<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED MARCH 31, 2000
---------------------
USANI LLC
(Exact name of registrant as specified in its charter)
COMMISSION FILE NO. 333-71305-03
<TABLE>
<S> <C>
DELAWARE 59-3490970
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
</TABLE>
152 WEST 57TH STREET,
NEW YORK, NEW YORK, 10019
(Address of Registrant's principal executive offices)
(212) 314-7300
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the Registrant (1) has 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) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
USANI LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
NET REVENUES
Networks and television production.......................... $378,953 $331,544
Electronic retailing........................................ 379,058 275,510
Interactive................................................. 6,088 6,516
Electronic commerce and services............................ 898 273
Other....................................................... -- 4,046
-------- --------
Total net revenues.......................................... 764,997 617,889
OPERATING COSTS AND EXPENSES:
Cost of sales and services.................................. 238,411 176,086
Program costs............................................... 165,864 170,067
Selling and marketing....................................... 88,894 62,631
General and administrative.................................. 72,159 56,036
Other operating costs....................................... 25,724 22,129
Amortization of cable distribution fees..................... 8,223 6,090
Depreciation and amortization............................... 47,738 43,007
-------- --------
Total operating costs and expenses...................... 647,013 536,046
-------- --------
Operating profit............................................ 117,984 81,843
Other income (expense):
Interest income............................................. 13,829 10,615
Interest expense............................................ (16,907) (20,378)
Gain on sale of securities.................................. -- 47,300
Miscellaneous............................................... (2,479) 9,616
-------- --------
(5,557) 47,153
-------- --------
Earnings before income taxes................................ 112,427 128,996
Minority interest (expense) benefit......................... (2,296) 186
Income tax expense.......................................... (5,012) (1,883)
-------- --------
NET EARNINGS................................................ $105,119 $127,299
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
2
<PAGE>
USANI LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------- ------------
2000 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 241,778 $ 247,474
Accounts and notes receivable, net of allowance of $41,200
and $33,317, respectively................................. 389,562 381,175
Inventories, net............................................ 440,116 432,520
Investments held for sale................................... 12,000 --
Other current assets, net................................... 20,551 8,542
---------- ----------
Total current assets.................................... 1,104,007 1,069,711
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 152,077 123,606
Buildings and leasehold improvements........................ 60,725 59,074
Furniture and other equipment............................... 66,669 67,246
Land........................................................ 10,246 10,246
Projects in progress........................................ 28,377 31,736
---------- ----------
318,094 291,908
Less accumulated depreciation and amortization.......... (92,620) (79,350)
---------- ----------
225,474 212,558
OTHER ASSETS
Intangible assets, net...................................... 5,104,199 5,105,510
Cable distribution fees, net ($33,532 and $35,181,
respectively, to related parties)......................... 149,442 130,988
Long-term investments....................................... 53,597 93,742
Notes and accounts receivable, net.......................... 19,370 19,506
Inventories, net............................................ 142,891 154,497
Advances to USAI and Subsidiaries........................... 656,244 649,480
Deferred charges and other, net............................. 39,558 36,934
---------- ----------
$7,494,782 $7,472,926
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
3
<PAGE>
USANI LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------- ------------
2000 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 16,335 $ 3,758
Accounts payable, trade..................................... 148,915 147,864
Obligations for program rights and film costs............... 280,920 265,235
Cable distribution fees payable ($18,559 and $18,733,
respectively, to related parties)......................... 51,355 43,993
Deferred revenue............................................ 48,643 47,536
Other accrued liabilities................................... 292,892 257,575
---------- ----------
Total current liabilities................................... 839,060 765,961
LONG-TERM OBLIGATIONS
(net of current maturities)................................. 528,203 527,339
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 237,429 256,260
OTHER LONG-TERM LIABILITIES................................. 74,772 81,156
MINORITY INTEREST........................................... 4,964 531
COMMITMENTS AND CONTINGENCIES............................... -- --
MEMBERS' EQUITY.............................................
