HOME SHOPPING NETWORK INC, 10-Q, 2000-11-14

HOME SHOPPING NETWORK INC
10-Q, 2000-11-14
CATALOG & MAIL-ORDER HOUSES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 2000
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

------------------------

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

------------------------

HOME SHOPPING NETWORK, INC.
(Exact name of registrant as specified in its charter)

COMMISSION FILE NO. 333-71305-01

<TABLE>
<S> <C>
DELAWARE 52-2649518
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</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 / /

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<PAGE>
PART I--FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES
Networks and television production............. $336,047 $307,094 $1,105,688 $ 955,032
Electronic retailing........................... 426,549 314,718 1,243,756 941,467
Interactive.................................... 5,147 6,660 17,555 21,489
Electronic commerce and services............... 2,524 543 5,121 1,731
Emerging networks.............................. 8,591 266 12,862 693
Other.......................................... 509 -- 1,568 6,894
-------- -------- ---------- ----------
Total net revenues........................... 779,367 629,281 2,386,550 1,927,306
-------- -------- ---------- ----------
Operating costs and expenses:
Cost of sales.................................. 280,851 206,406 823,741 634,100
Program costs.................................. 146,000 147,549 485,037 466,896
Selling and marketing.......................... 97,940 74,121 280,928 209,859
General and administrative..................... 72,022 60,080 227,121 173,876
Other operating costs.......................... 33,391 22,081 90,343 66,400
Amortization of cable distribution fees........ 8,845 6,938 25,335 19,214
Depreciation and amortization.................. 58,971 44,058 154,945 130,620
-------- -------- ---------- ----------
Total operating costs and expenses........... 698,020 561,233 2,087,450 1,700,965
-------- -------- ---------- ----------
Operating profit............................. 81,347 68,048 299,100 226,341
Other income (expense):
Interest income................................ 5,283 12,636 19,195 31,959
Interest expense............................... (6,329) (21,066) (24,807) (61,685)
Gain on sale of securities..................... -- 39,451 -- 89,721
Other, net..................................... 70,575 (779) 66,567 879
-------- -------- ---------- ----------
69,529 30,242 60,955 60,874
-------- -------- ---------- ----------
Earnings before income taxes and minority
interest......................................... 150,876 98,290 360,055 287,215
Income tax expense............................... (34,205) (18,080) (76,498) (52,234)
Minority interest................................ (82,474) (58,973) (204,986) (173,673)
-------- -------- ---------- ----------
NET EARNINGS..................................... $ 34,197 $ 21,237 $ 78,571 $ 61,308
======== ======== ========== ==========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

1
<PAGE>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 135,335 $ 247,474
Accounts and notes receivable, net of allowance of $48,734
and $33,317, respectively................................. 453,277 381,175
Inventories, net............................................ 553,677 432,520
Investments held for sale................................... 2,062 --
Deferred income taxes....................................... -- 12,077
Other current assets, net................................... 28,267 8,542
---------- ----------
Total current assets........................................ 1,172,618 1,081,788
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 133,148 123,606
Buildings and leasehold improvements........................ 66,050 59,074
Furniture and other equipment............................... 71,249 67,246
Land........................................................ 10,275 10,246
Projects in progress........................................ 19,948 31,736
---------- ----------
300,670 291,908
Less accumulated depreciation and amortization.............. (66,643) (79,350)
---------- ----------
234,027 212,558
OTHER ASSETS
Intangible assets, net...................................... 5,204,280 5,029,769
Cable distribution fees, net ($30,235 and $35,181,
respectively, to related parties)......................... 146,155 130,988
Long-term investments....................................... 37,272 93,742
Notes and accounts receivable, net ($3,283 and $2,562,
respectively, from related parties)....................... 29,121 19,506
Inventories, net............................................ 182,422 154,497
Advances to USAI and subsidiaries........................... 443,098 410,107
Deferred income taxes....................................... 70,308 61,755
Deferred charges and other, net............................. 39,494 36,934
---------- ----------
$7,558,795 $7,231,644
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 20,829 $ 3,758
Accounts payable, trade..................................... 139,149 147,864
Obligations for program rights and film costs............... 295,561 265,235
Cable distribution fees payable ($18,431 and $18,733,
respectively, to related parties)......................... 28,993 43,993
Deferred revenue............................................ 63,684 47,536
Deferred income taxes....................................... 13,383 --
Other accrued liabilities................................... 357,267 271,846
---------- ----------
Total current liabilities................................... 918,866 780,232
LONG-TERM OBLIGATIONS (NET OF CURRENT MATURITIES)........... 525,406 527,339
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, NET OF
CURRENT................................................... 279,260 256,260
OTHER LONG-TERM LIABILITIES................................. 76,602 81,156
MINORITY INTEREST........................................... 4,466,216 4,244,114
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY
Common Stock................................................ 1,221,408 1,221,408
Additional paid-in capital.................................. 70,312 70,312
Retained earnings........................................... 11,225 50,823
Accumulated other comprehensive income...................... (10,500) --
---------- ----------
Total stockholders' equity.................................. 1,292,445 1,342,543
---------- ----------
$7,558,795 $7,231,644
========== ==========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

