<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1998
COMMISSION FILE NUMBER 0-20570
USA NETWORKS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 59-2712887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
152 WEST 57TH STREET
NEW YORK, NEW YORK
(Address of principal executive offices)
10019
(Zip Code)
(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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
As of July 31, 1998, there were outstanding 123,937,329 shares of Common
Stock and 31,181,726 shares of Class B Common Stock. The aggregate market value
of the voting stock held by non-affiliates of the Registrant as of July 31, 1998
was $2,806,772,436.
Assuming the conversion, as of July 31, 1998, of all equity securities of
the Registrant and its affiliates convertible into or exchangeable for Common
Stock, the Registrant would have had outstanding 330,010,256 shares of Common
Stock with an aggregate market value of $9,652,799,988.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ----------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
NET REVENUES
Networks and television production........ $309,841 $ -- $ 476,003 $ --
Electronic retailing...................... 269,852 248,469 515,235 507,187
Ticketing operations...................... 101,169 -- 194,404 --
Internet services......................... 4,720 2,481 8,533 5,181
Broadcasting and other.................... 17,811 14,735 32,329 32,869
-------- -------- ---------- --------
Total net revenues................ $703,393 $265,685 $1,226,504 $545,237
-------- -------- ---------- --------
Operating costs and expenses:
Cost related to revenues.................. 176,295 149,503 340,659 308,118
Program costs............................. 168,785 -- 258,923 --
Other costs............................... 225,000 74,920 411,570 151,489
Depreciation and amortization............. 57,838 20,532 105,107 41,491
-------- -------- ---------- --------
Total operating costs and
expenses........................ 627,918 244,955 1,116,259 501,098
-------- -------- ---------- --------
Operating income.................. 75,475 20,730 110,245 44,139
-------- -------- ---------- --------
Other income (expense):
Interest income........................... 4,106 1,172 7,710 2,513
Interest expense.......................... (41,676) (6,468) (68,829) (13,490)
Gain on disposition of broadcast
station................................ -- -- 74,940 --
Miscellaneous............................. (7,035) (3,031) (16,255) (6,260)
-------- -------- ---------- --------
(44,605) (8,327) (2,434) (17,237)
-------- -------- ---------- --------
Earnings before income taxes and minority
interest.................................. 30,870 12,403 107,811 26,902
Income tax expense.......................... (17,461) (9,546) (56,173) (20,675)
Minority interest........................... (16,449) (385) (20,747) 15
-------- -------- ---------- --------
NET EARNINGS (LOSS)......................... $ (3,040) $ 2,472 $ 30,891 $ 6,242
======== ======== ========== ========
Net earnings (loss) per common share........
Basic.................................. $ (.02) $ .03 $ .24 $ .06
======== ======== ========== ========
Diluted................................ $ (.02) $ .02 $ .16 $ .06
======== ======== ========== ========
Weighted average shares outstanding......... 136,631 97,952 129,950 97,854
======== ======== ========== ========
Weighted average diluted shares
outstanding............................... 136,631 103,898 248,756 102,604
======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 3
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
JUNE 30,
------------------------ DECEMBER 31,
ASSETS 1998 1997 1997
- ----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................... $ 135,878 $ 30,795 $ 116,036
Accounts and notes receivable, net.................. 284,038 53,618 96,867
Inventories, net.................................... 396,821 127,167 151,100
Deferred income taxes............................... 36,978 32,366 39,956
Other current assets, net........................... 27,962 5,421 16,723
---------- ---------- ----------
Total current assets...................... 881,677 249,367 420,682
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment.................... 211,272 100,493 145,701
Buildings and leasehold improvements................ 94,537 63,467 83,851
Furniture and other equipment....................... 32,112 19,684 39,498
---------- ---------- ----------
337,921 183,644 269,050
Less accumulated depreciation and amortization.... (134,818) (82,235) (120,793)
---------- ---------- ----------
203,103 101,409 148,257
Land................................................ 16,657 14,956 16,602
Projects in progress................................ 22,423 11,719 15,262
---------- ---------- ----------
242,183 128,084 180,121
OTHER ASSETS
Intangible assets, net.............................. 6,482,424 1,518,539 1,862,128
Cable distribution fees, net ($43,360, $38,643, and
$46,459, respectively, to related parties)........ 101,868 108,767 111,292
Long-term investments and receivables ($3,507,
$17,647, and $8,353, respectively, in related
parties).......................................... 122,307 45,971 59,780
Inventories, net.................................... 175,103 -- --
Deferred income taxes............................... 74,284 4,580 3,541
Deferred charges and other, net..................... 101,983 28,425 33,252
---------- ---------- ----------
$8,181,829 $2,083,733 $2,670,796
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
JUNE 30,
------------------------ DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 1997
- ----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations......... $ 56,557 $ 9,563 $ 12,918
Accounts payable, trade............................. 185,239 86,797 111,214
Accounts payable, client accounts................... 86,818 -- 73,887
Obligations for program rights and film costs....... 197,566 -- --
Cable distribution fees payable ($18,662, $8,637 and
$19,091, respectively, to related parties)........ 28,500 32,507 43,553
Other accrued liabilities........................... 328,494 76,834 118,169
---------- ---------- ----------
Total current liabilities................. 883,174 205,701 359,741
LONG-TERM OBLIGATIONS (net of current maturities)... 1,284,566 291,564 448,346
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net
of current........................................ 372,296 -- --
OTHER LONG-TERM LIABILITIES......................... 61,836 50,029 43,132
MINORITY INTEREST................................... 3,113,560 365,541 372,223
COMMITMENTS AND CONTINGENCIES....................... -- -- --
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value; authorized
15,000,000 shares; no shares issued and
outstanding....................................... -- -- --
Common stock -- $.01 par value; authorized
800,000,000 shares; issued and outstanding
123,777,929; 72,498,002; and 87,430,586 shares,
respectively...................................... 1,237 725 874
Class B -- convertible common stock -- $.01 par
value; authorized, 200,000,000 shares; issued and
outstanding, 31,181,726; 20,450,112; and
24,455,294 shares, respectively................... 312 204 244
Additional paid-in capital.......................... 2,529,380 1,289,600 1,558,037
Accumulated deficit................................. (72,710) (110,420) (103,601)
Unrealized gain in available for sale securities.... 16,832 -- --
Foreign currency translation........................ (1,457) -- --
Unearned compensation............................... (2,199) (4,213) (3,202)
Note receivable from key executive for common stock
issuance.......................................... (4,998) (4,998) (4,998)
---------- ---------- ----------
Total stockholders' equity................ 2,466,397 1,170,898 1,447,354
========== ========== ==========
$8,181,829 $2,083,733 $2,670,796
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B FOREIGN
CONVERTIBLE ADDITIONAL CURRENCY
COMMON COMMON PAID-IN ACCUMULATED UNREALIZED TRANSLATION
TOTAL STOCK STOCK CAPITAL DEFICIT GAINS EFFECTS
- -----------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998.... $1,447,354 $ 874 $244 $1,558,037 $(103,601) $ -- $ --
Comprehensive Income:
Net earnings for the six
months ended June 30,
1998....................... 30,891 -- -- -- 30,891 -- --
Increase in unrealized gains
in available for sale
securities, net of tax..... 16,832 -- -- -- -- 16,832 --
Foreign currency
translation................ (1,457) -- -- -- -- -- (1,457)
----------
Comprehensive income..... 46,266
----------
Issuance of common stock upon
exercise of stock options.... 2,377 2 -- 2,375 -- -- --
Income tax benefit related to
executive stock options
exercised.................... 1,061 -- -- 1,061 -- -- --
Issuance of stock in
connection with Universal
Transaction.................. 302,154 71 76 302,007 -- -- --
Issuance of stock in
connection with Ticketmaster
tax-free merger.............. 467,035 160 -- 466,875 -- -- --
Issuance of stock in
connection with conversion of
debentures................... 199,147 122 -- 199,025 -- -- --
Conversion of Class B
Convertible Common Stock to
Common Stock................. -- 8 (8) -- -- -- --
Amortization of unearned
compensation related to stock
options and equity
participation plans.......... 1,003 -- -- -- -- -- --
---------- ------ ---- ---------- --------- ------- -------
BALANCE AT JUNE 30, 1998...... $2,466,397 $1,237 $312 $2,529,380 $ (72,710) $16,832 $(1,457)
========== ====== ==== ========== ========= ======= =======
<CAPTION>
NOTE
RECEIVABLE
FROM KEY
EXECUTIVE
FOR
COMMON
UNEARNED STOCK
COMPENSATION ISSUANCE
- ----------------------------------------------------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1998.... $(3,202) $(4,998)
Comprehensive Income:
Net earnings for the six
months ended June 30,
1998....................... -- --
Increase in unrealized gains
in available for sale
securities, net of tax..... -- --
Foreign currency
translation................ -- --
Comprehensive income.....
