AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 2002
REGISTRATION NO. 333-68120
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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USA NETWORKS, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 4833 59-2712887
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
152 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 314-7300
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
JULIUS GENACHOWSKI, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
USA NETWORKS, INC.
152 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 314-7300
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent For Service)
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WITH COPIES TO:
PETER D. LYONS, ESQ. PAMELA S. SEYMON, ESQ. RICHARD B. DODD, ESQ.
Shearman & Sterling Wachtell, Lipton, Rosen & Katz Preston Gates & Ellis LLP
555 California Street 51 West 52nd Street 701 Fifth Avenue, Suite 5000
Suite 2000 New York, New York 10019-6150 Seattle, Washington 98104
San Francisco, California 94104 (212) 403-1000 (206) 623-7580
(415) 616-1100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective and all other
conditions to the acquisition of a controlling interest in Expedia, Inc. by the
Registrant pursuant to the agreement and plan of recapitalization and merger
described in the joint prospectus/proxy and information statement have been
satisfied or waived.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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EXPLANATORY NOTE
This Post-Effective Amendment to the Registration Statement includes a joint
prospectus/proxy and information statement supplement, which amends and
supplements the joint prospectus/proxy and information statement dated
November 13, 2001 of Expedia, Inc. and USA Networks, Inc. This supplement
contains information regarding the agreement between Vivendi Universal, S.A. and
USA to create a joint venture that will hold all of USA's entertainment
businesses, which we refer to throughout this supplement as the "USA
ENTERTAINMENT GROUP," as well as the businesses of Universal Studios Group.
[LOGO OF EXPEDIA, INC.]
January , 2002
Dear Shareholder:
We previously mailed to you a joint prospectus/proxy and information
statement dated November 13, 2001 relating to the annual meeting of shareholders
of Expedia, Inc. that was scheduled for December 17, 2001. One of the purposes
of that meeting was to consider and vote on a number of proposals relating to
the proposed merger of a wholly owned subsidiary of USA Networks, Inc. into
Expedia, with Expedia surviving as a public company controlled by USA. We refer
to the merger as well as the transactions contemplated in connection with the
merger collectively as the "USA/EXPEDIA MERGER."
On December 17, 2001, prior to the time of the annual meeting, USA announced
that it had entered into an agreement with Vivendi Universal, S.A. Under that
agreement, USA agreed to contribute its entertainment businesses to a joint
venture that would also hold the businesses of Universal Studios Group. Upon
completion of the USA/Vivendi Universal transaction, which is expected to occur
following consummation of the USA/ Expedia merger, USA will be renamed "USA
Interactive" and will be focused on integrating interactive assets across
multiple lines of business. After giving effect to both transactions, USA's
businesses would consist of Expedia, Home Shopping Network (including HSN
International and HSN Interactive), Ticketmaster (Nasdaq: TMCS), which operates
Citysearch and Match.com, Hotel Reservations Network (Nasdaq: ROOM), Electronic
Commerce Solutions, Styleclick (Nasdaq: IBUY), and Precision Response
Corporation. Although the USA/ Vivendi Universal transaction is subject to
limited conditions and is not expected to close until spring of 2002, we
determined that the Expedia shareholders should be made aware of this
development prior to voting on the proposals related to the USA/Expedia merger.
As a result, following the election of our directors at our annual meeting on
December 17, 2001, we adjourned our annual meeting.
The annual meeting will reconvene on , 2002 at a.m., local time,
at . At the reconvened annual meeting you will be asked to consider
and vote upon all of the proposals previously described in the joint
prospectus/proxy and information statement (other than the election of
directors, which was completed on December 17, 2001). We are enclosing a
supplement to the joint prospectus/proxy and information statement, which
supplement provides important information about the USA/Vivendi Universal
transaction.
The terms of the USA/Expedia merger remain as described in the joint
prospectus/proxy and information statement mailed to you in November 2001. You
will continue to have the choice of either (1) retaining your shares of Expedia
common stock and in addition receiving warrants to acquire Expedia common stock,
or (2) exchanging your shares of Expedia common stock for a package of USA
securities consisting of USA common stock, USA cumulative convertible preferred
stock and warrants to acquire USA common stock, subject to proration as
described in the joint prospectus/proxy and information statement previously
mailed to you. If you have not already made your election (or if you want to
change your election), you may do so by following the instructions described on
the election form and letter of transmittal included in the joint
prospectus/proxy and information statement previously mailed to you and
submitting those forms together with your certificates prior to the election
deadline, which has been extended to 5:00 p.m., eastern time, on , 2002,
the date of the reconvened Expedia annual meeting.
We have enclosed a proxy card with the supplement. If you have previously
voted and do not wish to change your vote, your previous proxy will be voted as
you directed. If you have not previously voted or wish to revoke or change your
vote, please complete, date, sign and return the enclosed proxy card before the
reconvened annual meeting.
Please note that Microsoft Corporation, which beneficially owns 33,722,710
shares, or approximately 66%, of Expedia's common stock, has granted to USA or
Expedia an irrevocable proxy to vote in favor of each of the proposals relating
to the USA/Expedia merger to be presented at the reconvened annual meeting. The
vote of Microsoft's shares is sufficient to ensure approval of all these
matters.
We thank you for your continuing support.
Sincerely,
/s/ Richard N. Barton
Richard N. Barton
CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED ANY OF THE USA SECURITIES OR EXPEDIA
SECURITIES TO BE ISSUED IN THE USA/EXPEDIA MERGER, OR DETERMINED IF THIS JOINT
PROSPECTUS/PROXY AND INFORMATION STATEMENT SUPPLEMENT IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS JOINT
PROSPECTUS/PROXY AND INFORMATION STATEMENT SUPPLEMENT DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE ILLEGAL.
This supplement to the joint prospectus/proxy and information statement is
dated January , 2002. It is first being mailed to Expedia shareholders on or
about January , 2002.