2
<PAGE>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER
COMMON PAID-IN EARNINGS COMPREHENSIVE
TOTAL STOCK CAPITAL (DEFICIT) INCOME
---------- ---------- ---------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999....... $1,342,543 $1,221,408 $70,312 $ 50,823 $ --
Comprehensive Income:
Net earnings for the nine months
ended September 30, 2000....... 78,571 -- -- 78,571 --
Foreign currency translation..... (2,521) (2,521)
Increase in unrealized gains in
available for sale
securities..................... (7,979) -- -- -- (7,979)
----------
Comprehensive income........... 68,071
Mandatory tax distribution to LLC
partners......................... (118,169) -- -- (118,169) --
---------- ---------- ------- --------- --------
Balance at September 30, 2000...... $1,292,445 $1,221,408 $70,312 $ 11,225 $(10,500)
========== ========== ======= ========= ========
</TABLE>

Comprehensive income for the three months ended September 30, 2000 was $27,025.

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

3
<PAGE>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 78,571 $ 61,308
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization............................. 154,945 130,620
Amortization of cable distribution fees................... 25,335 19,214
Amortization of program rights and film costs............. 428,537 391,088
Gain on sale of subsidiary stock.......................... (104,625) --
Gain on sale of securities................................ -- (89,721)
Non-cash compensation..................................... 5,954 1,890
Equity in (earnings) losses of unconsolidated
affiliates.............................................. 38,260 754
Minority interest......................................... 204,986 173,673
CHANGES IN CURRENT ASSETS AND LIABILITIES:
Accounts receivable....................................... (67,348) 16,205
Inventories............................................... (1,615) 375
Accounts payable.......................................... (28,228) (43,174)
Accrued liabilities and deferred revenue.................. 103,126 60,120
Payment for program rights and film costs................. (528,053) (410,500)
Increase in cable distribution fees....................... (39,251) (35,624)
Other, net................................................ 20,430 4,082
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 291,024 280,310
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.......................... (107,934) (7,500)
Capital expenditures........................................ (49,247) (43,781)
Increase in long-term investments and notes receivable...... (21,769) (12,750)
Proceeds from sale of securities............................ -- 107,231
Other, net.................................................. (2,806) 6,221
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES..... (181,756) 49,421
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings.................................................. 50,029 --
Payment of mandatory tax distribution to LLC partners....... (118,169) (52,755)
Principal payments on long-term obligations................. (44,890) (252,182)
Repurchase of LLC shares.................................... (129,907) (7,226)
Proceeds from issuance of LLC shares........................ 216,493 401,319
Advances to USAi and subsidiaries........................... (181,052) (457,864)
Other....................................................... (13,309) --
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES................... (220,805) (368,708)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (602) --
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (112,139) (38,977)
Cash and cash equivalents at beginning of period............ 247,474 234,903
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 135,335 $ 195,926
========= =========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.

4
<PAGE>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

Home Shopping Network, Inc. (the "Company" or "Home Shopping"), is a holding
company, whose subsidiary USANi LLC is engaged in diversified media and
electronic commerce businesses. In December 1996, the Company consummated a
merger with USA Networks, Inc. ("USAi"), formerly known as HSN, Inc., and became
a subsidiary of USAi (the "Home Shopping Merger").

On February 12, 1998, USAi 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") (the "Universal Transaction").

On July 27, 2000, the Company and Styleclick.com Inc., a leading enabler of
e-commerce for manufacturers and retailers ("Styleclick.com"), completed the
merger of Internet Shopping Network ("ISN") and Styleclick.com (the "Styleclick
Transaction"). See Note 3.