Class A (245,393,314 and 245,601,782 shares,
respectively)............................................. 1,892,580 1,912,514
Class B (282,161,532 shares)................................ 2,978,635 2,978,635
Class C (45,774,708 shares)................................. 466,252 466,252
Retained earnings........................................... 471,228 484,278
Accumulated other comprehensive income...................... 1,659 --
---------- ----------
Total members' equity....................................... 5,810,354 5,841,679
---------- ----------
$7,494,782 $7,472,926
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE>
USANI LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
CLASS A CLASS B CLASS C OTHER
LLC LLC LLC RETAINED COMPREHENSIVE
TOTAL SHARES SHARES SHARES EARNINGS INCOME
---------- ---------- ---------- -------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1999...................... $5,841,679 $1,912,514 $2,978,635 $466,252 $484,278 $ --
COMPREHENSIVE INCOME:
Net earnings for the three
months ended March 31,
2000...................... 105,119 -- -- -- 105,119 --
Foreign currency
translation............... (299) (299)
Increase in unrealized gains
in available for sale
securities................ 1,958 -- -- -- -- 1,958
----------
Comprehensive income........ 106,778
Issuance of LLC shares...... 14,485 14,485 -- -- -- --
Repurchase of LLC shares.... (34,419) (34,419) -- -- -- --
Mandatory tax distribution
to LLC partners........... (118,169) -- -- -- (118,169) --
---------- ---------- ---------- -------- -------- ------
BALANCE AT MARCH 31,
2000...................... $5,810,354 $1,892,580 $2,978,635 $466,252 $471,228 $1,659
========== ========== ========== ======== ======== ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
5
<PAGE>
USANI LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 105,119 $ 127,299
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization............................. 47,738 43,007
Amortization of cable distribution fees................... 8,223 6,090
Amortization of program rights and film costs............. 143,468 159,261
Gain on sale of securities................................ -- (47,300)
Amortization of deferred financing costs.................. 935 --
Equity in (earnings) losses of unconsolidated
affiliates.............................................. 2,788 443
Minority interest......................................... 2,296 (186)
CHANGES IN CURRENT ASSETS AND LIABILITIES:
Accounts receivable....................................... (767) 11,477
Inventories............................................... 21,921 5,332
Accounts payable.......................................... (9,225) (44,110)
Accrued liabilities and deferred revenue.................. 14,384 (8,172)
Payment for program rights and film costs................. (166,028) (161,939)
Increase in cable distribution fees....................... (18,591) (6,981)
Other, net................................................ 19,634 (1,185)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 171,895 83,036
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.......................... (3,997) (7,500)
Capital expenditures........................................ (17,010) (10,011)
Increase in long-term investments and notes receivable...... (1,853) (11,385)
Advance to Styleclick....................................... (5,000) --
Proceeds from sale of securities............................ -- 58,110
Proceeds from long-term notes receivable.................... -- 3,691
Other, net.................................................. (4,458) --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES................... (32,318) 32,905
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings.................................................. 19,514 --
Intercompany................................................ (2,673) 4,311
Payment of mandatory tax distribution to LLC partners....... (118,169) (52,755)
Principal payments on long-term obligations................. (16,162) (6,965)
Repurchase of LLC shares.................................... (34,419) --
Proceeds from issuance of LLC shares........................ 14,485 --
Other....................................................... (7,550) --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... (144,974) (55,409)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (299) --
NET INCREASE IN CASH AND CASH EQUIVALENTS................... (5,696) 60,532
Cash and cash equivalents at beginning of period............ 247,474 234,903
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 241,778 $ 295,435
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
6
<PAGE>
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
COMPANY FORMATION
USANi LLC (the "Company" or "LLC"), a Delaware limited liability company,
was formed on February 12, 1998 and is a subsidiary of Home Shopping
Network, Inc. ("Home Shopping" or "Holdco"), which is a subsidiary of USA
Networks, Inc. ("USAi"), formerly known as HSN, Inc. At its formation, USAi and
Home Shopping contributed substantially all of the operating assets and
liabilities of Home Shopping to the Company in exchange for Class A LLC Shares
of the Company.
