-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EAFmJRI9Dty5CGXQ4Lh4dJbrGZgJFZIzgrGePn3DslSZNndFA85Im4E+SMqFH4xw 3hBT+X/fe2uXBSTYyHQAXg== /in/edgar/work/0000912057-00-050206/0000912057-00-050206.txt : 20001116 0000912057-00-050206.hdr.sgml : 20001116 ACCESSION NUMBER: 0000912057-00-050206 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOME SHOPPING NETWORK INC CENTRAL INDEX KEY: 0000791024 STANDARD INDUSTRIAL CLASSIFICATION: [5961 ] IRS NUMBER: 592649518 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22069 FILM NUMBER: 768458 BUSINESS ADDRESS: STREET 1: 1 HSN DRIVE CITY: ST PETERSBURG STATE: FL ZIP: 33729 BUSINESS PHONE: 8135728585 10-Q 1 a2030734z10-q.txt 10-Q AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 ------------------------ HOME SHOPPING NETWORK, INC. (Exact name of registrant as specified in its charter) COMMISSION FILE NO. 333-71305-01 DELAWARE 52-2649518 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization)
152 WEST 57TH STREET, NEW YORK, NEW YORK, 10019 (Address of Registrant's principal executive offices) (212) 314-7300 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I--FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------------- 2000 1999 2000 1999 -------- -------- ---------- ---------- (IN THOUSANDS) NET REVENUES Networks and television production............. $336,047 $307,094 $1,105,688 $ 955,032 Electronic retailing........................... 426,549 314,718 1,243,756 941,467 Interactive.................................... 5,147 6,660 17,555 21,489 Electronic commerce and services............... 2,524 543 5,121 1,731 Emerging networks.............................. 8,591 266 12,862 693 Other.......................................... 509 -- 1,568 6,894 -------- -------- ---------- ---------- Total net revenues........................... 779,367 629,281 2,386,550 1,927,306 -------- -------- ---------- ---------- Operating costs and expenses: Cost of sales.................................. 280,851 206,406 823,741 634,100 Program costs.................................. 146,000 147,549 485,037 466,896 Selling and marketing.......................... 97,940 74,121 280,928 209,859 General and administrative..................... 72,022 60,080 227,121 173,876 Other operating costs.......................... 33,391 22,081 90,343 66,400 Amortization of cable distribution fees........ 8,845 6,938 25,335 19,214 Depreciation and amortization.................. 58,971 44,058 154,945 130,620 -------- -------- ---------- ---------- Total operating costs and expenses........... 698,020 561,233 2,087,450 1,700,965 -------- -------- ---------- ---------- Operating profit............................. 81,347 68,048 299,100 226,341 Other income (expense): Interest income................................ 5,283 12,636 19,195 31,959 Interest expense............................... (6,329) (21,066) (24,807) (61,685) Gain on sale of securities..................... -- 39,451 -- 89,721 Other, net..................................... 70,575 (779) 66,567 879 -------- -------- ---------- ---------- 69,529 30,242 60,955 60,874 -------- -------- ---------- ---------- Earnings before income taxes and minority interest......................................... 150,876 98,290 360,055 287,215 Income tax expense............................... (34,205) (18,080) (76,498) (52,234) Minority interest................................ (82,474) (58,973) (204,986) (173,673) -------- -------- ---------- ---------- NET EARNINGS..................................... $ 34,197 $ 21,237 $ 78,571 $ 61,308 ======== ======== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 1 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ (IN THOUSANDS) ASSETS CURRENT ASSETS Cash and cash equivalents................................... $ 135,335 $ 247,474 Accounts and notes receivable, net of allowance of $48,734 and $33,317, respectively................................. 453,277 381,175 Inventories, net............................................ 553,677 432,520 Investments held for sale................................... 2,062 -- Deferred income taxes....................................... -- 12,077 Other current assets, net................................... 28,267 8,542 ---------- ---------- Total current assets........................................ 1,172,618 1,081,788 PROPERTY, PLANT AND EQUIPMENT Computer and broadcast equipment............................ 133,148 123,606 Buildings and leasehold improvements........................ 66,050 59,074 Furniture and other equipment............................... 71,249 67,246 Land........................................................ 10,275 10,246 Projects in progress........................................ 