Issuance of common stock upon
exercise of stock options.... -- --
Income tax benefit related to
executive stock options
exercised.................... -- --
Issuance of stock in
connection with Universal
Transaction.................. -- --
Issuance of stock in
connection with Ticketmaster
tax-free merger.............. -- --
Issuance of stock in
connection with conversion of
debentures................... -- --
Conversion of Class B
Convertible Common Stock to
Common Stock................. -- --
Amortization of unearned
compensation related to stock
options and equity
participation plans.......... 1,003 --
------- -------
BALANCE AT JUNE 30, 1998...... $(2,199) $(4,998)
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 6
USA NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
- ----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $ 30,891 $ 6,242
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................. 94,543 32,827
Amortization of cable distribution fees................... 10,564 9,734
Amortization of program rights and film costs............. 226,998 --
Deferred income taxes..................................... 1,679 12,454
Equity in losses of unconsolidated affiliates............. 12,834 6,317
Gain on disposition of broadcast station and other
assets................................................. (74,940) --
Minority interest......................................... 20,747 (15)
Non-cash stock compensation............................... 2,064 --
Non-cash interest......................................... 4,800 --
Changes in current assets and liabilities:
Accounts receivable.................................... (80,500) 3,464
Inventories............................................ (27,472) (22,118)
Accounts payable....................................... 69,570 (8,624)
Accrued liabilities.................................... 57,418 (22,100)
Payment for program rights and film costs................. (233,662) --
Other, net................................................ 25,777 (1,560)
----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 141,311 16,621
----------- ---------
Cash flows from investing activities:
Acquisition of Universal Transaction, net of cash
acquired............................................... (1,297,233) --
Acquisitions, net of cash acquired........................ (85,555) --
Capital expenditures, net................................. (36,932) (16,529)
Increase in long-term investments......................... (10,178) (9,938)
Proceeds from long-term notes receivable.................. 813 5,154
Proceeds from disposition of broadcast station............ 80,000 --
Investment of proceeds from broadcast station............. (33,825) --
Payment of merger and financing costs..................... (20,855) (6,349)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES............. (1,403,765) (27,662)
----------- ---------
Cash flows from financing activities:
Borrowings................................................ 1,641,380 166,000
Principal payments on long-term obligations............... (771,772) (179,162)
Proceeds from issuance of common stock and LLC shares..... 414,145 12,392
----------- ---------
NET CASH PROVIDED BY (USED) IN FINANCING
ACTIVITIES..................................... 1,283,753 (770)
----------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... (1,457) --
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 19,842 (11,811)
Cash and cash equivalents at beginning of period............ 116,036 42,606
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 135,878 $ 30,795
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 7
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- COMPANY HISTORY AND BASIS OF PRESENTATION
COMPANY HISTORY
USA Networks, Inc. (the "Company" or "USAi"), formerly known as HSN, Inc.,
is a holding company, the subsidiaries of which are engaged in diversified media
and electronic commerce businesses.
In December 1996, the Company consummated mergers with each of Home
Shopping Network, Inc. ("Home Shopping") and Savoy Pictures Entertainment, Inc.
("Savoy") (the "Mergers"). In July 1997, the Company acquired a controlling
interest in Ticketmaster Group, Inc. ("Ticketmaster"). On June 24, 1998, the
Company completed its acquisition of Ticketmaster in a tax-free merger, pursuant
to which each outstanding share of Ticketmaster common stock not owned by the
Company was exchanged for 1.126 shares of Common Stock. The acquisition of the
controlling interest and the tax-free merger are referred to as the
"Ticketmaster Transaction".
On February 12, 1998, the Company acquired USA Networks, a New York general
partnership, consisting of cable television networks USA Network and The 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"), and the Company changed its name to USA Networks, Inc. (the
"Universal Transaction") -- See Note C.
Following the Universal Transaction, the Company engages in five principal
areas of business:
- NETWORKS AND TELEVISION PRODUCTION, which includes Networks and Studios
USA. Networks operates the USA Network and The 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.
- TICKETING OPERATIONS, which primarily represents Ticketmaster, the
leading provider of automated ticketing services in the U.S.
- INTERNET SERVICES, which represents the Company's on-line retailing
networks business.
- USA BROADCASTING, which owns and operates television stations.
BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements of the Company are
unaudited and should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto for the year ended December 31, 1997.
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.
The Condensed Consolidated Financial Statements include the operations of
Networks and Studios USA from the date of acquisition on February 12, 1998.
Certain amounts in the Condensed Consolidated Financial Statements for the
quarter and six months ended June 30, 1997 have been reclassified to conform to
the 1998 presentation.
6
<PAGE> 8
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 for a summary of significant accounting policies.
CONSOLIDATION
The Condensed Consolidated Financial Statements include the accounts of the
Company and all wholly-owned and voting-controlled subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Investments in which the Company owns a 20%, but less than a controlling
voting interest and where it can exercise significant influence over the
operations of the investee, are accounted for using the equity method. All other
investments are accounted for using the cost method. The Company periodically
evaluates the recoverability of investments recorded under the cost method and
recognizes losses if a decline in value is determined to be other than
temporary.
REVENUE RECOGNITION
Networks and Television Production
Television production revenues are recognized as completed episodes are
delivered. Generally, television programs are first licensed for network
exhibition and foreign syndication, and subsequently for domestic syndication,
cable television and home video. Certain television programs are produced and/or
distributed directly for initial exhibition by local television stations,
advertiser-supported cable television, pay television and/or home video.
Television production advertising revenues (i.e., sales of advertising time
received by Studios USA in lieu of cash fees for the licensing of program
broadcast rights to a broadcast station ("barter syndication")) are recognized
upon both the commencement of the license period of the program and the sale of
advertising time pursuant to non-cancelable agreements, provided that the
program is available for its first broadcast. Foreign minimum guaranteed amounts
are recognized as revenues on the date of the license agreement, provided the
program is available for exhibition.
Networks advertising revenue is recognized in the period in which the
advertising commercials are aired on cable networks. Provisions are recorded
against advertising revenues for audience under deliveries ("makegoods").
Affiliate fees are recognized in the period during which the programming is
provided.
EARNINGS PER SHARE
Basic earnings per share ("Basic EPS") excludes dilution and is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share ("Diluted EPS") reflects the
potential dilution that could occur if stock options and other commitments to
issue common stock were exercised resulting in the issuance of common stock that
would share in the earnings of the Company.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The
new rules establish standards for the reporting of comprehensive income and its
components in financial statements. Comprehensive income consists of net income
and other gains and losses affecting stockholders' equity that, under generally
accepted accounting principles, are excluded from net income. For the Company,
such items consist of unrealized gains and losses on marketable equity
investments and foreign currency translation gains and losses. The adoption of
SFAS 130 did not have a material effect on the Company's primary financial
statements, but did affect the presentation of the accompanying Condensed
Consolidated Statement of Stockholders' Equity.
7
<PAGE> 9
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
FILM COSTS
Film costs consist of direct production costs and production overhead, less
accumulated amortization. Development roster (and related costs) and abandoned
story and development costs are charged to production overhead. Film costs are
stated at the lower of unamortized cost or estimated net realizable value on a
production-by-production basis.
Generally, the estimated ultimate costs of completed television productions
are amortized, and participation expenses are accrued, for each production in
the proportion that current period revenue recognized bears to the estimated
future revenue to be received from all sources. Amortization and accruals are
made under the individual film forecast method. Estimated ultimate revenues and
costs are reviewed quarterly and revisions to amortization rates or write-downs
to net realizable value are made as required.
Film costs, net of amortization, classified as current assets include the
portion of unamortized costs of television program productions allocated to
network, first run syndication and initial international distribution markets.
The allocated portion of released film costs expected to be recovered from
secondary markets or other exploitation is reported as a noncurrent asset. Other
costs relating to television productions, such as television program development
costs, in-process productions and the television program library, are classified
as noncurrent assets.