In connection with the Universal Transaction, the Company formed a new
subsidiary, USANi LLC, and contributed the operating assets of the Home Shopping
Network services ("HSN") to USANi LLC. Furthermore, USAi contributed Networks
and Studios USA to USANi LLC on February 12, 1998.

The Company is a holding company, the subsidiaries of which are focused on
the new convergence of entertainment, information and direct selling.

The five 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, HSN International and HSN.com, which are
engaged in the electronic retailing business.

- Interactive, which includes Styleclick, Inc. (see Note 3 for more
information), a facilitator of e-commerce websites and Internet enabled
applications, and the Company's online retailing networks First Auction
and First Jewelry.

- Electronic commerce and services, which primarily represents the Company's
customer and e-care businesses.

- Emerging networks, which primarily represents recently acquired cable
television properties Trio and News World International, and SciFi.com, an
emerging Internet content and commerce site.

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 twelve months ended
December 31, 1999. Certain amounts in the Condensed Consolidated Financial
Statements for the three and nine months ended September 30, 1999 have been

5
<PAGE>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
reclassified to conform to the 2000 presentation, including all amounts charged
to customers for shipping and handling, which are now presented as revenue.

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
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.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2000, the Securities and Exchange Commission issued an amendment to
Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS
("SAB 101") which delayed the effective date for adoption of SAB 101 to the
fourth quarter of 2000. SAB 101 provides guidance on revenue recognition
criteria for certain types of transactions. SAB 101 also provides guidance on
the disclosures that companies should make about their revenue recognition
policies and the impact of events and trends on revenue.

In June 2000, the Accounting Standards Executive Committee ("AcSEC") issued
SOP 00-2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF FILMS ("SOP 00-2"), which
replaces FASB Statement No. 53, FINANCIAL ACCOUNTING BY PRODUCERS AND
DISTRIBUTORS OF MOTION PICTURE FILMS. AcSEC concluded that film costs would be
accounted for under an inventory model. In addition, the SOP considers such
topics as revenue recognition (fixed fees and minimum guarantees in variable fee
arrangements), fee allocation in multiple films, accounting for exploitation
costs, and impairment assessment. The SOP is effective for financial statements
issued for fiscal years beginning after December 15, 2000.

The Company is currently evaluating the impact of SAB 101 and SOP 00-2,
although the impact is not expected to be material.

NOTE 3--BUSINESS ACQUISITIONS

STYLECLICK TRANSACTION

On July 27, 2000, USAi and Styleclick.com Inc., a leading enabler of
e-commerce for manufacturers and retailers, completed the merger of Internet
Shopping Network and Styleclick.com. The entities were merged with a new
company, Styleclick, Inc., which owns and operates the combined properties of
Styleclick.com and ISN. Styleclick, Inc. is traded on the Nasdaq market under
the symbol "IBUY". In accordance with the terms of the agreement, USAi invested
$40 million in cash and agreed to contribute $10 million in dedicated media, and
received warrants to purchase additional shares of the new company. At closing,
Styleclick.com repaid the $10 million of borrowing outstanding under the bridge
loan.

6
<PAGE>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
The aggregate purchase price, including transaction costs, of
$211.9 million was determined as follows:

<TABLE>
<S> <C>
Value of portion of Styleclick.com acquired in the merger... $121,781
Additional cash and promotional investment by USAi.......... 50,000
Fair value of outstanding "in the money options" and
warrants of Styleclick.com................................ 37,989
Transaction costs........................................... 2,144
--------
Total acquisition costs................................... $211,914
========
</TABLE>

The fair value of Styleclick.com was based on the fair value of $15.78 per
share times 7.7 million shares outstanding. Fair value of the shares was
determined by taking an average of the opening and closing price of
Styleclick.com common stock for the period just before and just after the terms
of the transaction were agreed to by the Company and Styleclick.com and
announced to the public. In conjunction with the transaction, the Company
recorded a pre-tax gain of $104.6 million based upon the 25% of ISN exchanged
for 75% of Styleclick.com.