19,948 31,736 ---------- ---------- 300,670 291,908 Less accumulated depreciation and amortization.............. (66,643) (79,350) ---------- ---------- 234,027 212,558 OTHER ASSETS Intangible assets, net...................................... 5,204,280 5,029,769 Cable distribution fees, net ($30,235 and $35,181, respectively, to related parties)......................... 146,155 130,988 Long-term investments....................................... 37,272 93,742 Notes and accounts receivable, net ($3,283 and $2,562, respectively, from related parties)....................... 29,121 19,506 Inventories, net............................................ 182,422 154,497 Advances to USAI and subsidiaries........................... 443,098 410,107 Deferred income taxes....................................... 70,308 61,755 Deferred charges and other, net............................. 39,494 36,934 ---------- ---------- $7,558,795 $7,231,644 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term obligations................. $ 20,829 $ 3,758 Accounts payable, trade..................................... 139,149 147,864 Obligations for program rights and film costs............... 295,561 265,235 Cable distribution fees payable ($18,431 and $18,733, respectively, to related parties)......................... 28,993 43,993 Deferred revenue............................................ 63,684 47,536 Deferred income taxes....................................... 13,383 -- Other accrued liabilities................................... 357,267 271,846 ---------- ---------- Total current liabilities................................... 918,866 780,232 LONG-TERM OBLIGATIONS (NET OF CURRENT MATURITIES)........... 525,406 527,339 OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, NET OF CURRENT................................................... 279,260 256,260 OTHER LONG-TERM LIABILITIES................................. 76,602 81,156 MINORITY INTEREST........................................... 4,466,216 4,244,114 COMMITMENTS AND CONTINGENCIES............................... -- -- STOCKHOLDERS' EQUITY Common Stock................................................ 1,221,408 1,221,408 Additional paid-in capital.................................. 70,312 70,312 Retained earnings........................................... 11,225 50,823 Accumulated other comprehensive income...................... (10,500) -- ---------- ---------- Total stockholders' equity.................................. 1,292,445 1,342,543 ---------- ---------- $7,558,795 $7,231,644 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 2 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
ACCUMULATED ADDITIONAL RETAINED OTHER COMMON PAID-IN EARNINGS COMPREHENSIVE TOTAL STOCK CAPITAL (DEFICIT) INCOME ---------- ---------- ---------- --------- ------------- (IN THOUSANDS) Balance at December 31, 1999....... $1,342,543 $1,221,408 $70,312 $ 50,823 $ -- Comprehensive Income: Net earnings for the nine months ended September 30, 2000....... 78,571 -- -- 78,571 -- Foreign currency translation..... (2,521) (2,521) Increase in unrealized gains in available for sale securities..................... (7,979) -- -- -- (7,979) ---------- Comprehensive income........... 68,071 Mandatory tax distribution to LLC partners......................... (118,169) -- -- (118,169) -- ---------- ---------- ------- --------- -------- Balance at September 30, 2000...... $1,292,445 $1,221,408 $70,312 $ 11,225 $(10,500) ========== ========== ======= ========= ========
Comprehensive income for the three months ended September 30, 2000 was $27,025. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 3 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 2000 1999 --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.............................................. $ 78,571 $ 61,308 ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization............................. 154,945 130,620 Amortization of cable distribution fees................... 25,335 19,214 Amortization of program rights and film costs............. 428,537 391,088 Gain on sale of subsidiary stock.......................... (104,625) -- Gain on sale of securities................................ -- (89,721) Non-cash compensation..................................... 5,954 1,890 Equity in (earnings) losses of unconsolidated affiliates.............................................. 38,260 754 Minority interest......................................... 204,986 173,673 CHANGES IN CURRENT ASSETS AND LIABILITIES: Accounts receivable....................................... (67,348) 16,205 Inventories............................................... (1,615) 375 Accounts payable.......................................... (28,228) (43,174) Accrued liabilities and deferred revenue.................. 