On February 12, 1998, the Company acquired USA Networks, a New York general
partnership, consisting of cable television networks, USA Network and Sci-Fi
Channel ("Networks"), as well as the domestic television production and
distribution businesses of Universal Studios ("Studios USA") from Universal
Studios, Inc. ("Universal"), an entity controlled by The Seagram Company Ltd.
("Seagram").
On January 20, 2000, the Board of Directors declared a two-for-one stock
split of USANi LLC's members' equity interests, payable in the form of a
dividend to shareholders of record as of the close of business on February 10,
2000. The stock dividend was paid on February 24, 2000. All share numbers give
effect to such stock split.
COMPANY BUSINESS
The Company is a holding company, the subsidiaries of which are engaged in
diversified media and electronic commerce businesses.
The four principal areas of business are:
- Networks and television production, which includes Networks and Studios
USA. Networks operates the USA Network and Sci-Fi Channel cable networks
and Studios USA produces and distributes television programming.
- Electronic retailing, which consists primarily of the Home Shopping
Network and America's Store which are engaged in the electronic retailing
business.
- Interactive, which represents Internet Shopping Network, the Company's
on-line retailing networks business.
- Electronic commerce and services, which primarily represents the Company's
customer and e-care businesses.
BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements and Notes thereto of
the Company are unaudited and should be read in conjunction with the audited
Consolidated Financial Statements and Notes thereto for the three months ended
March 31, 2000. Certain amounts in the Condensed Consolidated Financial
Statements for the quarter ended March 31, 1999 have been reclassified to
conform to the 2000 presentation.
In the opinion of the Company, all adjustments necessary for a fair
presentation of such Condensed Consolidated Financial Statements have been
included. Such adjustments consist of normal recurring items. Interim results
are not necessarily indicative of results for a full year. The interim Condensed
7
<PAGE>
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Consolidated Financial Statements and Notes thereto are presented as permitted
by the Securities and Exchange Commission and do not contain certain information
included in the Company's audited Consolidated Financial Statements and Notes
thereto.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (the "1999 Form 10-K") for a summary of all significant
accounting policies.
NOTE 3--INVESTMENTS
During the quarter ended March 31, 1999, the Company recognized a pre-tax
gain of $47.3 million on the sale of securities in a publicly traded entity.
NOTE 4--STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000:
As of January 1, 2000 the Company began to consolidate the accounts of HOT
Germany, an electronic retailer operating principally in Germany, whereas its
investment in HOT Germany was previously accounted for under the equity method
of accounting.
On January 20, 2000, the Company completed its acquisition of Ingenious
Designs, Inc. ("IDI"), by issuing approximately 190,000 shares of USAi common
stock for all the outstanding stock of IDI, for a total value of approximately
$5.0 million.
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1999:
During the quarter ended March 31, 1999, the Company acquired
post-production and other equipment through capital leases totaling
$2.0 million.
NOTE 5--INDUSTRY SEGMENTS
For the three months ended ended March 31, 2000 and 1999, the Company
operated principally in four industry segments: Networks and television
production, Electronic retailing, Interactive and Electronic commerce and
services. The Networks and television production segment consists of the cable
networks USA Network and Sci-Fi Channel and Studios USA, which produces and
distributes television programming. The Electronic retailing segment consists of
Home Shopping Network and America's Store, which are engaged in the sale of
merchandise through electronic retailing. The Interactive segment
8
<PAGE>
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5--INDUSTRY SEGMENTS (CONTINUED)
represents the Company's on-line retailing networks business. The Electronic
commerce and services segment primarily represents the Company's customer and
e-care businesses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
REVENUE
Networks and television production................... $378,953 $331,544
Electronic retailing................................. 379,058 275,510
Interactive.......................................... 6,088 6,516
Electronic commerce and services..................... 898 273
Other................................................ -- 4,046
-------- --------
$764,997 $617,889
======== ========
OPERATING PROFIT (LOSS)
Networks and television production................... $110,787 $ 81,270
Electronic retailing................................. 30,012 14,686
Electronic commerce and services..................... (3,923) (426)
Interactive.......................................... (10,057) (7,801)
Corporate and other.................................. (8,835) (5,886)
-------- --------
$117,984 $ 81,843
======== ========
</TABLE>
NOTE 6--NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
On November 23, 1998, USAi and the Company completed an offering of
$500.0 million 6 3/4% Senior Notes due 2005 (the "Old Notes"). In May 1999, the
Old Notes were exchanged in full for $500.0 million of new 6 3/4% Senior Notes
due 2005 (the "Notes") that have terms that are substantially identical to the
Old Notes. Interest is payable on the Notes on May 15 and November 15 of each
year, commencing May 15, 1999. The Notes are jointly, severally, fully and
unconditionally guaranteed by certain subsidiaries of USAi, including Holdco, a
non-wholly owned, direct subsidiary of USAi, and all of the subsidiaries of the
Company (other than subsidiaries that are, individually and in the aggregate,
inconsequential to the Company on a consolidated basis) (collectively, the
"Subsidiary Guarantors"). All of the Subsidiary Guarantors (other than Holdco)
(the "Wholly Owned Subsidiary Guarantors") are wholly owned, directly or
indirectly, by USAi or the Company, as the case may be.