PROGRAM RIGHTS
License agreements for program material are accounted for as a purchase of
program rights. The asset related to the program rights acquired and the
liability for the obligation incurred are recorded at their net present value
when the license period begins and the program is available for its initial
broadcast. The asset is amortized primarily based on the estimated number of
airings. Amortization is computed generally on the straight-line basis as
programs air; however, when management estimates that the first airing of a
program has more value than subsequent airings, an accelerated method of
amortization is used. Other costs related to programming, which include program
assembly, commercial integration and other costs, are expensed as incurred.
Management periodically reviews the carrying value of program rights and records
write-offs, as warranted, based on changes in programming usage.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.
Significant estimates underlying the accompanying Condensed Consolidated
Financial Statements and Notes include the inventory carrying adjustment, sales
return accrual, allowance for doubtful accounts, recoverability of intangibles
and other long-lived assets, management's forecast of anticipated revenues from
the distribution of television product in order to evaluate the ultimate
recoverability of film inventory and amortization of program usage.
RECENTLY ISSUED PRONOUNCEMENTS
During fiscal 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") was issued. SFAS 131 requires disclosure of financial and descriptive
information about an entity's reportable operating segments under the
"management approach" as defined in the Statement. The Company will adopt SFAS
131 as of December 31, 1998. The impact of adoption of this standard on the
Company's financial statements is not expected to be material.
8
<PAGE> 10
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE C -- BUSINESS ACQUISITIONS
In connection with the Universal Transaction, USAi paid Universal
approximately $4.1 billion in the form of a cash payment of approximately $1.6
billion, a portion of which ($300 million plus interest) was deferred until no
later than June 30, 1998, and an effective 45.8% interest in the Company through
shares of common stock, par value $.01 per share, of the Company (the "Common
Stock") and Class B common stock, par value $.01 per share, of the Company (the
"Class B Common Stock"), and shares ("LLC Shares") of a newly formed limited
liability company ("USANi LLC") which are exchangeable (subject to regulatory
restrictions) into shares of Common Stock and Class B Common Stock. At the
closing of the Universal Transaction, USAi contributed its Home Shopping
business to USANi LLC, a subsidiary of USAi. Simultaneously with this
transaction, the remaining 1,178,322 shares of Class B Common Stock,
contingently issuable to Liberty Media Corporation ("Liberty") in connection
with the Mergers, were issued.
The Investment Agreement, as amended and restated as of December 18, 1997,
among the Company, Home Shopping, Universal and Liberty (the "Investment
Agreement"), relating to the Universal Transaction also contemplated that, on or
prior to June 30, 1998, the Company and Liberty, a subsidiary of
Tele-Communications, Inc. ("TCI"), would complete a transaction involving a $300
million cash investment, plus an interest factor, by Liberty in the Company
through the purchase of Common Stock or LLC Shares. The transaction closed on
June 30, 1998 with Liberty making a cash payment of $308.5 million in exchange
for 15,000,000 LLC shares.
The Universal Transaction has been accounted for using the purchase method
of accounting. The purchase price of $4.1 billion including expenses, has been
preliminarily allocated to the assets acquired and liabilities assumed based on
their respective fair values at the date of purchase. The fair value of the
assets acquired and liabilities assumed are summarized below, along with the
excess of the purchase price, including expenses, over the fair value of net
assets, which has been assigned to goodwill.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
(In thousands)
<S> <C>
Current assets.............................................. $ 430,430
Non-current assets.......................................... 329,811
Goodwill.................................................... 4,152,257
Current liabilities......................................... 404,328
Non-current liabilities..................................... 392,639
</TABLE>
In connection with the Ticketmaster tax-free merger, the Company issued
15,967,200 shares of Common Stock for total consideration of $467.0 million,
which has been preliminarily allocated to intangible assets.
The following unaudited pro forma condensed consolidated financial
information for the quarters and six month periods ended June 30, 1998 and 1997,
is presented to show the results of the Company, as if the Universal Transaction
and the Ticketmaster Transaction occurred at the beginning of the periods
presented. The pro forma results include certain adjustments, including
increased amortization related to goodwill, the reduction of programming costs
for fair value adjustments related to purchase accounting and the elimination of
intercompany revenues and expenses, and are not necessarily indicative of what
the results would have been had the Universal Transaction and Ticketmaster
Transaction actually occurred on the aforementioned dates.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net revenues..................................... $703,393 $614,536 $1,383,867 $1,244,158
Net earnings (loss).............................. $ (1,323) $(10,470) $ 31,138 $ (22,550)
======== ======== ========== ==========
Basic earnings (loss) per common share........... $ (.01) $ (.08) $ .21 $ (.18)
======== ======== ========== ==========
Diluted earnings (loss) per common share......... $ (.01) $ (.08) $ .14 $ (.18)
======== ======== ========== ==========
</TABLE>
9
<PAGE> 11
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE D -- CREDIT FACILITIES AND CONVERTIBLE SUBORDINATED DEBENTURES
On February 12, 1998, the Company, and certain of its subsidiaries,
including USANi LLC as borrower, entered into a new $1.6 billion credit facility
(the "New Facility") with a $40.0 million sub-limit for letters of credit. The
New Facility was used to finance the Universal Transaction and to refinance the
Company's existing facility. The New Facility consists of a $600.0 million
revolving credit facility, a $750.0 million Tranche A Term Loan and a $250.0
million Tranche B Term Loan. The revolving credit facility and Tranche A Term
Loan mature on December 31, 2002 and the Tranche B Term Loan matures on December
31, 2003. The New Facility is guaranteed by, and secured by stock in,
substantially all of the Company's material subsidiaries. The interest rate on
borrowings under the New Facility is tied to an alternate base rate or the
London InterBank Rate, in each case, plus an applicable margin. The interest
rate under the New Facility was 7.16% at June 30, 1998. As of June 30, 1998,
there was $1.110 billion in outstanding borrowings under the New Facility and
$489.8 million was available for borrowing after taking into account outstanding
letters of credit. On August 5, 1998, the Company repaid the Tranche B Term Loan
in its entirety.
As of March 1, 1998, the 5 7/8% Convertible Subordinated Debentures were
converted into 7,499,022 shares of Common Stock.
In connection with the acquisition of the remaining interest in
Ticketmaster as of June 24, 1998, the Company repaid all amounts outstanding
under the Ticketmaster Credit Agreement using proceeds from the New Facility.
NOTE E -- INCOME TAXES
The Company's effective tax rates of 56.6% and 52.1% for the quarter and
six months ended June 30, 1998, respectively, are higher than the statutory rate
due primarily to non-deductible goodwill and other acquired intangibles, losses
in non-consolidated foreign joint ventures, and state income taxes. During the
remainder of 1998, the Company's effective tax rate is expected to be higher
than the statutory rate as a result of the items mentioned above.
NOTE F -- CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1998:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(In thousands)
<S> <C>
ACQUISITION OF NETWORKS AND STUDIOS USA
Acquisition price.................................... $ 4,115,531
Less: Amount paid in cash............................ (1,300,983)
-----------
Total non-cash consideration......................... $ 2,814,548
===========
Components of non-cash consideration:
Deferred purchase price liability.................... $ 300,000
Issuance of Common Shares and Class B Shares......... 277,898
Issuance of USANi LLC Shares......................... 2,236,650
-----------
$ 2,814,548
===========
Exchange of Minority Interest in USANi LLC for Deferred
Purchase Price Liability.............................. $ 199,576
===========
</TABLE>
As of March 1, 1998 the 5 7/8% Convertible Subordinated Debentures were
converted to 7,499,022 shares of Common Stock.
10
<PAGE> 12
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In connection with the Universal Transaction, the Company issued 1,178,322
Class B Common Stock to Liberty, which represented the remaining contingently
issuable shares in connection with the Mergers.
During the six months ended June 30, 1998, the Company acquired computer
equipment through a capital lease totaling $15.5 million.
In connection with the acquisition of the remaining interest in
Ticketmaster, the Company issued 15,967,200 shares of Common Stock.
NOTE G -- INVENTORIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1998 1997
--------------------- ---------------------
INVENTORIES CONSIST OF CURRENT NONCURRENT CURRENT NONCURRENT
- ------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Film costs:
Released, less amortization............... $ 84,839 $ 58,326
In process and unreleased................. 10,144 --
Programming costs, net of amortization...... 136,581 103,034
Merchandise held for sale................... 161,078 -- $151,100 $ --
Other....................................... 4,179 13,743
-------- -------- -------- --------
Total............................. $396,821 $175,103 $151,100 $ --
======== ======== ======== ========
</TABLE>
The Company estimates that approximately 90% of unamortized film costs
(including amounts allocated under purchase accounting) at June 30, 1998 will be
amortized within the next three years.