The Styleclick transaction has been accounted for under the purchase method
of accounting. The purchase price has been preliminarily allocated to the assets
acquired and liabilities assumed based on their respective fair values at the
date of purchase. The unallocated excess of acquisition costs over net assets
acquired of $170.5 million has been allocated to goodwill, which is being
amortized over 3 years. Assets and liabilities as of the acquisition date
consist of the following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Current assets.............................................. $ 39,095
Non-current assets.......................................... 4,039
Goodwill.................................................... 170,526
Current liabilities......................................... 1,746
Non-current liabilities..................................... --
</TABLE>

The following unaudited pro forma condensed consolidated financial
information for the three and nine months ended September 30, 2000 and 1999 is
presented to show the results of the Company as if the Styleclick Transaction
had occurred on January 1, 1999. The pro forma results reflect certain
adjustments, including increased amortization related to goodwill and other
intangibles, and are not necessarily indicative of what the results would have
been had the transactions actually occurred on January 1, 1999.

<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS NINE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues............... $2,388,439 $779,511 $1,932,458 $630,068
Net income................. 58,021 31,116 49,642 16,574
</TABLE>

7
<PAGE>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 4--INVESTMENTS

During the quarter and nine months ended September 30, 1999, the Company
recognized pre-tax gains of $39.5 and $89.7 million, respectively, on the sale
of securities in a publicly traded entity.

NOTE 5--STATEMENTS OF CASH FLOWS

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 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.

During the second quarter, the company recorded $8.7 million of expense
related to an agreement with an executive. Of this amount, $2.9 million is a
non-cash stock compensation charge related to restricted stock.

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999:

During the nine months ended September 30, 1999, the Company acquired
post-production and other equipment through capital leases totaling
$2.5 million.

NOTE 6--INDUSTRY SEGMENTS

For the three and nine months ended September 30, 2000 and 1999, the Company
operated principally in five industry segments: Networks and television
production, Electronic retailing, Interactive, Electronic commerce and services
and Emerging networks. 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
represents Styleclick. The Electronic commerce and services segment primarily
represents the Company's customer and e-care businesses. The Emerging networks
segment

8
<PAGE>
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 6--INDUSTRY SEGMENTS (CONTINUED)
consists primarily of the recently acquired cable television properties Trio and
News World International, which were acquired on May 19, 2000, and SciFi.com, a
emerging Internet content and commerce site.

The Company operating principally within the United States.

NOTE 7--GUARANTEE OF NOTES

USAi issued $500.0 million 6 3/4% Senior Notes due 2005 (the "Notes"). USANi
LLC is a co-issuer and co-obligor of the Notes. The Notes are jointly,
severally, fully and unconditionally guaranteed by certain subsidiaries of USAi,
including the Company and all of the subsidiaries of USANi LLC (other than
subsidiaries that are, individually and in the aggregate, inconsequential to
USANi LLC on a consolidated basis) (collectively, the "Subsidiary Guarantors").
All of the Subsidiary Guarantors (other than the Company) (the "Wholly Owned
Subsidiary Guarantors") are wholly owned, directly or indirectly, by the Company
or USANi LLC, 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 the
Company's management has determined that the information contained in such
documents would not be material to investors.

9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

Home Shopping Network, Inc., a Delaware limited liability company (the
"Company" or "Holdco"), is a subsidiary of USA Networks, Inc. ("USAi"). The
Company is a holding company, whose subsidiary USANi LLC is engaged in
diversified media and electronic commerce businesses.

CONSOLIDATED RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. THREE MONTHS ENDED
SEPTEMBER 30, 1999

NET REVENUES:

For the three months ended September 30, 2000, net revenues increased
$150.1 million, or 23.9%, to $779.4 million from $629.3 million compared to 1999
primarily due to increases of $111.8 million, $29.0 million and $8.3 million
from the Electronic retailing, Networks and television production and Emerging
networks 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 $53.8 million in the three months ended September 30,
2000 as compared to $39.5 million in 1999. In addition to the increase resulting
from Germany, Home Shopping Network's core domestic business generated increased
sales of $52.4 million, including HSN.com, which began operations in late 1999
and generated sales of $8.6 million. The increase in net revenues was offset
partially from an increase in the return rate to 20.2% from 19.1% in 1999. The
increase in Networks and television production primarily resulted from an
increase in advertising and affiliate revenues at USA Network and the Sci-Fi
Channel, and increased revenue from Studios USA related principally to
television movies and increased production for USA Network and the Sci-Fi
Channel.