TABLE OF CONTENTS
PAGE
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Introduction................................................ 1
Questions & Answers about the USA/Expedia Merger and the
USA/Vivendi Universal Transaction......................... 1
The USA/Vivendi Universal Transaction....................... 4
Other Interests of Officers and Directors in the
Transactions.............................................. 12
Other Recent Developments................................... 12
Where You Can Find More Information......................... 12
Experts..................................................... 14
Special Note Regarding Forward-Looking Statements........... 15
Index to Financial Information.............................. F-1
ii
INTRODUCTION
EXCEPT AS DESCRIBED IN THIS SUPPLEMENT, THE INFORMATION WE PROVIDED IN THE
JOINT PROSPECTUS/PROXY AND INFORMATION STATEMENT THAT WE PREVIOUSLY MAILED TO
YOU CONTINUES TO APPLY. TO THE EXTENT INFORMATION IN THIS SUPPLEMENT DIFFERS
FROM OR CONFLICTS WITH INFORMATION CONTAINED IN THE JOINT PROSPECTUS/PROXY AND
INFORMATION STATEMENT, THIS SUPPLEMENT SUPERCEDES AND REPLACES THE INFORMATION
IN THE JOINT PROSPECTUS/PROXY AND INFORMATION STATEMENT. IF YOU NEED ANOTHER
COPY OF THE JOINT PROSPECTUS/PROXY AND INFORMATION STATEMENT, PLEASE CALL OUR
PROXY SOLICITOR, MACKENZIE PARTNERS, INC. AT (800) 322-2885 (TOLL-FREE).
QUESTIONS & ANSWERS ABOUT THE USA/EXPEDIA MERGER AND THE USA/VIVENDI UNIVERSAL
TRANSACTION
Q: WHY WAS THE ANNUAL MEETING OF EXPEDIA SHAREHOLDERS ADJOURNED WITHOUT A VOTE
OF THE EXPEDIA SHAREHOLDERS ON THE PROPOSALS RELATING TO THE USA/EXPEDIA
MERGER?
A: On December 17, 2001, shortly before the time of the annual meeting, USA
publicly announced its proposed transaction with Vivendi Universal. Expedia
determined that it would be appropriate to adjourn the annual meeting's
consideration of, and vote on, the proposals relating to the USA/Expedia
merger to give Expedia shareholders the opportunity to receive additional
information about and to consider this development.
Q: WHAT HAS CHANGED IN THE EXPEDIA/USA MERGER?
A: There have been no changes in the terms of the USA/Expedia merger since you
received the joint prospectus/proxy and information statement dated
November 13, 2001, other than the changes in timing as described in this
supplement. You are still being asked to vote on the USA/Expedia merger and
to make an election as to whether to exchange your shares of Expedia common
stock for the package of USA securities or to remain as a shareholder of
Expedia and receive warrants to acquire additional shares of Expedia common
stock.
Q: HOW DOES THE USA/VIVENDI UNIVERSAL TRANSACTION AFFECT ME?
A: You now have until 5:00 p.m., eastern time, on , 2002 to complete
your election form with regard to the USA/Expedia merger.
If you elect to receive the package of USA securities in the USA/Expedia
merger, you will become a USA stockholder. If you continue to own USA shares
at the time of the USA/Vivendi Universal transaction, your shares will
effectively represent a larger equity interest in a smaller company since
USA will have contributed all of its entertainment businesses, which we
refer to as the "USA ENTERTAINMENT GROUP," to the joint venture with Vivendi
Universal, and USA will have cancelled approximately 320.9 million shares of
USANi LLC, which are exchangeable for USA common stock. Following the
USA/Vivendi Universal transaction, USA will be a company focused on
integrating interactive assets across multiple lines of business and its
businesses will consist of Expedia (if the USA/Expedia merger is
consummated), Home Shopping Network (including HSN International and HSN
Interactive), Ticketmaster (Nasdaq: TMCS), which operates Citysearch and
Match.com, Hotel Reservations Network (Nasdaq: ROOM), Electronic Commerce
Solutions, Styleclick (Nasdaq: IBUY) and Precision Response Corporation.
If you do not elect to receive the package of USA securities in the
USA/Expedia merger, you will not be affected by the USA/Vivendi Universal
transaction. You will remain as a shareholder of Expedia and will receive
warrants to acquire Expedia common stock in the USA/Expedia merger.
1
Q: WHAT WILL HAPPEN TO MY USA SECURITIES I RECEIVE IN THE USA/EXPEDIA MERGER AS
A RESULT OF THE USA/VIVENDI UNIVERSAL TRANSACTION?
A: Nothing will happen to the USA securities that you receive in the USA/Expedia
merger as a result of the USA/Vivendi Universal transaction. Your shares of
USA common stock, USA preferred stock and USA warrants outstanding
immediately prior to the transaction will continue to remain outstanding
following the transaction.
Q: WHAT WILL HAPPEN IF THE USA/VIVENDI UNIVERSAL TRANSACTION DOES NOT CLOSE?
A: If you elect to receive the package of USA securities and the USA/Vivendi
Universal transaction does not close, you will continue to own USA
securities, and USA will continue in existence in its present form, without
regard to the changes described in this supplement.
Q: WILL USA SHAREHOLDERS HAVE THE OPPORTUNITY TO VOTE ON THE USA/VIVENDI
UNIVERSAL TRANSACTION?
A: Yes. The affirmative vote of at least 66 2/3% of the outstanding USA voting
stock that is not owned by Vivendi Universal, Liberty Media Corporation,
Mr. Barry Diller or any of their affiliates will be required to approve the
USA/Vivendi Universal transaction. Immediately following the consummation of
the USA/Expedia merger, the former Expedia shareholders who have received
USA securities in the merger will own between 14.5% and 15.9% of the
outstanding USA voting stock that is not owned by Vivendi Universal, Liberty
Media, Mr. Diller or any of their affiliates.
Q: WILL I BE ENTITLED TO VOTE ON THE USA/VIVENDI UNIVERSAL TRANSACTION?
A: If the USA/Expedia merger is consummated and you elected to receive USA
securities in the merger and continue to hold those securities received as
of the record date for the vote on the USA/Vivendi Universal transaction,
you will be entitled to vote. Each share of USA common stock will be
entitled to one vote per share and each share of USA preferred stock will be
entitled to two votes per share. It is contemplated that USA will designate
as the record date for the purpose of determining the USA stockholders
entitled to vote on the USA/Vivendi Universal transaction a date following
the anticipated date of the closing of the USA/Expedia merger.