NOTE H -- SAVOY SUMMARIZED FINANCIAL INFORMATION (UNAUDITED)
The Company has not presented separate financial statements and other
disclosures concerning Savoy because management has determined that such
information is not material to holders of the Savoy Debentures, all of which
have been assumed by the Company as a joint and several obligor. The information
presented is reflected at Savoy's historical cost basis.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
----------------------
SUMMARIZED OPERATING INFORMATION 1998 1997
- ------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Net revenue............................................ $31,656 $ 32,147
Operating expenses..................................... 32,663 33,272
Operating loss......................................... (1,007) (1,125)
Net loss............................................... (3,340) (4,823)
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
JUNE 30,
------------------- DECEMBER 31,
SUMMARY BALANCE SHEET INFORMATION 1998 1997 1997
- -----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current assets........................................ $ 24,566 $ 36,406 $ 31,898
Non-current assets.................................... 286,542 289,449 289,381
</TABLE>
11
<PAGE> 13
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
JUNE 30,
------------------- DECEMBER 31,
SUMMARY BALANCE SHEET INFORMATION (CONTINUED) 1998 1997 1997
- -----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current liabilities................................... 32,421 28,364 32,836
Non-current liabilities............................... 102,505 115,990 110,470
Minority interest..................................... 117,997 119,856 119,427
</TABLE>
Amounts include the operations of SF Broadcasting, which the Company sold
on July 16, 1998 -- See Note J.
NOTE I -- PROGRAM RIGHTS AND FILM COSTS
As of June 30, 1998, the liability for program rights, representing future
payments to be made under program contract agreements amounted to $691.0
million. Annual payments required are $101.3 million for the remainder of 1998,
$212.0 million in 1999, $132.0 million in 2000, $89.7 million in 2001, $68.8
million in 2002 and $87.2 million in 2003 and thereafter. Amounts representing
interest are $250.3 million and the present value of future payments is $440.7
million.
As of June 30, 1998, the liability for film costs amounted to $129.2.
Annual payments are $67.2 in 1998 and $62.0 in 1999.
Unrecorded commitments for program rights consist of programs for which the
license period has not yet begun or the program is not yet available to air. As
of June 30, 1998, the unrecorded commitments amounted to $847.3 million. Annual
commitments are $95.5 million for the remainder of 1998, $115.3 million in 1999,
$150.6 million in 2000, $140.9 million in 2001, $118.2 million in 2002 and
$226.8 million in 2003 and thereafter.
NOTE J -- BROADCAST STATION TRANSACTIONS
On January 20, 1998, the Company completed the sale of its Baltimore
television station for $80.0 million resulting in a gain of $74.9 million during
the first quarter of 1998.
On June 18, 1998, the Company purchased a television station serving the
Atlanta, Georgia market for $50 million. On June 18, 1998, the Company completed
the acquisition of the remaining equity interest in an entity which owned three
television stations and immediately sold the television station serving
Portland, Oregon. The two remaining stations serve Orlando, Florida and Rapid
City, South Dakota. The Company has entered into a agreement to sell the station
serving Rapid City, which is expected to close in the fourth quarter of 1998.
On July 16, 1998, the Company sold the assets of SF Broadcasting ("SF"),
which owns and operates four television stations. The total consideration
received by SF was $307 million, of which the Company's share was approximately
$110 million, net of repayment of bank debt outstanding. No gain or loss was
realized on the disposition of SF.
NOTE K -- SUBSEQUENT EVENTS
On July 9, 1998, Universal completed its mandatory purchase obligation
related to shares issued in connection with the Ticketmaster tax-free merger and
acquired 10,309,091 LLC Shares in exchange for total consideration of $206.2
million in the form of $101.0 million in cash, and the balance applied to the
remaining deferred purchase price liability plus accrued interest. On July 27,
1998, each of Universal and Liberty exercised certain optional preemptive rights
related to the shares issued in the Ticketmaster tax-free merger (and the
related preemptive rights of the other party) which generated combined proceeds
of $286.8 million in exchange for 14,340,625 LLC shares.
12
<PAGE> 14
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
USA Networks, Inc. (the "Company" or "USAi"), formerly known as HSN, Inc.,
is a holding company, the subsidiaries of which are engaged in diversified media
and electronic commerce businesses. In July, 1997, the Company acquired a
controlling interest in Ticketmaster Group, Inc. ("Ticketmaster"). On June 24,
1998, the Company completed its acquisition of the remaining common stock of
Ticketmaster in a tax-free merger by exchanging 1.126 shares of Common Stock for
each outstanding share of Ticketmaster common stock not owned by the Company.
The acquisition of the controlling interest and the tax-free merger are referred
to as the "Ticketmaster Transaction". On February 12, 1998, the Company acquired
cable television networks USA Network and The Sci-Fi Channel (collectively,
"Networks") as well as the domestic television production and distribution
business of Universal Studios ("Studios USA") from Universal Studios, Inc. (the
"Universal Transaction") and changed the Company's name to USA Networks, Inc.
Following the Universal Transaction, the Company's principal areas of business
are the operation of cable networks and the production and distribution of
television programming (through its Networks and television production
business), electronic retailing (through its Home Shopping business), automated
ticketing services (through Ticketmaster), the ownership and operation of
television stations (through USA Broadcasting), and Internet services. During
1996, the Company merged with Home Shopping Network, Inc. ("Home Shopping") and
Savoy Pictures Entertainment, Inc. ("Savoy") (collectively, the "Mergers"). The
acquisition of the controlling interest in Ticketmaster, the Universal
Transaction and the Mergers were accounted for using the purchase method of
accounting.
Prior to the Universal Transaction, the Company's principal areas of
business were electronic retailing, ticketing operations and television
broadcasting. The electronic retailing business principally operates two
services, The Home Shopping Network and America's Store (together "HSN"). The
ticketing operations business sells approximately 70 million tickets a year
through 2,900 retail center outlets, 25 telephone call centers and an Internet
site and is the leading provider of automated ticketing services in the U.S. The
television broadcasting business owns and operates twelve full-power UHF
television stations (the "USA Stations"). Share numbers, earnings per share and
conversion ratios reflect the Company's two-for-one stock split to holders of
record at the close of business on March 12, 1998.
EBITDA
Earnings before interest, income taxes, depreciation and amortization
("EBITDA") is defined as operating profit plus depreciation and amortization.
EBITDA is presented here as a management tool and as a valuation methodology for
companies in the media, entertainment and communications industries. EBITDA does
not purport to represent cash provided by operating activities. EBITDA should
not be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS
ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, NEW DEVELOPMENTS, NEW
MERCHANDISING STRATEGIES AND SIMILAR MATTERS. A VARIETY OF FACTORS COULD CAUSE
THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE TO DIFFER MATERIALLY FROM THE
ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THE COMPANY'S
FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES THAT MAY AFFECT THE
OPERATIONS, PERFORMANCE, DEVELOPMENT AND RESULTS OF THE COMPANY'S BUSINESS
INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: MATERIAL ADVERSE CHANGES IN
ECONOMIC CONDITIONS IN THE MARKETS SERVED BY THE COMPANY; FUTURE REGULATORY
ACTIONS AND CONDITIONS IN THE COMPANY'S OPERATING AREAS; COMPETITION FROM
OTHERS; SUCCESSFUL INTEGRATION OF THE COMPANY'S DIVISIONS' MANAGEMENT
STRUCTURES; PRODUCT DEMAND AND MARKET ACCEPTANCE; THE ABILITY TO PROTECT
PROPRIETARY INFORMATION AND TECHNOLOGY OR TO OBTAIN NECESSARY LICENSES ON
COMMERCIALLY REASONABLE TERMS; AND OBTAINING AND RETAINING KEY EXECUTIVES AND
EMPLOYEES.