103,126 60,120 Payment for program rights and film costs................. (528,053) (410,500) Increase in cable distribution fees....................... (39,251) (35,624) Other, net................................................ 20,430 4,082 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES............... 291,024 280,310 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired.......................... (107,934) (7,500) Capital expenditures........................................ (49,247) (43,781) Increase in long-term investments and notes receivable...... (21,769) (12,750) Proceeds from sale of securities............................ -- 107,231 Other, net.................................................. (2,806) 6,221 --------- --------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES..... (181,756) 49,421 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings.................................................. 50,029 -- Payment of mandatory tax distribution to LLC partners....... (118,169) (52,755) Principal payments on long-term obligations................. (44,890) (252,182) Repurchase of LLC shares.................................... (129,907) (7,226) Proceeds from issuance of LLC shares........................ 216,493 401,319 Advances to USAi and subsidiaries........................... (181,052) (457,864) Other....................................................... (13,309) -- --------- --------- NET CASH USED IN FINANCING ACTIVITIES................... (220,805) (368,708) --------- --------- Effect of exchange rate changes on cash and cash equivalents............................................... (602) -- --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (112,139) (38,977) Cash and cash equivalents at beginning of period............ 247,474 234,903 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 135,335 $ 195,926 ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION Home Shopping Network, Inc. (the "Company" or "Home Shopping"), is a holding company, whose subsidiary USANi LLC is engaged in diversified media and electronic commerce businesses. In December 1996, the Company consummated a merger with USA Networks, Inc. ("USAi"), formerly known as HSN, Inc., and became a subsidiary of USAi (the "Home Shopping Merger"). On February 12, 1998, USAi acquired USA Networks, a New York general partnership, consisting of cable television networks, USA Network and Sci-Fi Channel ("Networks"), as well as the domestic television production and distribution businesses of Universal Studios ("Studios USA") from Universal Studios, Inc. ("Universal"), an entity controlled by The Seagram Company Ltd. ("Seagram") (the "Universal Transaction"). On July 27, 2000, the Company and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers ("Styleclick.com"), completed the merger of Internet Shopping Network ("ISN") and Styleclick.com (the "Styleclick Transaction"). See Note 3. In connection with the Universal Transaction, the Company formed a new subsidiary, USANi LLC, and contributed the operating assets of the Home Shopping Network services ("HSN") to USANi LLC. Furthermore, USAi contributed Networks and Studios USA to USANi LLC on February 12, 1998. The Company is a holding company, the subsidiaries of which are focused on the new convergence of entertainment, information and direct selling. The five principal areas of business are: - Networks and television production, which includes Networks and Studios USA. Networks operates the USA Network and Sci-Fi Channel cable networks and Studios USA produces and distributes television programming. - Electronic retailing, which consists primarily of the Home Shopping Network and America's Store, HSN International and HSN.com, which are engaged in the electronic retailing business. - Interactive, which includes Styleclick, Inc. (see Note 3 for more information), a facilitator of e-commerce websites and Internet enabled applications, and the Company's online retailing networks First Auction and First Jewelry. - Electronic commerce and services, which primarily represents the Company's customer and e-care businesses. - Emerging networks, which primarily represents recently acquired cable television properties Trio and News World International, and SciFi.com, an emerging Internet content and commerce site. BASIS OF PRESENTATION The interim Condensed Consolidated Financial Statements and Notes thereto of the Company are unaudited and should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto for the twelve months ended December 31, 1999. Certain amounts in the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 1999 have been 5 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED) reclassified to conform to the 2000 presentation, including all amounts charged to customers for shipping and handling, which are now presented as revenue. In the opinion of the Company, all adjustments necessary for a fair presentation of such Condensed Consolidated Financial Statements have been included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a full year. The interim Condensed Consolidated Financial Statements and Notes thereto are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in the Company's audited Consolidated Financial Statements and Notes thereto. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES See the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the "1999 Form 10-K") for a summary of all significant accounting policies. NEW ACCOUNTING PRONOUNCEMENTS In June 2000, the Securities and Exchange Commission issued an amendment to Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101") which delayed the effective date for adoption of SAB 101 to the fourth quarter of 2000. SAB 101 provides guidance on revenue recognition criteria for certain types of transactions. SAB 101 also provides guidance on the disclosures that companies should make about their revenue recognition policies and the impact of events and trends on revenue. In June 2000, the Accounting Standards Executive Committee ("AcSEC") issued SOP 00-2, ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF FILMS ("SOP 00-2"), which replaces FASB Statement No. 53, FINANCIAL ACCOUNTING BY PRODUCERS AND DISTRIBUTORS OF MOTION PICTURE FILMS. AcSEC concluded that film costs would be accounted for under an inventory model. In addition, the SOP considers such topics as revenue recognition (fixed fees and minimum guarantees in variable fee arrangements), fee allocation in multiple films, accounting for exploitation costs, and impairment assessment. The SOP is effective for financial statements issued for fiscal years beginning after December 15, 2000. The Company is currently evaluating the impact of SAB 101 and SOP 00-2, although the impact is not expected to be material. NOTE 3--BUSINESS ACQUISITIONS STYLECLICK TRANSACTION On July 27, 2000, USAi and Styleclick.com Inc., a leading enabler of e-commerce for manufacturers and retailers, completed the merger of Internet Shopping Network and Styleclick.com. The entities were merged with a new company, Styleclick, Inc., which owns and operates the combined properties of Styleclick.com and ISN. Styleclick, Inc. is traded on the Nasdaq market under the symbol "IBUY". In accordance with the terms of the agreement, USAi invested $40 million in cash and agreed to contribute $10 million in dedicated media, and received warrants to purchase additional shares of the new company. At closing, Styleclick.com repaid the $10 million of borrowing outstanding under the bridge loan. 6 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 3--BUSINESS ACQUISITIONS (CONTINUED) The aggregate purchase price, including transaction costs, of $211.9 million was determined as follows: Value of portion of Styleclick.com acquired in the merger... $121,781 Additional cash and promotional investment by USAi.......... 50,000 Fair value of outstanding "in the money options" and warrants of Styleclick.com................................ 37,989 Transaction costs........................................... 2,144 -------- Total acquisition costs................................... $211,914 ========
The fair value of Styleclick.com was based on the fair value of $15.78 per share times 7.7 million shares outstanding. Fair value of the shares was determined by taking an average of the opening and closing price of Styleclick.com common stock for the period just before and just after the terms of the transaction were agreed to by the Company and Styleclick.com and announced to the public. In conjunction with the transaction, the Company recorded a pre-tax gain of $104.6 million based upon the 25% of ISN exchanged for 75% of Styleclick.com. The Styleclick transaction has been accounted for under the purchase method of accounting. The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of purchase. The unallocated excess of acquisition costs over net assets acquired of $170.5 million has been allocated to goodwill, which is being amortized over 3 years. Assets and liabilities as of the acquisition date consist of the following:
(IN THOUSANDS) -------------- Current assets.............................................. $ 39,095 Non-current assets.......................................... 4,039 Goodwill.................................................... 170,526 Current liabilities......................................... 1,746 Non-current liabilities..................................... --
The following unaudited pro forma condensed consolidated financial information for the three and nine months ended September 30, 2000 and 1999 is presented to show the results of the Company as if the Styleclick Transaction had occurred on January 1, 1999. The pro forma results reflect certain adjustments, including increased amortization related to goodwill and other intangibles, and are not necessarily indicative of what the results would have been had the transactions actually occurred on January 1, 1999.
