SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
May 1, 1998
USA NETWORKS, INC.
(Exact name of registrant as specified in charter)
Delaware
(State or other jurisdiction
of incorporation)
0-20570 59-2712887
(Commission File No.) (IRS employer identification no.)
152 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 314-7300
<PAGE>
ITEM 5. OTHER EVENTS
The unaudited combined consolidated financial statements of
Universal Television Group as of December 31, 1997 and for the six-month period
ended December 31, 1997 are filed herewith. In addition, unaudited pro forma
combined financial statements filed herewith present the portion of the
Universal Television Group acquired by USA Networks, Inc. (the "Registrant").
The Registrant completed its acquisition from Universal Studios, Inc. of USA
Networks and the domestic production and distribution business of Universal
Television Group on February 12, 1998.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(c) Exhibits.
99.1 Unaudited Combined Consolidated Financial Statements of
Universal Television Group as of December 31, 1997 and
for the Six-Month Period Ended December 31, 1997
99.2 Unaudited Pro Forma Combined Condensed Financial
Statements at December 31, 1997 and for the year ended
December 31, 1997
<PAGE>
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.
By: /s/ Thomas J. Kuhn
Name: Thomas J. Kuhn
Title: Senior Vice President
and General Counsel
Date: May 1, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
99.1 Unaudited Combined Consolidated Financial Statements
of Universal Television Group as of December 31, 1997
and for the Six-Month Period Ended December 31, 1997
99.2 Unaudited Pro Forma Combined Condensed Financial
Statements at December 31, 1997 and for the year ended
December 31, 1997
Exhibit 99.1
Universal Television Group
Combined Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
December 31, 1997
-------------------
(Unaudited)
<S> <C>
ASSETS
Current Assets:
Cash and Short Term Investments $27,325
Accounts and notes receivable 389,826
Program Inventory 328,501
Other 17,864
-------------------
Total Current Assets 763,516
Program Inventory 389,810
Property, plant and equipment, net 37,300
Intangible assets, net 2,456,771
Long-term investments 9,062
Long-term receivables, deferred charges
and other 153,464
-------------------
Total assets $3,809,923
===================
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable, accrued and other
current liabilities $179,009
Program liabilies 311,225
Deferred revenue 35,808
-------------------
Total Current
Liablilities 526,042
Other long-term liabilities 97,246
Program liabilities 229,710
Equity:
Equity investment 2,956,925
-------------------
Total Equity 2,956,925
-------------------
===================
Total
liabilities
and
equity $3,809,923
===================
</TABLE>
<PAGE>
Universal Television Group
Combined Statement Of Operations
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------------------
1997 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
Revenues $746,417 $322,323
Costs and expenses
Program costs 470,516 252,429
Selling, general and administrative expenses 129,178 42,444
Depreciation and amortization 43,540 4,210
-------------- -------------
Operating income 103,183 23,240
Nonoperating income
Equity of Combined USAN --- 26,748
Interest income (expense), net (554) 473
-------------- -------------
Income before income taxes 102,629 50,461
Income tax provision 41,052 19,625
Minority interest 17,270 ---
-------------- -------------
Net income $44,307 $30,836
============== =============
</TABLE>
<PAGE>
Universal Television Group
Combined Statements Of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
December 31,
-----------------------------------
1997 1996
---------------- ----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $44,307 $30,836
Adjustments to reconcile net income to net
cash provided by operations:
Additions to program costs (442,269) (256,817)
Amortization of program costs 401,680 213,981
Amortization of goodwill and other assets 37,199 13,044
Depreciation of property, plant and equipment 6,342 581
Equity in net income of Combined USAN --- (35,728)
Distributions received from Combined USAN --- 25,000
Minority interest in Combined USAN 17,270 ---
(Increase) decrease in accounts and notes
receivables (47,649) (6,811)
Increase (decrease) in accounts payable and
other liabilities 36,578 101,604
Increase (decrease) in program liabilities 69,699 23,858
Increase (decrease) in deferred film revenues (2,644) 21,627
Increase (decrease) in current and deferred
income taxes (26,357) (15,489)
Other changes, net 3,017 (10,711)
---------------- ----------------
Net cash provided by operating activities 97,173 104,975
---------------- ----------------
Cash flows from investing activities
Property, plant and equipment (4,999) (1,536)
Acquisition of Multimedia Entertainment - (49,100)
---------------- ----------------
Net cash (used in) investing activities (4,999) (50,636)
---------------- ----------------
Cash flows from financing activities
Net cash transferred to Universal (93,580) (54,638)
Loan repayment from Combined USAN 1,833
---------------- ----------------
Net cash used in financing activities (93,580) (52,805)
---------------- ----------------
(Decrease) increase in cash and cash equivalents (1,406) 1,534
Cash and cash equivalents at beginning of period 28,731 19,046
---------------- ----------------
Cash and cash equivalents at end of period $27,325 $20,580
================ ================
Supplemental disclosures of cash flow information:
Interest paid $647 $0
================ ================
Income taxes paid (net of refunds received) $49,950 $20,638
================ ================
</TABLE>
<PAGE>
UNIVERSAL TELEVISION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
($ in thousands)
Note 1 - Unaudited Financial Statements
The accompanying unaudited combined financial statements are based in
part on estimates and include normal recurring adjustments which management
believes are necessary for a fair presentation of the financial position of
Universal Television Group ("UTG") at December 31, 1997 and the results of its
operations for the six month period then ended. The combined financial
statements and related notes are condensed and have been prepared in accordance
with generally accepted accounting principles applicable to interim periods;
consequently, they do not include all generally accepted accounting disclosures
required for complete annual financial statements and should be read in
conjunction with the combined financial statements and notes as of June 30,
1997 and 1996 and June 4, 1995. The operating results for the six months ended
December 31, 1997 and 1996 are not necessarily indicative of full year results.