Q: WHEN WILL THE USA/VIVENDI UNIVERSAL TRANSACTION OCCUR?
A: Because the transaction is subject to limited conditions, including USA
stockholder approval, USA expects to complete the USA/Vivendi Universal
transaction sometime during the spring of 2002, which is after the date we
anticipate completing the USA/Expedia merger.
Q: IS THE RECORD DATE FOR THE RECONVENED EXPEDIA ANNUAL MEETING DIFFERENT FROM
THE RECORD DATE FOR THE EXPEDIA ANNUAL MEETING?
A: No, the record date for the reconvened meeting continues to be October 15,
2001.
Q: WHAT DO I NEED TO DO NOW?
A: SEND IN YOUR PROXY CARD IF YOU HAVE NOT ALREADY DONE SO: If you already have
delivered a properly executed proxy, you do not need to do anything unless
you wish to change your vote. If you are a registered holder as of the
record date and you have not already delivered a properly executed proxy, or
if you wish to change your vote, please complete, sign and date the enclosed
proxy card and return it in the accompanying prepaid envelope to ensure that
your shares will be represented at the reconvened annual meeting. If your
shares are held in "street name" by your broker, and you have not already
delivered a properly executed proxy, or wish to change your vote, you should
instruct your broker how to vote your shares by following the directions
your broker provides. If you do not provide instructions to your broker,
your shares will not be voted (which will have the effect of voting against
the USA/Expedia merger).
2
SEND IN YOUR ELECTION FORM AND LETTER OF TRANSMITTAL AND EXPEDIA STOCK
CERTIFICATES ONLY IF YOU HAVE NOT ALREADY DONE SO AND WANT TO RECEIVE USA
SECURITIES IN THE USA/EXPEDIA MERGER OR IF YOU WANT TO REVOKE YOUR
PREVIOUSLY MADE ELECTION: If you hold Expedia common stock and you wish to
receive the package of USA securities in the merger, you must elect to
exchange some or all of your shares of Expedia common stock for shares of
Expedia Class B common stock in the recapitalization. If you have not
already made your election, you must complete the election form and letter
of transmittal included in the joint prospectus/proxy and information
statement dated November 13, 2001 and submit the election form and letter of
transmittal with the stock certificates covered by the election by the new
election deadline of 5:00 p.m., eastern time, on , 2002, the date
the Expedia annual meeting will be reconvened.
Please note that because Expedia will only issue a maximum of 37,500,000
shares of Expedia Class B common stock in the recapitalization, even if you
make a valid election to receive Expedia Class B common stock, you may not
receive shares of Expedia Class B common stock for all of the shares of
Expedia common stock surrendered with the election form and letter of
transmittal. You will, however, receive your proportional allocation, as
further described in the joint prospectus/proxy and information statement
previously mailed to you.
Q: WHAT IS THE DEADLINE FOR MAKING AN ELECTION TO EXCHANGE MY SHARES OF EXPEDIA
COMMON STOCK FOR SHARES OF EXPEDIA CLASS B COMMON STOCK?
A: The deadline has been extended to 5:00 p.m., eastern time, on , 2002,
the date of the reconvened Expedia annual meeting. You can call our proxy
solicitor, MacKenzie Partners, Inc., toll-free at (800) 322-2885, for the
final average trading price of USA common stock during the ten-day pricing
period that ends on the second trading day prior to the date of the
reconvened annual meeting.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AND/OR REVOKE MY ELECTION?
A: You can change your vote by delivering a later-dated, signed proxy card to
Expedia's secretary before the Expedia annual meeting is reconvened, or by
attending the annual meeting and voting in person. You may change your
election by delivering a later-dated, signed election form and letter of
transmittal (together with Expedia stock certificates, or other
documentation, as required) to Mellon Investor Services, the exchange agent
for the USA/Expedia merger, prior to the new election deadline. If you
revoke an earlier made election, your Expedia stock certificates will be
returned to you by the exchange agent. If, however, you are an Expedia
warrantholder or optionholder, you cannot revoke your exercise of the
warrant or option. You can only revoke your election to exchange the shares
of Expedia common stock that you receive upon exercise of your warrant or
option for shares of Expedia Class B common stock.
Q: WHOM CAN I CALL WITH QUESTIONS OR TO REQUEST ADDITIONAL COPIES OF DOCUMENTS?
A: If you have any questions about the USA/Expedia merger or the USA/Vivendi
Universal transaction, or would like copies of the joint prospectus/proxy
and information statement or any of the other documents we refer to in this
supplement, please call MacKenzie Partners, Inc., the proxy solicitor, at
(800) 322-2885.
3
THE USA/VIVENDI UNIVERSAL TRANSACTION
GENERAL
On December 17, 2001, USA announced that it had entered into an agreement
with Vivendi Universal pursuant to which USA would contribute the USA
Entertainment Group to a joint venture with Vivendi Universal, which joint
venture would also hold all of the businesses of Universal Studios Group.
Mr. Diller would be Chairman and chief executive officer of the joint venture as
well as of USA. Upon consummation of the USA/Vivendi Universal transaction, the
joint venture would be controlled by Vivendi Universal and its subsidiaries,
with the common interests owned 93.06% by Vivendi Universal, 5.44% by USA and
its affiliates and 1.5% by Mr. Diller. In exchange for its contribution, USA
would receive:
- approximately $1.62 billion in cash structured to be tax deferred for
15 years;
- a $750 million face value Class A preferred interest in the joint venture,
accreting at an annual rate of 5.0%, which preferred interest has a
20-year term and will be settled at maturity at its then face value for
cash;
- a $1.75 billion face value Class B preferred interest in the joint
venture, accreting at an annual rate of 1.4% and providing for cumulative
cash distributions at a rate of 3.6% per annum. The Class B preferred
interest would be callable and puttable commencing on the 20th anniversary
of completion of the USA/Vivendi Universal transaction for up to
approximately 56.6 million shares of USA common stock and USA Class B
common stock held by Vivendi Universal and its affiliates. At the election
of Vivendi Universal, USA common stock to be received by USA pursuant to
the put or call can be substituted with cash equal to the market value of
such shares; and
- a 5.44% common interest in the joint venture, which is generally callable
by Vivendi Universal commencing on the 5th anniversary, and puttable by
USA commencing on the eighth anniversary, of completion of the USA/Vivendi
Universal transaction, in either case at an "appraised value" for cash or
Vivendi Universal shares, at Vivendi Universal's election.