OPERATING COSTS AND EXPENSES:

For the three months ended September 30, 2000, total operating costs and
expenses increased $136.8 million, or 24.4%, to $698.0 million from
$561.2 million compared to 1999, primarily due to increased costs of
$105.8 million and $3.3 million from the Electronic retailing and Networks and
television production businesses, respectively, higher depreciation and
amortization costs of $14.9 million and higher amortization of cable
distribution fees of $1.9 million. The increased costs of Electronic retailing
and Networks and television production are related to the higher revenue of all
of the businesses and the consolidation of the German electronic retailing
operations as of January 1, 2000. Depreciation and amortization increased as a
result of capital expenditures and acquisitions, including Styleclick.com.
Amortization of cable distribution fees increased due to higher cost
distribution arrangements.

OTHER INCOME (EXPENSE), NET:

For the three months ended September 30, 2000, net interest expense
decreased by $7.4 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 September 30, 2000, the Company realized a pre-tax gain of $104.6 million
based upon the exchange of 25% of ISN for 75% of Old Styleclick in the
Styleclick Transaction. Also, the Company realized a pre-tax loss of
$30.5 million related to the write-off of investments to fair value. In the
three months ended September 30, 1999, the Company realized gains of
$39.5 million related to the sale of securities.

10
<PAGE>
MINORITY INTEREST:

Minority interest primarily represents Universal's and Liberty's ownership
interest in USANi LLC and the public's ownership interest in Styleclick since
July 27, 2000.

INCOME TAXES:

The Company's effective tax rate, calculated after deducting the effects of
USANi LLC minority interest, of 47.9% for the three months ended September 30,
2000 is higher than the statutory rate due to the effects of state taxes and
non-deductible goodwill.

NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. NINE MONTHS ENDED SEPTEMBER 30, 1999

NET REVENUES:

For the nine months ended September 30, 2000, net revenues increased
$459.2 million, or 23.8%, to $2.4 billion from $1.9 billion compared to 1999
primarily due to increases of $302.3 million and $150.7 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 $162.2 million in the nine months ended September 30, 2000 as compared to
$116.2 million in 1999. In addition to the increase resulting from Germany, Home
Shopping Network's core domestic business generated increased sales of
$136.0 million due primarily to the increase from the Home Shopping service of
$106.8 million and HSN.com, which generated revenue of $20.5 million. Revenue of
Studios USA increased due to increased revenues from one-hour dramas, talk shows
and movie productions, offset by fewer network pick-ups for comedy productions.

OPERATING COSTS AND EXPENSES:

For the nine months ended September 30, 2000, total operating costs and
expenses increased $386.5 million, or 22.7%, to $2.1 billion from $1.7 billion
compared to 1999, primarily due to increased costs of $267.1 million and
$62.1 million from the Electronic retailing and Networks and television
production businesses, respectively, increased depreciation and amortization of
$24.3 million and increased amortization of cable distribution fees of
6.1 million. The increased costs are related to the higher revenue of all of the
businesses and the consolidation of the German electronic retailing operations
as of January 1, 2000. Depreciation and amortization increased as a result of
capital expenditures and acquisitions, including Styleclick. Amortization of
cable distribution fees increased due to higher cost distribution arrangements.

OTHER INCOME (EXPENSE), NET:

For the nine months ended September 30, 2000, net interest expense decreased
by $34.1 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 nine months ended September 30, 2000, the
Company realized a pre-tax gain of $104.6 million based upon the exchange of 25%
of ISN for 75% of Styleclick.com in the Styleclick Transaction. Also, the
Company realized a pre-tax loss of $30.5 million related to the write-off of
investments to fair value. In the nine months ended September 30, 1999, the
Company realized pre-tax gains of $89.7 million related to the sale of
securities. Furthermore, the Company recognized other income of $10.4 million
from the reversal of equity losses which were recorded in 1998 as a result of
the Universal transaction.

11
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MINORITY INTEREST:

Minority interest primarily represents Universal's and Liberty's ownership
interest in USANi LLC and the public's ownership interest in Styleclick since
July 27, 2000.

INCOME TAXES:

The Company's effective tax rate, calculated after deducting the effects of
USANi LLC minority interest, of 48.4% for the nine months ended September 30,
2000 is higher than the statutory rate due to the effects of state taxes and
non-deductible goodwill.

SEASONALITY

The Company'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.

The Company believes seasonality impacts its Electronic Retailing segment
but not to the same extent it impacts the retail industry in general.

ITEM 3. 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 September 30, 2000, the Company's outstanding debt approximated
$546.2 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 publicly-traded
companies. It is not customary for the Company to make investments in equity
securities as part of its investment strategy.