13
<PAGE> 15
TRANSACTIONS AFFECTING THE COMPARABILITY OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
During the past two years, the Company has pursued several strategic
initiatives that have resulted in the acquisition and development of several new
businesses. As a result, the following changes should be considered when
comparing the Company's results of operations and financial position. These
include the Universal Transaction in February 1998 and the Ticketmaster
Transaction in July 1997 and June 1998. The acquisitions caused a significant
increase in net revenues, operating costs and expenses and operating profit. To
enhance comparability, the discussion of consolidated results of operations is
supplemented, where appropriate, with separate pro forma financial information
that gives effect to the above transactions as if they had occurred at the
beginning of the respective periods presented. The pro forma information is not
necessarily indicative of the revenues and cost of revenues that would have
actually been reported had the Universal Transaction and the Ticketmaster
Transaction occurred at the beginning of the respective periods, nor is it
necessarily indicative of future results.
A. CONSOLIDATED RESULTS OF OPERATIONS
The following discussions present the material changes in the consolidated
results of operations of the Company for the quarter and six months ended June
30, 1998, compared with the quarter and six months ended June 30, 1997. The
operations of the quarter and six months ended June 30, 1997 consist of the
operations of Home Shopping, Savoy and USA Broadcasting while the operations of
the quarter and six months ended June 30, 1998 consist of Home Shopping, Savoy,
USA Broadcasting, Ticketmaster and, since February 12, 1998, the results of
Networks and Studios USA. Reference should also be made to the unaudited
Condensed Consolidated Financial Statements included herein.
QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 VS. QUARTER AND SIX MONTHS ENDED JUNE
30, 1997
The Universal Transaction and the Ticketmaster Transaction resulted in
significant increases in net revenues, operating costs and expenses, other
income (expense), minority interest and income taxes and will continue to
materially impact the Company's operations for the remainder of 1998 when
compared to 1997, and accordingly, no significant discussion of these
fluctuations is presented.
NET REVENUES
For the quarter ended June 30, 1998, revenues increased $438 million
compared to 1997 primarily due to increases of $310 million, $101 million, and
$21 million from the Networks and television production business, Ticketing
operations, and Electronic retailing, respectively.
For the six months ended June 30, 1998, revenues increased $681 million
compared to 1997 primarily due to increases of $476 million and $194 million,
from the Networks and television production business and Ticketing operations,
respectively.
OPERATING COSTS AND EXPENSES
For the quarter ended June 30, 1998, operating expenses increased $383
million compared to 1997 primarily due to increases of $253 million and $95
million from the Networks and television production business and Ticketing
operations, respectively.
For the six months ended June 30, 1998, operating expenses increased $615
million compared to 1997 primarily due to increases of $391 million and $183
million from the Networks and television production business and Ticketing
operations, respectively.
OTHER INCOME (EXPENSE)
For the quarter and six months ended June 30, 1998, net interest expense
increased $32 million and $50 million, respectively, compared to 1997 primarily
due to interest incurred on the new credit facility to finance the
14
<PAGE> 16
Universal Transaction and non-cash interest expense on long-term program
liabilities at the Networks and television production business.
On January 20, 1998, the Company sold its Baltimore television station at a
gain of $74.9 million.
For the quarter and six months ended June 30, 1998, other expense increased
$4 million and $10 million, respectively, compared to 1997 primarily due to
foreign investments at Home Shopping and losses from international joint
ventures of Home Shopping and Networks and television production business.
INCOME TAXES
The Company's effective tax rate of 56.6% and 52.1% for the quarter and six
months ended June 30, 1998 is higher than the statutory rate due primarily to
non-deductible goodwill and other acquired intangible and state income taxes.
During the remainder of 1998, the Company's effective tax rate is expected to be
higher than the statutory rate as a result of the items mentioned above and
higher than the first quarter rate because the gain on the sale of the Baltimore
television station in the first quarter had the effect of lowering the Company's
effective tax rate.
MINORITY INTEREST
For the quarter and six months ended June 30, 1998, minority interest
represents Universal's and Liberty's ownership interest in USANi LLC for the
period February 12 through June 30, 1998, Liberty's ownership interest in Home
Shopping, Fox Broadcasting Company's 50% ownership interest in SF Broadcasting
(which was sold on July 16, 1998) and the public's ownership interest in
Ticketmaster from the beginning of the respective periods to June 24, 1998.
PRO FORMA QUARTER AND SIX MONTHS ENDED JUNE 30, 1998 VS. PRO FORMA QUARTER AND
SIX MONTHS ENDED JUNE 30, 1997
The following unaudited pro forma operating results of the Company present
combined results of operations as if the Universal Transaction and Ticketmaster
Transaction had occurred on January 1, 1998 and 1997, respectively.
The Unaudited Combined Condensed Pro Forma Statements of Operations are
presented for illustrative purposes only and are not necessarily indicative of
the results of operations that would have actually been reported had any of the
transactions occurred as of January 1, 1998 and 1997, respectively, nor are they
necessarily indicative of future results of operations.
15
<PAGE> 17
USA NETWORKS, INC. AND SUBSIDIARIES
UNAUDITED COMBINED CONDENSED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
NET REVENUES:
Networks and television production....... $309,841 $258,926 $ 633,367 $ 521,948
Electronic retailing..................... 269,852 248,469 515,235 507,187
Ticketing operations..................... 101,169 89,924 194,404 176,973
Internet services........................ 4,720 2,481 8,533 5,181
Broadcasting and other................... 17,811 14,736 32,328 32,869
-------- -------- ---------- ----------
Total net revenues............... 703,393 614,536 1,383,867 1,244,158
Operating costs and expenses:
Cost related to revenues................. 345,080 303,431 687,265 632,878
Other costs and expenses................. 225,000 196,227 440,342 398,890
Depreciation and amortization............ 60,506 59,974 124,404 120,019
-------- -------- ---------- ----------
Total operating costs and
expenses....................... 630,586 559,632 1,252,011 1,151,787
-------- -------- ---------- ----------
Operating profit................. $ 72,807 $ 54,904 $ 131,856 $ 92,371
======== ======== ========== ==========
EBITDA........................... $133,313 $114,878 $ 256,260 $ 212,390
======== ======== ========== ==========
</TABLE>
For the quarter ended June 30, 1998, pro forma revenues for the Company
increased $88.9 million, or 14.5%, to $703.4 million from $614.5 million
compared to 1997. For the quarter ended June 30, 1998, pro forma cost related to
revenues and other costs and expenses increased $70.4 million, or 14.1%, to
$570.1 million from $499.7 million compared to 1997.
For the six months ended June 30, 1998, pro forma revenues for the Company
increased $139.7 million, or 11.2%, to $1.38 billion from $1.24 billion compared
to 1997. For the six months ended June 30, 1998, pro forma cost related to
revenues and other costs and expenses increased $95.8 million or 9.3%, to $1.13
billion from $1.03 billion compared to 1997.
For the quarter ended June 30, 1998, pro forma EBITDA increased $18.4
million, or 16.0%, to $133.3 million from $114.9 million compared to 1997.
For the six months ended June 30, 1998, pro forma EBITDA increased $43.9
million, or 20.7%, to $256.3 million from $212.4 million compared to 1997.
The following discussion provides an analysis of the aforementioned
increases in pro forma revenues and costs related to revenues and other costs
and expenses by significant business segment.
Networks and Television Production
Net revenue for the quarter ended June 30, 1998 increased by $50.9 million,
or 19.7%, to $309.8 million from $258.9 million compared to 1997. The increase
primarily resulted from an increase in advertising revenues at USA Network and
The Sci-Fi Channel cable networks, an increase in affiliate revenues at both
networks and increased deliveries of first run and long-form product at Studios
USA. The increase in advertising revenue resulted from both higher ratings and
higher sell out levels compared to the prior year. The increase in affiliate
revenues resulted primarily from a significant increase in the number of
subscribers at The Sci-Fi Channel and higher affiliate fees at both networks.
Net revenue for the six months ended June 30, 1998 increased $111.4
million, or 21.3%, to $633.4 million from $521.9 million compared to 1997. The
increase in revenues resulted primarily from higher advertising and
16
<PAGE> 18
affiliate revenues at both USA Network and The Sci-Fi Channel and higher
deliveries of network and first run product by Studios USA.
Cost related to revenues and other costs and expenses for the quarter ended
June 30, 1998 increased by $25.6 million, or 12.8%, to $225.4 million from
$199.8 million compared to 1997. This increase results primarily from the cost
of increased deliveries of first run and long-form product by Studios USA
partially offset by the lower cost of programming on USA Network.
Cost related to revenues and other costs and expenses for the six months
ended June 30, 1998 increased $41.2 million, or 9.7%, to $465.0 million from
$423.8 million compared to 1997. The increase is primarily due to higher cost of
network and first run product at Studios USA and slightly higher cost of
programming at The Sci-Fi Channel partially offset by lower cost of programming
at USA Network.