Separate financial statements for each of the Wholly Owned Subsidiary
Guarantors are not presented and such Wholly Owned Subsidiary Guarantors are not
filing separate reports under the Securities Exchange Act of 1934 because USAi's
and the Company's management has determined that the information contained in
such documents would not be material to investors. USANi LLC and its
subsidiaries have no material restrictions on their ability to transfer amounts
to fund USAi's operations.
9
<PAGE>
USANi LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7--SUBSEQUENT EVENTS
ACQUISITION OF PRECISION RESPONSE CORPORATION
On April 5, 2000, USAi acquired Precision Response Corp. ("PRC") in a
stock-for-stock transaction, issuing 24.3 million shares of USAi common stock
valued at approximately $705 million in exchange for all outstanding equity of
PRC.
MERGER OF INTERNET SHOPPING NETWORK AND STYLECLICK.COM
On January 25, 2000, USAi and Styleclick.com Inc., a leading enabler of
e-commerce for manufacturers and retailers, announced an agreement to form a new
company by merging Internet Shopping Network ("ISN") and Styleclick.com. The new
company, which will be named Styleclick, Inc., will own and operate the combined
properties of Styleclick.com Inc. and ISN. Under the terms of the agreement,
USAi will also invest $40 million in cash, contribute $10 million in dedicated
media, and will receive warrants to purchase additional shares of the new
company. Upon both the closing of the transaction and on a fully diluted basis,
USAi will own approximately 75% of the new company and Styleclick.com
stockholders will own approximately 25%. In the interim, USAi has agreed to
extend a $10 million bridge loan to Styleclick.com. As of March 31, 2000, the
amount outstanding under the loan is $5.0 million. The transaction is expected
to close in the second quarter of 2000.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
USANi LLC, a Delaware limited liability company (the "Company" or "LLC"), is
a subsidiary of Home Shopping Network, Inc. ("Holdco"), which is a subsidiary of
USA Networks, Inc. ("USAi"). The Company is a holding company, the subsidiaries
of which are engaged in diversified media and electronic commerce businesses.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999
NET REVENUES
For the three months ended March 31, 2000, net revenues increased
$147.1 million, or 23.8%, to $765.0 million from $617.9 million compared to 1999
primarily due to increases of $103.5 million and $47.4 million from the
Electronic retailing and Networks and television production businesses,
respectively. As of January 1, 2000, the Company presents the operations of HOT
Germany on a consolidated basis. Whereas, the investment was previously
accounted for under the equity method of accounting. Revenues for the German
operations were $54.1 million in the three months ended March 31, 2000 as
compared to $36.4 million in 1999.
The increase in electronic retailing primarily resulted from Home Shopping
Network's core domestic business, which generated increased sales of
$47.9 million, and the consolidation of the German operations, which resulted in
increased sales of $54.1 million. Total units shipped increased by 6.5% to
8.2 million units compared to 7.7 million units in 1999. The increase in net
revenues also reflected a decrease in the return rate to 21.4% from 22.8% in
1999. The increase in Networks and televsion production primarily resulted from
an increase in advertising revenues at USA Network and a significant increase in
advertising revenues and affiliate revenues at Sci-Fi Channel due to an increase
in subscribers and higher ratings. Revenue of Studios USA also increased due to
increased revenues from one-hour dramas and talk shows offset by fewer
network-pick-ups for comedy productions.