NINE MONTHS THREE MONTHS NINE MONTHS THREE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999 ------------------ ------------------ ------------------ ------------------ (IN THOUSANDS) Net revenues............... $2,388,439 $779,511 $1,932,458 $630,068 Net income................. 58,021 31,116 49,642 16,574
7 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 4--INVESTMENTS During the quarter and nine months ended September 30, 1999, the Company recognized pre-tax gains of $39.5 and $89.7 million, respectively, on the sale of securities in a publicly traded entity. NOTE 5--STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000: As of January 1, 2000 the Company began to consolidate the accounts of HOT Germany, an electronic retailer operating principally in Germany, whereas its investment in HOT Germany was previously accounted for under the equity method of accounting. On January 20, 2000, the Company completed its acquisition of Ingenious Designs, Inc. ("IDI"), by issuing approximately 190,000 shares of USAi common stock for all the outstanding stock of IDI, for a total value of approximately $5.0 million. During the second quarter, the company recorded $8.7 million of expense related to an agreement with an executive. Of this amount, $2.9 million is a non-cash stock compensation charge related to restricted stock. SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999: During the nine months ended September 30, 1999, the Company acquired post-production and other equipment through capital leases totaling $2.5 million. NOTE 6--INDUSTRY SEGMENTS For the three and nine months ended September 30, 2000 and 1999, the Company operated principally in five industry segments: Networks and television production, Electronic retailing, Interactive, Electronic commerce and services and Emerging networks. The Networks and television production segment consists of the cable networks USA Network and Sci-Fi Channel and Studios USA, which produces and distributes television programming. The Electronic-retailing segment consists of Home Shopping Network and America's Store, which are engaged in the sale of merchandise through electronic retailing. The Interactive segment represents Styleclick. The Electronic commerce and services segment primarily represents the Company's customer and e-care businesses. The Emerging networks segment 8 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 6--INDUSTRY SEGMENTS (CONTINUED) consists primarily of the recently acquired cable television properties Trio and News World International, which were acquired on May 19, 2000, and SciFi.com, a emerging Internet content and commerce site.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------------- 2000 1999 2000 1999 -------- -------- ---------- ---------- (IN THOUSANDS) Revenue Networks and television production............. $336,047 $307,094 $1,105,688 $ 955,032 Electronic retailing........................... 426,549 314,718 1,243,756 941,467 Internet services.............................. 5,147 6,660 17,555 21,489 Electronic commerce and services............... 2,524 543 5,121 1,731 Emerging networks.............................. 8,591 266 12,862 693 Other.......................................... 509 -- 1,568 6,894 -------- -------- ---------- ---------- $779,367 $629,281 $2,386,550 $1,927,306 ======== ======== ========== ========== Operating profit (loss) Networks and television production............. $ 90,394 $ 64,555 $ 312,371 $ 223,170 Electronic retailing........................... 21,949 20,553 73,769 55,036 Internet services.............................. (15,970) (9,167) (37,382) (27,815) Electronic commerce and services............... (4,315) (645) (12,260) (1,576) Emerging networks.............................. (2,907) (787) (6,669) (1,885) Other.......................................... (7,804) (6,461) (30,729) (20,589) -------- -------- ---------- ---------- $ 81,347 $ 68,048 $ 299,100 $ 226,341 ======== ======== ========== ==========
The Company operating principally within the United States. NOTE 7--GUARANTEE OF NOTES USAi issued $500.0 million 6 3/4% Senior Notes due 2005 (the "Notes"). USANi LLC is a co-issuer and co-obligor of the Notes. The Notes are jointly, severally, fully and unconditionally guaranteed by certain subsidiaries of USAi, including the Company and all of the subsidiaries of USANi LLC (other than subsidiaries that are, individually and in the aggregate, inconsequential to USANi LLC on a consolidated basis) (collectively, the "Subsidiary Guarantors"). All of the Subsidiary Guarantors (other than the Company) (the "Wholly Owned Subsidiary Guarantors") are wholly owned, directly or indirectly, by the Company or USANi LLC, as the case may be. Separate financial statements for each of the Wholly Owned Subsidiary Guarantors are not presented and such Wholly Owned Subsidiary Guarantors are not filing separate reports under the Securities Exchange Act of 1934 because the Company's management has determined that the information contained in such documents would not be material to investors. 