EBITDA for the quarter ended June 30, 1998 increased $25.4 million, or
43.0%, to $84.4 million from $59.1 million compared to 1997.
EBITDA for the six months ended June 30, 1998 increased $70.3 million, or
71.7%, to $168.4 million from $98.1 million compared to 1997.
Electronic Retailing
Net revenue for the quarter ended June 30, 1998 increased by $21.4 million,
or 8.6%, to $269.9 million from $248.5 million compared to 1997. The increase
primarily results from increased sales of hardgoods, which includes consumer
electronics, collectibles and housewares. Total units shipped increased by 7.3%
to 7.1 million units compared to 1997 and the average price point decreased by
1.4%. The increase in net revenue also reflects a decrease in the return rate to
21.1% from 23.4% compared to 1997.
Net revenue for the six months ended June 30, 1998 increased $8.0 million,
or 1.6%, to $515.2 million from $507.2 million compared to 1997. Total units
shipped increased 3.6% to 13.6 million units compared to 1997 and the average
price point decreased by 2.6%.
Cost related to revenues and other costs and expenses for the quarter ended
June 30, 1998 increased by $22.3 million, or 10.8%, to $228.2 million from
$205.9 million compared to 1997. This increase resulted primarily from higher
net revenues, the sale of merchandise at lower gross margins (37.5% in 1998
compared to 39.5% in 1997) and from disengagement costs for certain affiliates,
severance costs for the call center and higher merchandising personnel costs.
Cost related to revenues and other costs and expenses for the six months
ended June 30, 1998 increased $24.7 million, or 5.9%, to $441.2 million from
$416.5 million compared to 1997. This increase resulted from higher net
revenues, the sale of merchandise at lower gross margins (38.2% in 1998 compared
to 40.2% in 1997) and from higher merchandising personnel costs.
EBITDA for the quarter ended June 30, 1998 decreased $0.9 million, or 2.1%,
to $41.7 million from $42.6 million compared to 1997.
EBITDA for the six months ended June 30, 1998 decreased $16.7 million, or
18.4%, to $74.0 million from $90.7 million compared to 1997.
Ticketing Operations
Net revenue for the quarter ended June 30, 1998 increased by $11.2 million,
or 12.5%, to $101.2 million from $89.9 million compared to 1997. The increase
primarily resulted from an increase of 17% in the number of tickets sold,
including a significant increase in the number of tickets sold on-line,
partially offset by lower concession control systems revenues due to the timing
of deliveries.
Net revenue for the six months ended June 30, 1998 increased $17.4 million,
or 9.8%, to $194.4 million from $177.0 million compared to 1997. The increase
resulted from an increase of 6% in the number of tickets sold, including a
significant increase in the number of tickets sold on-line.
17
<PAGE> 19
Cost related to revenues and other costs and expenses for the quarter ended
June 30, 1998 increased by $10.7 million, or 14.2%, to $86.0 million from $75.3
million compared to 1997. This increase resulted primarily from higher ticketing
operation costs resulting from higher ticketing revenue and from start up costs
incurred to launch ticketing operations in Northern California and South
America.
Cost related to revenues and other costs and expenses for the six months
ended June 30, 1998 increased $17.0 million, or 11.5%, to $165.3 million from
$148.3 million compared to 1997. This increase resulted from higher ticketing
operation costs resulting from higher ticketing revenue and from start up costs
incurred to launch ticketing operations in Northern California and South
America.
EBITDA for the quarter ended June 30, 1998 increased $0.6 million, or 4.1%,
to $15.2 million from $14.6 million compared to 1997.
EBITDA for the six months ended June 30, 1998 increased $0.4 million, or
1.3%, to $29.1 from $28.7 compared to 1997.
Internet Services
Net revenue for the quarter ended June 30, 1998 increased $2.2 million to
$4.7 million in 1998 compared to $2.5 million in 1997. The increase resulted
from an increase in registered users to the primary service, First Auction. Net
revenue for the six months ended June 30, 1998 increased $3.3 million to $8.5
million in 1998 from $5.2 million compared to 1997.
EBITDA loss increased to $3.4 million for the quarter ended June 30, 1998
compared to $1.3 million in 1997 and for the six months ended June 30, 1998
increased to $5.7 million from $3.4 million compared to 1997, primarily due to
costs to maintain and enhance the Internet services and to increased promotion
costs.
Broadcasting and Other
Other revenue includes revenue generated from the distribution of films
from the Savoy library acquired as a result of the Mergers and broadcasting
revenue from the SF stations.
Other costs related to revenues and other costs and expenses include costs
to generate the Savoy revenues, the SF Broadcasting station costs, corporate
expenses and $5.1 million and $7.4 million of cost in the quarter ended and six
months ended June 30, 1998, respectively, to launch the Miami station.
B. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $141.3 million for the six
months ended June 30, 1998. These cash proceeds were used to pay for capital
expenditures of $36.9 million, and to reduce amounts outstanding under the
Company's bank loans.
Consolidated capital expenditures for the six months ended June 30, 1998
relate in part to the build-out of the Miami station. Consolidated capital
expenditures are expected to range from $70.0 million to $95.0 million in 1998.
On February 12, 1998, the Company and certain of its subsidiaries,
including USANi LLC as borrower, entered into a new $1.6 billion credit facility
(the "New Facility") with a $40.0 million sub-limit for letters of credit. The
New Facility was used to finance the Universal Transaction and to refinance the
Company's existing $275.0 million revolving credit facility. The New Facility
consists of a $600.0 million revolving credit facility, a $750.0 million Tranche
A Term Loan and a $250.0 million Tranche B Term Loan. The revolving credit
facility and Tranche A Term Loan mature on December 31, 2002 and the Tranche B
Term Loan matures on December 31, 2003. The New Facility is guaranteed by, and
secured by stock in, substantially all of the Company's material subsidiaries.
The interest rate on borrowings under the New Facility is tied to an Alternate
Base Rate or the London InterBank Rate, in each case, plus an applicable margin.
As of July 31, 1998, there was $1.0 billion in outstanding borrowings under the
New Facility and $599.9 million was available for borrowings after taking into
account outstanding letters of credit. On August 5, 1998, the Company repaid the
Tranche B Term Loan in the amount of $250.0 million from cash on hand.
18
<PAGE> 20
On February 12, 1998, the Company completed the Universal Transaction. The
consideration paid to Universal included a cash payment of $1.6 billion, a
portion of which ($300.0 million plus interest) was deferred until no later than
June 30, 1998. The Investment Agreement relating to the Universal Transaction
also contemplated that, on or prior to June 30, 1998, the Company and Liberty
would complete a transaction involving a $300.0 million cash investment, plus an
interest factor, by Liberty in the Company through the purchase of USANi LLC
Shares. Pursuant to this agreement, on June 30, 1998, Liberty contributed $308.5
million in exchange for 15,000,000 USANi LLC shares.
Pursuant to the Investment Agreement, the Company has granted to Universal
and Liberty preemptive rights with respect to future issuances of USAi Common
Stock and USAi Class B Common Stock, which generally allow Universal and Liberty
the right to maintain an ownership percentage equal to the ownership percentage
such entity held, on a fully converted basis, immediately prior to such
issuance. In addition, Universal had certain mandatory purchase obligations with
respect to USAi Common Stock (or USANi LLC shares) issued with respect to the
conversion of the 5 7/8% Debentures and the acquisition of Ticketmaster. During
the period from February 12, 1998 through July 27, 1998, Universal and Liberty
contributed approximately $787 million pursuant to the preemptive rights in
exchange for Common Stock and USANi LLC shares. These exercises are described
more fully below.
In connection with the Universal Transaction, the Company entered into a
joint venture agreement relating to the development of international general
entertainment television channels including international versions of USA
Network, The Sci-Fi Channel and Universal's action/adventure channel 13th
Street. Unless the Company elects to have Universal buy out its interest in the
venture, the Company and Universal will be 50-50 partners in the venture, which
will be managed by Universal. USANi LLC and Universal have each committed to
contribute $100 million in capital in the venture over a number of years. The
decision on whether to have Universal buyout its interest in the joint venture
will be made after the third quarter of 1998.
In connection with the Universal Transaction and other strategic
initiatives, the Company anticipates that it will need to invest working capital
in connection with the development and expansion of its overall operations.