In addition, approximately 320.9 million shares of USANi LLC, a subsidiary of
USA (which shares are exchangeable on a one-for-one basis into shares of USA
common stock or USA Class B common stock and represent approximately 43.4% of
USA's outstanding common stock, assuming full exchange of USA Class B common
stock and exchangeable subsidiary equity, including USANi LLC), currently owned
by Vivendi Universal or Liberty Media Corporation will be cancelled in
connection with the transaction. As a result, and after giving effect to the
exchange of the remaining shares of USANi LLC held by Liberty Media into shares
of USA common stock, USANi LLC will be wholly owned by USA and its subsidiaries.
USA has also agreed to issue to Vivendi Universal at the completion of the
USA/Vivendi Universal transaction warrants to acquire 60,467,735 shares of USA
Common Stock, comprised of (a) 24,187,094 warrants at an exercise price of
$27.50, (b) 24,187,094 warrants at an exercise price of $32.50 and
(c) 12,093,547 warrants at an exercise price of $37.50. All of the warrants
would have a term of ten years and would not be exercisable during the first six
months after their issuance.
USA AFTER THE USA/VIVENDI UNIVERSAL TRANSACTION
USA INTERACTIVE
Upon completion of the USA/Vivendi Universal transaction, USA will be
renamed "USA Interactive" and will be a leader in integrated interactivity
focused on integrating interactive assets across multiple lines of business.
USA's businesses will consist of Home Shopping Network (including
4
HSN International and HSN Interactive), Ticketmaster (Nasdaq: TMCS), which
operates Citysearch and Match.com, Hotel Reservations Network (Nasdaq: ROOM),
Electronic Commerce Solutions, Styleclick (Nasdaq: IBUY), Precision Response
Corporation, and following completion of the USA/ Expedia merger, Expedia.
After the completion of the USA/Vivendi Universal transaction, USA will no
longer be engaged in the general entertainment businesses, and the transaction
agreements include a noncompetition provision, for a specified period, regarding
USA's participation in businesses similar to those being contributed to the
joint venture. We describe these provisions in this supplement below under
"--Corporate Governance--Agreement Not to Compete with the Joint Venture." USA's
business will be primarily focused on its electronic commerce and
interactive/information service businesses, and USA expects that it will
actively seek to grow those businesses, including through acquisitions. Any such
acquisitions could involve the issuance of additional USA securities or cash or
a combination of securities and cash. In addition, as described in this
supplement, following the completion of the USA/Vivendi Universal transaction,
USA generally will no longer be required to obtain the consent of Vivendi
Universal, Liberty Media or Mr. Diller as USA stockholders for any such
acquisitions regardless of the size of such acquisitions. USA is continually
reviewing, and often in discussions with third parties regarding, such possible
growth opportunities, including transactions in the online and offline travel
services and commerce-related areas. As previously disclosed in the joint
prospectus/proxy and information statement, it is possible that such
transactions would involve entities that compete with the businesses of Expedia.
Following completion of the USA/Vivendi Universal transaction, USA will
continue to be controlled by Mr. Diller, who will control between 68.1% and
68.4% of USA's voting power, including shares of USA common stock and Class B
common stock held by Vivendi Universal, Liberty Media and their affiliates.
However, there will be substantial changes to the governance and stockholders
agreements among USA, Mr. Diller, Vivendi Universal and Liberty Media, as
described below.
CORPORATE GOVERNANCE
In connection with the USA/Vivendi Universal transaction, each of the
Governance Agreement and the Stockholders Agreement, which agreements were
entered into in 1997 in connection with USA's original acquisition of the
television production and distribution businesses and cable networks of
Universal Studios, have been amended and restated. The amended and restated
agreements will generally be effective upon the closing of the USA/Vivendi
Universal transaction. Each of the amended and restated agreements have been
filed as exhibits to USA's amended registration statement of which this
supplement is a part.
AMENDED AND RESTATED GOVERNANCE AGREEMENT
GENERAL. On December 16, 2001, USA, Vivendi Universal, Universal, Liberty
Media and Mr. Diller entered into an Amended and Restated Governance Agreement
(the "AMENDED AND RESTATED GOVERNANCE AGREEMENT"). The Amended and Restated
Governance Agreement will be effective as of the completion of the USA/Vivendi
Universal transaction and sets forth restrictions on the acquisition of
additional equity securities of USA and other conduct restrictions, in each case
applicable to Vivendi Universal and its affiliates. In addition, the Amended and
Restated Governance Agreement governs Vivendi Universal's and Liberty Media's
rights of representation on USA's Board of Directors and Liberty Media's and
Mr. Diller's rights to approve certain actions by USA. If the USA/Vivendi
Universal transaction does not occur, the Governance Agreement currently in
effect will continue in place without change.
5
The Amended and Restated Governance Agreement eliminates preemptive rights
held by Universal with respect to issuances of USA stock, but retains these
rights for Liberty Media, as described in further detail below.
RESTRICTIONS ON UNIVERSAL'S ACQUISITION OF ADDITIONAL EQUITY SECURITIES AND
OTHER CONDUCT RESTRICTIONS. Under the Amended and Restated Governance Agreement,
Vivendi Universal agrees that neither it nor its affiliates will acquire the
beneficial ownership of any additional equity securities of USA until such time
(the "TRIGGER DATE") that the equity securities beneficially owned by Vivendi
Universal and its affiliates represent less than 20% of the total equity
securities of USA. Following the Trigger Date, Vivendi Universal will not
acquire beneficial ownership of any additional equity securities of USA if
following such acquisition Vivendi Universal and its affiliates would
beneficially own equity securities that represent more than 20% of the total
equity securities of USA. Notwithstanding any of the foregoing, Vivendi
Universal and its affiliates may continue to beneficially own any shares of USA
common stock currently owned by them and any shares of USA common stock issuable
upon exercise of their USA equity securities. These restrictions will cease to
apply upon the later of (a) the "CEO Termination Date" (as defined in the
Amended and Restated Governance Agreement) or the date Mr. Diller becomes
disabled and (b) the date following which Vivendi Universal ceases to have the
right to appoint a director to the Board of Directors of USA.