9 ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Home Shopping Network, Inc., a Delaware limited liability company (the "Company" or "Holdco"), is a subsidiary of USA Networks, Inc. ("USAi"). The Company is a holding company, whose subsidiary USANi LLC is engaged in diversified media and electronic commerce businesses. CONSOLIDATED RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. THREE MONTHS ENDED SEPTEMBER 30, 1999 NET REVENUES: For the three months ended September 30, 2000, net revenues increased $150.1 million, or 23.9%, to $779.4 million from $629.3 million compared to 1999 primarily due to increases of $111.8 million, $29.0 million and $8.3 million from the Electronic retailing, Networks and television production and Emerging networks businesses, respectively. As of January 1, 2000, the Company presents the operations of HOT Germany on a consolidated basis whereas the investment was previously accounted for under the equity method of accounting. Revenues for the German operations were $53.8 million in the three months ended September 30, 2000 as compared to $39.5 million in 1999. In addition to the increase resulting from Germany, Home Shopping Network's core domestic business generated increased sales of $52.4 million, including HSN.com, which began operations in late 1999 and generated sales of $8.6 million. The increase in net revenues was offset partially from an increase in the return rate to 20.2% from 19.1% in 1999. The increase in Networks and television production primarily resulted from an increase in advertising and affiliate revenues at USA Network and the Sci-Fi Channel, and increased revenue from Studios USA related principally to television movies and increased production for USA Network and the Sci-Fi Channel. OPERATING COSTS AND EXPENSES: For the three months ended September 30, 2000, total operating costs and expenses increased $136.8 million, or 24.4%, to $698.0 million from $561.2 million compared to 1999, primarily due to increased costs of $105.8 million and $3.3 million from the Electronic retailing and Networks and television production businesses, respectively, higher depreciation and amortization costs of $14.9 million and higher amortization of cable distribution fees of $1.9 million. The increased costs of Electronic retailing and Networks and television production are related to the higher revenue of all of the businesses and the consolidation of the German electronic retailing operations as of January 1, 2000. Depreciation and amortization increased as a result of capital expenditures and acquisitions, including Styleclick.com. Amortization of cable distribution fees increased due to higher cost distribution arrangements. OTHER INCOME (EXPENSE), NET: For the three months ended September 30, 2000, net interest expense decreased by $7.4 million, compared to 1999 primarily due to lower borrowing levels as a result of the repayment of bank debt in prior years from the proceeds of equity transactions involving Universal and Liberty Media Corporation, a subsidiary of AT&T Corporation ("Liberty"). In the three months ended September 30, 2000, the Company realized a pre-tax gain of $104.6 million based upon the exchange of 25% of ISN for 75% of Old Styleclick in the Styleclick Transaction. Also, the Company realized a pre-tax loss of $30.5 million related to the write-off of investments to fair value. In the three months ended September 30, 1999, the Company realized gains of $39.5 million related to the sale of securities. 10 MINORITY INTEREST: Minority interest primarily represents Universal's and Liberty's ownership interest in USANi LLC and the public's ownership interest in Styleclick since July 27, 2000. INCOME TAXES: The Company's effective tax rate, calculated after deducting the effects of USANi LLC minority interest, of 47.9% for the three months ended September 30, 2000 is higher than the statutory rate due to the effects of state taxes and non-deductible goodwill. NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. NINE MONTHS ENDED SEPTEMBER 30, 1999 NET REVENUES: For the nine months ended September 30, 2000, net revenues increased $459.2 million, or 23.8%, to $2.4 billion from $1.9 billion compared to 1999 primarily due to increases of $302.3 million and $150.7 million from the Electronic retailing and Networks and television production businesses, respectively. As of January 1, 2000, the Company presents the operations of HOT Germany on a consolidated basis whereas the investment was previously accounted for under the equity method of accounting. Revenues for the German operations were $162.2 million in the nine months ended September 30, 2000 as compared to $116.2 