OPERATING COSTS AND EXPENSES
For the three months ended March 31, 2000, total operating costs and
expenses increased $104.1 million, or 21.4%, to $591.1 million from
$487.0 million compared to 1999, primarily due to increased costs of
$82.9 million, $18.1 million and $4.1 million from the Electronic retailing,
Networks and television production and Electronic commerce and services
businesses, respectively. The increased costs are related to the higher revenue
of all of the businesses, the consolidation of the German electronic retailing
operations as of Janaury 1, 2000, and start-up costs of the Electronic commerce
and services business.
Amortization of cable distribution fees increased by $2.1 million due to
higher cost distribution arrangements.
OTHER INCOME (EXPENSE), NET
For the three months ended March 31, 2000, net interest expense decreased by
$6.7 million, compared to 1999 primarily due to lower borrowing levels as a
result of the repayment of bank debt in prior years from the proceeds of equity
transactions involving Universal and Liberty Media Corporation, a subsidiary of
AT&T Corporation ("Liberty").
In the three months ended March 31, 1999, the Company realized gains of
$47.3 million related to the sale of securities and $10.4 million from the
reversal of equity losses which were recorded in 1998 as a result of the
Universal transaction.
11
<PAGE>
INCOME TAXES
As a limited liability company, the Company is not subject to federal or
state income taxes in the United States, but rather the LLC partners are
responsible for taxes related to the earnings attributable to each partner. The
Company is subject to unincorporated business tax in New York City and income
tax in Germany.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The operating results and capital resources and liquidity requirements of
USAi, Home Shopping Network, Inc. ("Holdco") and USANi LLC are dependent on each
other. The investment agreement, among Universal Studios, Inc. ("Universal"),
Liberty Media Corporation, a subsidiary of AT&T Corporation, ("Liberty"), USAi
and Holdco requires that no less frequently than monthly, (1) all cash generated
by entities not owned by USANi LLC be transferred to USANi LLC and (2) any cash
needs by entities not owned by USANi LLC be funded by USANi LLC. In addition,
USAi and USANi LLC are jointly and severally obligated under the $500.0 million
6 3/4% Senior Notes due 2005 (the "Notes"). USANi LLC and its subsidiaries have
no material restrictions on their ability to transfer amounts to fund USAi's
operations.
Net cash provided by operating activities was $171.9 million for the three
months ended March 31, 2000 compared to $83.0 million for the three months ended
March 31, 1999. These cash proceeds were used to pay for capital expenditures of
$17.0 million, to make principal payments on long-term obligations of
$16.2 million, to make mandatory tax distribution payments to LLC partners of
$118.2 million, including $50.1 million to USAi, and to provide funding to USAi.
Under the investment agreement, transfers of cash between USAi and USANi LLC
are evidenced by a demand note and accrue interest at USANi LLC's borrowing rate
under the existing credit agreement. Certain transfers of funds between Holdco,
USANi LLC and USAi are not evidenced by a demand note and do not accrue
interest, primarily relating to the establishment of the operations of USANi LLC
and capital contributions from USAi into USANi LLC. During the three months
ended March 31, 2000, net transfers from USANi LLC to USAi totaling
approximately $81.7 million, including $25.0 million related to contingent
purchase price payments on the Hotel Reservations Network Transaction,
$22.0 million to fund the operations of USAi's television broadcast operations,
and $8.8 million to fund the operations of USA Films. Funds of $34.4 million
were also transferred to USAi to purchase shares of treasury stock.