During the same period, Vivendi Universal and its affiliates have agreed not
to: (a) act, alone or in concert with others, to seek to affect or influence the
management, business or operations of USA; (b) enter into any kind of
arrangement (E.G., a voting trust) with respect to the voting of equity
securities of USA; (c) propose any merger or other business combination
involving USA, PROVIDED that discussions to that effect are not prohibited if
Mr. Diller participates; (d) make or participate in a solicitation of proxies to
vote equity securities in USA; (e) act, alone or in concert with others, for the
purpose of acquiring voting or selling equity securities in USA, or (f) request
any amendment to or waiver of any of these covenants.
Except in connection with open market transactions, Vivendi Universal and
its affiliates are not entitled to transfer to any single third party
transferee, in the aggregate, 10% or more of the total equity securities of USA,
unless Vivendi Universal and its affiliates cause such third party transferee to
agree to the acquisition and conduct restrictions described above.
REPRESENTATION ON THE BOARD OF DIRECTORS AND CEO. Under the terms of the
Amended and Restated Governance Agreement, immediately following the completion
of the USA/Vivendi Universal transaction:
- the Board of Directors of USA will include the following Liberty Media
designees: John C. Malone, Chairman of the Board of Directors of Liberty
Media, and Robert R. Bennett, President and Chief Executive Officer of
Liberty Media; and the following Vivendi Universal designees: Jean-Marie
Messier, Chairman and Chief Executive Officer of Vivendi Universal, and
Philippe Germond, Chairman and Chief Executive Officer of Cegetel;
- each of Liberty Media and Vivendi Universal will have the right to
nominate up to two directors so long as the number of equity securities
beneficially owned by it and its affiliates is at least equal to 75% of
the number of equity securities beneficially owned by it and its
affiliates immediately following the completion of the USA/Vivendi
Universal transaction (so long as its and its affiliates ownership
percentage is at least equal to the lesser of (x) 15% of the total equity
securities of USA and (y) the percentage that is five percentage points
less than the percentage of the total equity securities beneficially owned
by it and its affiliates immediately following the completion of the
USA/Vivendi Universal transaction);
- Liberty Media and Vivendi Universal each will have the right to nominate
one director so long as it and its affiliates beneficially own a number of
equity securities at least equal to 50% of the
6
number of the equity securities beneficially owned by them immediately
following the completion of the USA/Vivendi Universal transaction (so long
as the ownership percentage of it and its affiliates is at least equal to,
in the case of Liberty Media, 5% and, in the case of Vivendi Universal,
10% of the total equity securities of USA); and
- USA will use reasonable best efforts to cause one of Liberty Media's
designees to be a member of a committee of USA's Board of Directors and,
to the extent the person designated by Liberty Media qualifies as a member
of the Compensation Committee of USA's Board of Directors under applicable
tax and securities laws and regulations, USA will seek to have such person
appointed to the Compensation Committee.
USA has agreed to cause each director that Vivendi Universal or Liberty
Media nominates, as the case may be, to be included in the slate of nominees
recommended by the Board of Directors to USA's stockholders for election as
directors at each annual meeting of the stockholders of USA and will use all
reasonable efforts to cause the election of each such director including
soliciting proxies in favor of the election of such persons.
CONTINGENT MATTERS. The Amended and Restated Governance Agreement
eliminates "fundamental matters," which were a list of actions that USA could
not take without the prior written consent of Vivendi Universal, Liberty Media
and Mr. Diller. As part of the USA/Vivendi Universal transaction, Vivendi
Universal surrendered its consent right and each of Liberty Media and
Mr. Diller have agreed to a significantly limited number of actions that require
their prior consent before USA may take such action. Specifically, USA has
agreed that neither USA nor its affiliates will take the following actions
("CONTINGENT MATTERS") without the prior approval of both Liberty Media and
Mr. Diller:
- any transaction not in the ordinary course of business, launching new or
additional channels or engaging in any new field of business which will
result in or is reasonably likely to result in such stockholder's being
required under law to divest itself of all or any part of its USA
securities, or any material assets or render any such ownership illegal or
subject such stockholder to any fines, penalties or material additional
restrictions or limitations, based only on the equity securities of USA or
other material assets Liberty Media or Mr. Diller or any of their
respective affiliates hold as of the completion of the USA/Vivendi
Universal transaction; or
- if USA's Total Debt Ratio (as defined in the Amended and Restated
Governance Agreement) equals or exceeds 4:1 over a twelve-month period,
then (and only then) the following become additional Contingent Matters
(currently "Fundamental Matters" requiring the approval of Liberty Media,
Vivendi Universal and Mr. Diller under all circumstances under the
Governance Agreement as currently in effect),
-- any combination of the following, in any case, in one transaction or
a series of transactions during a six-month period, with a value of
10% or more of the market value of USA's outstanding equity
securities at the time of such transaction:
(A) acquiring or disposing (including pledges) of any assets or
business;
(B) granting or issuing any debt or equity securities of USA or any
of its subsidiaries other than as contemplated by, among other
things, existing agreements between USA, Vivendi Universal and
Liberty Media;
(C) redeeming, repurchasing or reacquiring any debt or equity
securities of USA or any of its subsidiaries other than as
contemplated by, among other things, existing agreements between
USA, Vivendi Universal and Liberty Media; or
(D) incurring any indebtedness;
7
-- voluntarily commencing any liquidation, dissolution or winding up of
USA or any material subsidiary;
-- making any material amendments to the certificate of incorporation or
bylaws of USA;
-- engaging in any line of business other than media, communications and
entertainment products, services and programming, and electronic
retailing, or other businesses engaged in by USA as of the date of
determination of the Total Debt Ratio;
-- adopting any stockholder rights plan (or any other plan or
arrangement that could reasonably be expected to disadvantage any
stockholder on the basis of the size or voting power of its
shareholding) that would adversely affect Liberty Media or
Mr. Diller; or
-- entering into any agreement with any holder of USA's equity
securities in such stockholder's capacity as such which grants such
stockholder with approval rights similar in type and magnitude to the
Contingent Matters provisions of the Amended and Restated Governance
Agreement.