The Company implemented its plan to disaffiliate its station in the Miami,
Florida market in June 1998. The Company has incurred and will continue to incur
expenditures to develop programming and promotion of this station, which during
the development and transitional stage, may not be offset by sufficient
advertising revenues. The Company may also transition additional broadcasting
stations to the new format later in 1998. The Company believes that the process
of disaffiliation can be successfully managed so as not to have a material
adverse effect on the Company and so as to maximize the value of the
broadcasting stations.
During 1998, management expects to pay cable distribution fees of
approximately $25.0 million to $40.0 million, relating to new and current
contracts with cable systems operators to carry Home Shopping's programming.
On June 24, 1998 the Company completed its acquisition of Ticketmaster by
issuing 15,967,200 shares of USAi Common Stock to the public shareholders of
Ticketmaster with a market value of $421.1 million and converted 3.6 million
options to acquire Ticketmaster common stock into options to acquire Common
Stock. In connection with the closing of the acquisition, the Company repaid all
outstanding borrowings under the Ticketmaster credit agreement using proceeds
from the New Facility. In connection with the Ticketmaster acquisition,
Universal and Liberty exercised their preemptive rights with respect to the
issuance of 12.6 million shares of USAi Common Stock to the holders of
Ticketmaster common stock. In the aggregate, Universal and Liberty acquired
24,649,716 USANi LLC Shares in exchange for total consideration of $493.0
million. Of that amount, $105.2 million was applied to the remainder of the
Universal deferred purchase price obligation (including accrued interest) and
the remainder was received in cash. These transactions closed in July 1998.
On January 20, 1998, the Company consummated the sale of its Baltimore,
Maryland television station for $80.0 million. On June 18, 1998, the Company
purchased a television station serving the Atlanta, Georgia, market. On June 18,
1998 the Company acquired the remaining interest in an entity partially owned by
the Company, which owned television stations serving the Orlando, Florida;
Portland, Oregon and Rapid City, South
19
<PAGE> 21
Dakota markets. The aggregate purchase prices for these transactions was
approximately $70.0 million. The proceeds from the sale of the Baltimore station
were temporarily invested and used, in part, to complete the purchase of the
Atlanta station. On June 19, the Company sold the station serving Portland,
Oregon for total cash consideration of $30 million. The Company has an agreement
to sell the Rapid City, South Dakota television station for total consideration
of $5.5 million.
As of March 1, 1998, the Company redeemed, at a redemption price of 104.7%
of the principal amount, all of Home Shopping's outstanding 5.875% Convertible
Subordinated Debentures (the "Home Shopping Debentures"). The Home Shopping
Debentures were all converted by the holders into 7,499,022 shares of USAi
Common Stock on or prior to the Redemption Date. In connection with their
preemptive mandatory and optional rights with respect to issuances of shares by
the Company, Universal exercised its right in connection with the redemption of
the Home Shopping Debentures which resulted in the issuance of 9,978,830 USANi
LLC shares, generating an increase in minority interest in USANi LLC of $199.6
million. This amount reduced the Company's deferred purchase price liability by
that amount. Liberty exercised its optional preemptive rights (related to the
redemption of the Home Shopping Debentures and the Universal preemptive
elections) in exchange for 4,697,327 shares of USAi Common Stock, generating
proceeds of $93.9 million, which was used to pay down bank debt.
On February 20, 1998, the Company's Board of Directors approved the
declaration of a dividend to its stockholders in the form of a distribution of
one share of Common Stock for each share of common stock outstanding to holders
of record as of the close of business on March 12, 1998. The payment date for
the dividend was March 26, 1998. The two-for-one stock split also included an
identical stock dividend with respect to the Company's Class B Common Stock,
paid in the form of one share of Class B Common Stock for each share of Class B
Common Stock outstanding as of the close of business on March 12, 1998.
On July 30, 1998, the Company announced that its Board of Directors has
authorized a stock repurchase program of up to 10 million shares of the
Company's outstanding common stock over the next 12 months, on the open market
or in negotiated transactions. The amount and timing of purchases, if any, will
depend on market conditions and other factors, including the Company's overall
capital structure. The Company has not yet determined the circumstances under
which, or the prices at which, shares would be repurchased, or whether such
purchases would be made opportunistically or on a regular basis. Funds for these
purchases will come from cash on hand or borrowings under the revolving credit
facility.
In Management's opinion, available cash, internally generated funds and
available borrowings will provide sufficient capital resources to meet the
Company's foreseeable needs.
During the six months ended June 30, 1998, the Company did not pay any cash
dividends, and none are permitted under the New Facility.
OTHER MATTERS
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Based on
preliminary information, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods. However, if the
Company, its customers or vendors are unable to resolve such processing issues
in a timely manner, it could result in a material financial risk. Accordingly,
the Company plans to devote the necessary resources to resolve all significant
year 2000 issues in a timely manner.
20
<PAGE> 22
SEASONALITY
The Company's businesses are subject to the effects of seasonality.
Consequently, the operating results for the quarter and six months ended June
30, 1998 for each line of business, and for the Company as a whole, are not
necessarily indicative of results for the full year.
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.
Ticketing operations revenues are occasionally impacted by fluctuation in
the availability of events for sale to the public.
21
<PAGE> 23
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the Jovon litigation, previously reported in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K"),
Jovon Broadcasting Corporation's petition for reconsideration by the Federal
Communications Commission of its 1996 ruling regarding USA Capital Corporation's
option to acquire a 45 percent interest in Jovon remains pending. On January 9,
1998, the Circuit Court of Pinellas County, Florida denied Jovon's motion to
dismiss litigation brought by certain entities controlled by the Company against
Jovon. However, the court stayed the action for a period of six months. A status
conference is expected to be held in August or September 1998, at which time the
court will decide whether an extension of the stay is warranted.
In the Ticketmaster 1994 consolidated consumer class action lawsuit,
previously reported [in Ticketmaster's Annual Report on Form 10-K for the fiscal
year ended January 31, 1998 and] in the Company's Form 10-Q for the fiscal
quarter ended March 31, 1998, on April 10, 1998, the Court of Appeals issued an
opinion affirming the district court's ruling that the plaintiffs lack standing
to pursue their claims for damages under the antitrust laws and held that the
plaintiffs' status as indirect purchasers of Ticketmaster services did not bar
them from seeking injunctive relief against Ticketmaster. On July 9, 1998, the
plaintiffs filed a petition for writ of certiorari in the United States Supreme
Court.
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As previously reported in the Company's 1997 Form 10-K, on February 11,
1998, the Company's stockholders approved certain amendments to the Certificate
of Incorporation of the Company. These amendments and their effect upon the
holders of Common Stock and Class B Common Stock were previously reported in the
Company's Proxy Statement, dated January 12, 1998, relating to its 1998 Annual
Meeting of Stockholders under the headings "The Annual Meeting -- Description of
Proposals and HSNi Board Recommendations -- Authorized Capital Stock Proposal;
Ownership Proposal; Name Change Proposal; Director Number Proposal; and Removal
Proposal".
ITEM 5. OTHER INFORMATION
On July 1, 1998, the Company made a $4,000,000 loan to Mr. James G. Held,
President and Chief Executive Officer of Home Shopping Network and a Director of
the Company. The loan was made to facilitate Mr. Held's construction of a
personal residence. The loan bears interest at the Company's average bank rate
during the term of the loan and is secured by all of Mr. Held's 3,000,000 stock
options (the "Options") to purchase shares of common stock in the Company. The
loan matures on July 1, 1999 and is to be repaid in three quarterly installments
either in cash or through the exercise of 163,600 Options per installment
following the public announcement of the Company's financial results for each of
(i) the quarter ending September 30, 1998, (ii) the year ending December 31,
1998 and (iii) the quarter ending March 31, 1999. Such exercises and the sale of
shares received upon exercise may only be made by Mr. Held in accordance with
the Company's securities trading policies and during the trading "window
periods" applicable to officers and directors following the release of the
Company's financial results.
During each "window period", upon exercise of the required Options, the
Company, in its discretion, may require Mr. Held to sell the shares issued upon
exercise of such Options and require Mr. Held to repay the loan in an amount
equal (in general) to the after-tax proceeds received from such sale.