Note 2 - Basis of Presentation
For the purpose of these combined financial statements as of and for
the six months ended December 31, 1997, UTG included the domestic television
production and domestic and international television distribution operations, as
well as 100% of the operations of USA Networks ("USAN") and Sci-Fi Channel
Europe L.L.C. ("Sci-Fi Europe") (collectively, "Combined USAN") subsequent to
October 21, 1997, the date which Universal acquired the remaining 50% of USAN it
did not already own (see Note 3). The statement of operations of UTG for the six
months ended December 31, 1997 reflects a minority interest representing
Viacom's 50% ownership of Combined USAN) prior to its acquisition by Universal.
The comparative consolidated balance sheet at June 30, 1997 and statement of
operations for the six month period ended December 31, 1996 include the
operations of UTG and 50% of the operations of Combined USAN, accounted for
using the equity method of accounting.
1
<PAGE>
At December 31, 1997, UTG was owned by Universal Studios,
Inc. ("Universal"), which is 84% owned by The Seagram Company Ltd.
("Seagram") and 16% owned by Matsushita Electric Industrial Co. Ltd.
("Matsushita"). Pursuant to the terms of an Investment Agreement, dated as
of October 19, 1997, among Universal, HSN, Inc., Home Shopping Network, Inc.
and Liberty Media Corporation ("Liberty"), Universal contributed USAN and its
domestic television production and distribution businesses to USAi on
February 12, 1998.
The accompanying consolidated financial statements and related notes
reflect the carved-out historical results of operations and financial position
of the television business of Universal, as described above. These financial
statements are not necessarily indicative of results that would have occurred if
UTG had been a separate, stand-alone entity during the periods presented or of
future results of UTG.
Note 3 - Acquisition of USA Networks
On October 21, 1997, Universal acquired Viacom's 50% interest in USA
Networks, including the Sci-Fi Channel, for $1.7 billion in cash. The
acquisition has been accounted for under the purchase method of accounting. The
cost of the acquisition has been allocated to the estimated fair market values
of the assets acquired and liabilities assumed, including programming rights,
future commitments to purchase programming and other contractual commitments.
This valuation resulted in $1.6 billion of unallocated excess of cost over fair
value of assets acquired, which will be amortized over 40 years.
The unaudited condensed pro forma results of operations data presented below
assumes the USA Networks acquisition occurred at the beginning of each period
presented. These pro forma results of operations were prepared based upon the
historical consolidated statements of operations of UTG and Combined USAN for
the six months ended December 31, 1997 and the year ended June 30, 1997,
adjusted to reflect purchase
2
<PAGE>
accounting. The unaudited pro forma information is not necessarily indicative of
the combined results of operations of UTG and Combined USAN that would have
resulted if the transactions had occurred on the dates previously indicated, nor
is it necessarily indicative of future operating results of UTG.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1997 June 30, 1997
------------------ -----------------
<S> <C> <C>
Revenue 746,417 1,389,701
------------------ ------------------
------------------ ------------------
Net Income 61,577 112,401
------------------ ------------------
</TABLE>
Note 4 - Income Taxes
UTG is included in the consolidated federal income tax return of its
ultimate U.S. parent, J.E. Seagram Corp., a wholly owned subsidiary of
Seagram. The tax provisions reflected in the Consolidated Statements of
Operations have been calculated based on the assumption that UTG would have
paid federal, state and foreign taxes on a separate company basis. The
resulting current income tax liability has been satisfied directly by J.E.