12
<PAGE>
PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the Home Shopping Network Consumer Class Action litigation previously
reported in the Company's Form 10-K for the year ended December 31, 1999, the
plaintiffs filed an amended class action complaint that, among other things:
(i) added an additional named plaintiff, (ii) added Home Shopping Club LP,
Warrantech Helpdesk, Inc., Banctech Service, Inc. and Timespace Internet, Inc.
as named defendants, and (iii) removed two individuals as named defendants. On
May 9, 2000, Home Shopping Network, Inc. and Home Shopping Club LP (the "HSN
Defendants") filed a motion to dismiss the amended complaint. On May 23, 2000,
the Cook County Circuit Court addressed the HSN Defendants' motion to dismiss by
entering an Order that, in pertinent part, required the plaintiffs to file a
second amended complaint. On June 6, 2000, the plaintiffs filed a second amended
class action complaint that, among other things, added an additional named
plaintiff and asserted two additional causes of action for negligent
misrepresentation and breach of contract. The HSN Defendants have filed an
answer and affirmative defenses to the second amended complaint and intend to
continue to vigorously defend this action.

In the World Wrestling Federation litigation, previously reported in the
Company's Form 10-Qs for the quarterly periods ended March 31, 2000 and
June 30, 2000, the Delaware Supreme Court on September 18, 2000 ruled against
USA Cable on appeal of the decision of the Chancery Court. In the opinion of
management, this outcome will not have a material adverse effect on the Company.

In the Marketingworks, Inc. litigation previously reported in the Company's
Form 10-K for the year ended December 31, 1999, a status conference was held on
October 30, 2000, at which time a trial date of July 3, 2001 was scheduled. In
January 2000, Universal/USA removed the case to Federal Court on the basis of
copyright preemption and as a result of the fact that Marketingworks sought
Federal remedies under the Lanham Act. Although discovery is not yet complete,
based on information revealed thus far to Universal/USA, the Company believes
this claim is unlikely to present a material liability to the Company.

On August 25, 2000, RTL Plus Deutschland Fernsehen GMBH & Co. Betriebs-KG,
Companie Luxembourgeoise de Telediffusion S.A. and UFA Film--Und Fernseh-GMBH &
Co. KG (collectively "RTL") filed a complaint in the Netherlands against
Universal Studios International B.V. ("USI"). USI, the international
distribution entity of Universal Studios, Inc., has the rights, subject to
various exemptions, to distribute internationally certain television programs
owned by Studios USA and other USAi entities. The complaint involves a 10-year
"output" agreement between RTL and USI, signed July 30, 1996, pursuant to which,
among other things, certain television programs owned by Studios USA and other
USAi entities are distributed in Germany (the "RTL Output Agreement"). The RTL
Output Agreement also includes "co-production" provisions under which RTL
acquires an equity interest in certain programs. The complaint, based on
equitable doctrines of "mistake of fact" and "unforeseen circumstances,"
requests the court to modify or nullify RTL's licensing and "co-production"
obligations with respect to current television programs. USI currently has until
November 22, 2000 to respond to the complaint. Studios USA and its affiliated
companies are not parties to the RTL Output Agreement and currently not parties
to the pending proceeding. Studios USA and its affiliated entities believe the
RTL complaint to be without merit, and intend to vigorously protect their
interests.

The Company is engaged in various other lawsuits either as plaintiff or
defendant. In the opinion of management, the ultimate outcome of these various
lawsuits should not have a material impact on the Company.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<S> <C>
27.1 Financial Data Schedule (for SEC use only)
27.2 Financial Data Schedule (for SEC use only)
</TABLE>

14
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

<TABLE>
<S> <C> <C>
HOME SHOPPING NETWORK, INC.

By: /s/ BARRY DILLER
-----------------------------------------
Barry Diller
Chairman and Chief
Executive Officer
</TABLE>

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BARRY DILLER
--------------------------------- Chairman of the Board, Chief November 14, 2000
Barry Diller Executive Officer and Director

/s/ MICHAEL SILECK Senior Vice President and Chief
--------------------------------- Financial Officer (Principal November 14, 2000
Michael Sileck Financial Officer)

/s/ WILLIAM J. SEVERANCE
--------------------------------- Vice President and Controller (Chief November 14, 2000
William J. Severance Accounting Officer)
</TABLE>