million in 1999. In addition to the increase resulting from Germany, Home Shopping Network's core domestic business generated increased sales of $136.0 million due primarily to the increase from the Home Shopping service of $106.8 million and HSN.com, which generated revenue of $20.5 million. Revenue of Studios USA increased due to increased revenues from one-hour dramas, talk shows and movie productions, offset by fewer network pick-ups for comedy productions. OPERATING COSTS AND EXPENSES: For the nine months ended September 30, 2000, total operating costs and expenses increased $386.5 million, or 22.7%, to $2.1 billion from $1.7 billion compared to 1999, primarily due to increased costs of $267.1 million and $62.1 million from the Electronic retailing and Networks and television production businesses, respectively, increased depreciation and amortization of $24.3 million and increased amortization of cable distribution fees of 6.1 million. The increased costs are related to the higher revenue of all of the businesses and the consolidation of the German electronic retailing operations as of January 1, 2000. Depreciation and amortization increased as a result of capital expenditures and acquisitions, including Styleclick. Amortization of cable distribution fees increased due to higher cost distribution arrangements. OTHER INCOME (EXPENSE), NET: For the nine months ended September 30, 2000, net interest expense decreased by $34.1 million, compared to 1999 primarily due to lower borrowing levels as a result of the repayment of bank debt in prior years from the proceeds of equity transactions involving Universal and Liberty Media Corporation, a subsidiary of AT&T Corporation ("Liberty"). In the nine months ended September 30, 2000, the Company realized a pre-tax gain of $104.6 million based upon the exchange of 25% of ISN for 75% of Styleclick.com in the Styleclick Transaction. Also, the Company realized a pre-tax loss of $30.5 million related to the write-off of investments to fair value. In the nine months ended September 30, 1999, the Company realized pre-tax gains of $89.7 million related to the sale of securities. Furthermore, the Company recognized other income of $10.4 million from the reversal of equity losses which were recorded in 1998 as a result of the Universal transaction. 11 MINORITY INTEREST: Minority interest primarily represents Universal's and Liberty's ownership interest in USANi LLC and the public's ownership interest in Styleclick since July 27, 2000. INCOME TAXES: The Company's effective tax rate, calculated after deducting the effects of USANi LLC minority interest, of 48.4% for the nine months ended September 30, 2000 is higher than the statutory rate due to the effects of state taxes and non-deductible goodwill. SEASONALITY The Company's businesses are subject to the effects of seasonality. Networks and Television Production revenues are influenced by advertiser demand and the seasonal nature of programming, and generally peak in the spring and fall. The Company believes seasonality impacts its Electronic Retailing segment but not to the same extent it impacts the retail industry in general. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's short-term investment portfolio and issuance of debt. The Company does not use derivative financial instruments in its investment portfolio. The Company has a prescribed methodology whereby it invests its excess cash in debt instruments of government agencies and high quality corporate issuers. To further mitigate risk, the vast majority of the securities have a maturity date within 60 days. The portfolio is reviewed on a periodic basis and adjusted in the event that the credit rating of a security held in the portfolio has deteriorated. At September 30, 2000, the Company's outstanding debt approximated $546.2 million, substantially all of which is fixed rate obligations. If market rates decline, the Company runs the risk that the related required payments on the fixed rate debt will exceed those based on the current market rate. FOREIGN CURRENCY EXCHANGE RISK The Company conducts business in certain foreign markets. However, the level of operations in foreign markets is insignificant to the consolidated results. EQUITY PRICE RISK The Company has no investments in equity securities of publicly-traded companies. It is not customary for the Company to make investments in equity securities as part of its investment strategy. 