Liberty Media's right to approve Contingent Matters continues so long as
Liberty Media beneficially owns at least two-thirds of the number of equity
securities of USA beneficially owned by it immediately after the completion of
the USA/Vivendi Universal transaction. Mr. Diller's right to approve Contingent
Matters continues so long as Mr. Diller beneficially owns 20,000,000 shares of
USA common stock (including options to purchase USA common stock, whether or not
then exercisable), the CEO Termination Date has not occurred and Mr. Diller has
not become disabled.
LIBERTY MEDIA'S PREEMPTIVE RIGHTS. Liberty Media (but not Vivendi
Universal) will continue to have certain preemptive rights that entitle it to
purchase or cause one of its affiliates to purchase for cash a number of shares
so that Liberty Media shall maintain the identical percentage equity beneficial
ownership in USA that Liberty Media owned immediately prior to that issuance.
REGISTRATION RIGHTS. Vivendi Universal, Liberty Media and Mr. Diller will
continue to be entitled to customary registration rights with respect to shares
of USA common stock (and in the case of Vivendi Universal, warrants to acquire
USA common stock) owned by them as of the completion of the USA/Vivendi
Universal transaction or acquired from USA in the future. Vivendi Universal,
Liberty Media and Mr. Diller will be entitled to demand registration rights but
no more than four in the case of Vivendi Universal and its affiliates, four in
the case of Liberty Media, and three in the case of Mr. Diller. The costs of
such registration will be paid by USA. USA will not be required to register
shares if a stockholder would be permitted to sell the shares in the quantities
proposed to be sold at the time in one transaction under Rule 144 of the
Securities Act or under another comparable exemption from registration.
TERMINATION OF AMENDED AND RESTATED GOVERNANCE AGREEMENT. Unless otherwise
provided in the agreement, the Amended and Restated Governance Agreement
terminates:
- as to Vivendi Universal at the time that it no longer beneficially owns at
least 5% of the total equity securities of USA;
- as to Liberty Media at the time that it no longer beneficially owns at
least 5% of the total equity securities of USA; and
- as to Mr. Diller at the time that the CEO Termination Date has occurred or
the time he becomes disabled.
8
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
GENERAL. On December 16, 2001, Vivendi Universal, Universal, Liberty Media
and Mr. Diller entered into an Amended and Restated Stockholders Agreement (the
"AMENDED AND RESTATED STOCKHOLDERS AGREEMENT"), which will become effective at
the completion of the USA/Vivendi Universal transaction and supersede the
Stockholders Agreement among Universal, Liberty Media, Mr. Diller and Seagram,
dated as of October 19, 1997. If the USA/Vivendi Universal transaction does not
occur, the Stockholders Agreement currently in effect will continue in place
without change.
CORPORATE GOVERNANCE. Vivendi Universal, Liberty Media and Mr. Diller each
have agreed to vote against any Contingent Matter not approved by Mr. Diller and
Liberty Media. Vivendi Universal, Liberty Media and Mr. Diller have also agreed
to vote all USA securities over which they have voting control in favor of the
respective designees of Vivendi Universal and Liberty Media to USA's Board of
Directors.
Each of Vivendi Universal and Liberty Media will continue to grant to
Mr. Diller an irrevocable proxy with respect to all USA securities owned by
Vivendi Universal and Liberty Media for all matters, except, with respect to the
proxy granted by Liberty Media, for Contingent Matters to which Liberty Media
has not consented. The proxy will generally remain in effect until the earlier
of the CEO Termination Date (as defined in the Amended and Restated Stockholders
Agreement) or the date that Mr. Diller becomes disabled, PROVIDED that
Mr. Diller still owns at least 20,000,000 shares of USA common stock (including
options).
RESTRICTIONS ON TRANSFERS. Until the earlier of the CEO Termination Date or
such date that Mr. Diller becomes disabled, subject to the other provisions of
the Amended and Restated Stockholders Agreement, neither Liberty Media nor
Mr. Diller can transfer shares of USA common stock or USA Class B common stock,
other than:
- transfers by Mr. Diller to pay taxes relating to certain USA incentive
compensation and stock options;
- transfers to each party's respective affiliates;
- certain pledges relating to financings; and
- transfers of options or USA's stock in connection with "cashless
exercises" of Mr. Diller's options.
These restrictions are subject to a number of exceptions (which exceptions are
generally subject to the rights of first refusal as described below):
- either stockholder may transfer shares of USA common stock or USA Class B
common stock to an unaffiliated third party or Vivendi Universal subject
to tag-along rights described below;
- either stockholder may transfer USA common stock or USA Class B common
stock so long as, in the case of Mr. Diller, he continues to beneficially
own at least 4,400,000 shares of USA common stock or USA Class B common
stock (including stock options) and, in the case of Liberty Media, Liberty
Media continues to beneficially own 4,000,000 shares of USA securities,
and in the case of a transfer of an interest in or shares of USA common
stock or USA Class B common stock held by the BDTV entities (which are
entities in which the economic interests are held by Liberty Media and the
voting interests are held by Mr. Diller), after such transfer, Liberty
Media and Mr. Diller collectively control 50.1% of the total voting power
of USA; or
- either stockholder may transfer USA stock so long as it complies with the
requirements of Rule 144 or Rule 145 and, in the case of a transfer of an
interest in or shares of USA common stock or USA Class B common stock held
by the BDTV Entities, after such transfer, Liberty Media and Mr. Diller
collectively control 50.1% of the total voting power of USA.
9
TAG-ALONG RIGHTS AND RIGHTS OF FIRST REFUSAL. Mr. Diller and Liberty Media
are entitled to a right to "tag-along" (I.E., participate on a pro rata basis)
on sales of USA common stock or USA Class B common stock by the other to any
third party. Liberty Media's tag-along right will not be triggered in case of
(a) sales by Mr. Diller of an aggregate of not more than 4,000,000 USA shares
within any rolling 12-month period, (b) transfers by Mr. Diller to pay taxes
relating to certain USA incentive compensation and stock options or transfers in
connection with "cashless exercises" of Mr. Diller's options, (c) market sales
or (d) sales and transfers when Mr. Diller is no longer CEO.