Seagram Corp. and is reflected in the Universal equity investment.
Intercompany tax payments amounted to $42,000 and $12,100 for the six months
ended December 31, 1997 and 1996, respectively.
3
<PAGE>
Note 5 - Details of Balance Sheet Accounts
<TABLE>
December 31, 1997
<S> <C>
Accounts and notes receivable
Current $413,012
Reserve for doubtful accounts (23,186)
$389,826
Program costs, net of amortization
Released $696,974
In process and unreleased 21,337
$718,311
Goodwill
Goodwill $2,494,059
Accumulated amortization (37,288)
$2,456,771
</TABLE>
Note 6 - Universal Equity Investment
An analysis of the Universal equity investment activity is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, June 30, 1997 $2,988,247
Net income 44,307
Change in cumulative foreign currency translation adjustment 1,589
Net cash transfers (93,580)
Allocated charges from Universal 16,362
Balance, December 31, 1997 $2,956,925
</TABLE>
Universal funds the working capital requirements of its businesses based
upon a centralized cash management system. Universal's equity investment
includes accumulated equity as well as any payables and receivables due to/from
Universal resulting from cash transfers and other intercompany activity.
4
<PAGE>
Note 7 - Related Party Transactions
Universal and certain of its subsidiaries have provided a variety of
services to UTG. The principal transactions between Universal and its
subsidiaries and UTG are summarized below (see Note 4 for a description of the
tax relationship between Universal and UTG):
<TABLE>
<CAPTION>
Six months Ended
December 31,
1997 1996
<S> <C> <C>
Allocations from Universal
Corporate overhead(a) $11,428 $10,440
Information technology overhead (b) 2,065 2,381
Insurance (c) 1,764 1,848
Rent(d) 1,105 1,370
----- -----
Total allocations 16,362 16,039
Other charges from Universal
Production facility usage(e) 6,838 5,386
Selling, general and administrative(f) 6,034 7,832
----- -----
Total $29,234 $29,257
======= =======
<FN>
(a) Includes allocations for certain corporate services, such as management,
finance, legal and tax consulting and return preparation. These costs were
allocated based upon certain employee annual compensation costs and tangible
assets of UTG.
(b) Information technology usage and support costs were allocated based on
usage.
(c) Costs charged for insurance have been based upon Universal's actual costs
and UTG's proportional payroll, revenues and insured assets, with adjustments
for loss experience.
(d) Rent charged to UTG has been an allocation of the actual rent expense, based
upon the amount of space occupied by UTG in proportion to the total rented space
of Universal.
(e) Production at Universal's studio facility is based on fair market rates
applicable to third parties based on similar usage levels.
(f) Selling, general and administrative expenses have been charged by Universal
for the distribution of television product in the home video and pay television
markets and the licensing of television product to merchandisers.
</FN>
</TABLE>
5
<PAGE>
Other services provided by Universal are as follows:
UTG has participated in Universal's centralized cash management system.
Working capital requirements of UTG have been met and the majority of
intercompany transactions have been effected through changes in the Universal
equity investment. UTG has had no external sources of financing, such as
available lines of credit, as would be necessary to operate as a stand-alone
company.
Employees of UTG have been paid directly by Universal and some have
participated in incentive compensation and other employee plans of Universal.
The salary and related costs, incentive compensation and costs of other employee
plans have been charged to UTG based upon actual costs incurred by Universal.
UTG has been charged for certain payments, principally professional fees,
based on the actual amounts paid by Universal for such services.
A summary of related party program licensing by UTG to USA Networks is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Revenues for the six months ended December 31, 1996 $31,076
License fees receivable at December 31, 1996 $71,357
</TABLE>
Management believes that the allocation methods described above are
appropriate in the circumstances.
6
<PAGE>
Note 8 - Commitments and Contingencies
UTG is involved in various lawsuits, claims and inquiries. Management and
its legal counsel believe that the resolution of these matters will not have a
material adverse effect on the financial position of UTG or the results of its
operations.