If the after-tax proceeds from the exercise of the required Options for all
of the trading "window periods" specified above are not sufficient to repay the
loan in full or Mr. Held is not permitted to exercise Options or sell shares
during any of such trading "window periods" to repay the loan in full before
July 1, 1999, the loan will not be in default and the maturity date will be
automatically postponed, with no further interest accruing after
22
<PAGE> 24
July 1, 1999, until such date as Mr. Held is permitted to exercise Options and
sell shares, sufficient to repay the loan in full, but in no event after July 1,
2000. The Company has agreed that if on July 1, 2000, any portion of the loan
remains unpaid, before looking to Mr. Held personally for payment, the Company
will permit Mr. Held to exercise all or sufficient Options such that the sale of
the shares issued upon exercise will generate after-tax proceeds to repay the
loan in full.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1 -- Restated Certificate of Incorporation of the Registrant,
filed as Exhibit 3.1 to the Company's Form 8-K, February 23,
1998, is incorporated herein by reference.
3.2 -- Amended and Restated By-Laws of the Registrant, filed as
Exhibit 3.1 to the Company's Form 8-K, January 9, 1998, is
incorporated herein by reference.
4.1 -- Form of Common Stock Certificate filed as Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (the "1997 10-K") is incorporated
herein by reference.
11 -- Statement Re: Computation of Per Share Earnings
27.1 -- Financial Data Schedule (for SEC use only)
27.2 -- Financial Data Schedule (for SEC use only)
27.3 -- Restated Financial Data Schedule (for SEC use only)
27.4 -- Restated Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* Reflects management contracts and compensatory plans.
(b) Reports on Form 8-K
A current report on Form 8-K dated March 26, 1998 was filed by the Company
on April 1, 1998 announcing the completion of the two-for-one stock split.
A current report on Form 8-K dated May 1, 1998 was filed by the Company on
May 1, 1998 containing certain historical and pro forma financial statements
relating to the transaction between HSN, Inc. and Universal Studios, Inc.
A current report on Form 8-K dated May 19, 1998 was filed by the Company on
May 19, 1998 containing certain updated pro forma financial statements relating
to the transaction between HSN, Inc. and Universal Studios, Inc.
A current report on Form 8-K dated June 24, 1998 was filed by the Company
on June 24, 1998 announcing the closing of the merger relating to Ticketmaster
Group, Inc.
23
<PAGE> 25
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.
USA NETWORKS, INC.
------------------------------
(Registrant)
<TABLE>
<S> <C>
Dated August 7, 1998 /s/ BARRY DILLER
--------------------------------- --------------------------------------
Barry Diller
Chairman of the Board and
Chief Executive Officer
Dated August 7, 1998 /s/ VICTOR A. KAUFMAN
--------------------------------- --------------------------------------
Victor A. Kaufman
Office of the Chairman,
Chief Financial Officer
(Principal Financial Officer)
Dated August 7, 1998 /s/ MICHAEL P. DURNEY
--------------------------------- --------------------------------------
Michael P. Durney
Vice President, Controller
(Chief Accounting Officer)
</TABLE>
24
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <C> <S> <C>
3.1 -- Restated Certificate of Incorporation of the Registrant,
filed as Exhibit 3.1 to the Company's Form 8-K, February 23,
1998, is incorporated herein by reference.
3.2 -- Amended and Restated By-Laws of the Registrant, filed as
Exhibit 3.1 to the Company's Form 8-K, January 9, 1998, is
incorporated herein by reference.
4.1 -- Form of Common Stock Certificate filed as Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (the "1997 10-K") is incorporated
herein by reference.
11 -- Statement Re: Computation of Per Share Earnings
27.1 -- Financial Data Schedule (for SEC use only)
27.2 -- Financial Data Schedule (for SEC use only)
27.3 -- Restated Financial Data Schedule (for SEC use only)
27.4 -- Restated Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* Reflects management contracts and compensatory plans.
<PAGE> 27
(LOGO USA NETWORKS INC)
FORM 10-Q
For the Quarter Ended
June 30, 1998
<PAGE> 28
(LOGO USA NETWORKS INC)
<PAGE> 1
EXHIBIT 11
Statement Re: Computation of Per Share Earnings
The following table sets forth the computation of Basic and Diluted EPS.
All share numbers have been adjusted to reflect the Company's two-for-one stock
split to holders of record as of the close of business on March 12, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
1998 1997 1998 1997
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net earnings (loss) ........................ $ (3,040) $ 2,472 $ 30,891 $ 6,242
Effect of converting LLC shares into
common stock ............................. -- -- 10,097 --
--------- -------- -------- --------
Adjusted net earnings (loss) ............... $ (3,040) 2,472 40,988 6,242
Weighted average shares .................... 136,631 97,952 129,950 97,854
Effect of dilutive securities
Stock options and convertible LLC shares -- 5,946 118,806 4,750
--------- -------- -------- --------
Adjusted weighted average shares ........... 136,631 103,898 248,756 102,604
========= ======== ======== ========
Basic earnings (loss) per share ............ $ (.02) $ .03 $ .24 $ .06
========= ======== ======== ========
Diluted earnings (loss) per share .......... $ (.02) $ .02 $ .16 $ .06
========= ======== ======== ========
</TABLE>
60
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAR-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 135,878
<SECURITIES> 0
<RECEIVABLES> 284,038
<ALLOWANCES> 0
<INVENTORY> 396,821
<CURRENT-ASSETS> 881,677
<PP&E> 337,921
<DEPRECIATION> 134,818
<TOTAL-ASSETS> 8,181,829
<CURRENT-LIABILITIES> 883,174
<BONDS> 1,284,566
0
0
<COMMON> 1,549
<OTHER-SE> 2,464,848
<TOTAL-LIABILITY-AND-EQUITY> 8,181,829
<SALES> 703,393
<TOTAL-REVENUES> 703,393
<CGS> 345,080
<TOTAL-COSTS> 345,080
<OTHER-EXPENSES> 282,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,676
<INCOME-PRETAX> 30,870
<INCOME-TAX> 17,461
<INCOME-CONTINUING> (3,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,040)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 135,878
<SECURITIES> 0
<RECEIVABLES> 284,038
<ALLOWANCES> 0
<INVENTORY> 396,821
<CURRENT-ASSETS> 881,677
<PP&E> 337,921
<DEPRECIATION> 134,818
<TOTAL-ASSETS> 8,181,829
<CURRENT-LIABILITIES> 883,174
<BONDS> 1,284,566
0
0
<COMMON> 1,549
<OTHER-SE> 2,464,848
<TOTAL-LIABILITY-AND-EQUITY> 8,181,829
<SALES> 1,226,504
<TOTAL-REVENUES> 1,226,504
<CGS> 599,582
<TOTAL-COSTS> 599,582
<OTHER-EXPENSES> 516,677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,829
<INCOME-PRETAX> 107,811
<INCOME-TAX> 56,173
<INCOME-CONTINUING> 30,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,891
<EPS-PRIMARY> .24
<EPS-DILUTED> .16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 30,795
<SECURITIES> 0
<RECEIVABLES> 53,618
<ALLOWANCES> 0
<INVENTORY> 127,167
<CURRENT-ASSETS> 249,367
<PP&E> 183,644
<DEPRECIATION> 82,235
<TOTAL-ASSETS> 2,083,733
<CURRENT-LIABILITIES> 205,701
<BONDS> 291,564
0
0
<COMMON> 929
<OTHER-SE> 1,169,969
<TOTAL-LIABILITY-AND-EQUITY> 2,083,733
<SALES> 545,237
<TOTAL-REVENUES> 545,237
<CGS> 308,118
<TOTAL-COSTS> 308,118
<OTHER-EXPENSES> 192,980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,490
<INCOME-PRETAX> 26,902
<INCOME-TAX> 20,675
<INCOME-CONTINUING> 6,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,242
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAR-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 30,795
<SECURITIES> 0
<RECEIVABLES> 53,618
<ALLOWANCES> 0
<INVENTORY> 127,167
<CURRENT-ASSETS> 249,367
<PP&E> 183,644
<DEPRECIATION> 82,235
<TOTAL-ASSETS> 2,083,733
<CURRENT-LIABILITIES> 205,701
<BONDS> 291,564
0
0
<COMMON> 929
<OTHER-SE> 1,169,969
<TOTAL-LIABILITY-AND-EQUITY> 2,083,733
<SALES> 265,685
<TOTAL-REVENUES> 265,685
<CGS> 149,503
<TOTAL-COSTS> 149,503
<OTHER-EXPENSES> 95,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,468
<INCOME-PRETAX> 12,403
<INCOME-TAX> 9,546
<INCOME-CONTINUING> 2,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,472
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