Mr. Diller has a right of first refusal with respect to sales by Universal
and its affiliates of USA shares. Such right will not be triggered in case of
(a) transfers between affiliates of Vivendi Universal, (b) market sales, in
aggregate, of not more than 1,000,000 USA shares within any rolling 12-month
period, and (c) transfers of an aggregate of not more than 4,000,000 USA shares
within any rolling 12-month period. Liberty Media also has a substantially
similar right of first refusal on the sales of USA shares by Vivendi Universal
and its affiliates, subject to Mr. Diller's right of first refusal.
Each of Mr. Diller and Liberty Media is entitled to a right of first refusal
in the case of a transfer by the other of USA shares to a third-party unless
(a) such third-party is an affiliate of the selling stockholder, (b) not more
than 4,000,000 USA shares in aggregate are transferred within any rolling
12-month period or (c) not more than 1,000,000 USA shares are transferred within
any rolling 12-month period through market sales.
TRANSFERS OF SHARES OF USA CLASS B COMMON STOCK. If a party to the Amended
and Restated Stockholders Agreement proposes to transfer shares of USA Class B
Common Stock, the other parties are entitled to swap any shares of USA common
stock they own for those shares, Mr. Diller having the priority over Liberty
Media in case of transfers made by Vivendi Universal. To the extent there remain
shares of USA Class B common stock that the selling stockholder would otherwise
transfer to a third party, those shares must be converted into shares of USA
common stock prior to the transfer. This restriction does not apply to, among
other transfers, transfers among the parties and their affiliates.
TERMINATION OF AMENDED AND RESTATED STOCKHOLDERS AGREEMENT. Vivendi
Universal's rights and obligations under the Amended and Restated Stockholders
Agreement generally terminate at such time as Vivendi Universal no longer
beneficially owns at least 5% of the total equity securities of USA.
Mr. Diller's and Liberty Media's rights under the Amended and Restated
Stockholders Agreement generally terminate at such time as, in the case of
Mr. Diller, he no longer beneficially owns at least 4,400,000 USA shares and, in
the case of Liberty Media, 4,000,000 USA shares. Liberty Media's tag-along
rights terminate at such time as it and its affiliates cease to beneficially own
at least 5% of the outstanding USA shares.
Mr. Diller's rights under the Amended and Restated Stockholders Agreement
generally terminate if the CEO Termination Date has occurred or if Mr. Diller
has become disabled.
AGREEMENT NOT TO COMPETE WITH THE JOINT VENTURE
In connection with the USA/Vivendi Universal transaction, each of USA and
Mr. Diller agreed, following the completion of the USA/Vivendi Universal
transaction, not to compete with the joint venture on the following terms:
- subject to certain exceptions, USA may not engage in the "Business," as
described below, acquire any interest in any person engaged in the
Business, solicit, recruit or hire employees of the joint venture or the
businesses being contributed to the joint venture or solicit or encourage
employees of the joint venture or the businesses being contributed to the
joint venture to leave their employment, in each case, for a period
commencing with the completion of the USA/Vivendi Universal transaction
through the later of (1) 18 months from the completion of the USA/Vivendi
Universal transaction and (2) six months after the date that Mr. Diller
ceases
10
to be the chief executive officer of the joint venture; PROVIDED that the
restrictions will cease to apply if at any time after 18 months from the
completion of the USA/Vivendi Universal transaction Mr. Diller ceases to
be the chief executive officer or another officer of USA but remains the
chief executive officer of the joint venture or Mr. Diller resigns as
chief executive officer of the joint venture for "good reason" or is
terminated without "cause," each as defined in the transaction agreement;
and
- subject to certain exceptions, Mr. Diller may not engage in the Business,
acquire any interest in any person engaged in the Business, solicit,
recruit or hire employees of the joint venture or the businesses being
contributed to the joint venture or solicit or encourage employees of the
joint venture or the businesses being contributed to the joint venture to
leave their employment, in each case, for a period commencing with the
completion of the USA/Vivendi Universal transaction through the earlier of
(1) the later of 18 months from the completion of the USA/Vivendi
Universal transaction and six months after the date that Mr. Diller ceases
to be the chief executive officer of the joint venture and (2) three years
after the completion of the USA/Vivendi Universal transaction; PROVIDED
that the restrictions will cease to apply if at any time after 18 months
from the completion of the USA/Vivendi Universal transaction Mr. Diller
resigns as chief executive officer of the joint venture for "good reason"
or is terminated without "cause".
For purposes of the non-compete, the "Business" is defined to mean the
operation, programming or delivery of any general or genre-based entertainment
television channel (irrespective of how such channel is delivered to the
customer, including delivery by cable, satellite, the internet or other
technologies), the production and distribution of entertainment television
programming and feature films and any other business to be contributed to the
partnership as of the completion of the USA/Vivendi Universal transaction,
including any reasonably foreseeable entertainment-focused extensions of such
businesses after the closing date that are programming or film-oriented, other
than in a transactional context. The term "Business" expressly does not include,
however, (1) television channels (irrespective of how such channel is delivered
to the customer, including delivery by cable, satellite, the internet or other
technologies) which are consumer transaction-oriented, such as Home Shopping
Network, America's Store and USA's planned travel network or which provide
informational services which lend themselves to commerce (such as Travel
Channel, Home & Garden Television, the Food Network, and Do It Yourself) or
which otherwise serve as a means of introducing, starting or promoting
transactional services, including transaction-oriented television channels whose
primary focus is the provision of electronic retailing, auction services or
gaming/gambling services or (2) electronic commerce and retailing, information
and services.
CORPORATE OPPORTUNITIES
The USA/Vivendi Universal transaction agreements also include provisions
relating to corporate opportunities that govern the relationship of USA and its
officers and directors, on the one hand, and the joint venture and its
affiliates, on the other hand. These corporate opportunity provisions are
substantially similar to those contained in the proposed Amended and Restated
Articles of Incorporation of Expedia, which are described under "Proposal
No. 2--Amendment and Restatement of Expedia's Articles of Incorporation--Conduct
of Certain Affairs of Expedia--Corporate Opportunity" in the joint
prospectus/proxy and information statement, except that they are subject to
USA's and Mr. Diller's agreement not to compete with the joint venture as
described immediately above.