12 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In the Home Shopping Network Consumer Class Action litigation previously reported in the Company's Form 10-K for the year ended December 31, 1999, the plaintiffs filed an amended class action complaint that, among other things: (i) added an additional named plaintiff, (ii) added Home Shopping Club LP, Warrantech Helpdesk, Inc., Banctech Service, Inc. and Timespace Internet, Inc. as named defendants, and (iii) removed two individuals as named defendants. On May 9, 2000, Home Shopping Network, Inc. and Home Shopping Club LP (the "HSN Defendants") filed a motion to dismiss the amended complaint. On May 23, 2000, the Cook County Circuit Court addressed the HSN Defendants' motion to dismiss by entering an Order that, in pertinent part, required the plaintiffs to file a second amended complaint. On June 6, 2000, the plaintiffs filed a second amended class action complaint that, among other things, added an additional named plaintiff and asserted two additional causes of action for negligent misrepresentation and breach of contract. The HSN Defendants have filed an answer and affirmative defenses to the second amended complaint and intend to continue to vigorously defend this action. In the World Wrestling Federation litigation, previously reported in the Company's Form 10-Qs for the quarterly periods ended March 31, 2000 and June 30, 2000, the Delaware Supreme Court on September 18, 2000 ruled against USA Cable on appeal of the decision of the Chancery Court. In the opinion of management, this outcome will not have a material adverse effect on the Company. In the Marketingworks, Inc. litigation previously reported in the Company's Form 10-K for the year ended December 31, 1999, a status conference was held on October 30, 2000, at which time a trial date of July 3, 2001 was scheduled. In January 2000, Universal/USA removed the case to Federal Court on the basis of copyright preemption and as a result of the fact that Marketingworks sought Federal remedies under the Lanham Act. Although discovery is not yet complete, based on information revealed thus far to Universal/USA, the Company believes this claim is unlikely to present a material liability to the Company. On August 25, 2000, RTL Plus Deutschland Fernsehen GMBH & Co. Betriebs-KG, Companie Luxembourgeoise de Telediffusion S.A. and UFA Film--Und Fernseh-GMBH & Co. KG (collectively "RTL") filed a complaint in the Netherlands against Universal Studios International B.V. ("USI"). USI, the international distribution entity of Universal Studios, Inc., has the rights, subject to various exemptions, to distribute internationally certain television programs owned by Studios USA and other USAi entities. The complaint involves a 10-year "output" agreement between RTL and USI, signed July 30, 1996, pursuant to which, among other things, certain television programs owned by Studios USA and other USAi entities are distributed in Germany (the "RTL Output Agreement"). The RTL Output Agreement also includes "co-production" provisions under which RTL acquires an equity interest in certain programs. The complaint, based on equitable doctrines of "mistake of fact" and "unforeseen circumstances," requests the court to modify or nullify RTL's licensing and "co-production" obligations with respect to current television programs. USI currently has until November 22, 2000 to respond to the complaint. Studios USA and its affiliated companies are not parties to the RTL Output Agreement and currently not parties to the pending proceeding. Studios USA and its affiliated entities believe the RTL complaint to be without merit, and intend to vigorously protect their interests. The Company is engaged in various other lawsuits either as plaintiff or defendant. In the opinion of management, the ultimate outcome of these various lawsuits should not have a material impact on the Company. 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 27.1 Financial Data Schedule (for SEC use only) 27.2 Financial Data Schedule (for SEC use only)
14 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. HOME SHOPPING NETWORK, INC. By: /s/ BARRY DILLER ----------------------------------------- Barry Diller Chairman and Chief Executive Officer
SIGNATURE TITLE DATE --------- ----- ---- /s/ BARRY DILLER --------------------------------- Chairman of the Board, Chief November 14, 2000 Barry Diller Executive Officer and Director /s/ MICHAEL SILECK Senior Vice President and Chief --------------------------------- Financial Officer (Principal November 14, 2000 Michael Sileck Financial Officer) /s/ WILLIAM J. SEVERANCE --------------------------------- Vice President and Controller (Chief November 14, 2000 William J. Severance Accounting Officer)
15 EX-27.1 2 a2030734zex-27_1.txt EXHIBIT 27.1
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 135,335 0 453,277 48,734 553,677 1,172,618 234,027 66,643 7,558,795 918,866 0 0 0 1,221,408 71,037 1,292,445 2,386,550 2,386,550 1,308,778 1,308,778 778,672 0 24,807 360,055 76,498 78,571 0 0 0 78,571 0 0
EX-27.2 3 a2030734zex-27_2.txt EXHIBIT 27.2
5 3-MOS DEC-31-2000 JUL-01-2000 SEP-30-2000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 779,367 779,367 426,851 426,851 271,169 0 6,329 150,876 34,205 34,197 0 0 0 34,197 0 0
-----END PRIVACY-ENHANCED MESSAGE-----