On February 12, 1998, USAi and USANi LLC, as borrower, entered into a credit
agreement that provided for a $1.6 billion credit facility. $1.0 billion was
permanently repaid in prior years. The $600.0 million revolving credit facility
expires on December 31, 2002. The existing credit facility is guaranteed by
substantially all of USAi's material subsidiaries. The interest rate on
borrowings under the existing credit facility is tied to an alternate base rate
or the London InterBank Rate, in each case, plus an applicable margin. As of
March 31, 2000, there was $599.0 million available for borrowing after taking
into account outstanding letters of credit.
Under the investment agreement relating to the Universal transaction, USAi
has granted to Universal and Liberty preemptive rights with respect to future
issuances of USAi's common stock and Class B common stock. These preemptive
rights generally allow Universal and Liberty the right to maintain an ownership
percentage in USAi equal to the ownership percentage that entity held, on a
fully converted basis, immediately prior to the issuance. On May 3, 2000,
Liberty notified USAi of its intention to exercise its preemptive right for
approximately 7.9 million shares related principally to the PRC transaction,
which will result in proceeds of approximately $179.1 million.
USAi anticipates that it will need to invest working capital towards the
development and expansion of its overall operations. Due primarily to the
expansion of the Internet business future capital expenditures are projected to
be higher than current amounts.
12
<PAGE>
On February 29, 2000, the Company made a mandatory tax distribution payment
to the LLC partners in the amount of $118.2 million, including $50.1 million to
USAi.
In management's opinion, available cash, internally generated funds and
available borrowings will provide sufficient capital resources to meet the
Company's foreseeable needs.
SEASONALITY
USANi LLC's businesses are subject to the effects of seasonality. Networks
and Television Production revenues are influenced by advertiser demand and the
seasonal nature of programming, and generally peak in the spring and fall.
USANi LLC believes seasonality impacts its Electronic Retailing segment but
not to the same extent it impacts the retail industry in general.
ITEM 2(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market rate risk for changes in interest rates
relates primarily to the Company's short-term investment portfolio and issuance
of debt. The Company does not use derivative financial instruments in its
investment portfolio. The Company has a prescribed methodology whereby it
invests its excess cash in debt instruments of government agencies and high
quality corporate issuers. To further mitigate risk, the vast majority of the
securities have a maturity date within 60 days. The portfolio is reviewed on a
periodic basis and adjusted in the event that the credit rating of a security
held in the portfolio has deteriorated.
At March 31, 2000, the Company's outstanding debt approximated
$544.5 million, substantially all of which is fixed rate obligations. If market
rates decline, the Company runs the risk that the related required payments on
the fixed rate debt will exceed those based on the current market rate.
FOREIGN CURRENCY EXCHANGE RISK
The Company conducts business in certain foreign markets. However, the level
of operations in foreign markets is insignificant to the consolidated results.
EQUITY PRICE RISK
The Company has no investments in equity securities of a publicly-traded
companies. It is not customary for the Company to make investments in equity
securities as part of its investment strategy.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BARRY DILLER
------------------------------------------- Chairman of the Board, Chief May 15, 2000
Barry Diller Executive Officer and Director
/s/ MICHAEL SILECK Senior Vice President and Chief
------------------------------------------- Financial Officer (Principal May 15, 2000
Michael Sileck Financial Officer)
/s/ WILLIAM J. SEVERANCE
------------------------------------------- Vice President and Controller May 15, 2000
William J. Severance (Chief Accounting Officer)
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 241,778
<SECURITIES> 0
<RECEIVABLES> 389,562
<ALLOWANCES> 41,200
<INVENTORY> 440,116
<CURRENT-ASSETS> 1,104,007
<PP&E> 225,474
<DEPRECIATION> 92,620
<TOTAL-ASSETS> 7,494,782
<CURRENT-LIABILITIES> 839,060
<BONDS> 528,203
0
0
<COMMON> 0
<OTHER-SE> 5,810,354
<TOTAL-LIABILITY-AND-EQUITY> 7,494,782
<SALES> 764,997
<TOTAL-REVENUES> 764,997
<CGS> 404,275
<TOTAL-COSTS> 404,275
<OTHER-EXPENSES> 242,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,907
<INCOME-PRETAX> 112,427
<INCOME-TAX> 5,012
<INCOME-CONTINUING> 105,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,119
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