In connection with the 1992 acquisition of Sci-Fi Channel, certain
contingent amounts will be payable 90 days after the first full calendar year
that the net revenues of Sci-Fi Channel and Sci-Fi Europe combined exceed the
following amounts:
<TABLE>
<CAPTION>
Required
Revenues Payments
(in thousands)
<S> <C>
$75,000 $2,500
100,000 5,000
150,000 7,500
</TABLE>
For the years ended December 31, 1997 and 1996, Sci-Fi Channel and Sci-Fi
Europe, collectively had net revenues of $124,500,000 and $87,626,000,
respectively. Combined USAN paid $2,500,000 to the former owner of Sci-Fi
Channel during March 1997 in accordance with the Sci-Fi Channel acquisition
agreement.
USAN is involved in continuing disputes regarding the amounts to be paid
by it for the performance of copyrighted music from members of the American
Society of Composers, Authors and Publishers ("ASCAP") and by Broadcast Music,
Inc. ("BMI"). The payments to be made to ASCAP will be determined by a federal
judge in a so-called "rate court" proceeding. In the initial phase of the
proceeding, it has been determined that USAN is to pay ASCAP an interim fee of
three-tenths of one percent (0.3%) of its gross revenues. This fee level is
subject to adjustment upward or downward in future rate court
7
<PAGE>
proceedings or as the result of subsequent negotiations for all payments from
January 1, 1986. All ASCAP claims prior ro January 1, 1986 have been settled and
are final.
On November 1, 1991, USAN and BMI agreed to terms on a license which
provided for a payment of a stipulated sum as final payment for all periods
prior to and including December 31, 1989 for the payment of license fees, which
are now final, amounting to three-tenths of one percent (0.3%) of USAN's gross
revenues for the period from January 1, 1990 through June 30, 1992 and for
interim fees of three-tenths of one percent (0.3%) from July 1, 1992 forward.
This arrangement is terminable by either party upon 30-days notice. In December
1994, a BMI "rate court" was established under the provisions of BMI's own
government consent decree. The establishment of this rate court could, by the
terms of the BMI license, subject the interim fees to upward or downward
adjustment, resulting from a rate determination proceeding before that court
should such a proceeding be initiated.
Note 9 - Subsequent Event
On February 11, 1998, Universal and HSN, inc. ("HSNi") announced they had
finalized a transaction under which HSNi acquired a substantial portion of UTG's
television assets, including 100% of USA Networks, in exchange for $4.075
billion of value, comprised of a combination of securities that in effect
represent approximately 45% of HSNi's outstanding equity equivalents, plus
approximately $1.3 billion in cash. In addition, HSNi has changed its corporate
name to "USA Networks, Inc." .
An international television joint venture, consisting of the international
operations of USA Networks and the Sci-Fi Channel and certain international
digital programming services owned by Universal, has been created and will be
equally owned by USA Networks, Inc. and Universal. Universal will manage the
joint venture and retain ownership of its television library and its
international television production and distribution operations.
8
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
(the "CONDENSED STATEMENTS") have been prepared to give effect to the portion of
Universal Studios, Inc.'s ("UNIVERSAL") domestic television production and
distribution businesses ("UTV"), including its wholly owned subsidiary USA
Networks ("USAN"), and the pro forma results of operations, acquired by USA
Networks, Inc. ("USAI") on February 12, 1998 (the "UNIVERSAL TRANSACTION").
The Condensed Statements reflect certain assumptions regarding the
Universal Transaction and are based on the historical consolidated financial
statements of Universal Television Group. The Condensed Statements, including
the notes thereto, are qualified in their entirety by reference to, and should
be read in conjunction with, the audited and unaudited financial statements,
including the notes thereto, of Universal Television Group, including its wholly
owned subsidiary USAN which are included herein or incorporated by reference in
this Form 8-K from USAi's Proxy Statement dated January 12, 1998.
The pro forma combined condensed balance sheet as of December 31, 1997
gives effect to the Universal Transaction as if it had occurred on December 31,
1997. The pro forma combined condensed statement of operations for the year
ended December 31, 1997 gives effect to the Universal Transaction as if it had
occurred on January 1, 1997.
The historical combined financial statements of Universal Television Group
include UTV and other television programming which Universal has retained.
Excluded programming includes substantial television products owned by Universal
as part of its television library (such as series no longer in production, "made
for television" movies, animated programs, action adventures and certain talk
shows and other programming). The pro forma financial statements reflect the
exclusion of assets and corresponding liabilities, revenues and expenses, for
programming not acquired by USAi. Prior to October 21, 1997, USAN was a 50%
owned joint venture between Universal and Viacom Inc. ("VIACOM"). On October 21,
1997, Universal acquired from Viacom the remaining 50% interest in USAN and
Sci-Fi Europe. The Universal Television Group historical combined financial
statements include the results of operations of USAN, its wholly owned
subsidiary, as if the acquisition of the remaining interest in USAN took place
on January 1, 1997.
