the Company's expectations about the impact of the Y2K problem on its
ability to continue to operate after January 1, 2000; the impact of Y2K on its
suppliers and the costs associated with the Y2K program. The Company has
described many of the risks associated with those forward-looking statements
above. However, the Company wishes to caution the reader that there are many
factors
11
<PAGE>
that could cause its actual results to differ materially from those stated in
the forward-looking statements. This is especially the case because many aspects
of its Y2K program are outside its control such as the performance of third-
party suppliers. All of these factors make it impossible for the Company to
ensure that it will be able to resolve all Y2K problems in a timely manner to
avoid materially adversely affecting its operations or business or exposing the
Company to third-party liability.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
12
<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
No reports on Form 8-K have been filed during the period covered by this
report.
13
<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: February 9, 2000
By: /s/ Dennis Farrell
-----------------------------
Dennis Farrell
Senior Vice President, Finance
(Principal Financial Officer
and Principal Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit No.
- ----------
27 Financial Data Schedule (for SEC purposes only).
15
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