The Condensed Statements are presented for illustrative purposes only and
are not necessarily indicative of the financial position or results of
operations which would have actually been reported had the Universal Transaction
occurred as of December 31, 1997, or for the year ended December 31, 1997, nor
are the Condensed Statements necessarily indicative of future financial position
or results of operations.
<PAGE>
UNIVERSAL TRANSACTION
UNAUDITED PRO FORMA ADJUSTED COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Universal
Television Pro Forma Universal
Group Adjustments(A) Transaction
------------ ---------------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $ 27,325 $ (20,167) $ 7,158
Accounts and notes receivable, net 389,826 (262,136) 127,690
Program inventory 328,501 (58,405) 270,096
Other 17,864 (8,863) 9,001
------------ ------------- -------------
Total current assets 763,516 (349,571) 413,945
Program inventory 389,810 (197,882) 191,928
Property, plant and equipment, net 37,300 (7,001) 30,299
Intangible assets, net 2,456,771 2,456,771
Long-term investments 9,062 3,385 12,447
Long-term receivables, deferred charges 153,464 (142,546) 10,918
and other -- --
========== =========== ===========
Total assets $ 3,809,923 $ (693,615) $ 3,116,308
============ ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued and other
current liabilities $ 179,009 $ (27,372) $ 151,637
Program liabilities 311,225 (150,413) 160,812
Deferred revenue 35,808 (35,808) 0
------------ ------------- -------------
Total current liabilities 526,042 (213,593) 312,449
Other long-term liabilities 97,246 (65,728) 31,518
Program liabilities 229,710 (71,548) 158,162
Equity:
Universal equity investment 2,956,925 (342,746) 2,614,179
---------- ----------- -----------
Total equity 2,956,925 (342,746) 2,614,179
------------ ------------- -------------
Total liabilities and equity $ 3,809,923 $ (693,615) $ 3,116,308
============ ============= =============
</TABLE>
<PAGE>
UNIVERSAL TRANSACTION
UNAUDITED PRO FORMA ADJUSTED COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Universal
Television Pro Forma Universal
Group Adjustments Transaction
-------------- ------------- -------------
<S> <C> <C> <C>
NET REVENUES:
UTV $ 706,472 $ (346,056)(B)$ 370,853
10,437 (D)
USAN 759,509 (20,844)(C) 738,665
------------ ----------- -----------
Total net revenues 1,465,981 (356,463) 1,109,518
-------------- ------------- -------------
Operating costs and expenses:
Program costs 962,110 (238,777)(B) 703,619
(19,714)(C)
Other costs 267,683 (27,803)(C) 241,725
12,057 (F)
(10,212)(E)
Depreciation and amortization 60,520 -- 60,520
------------ ----------- -----------
Total operating costs and expenses 1,290,313 (284,449) 1,005,864
-------------- ------------- -------------
Operating profit 175,668 (72,014) 103,654
Interest income (expense), net 730 52 (B) 782
Other expense, net -- (13,337)(C) (13,337)
-------------- ------------- -------------
Income (loss) before income taxes 176,398 (85,299) 91,099
Income tax (expense) benefit (70,559) 34,119 (36,440)
============ =========== ===========
NET EARNINGS $ 105,839 $ (51,180) $ 54,659
============== ============= =============
</TABLE>
<PAGE>
UNIVERSAL TRANSACTION
NOTES TO UNAUDITED PRO FORMA ADJUSTED
COMBINED CONDENSED FINANCIAL STATEMENTS
(A) Adjustments to reflect UTV assets and liabilities not acquired or
assumed by USAi.
(B) This adjustment reflects the exclusion of Universal Television Group
revenues and expenses for programming not acquired. See adjustment (E).
(C) Adjustment to eliminate previously consolidated foreign operations and
reflect 50-50 joint venture between a newly-formed subsidiary of USAi (the
"LLC") and Universal with respect to the international development of USAN,
Sci-Fi Europe and the new action/suspense channel known as "13th Street."
(D) Adjustment to reflect the effect of LLC's exclusive domestic
distribution arrangement for television programs and theatrical films for which
Universal will retain ownership.
(E) Net adjustment to reflect the effect of Universal's exclusive
distribution arrangement for UTV television programs in the pay television and
home video markets and the related merchandising rights.
(F) Net adjustment to reflect the effect of Universal's exclusive
international distribution arrangement for television programs that are being
acquired and other productions of UTV, USAN and affiliates of USAi.