USA has filed the transaction agreements relating to the USA/Vivendi
Universal transaction as exhibits to its Form 8-K filed on December 18, 2001.
See "Where You Can Find More Information" to obtain copies of these agreements.
11
WE ARE NOT SOLICITING YOUR VOTE ON THE USA/VIVENDI UNIVERSAL TRANSACTION,
NOR IS THE CONSUMMATION OF THE USA/EXPEDIA MERGER CONDITIONED UPON THE
CONSUMMATION OF THE USA/VIVENDI UNIVERSAL TRANSACTION. IF THE USA/EXPEDIA MERGER
IS CONSUMMATED AND YOU ELECT TO RECEIVE THE PACKAGE OF USA SECURITIES, AND YOU
CONTINUE TO HOLD YOUR USA SHARES AS OF THE RECORD DATE TO BE ESTABLISHED IN THE
FUTURE FOR DETERMINING THE USA STOCKHOLDERS ENTITLED TO VOTE ON THE USA/VIVENDI
UNIVERSAL TRANSACTION, YOU, AS A STOCKHOLDER OF USA, WILL RECEIVE MORE DETAILED
INFORMATION, INCLUDING A PROXY STATEMENT SOLICITING YOUR VOTE, FROM USA IN ORDER
TO EVALUATE YOUR VOTING DECISION WITH RESPECT TO THE USA/VIVENDI UNIVERSAL
TRANSACTION.
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE TRANSACTIONS
In addition to the interests of officers and directors described in the
joint prospectus/proxy and information statement dated November 13, 2001, since
the joint prospectus/proxy and information statement was mailed to you, the
Compensation Committee of USA granted options to acquire USA common stock, which
included grants to Expedia executives. Specifically, USA granted, effective upon
completion of the USA/Expedia merger, to Messrs. Barton, Stanger, Bishop,
Breakwell and Slyngstad options to acquire 100,000, 70,000, 30,000, 30,000 and
30,000 shares of USA common stock, respectively. USA also granted, effective
upon completion of the USA/Expedia merger, options to acquire 30,000 shares of
USA common stock to each of four other executive officers of Expedia. All of the
options will vest in four equal installments on the first four anniversaries of
the closing, and the per share exercise price of each option will be the closing
sales price of USA common stock on the last market trading day prior to
completion of the merger.
OTHER RECENT DEVELOPMENTS
On December 21, 2001, Expedia and Microsoft Corporation entered into a
second amended and restated services agreement whereby Microsoft will continue
to provide Expedia with specified administrative and operational services. The
material terms of this second amended and restated services agreement are as
described in the joint prospectus/proxy and information statement dated
November 13, 2001 under "Proposal No. 4--Election of Expedia Directors."
WHERE YOU CAN FIND MORE INFORMATION
USA and Expedia file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC").
You may read and copy any reports, statements or other information we file at
the SEC's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 2333 Broadway Citicorp Center, Suite 1400
Room 1024 New York, New York 10279 500 West Madison Street
Washington, D.C. 20549 Chicago, Illinois 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to you free of charge at the
SEC's web site at www.sec.gov.
This joint prospectus/proxy and information statement supplement is part of
a Registration Statement on Form S-4, as amended by post-effective Amendment
No. 2, filed by USA to register with the SEC the USA common stock, USA preferred
stock and USA warrants to be issued in the merger. This joint prospectus/proxy
and information statement supplement is also part of a Registration Statement on
Form S-4, as amended by post-effective Amendment No. 1, filed by Expedia to
register with the SEC the Expedia Class B common stock to be issued in the
recapitalization and the Expedia warrants to be issued in the merger.
12
As allowed by SEC rules, this supplement does not contain all the
information you can find in the Registration Statements or the exhibits to the
Registration Statements.
The SEC allows us to "incorporate by reference" information into this
supplement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this supplement, except for
any information superseded by information contained directly in this supplement.
This supplement incorporates by reference the documents set forth below that we
have previously filed with the SEC. These documents contain important
information about our companies and their financial condition.
USA SEC FILINGS
(FILE NO. 0-20570) PERIOD/FILING DATE
Annual Report on Form 10-K Year ended December 31, 2000
Quarterly Reports on Form 10-Q Quarters ended March 31, 2001, June 30, 2001
and September 30, 2001
Current Reports on Form 8-K Filed on January 10, 2001, February 1, 2001,
March 6, 2001, April 25, 2001, June 6, 2001,
June 7, 2001, June 27, 2001, July 16, 2001,
July 23, 2001, July 25, 2001, September 18,
2001, October 2, 2001, October 24, 2001,
October 30, 2001, October 31, 2001, two
filed on November 9, 2001, December 5, 2001,
December 17, 2001, December 18, 2001 and
January 8, 2002
Proxy Statement Filed on April 9, 2001
EXPEDIA SEC FILINGS
(FILE NO. 000-27429)
Annual Report on Form 10-K and Form 10-K/A Year ended June 30, 2001
Quarterly Reports on Form 10-Q Quarter ended September 30, 2001
Current Reports on Form 8-K Filed on July 19, 2001, July 27, 2001,
October 23, 2001 and December 12, 2001
USA and Expedia also incorporate by reference into this supplement
additional documents that may be filed with the SEC from the date of this
supplement to the date of the reconvened Expedia annual meeting. These include
period reports, such as annual reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
USA has supplied all information contained or incorporated by reference in
this supplement relating to USA. Expedia has supplied all such information
relating to Expedia and Microsoft has supplied all such information relating to
Microsoft.
If you are an Expedia or USA shareholder, we may have sent you some of the
documents incorporated by reference, but you can obtain any of them through us,
the SEC or through the SEC's website as described above. Documents incorporated
by reference are available from us without charge, excluding all exhibits unless
we have specifically incorporated by reference an exhibit in this supplement.
Shareholders may obtain documents incorporated by reference in this supplement
by
13
requesting them in writing or by telephone from the proxy solicitor or the
appropriate company at the following addresses:
USA Networks, Inc. Expedia, Inc.
152 West 57th Street 13810 SE Eastgate Way, Suite 400
New York, New York 10019 Bellevue, Washington 98005
Tel: (212) 314-7300 Tel: (425) 564-7200
Attention: Corporate Secretary Attention: Corporate Secretary
[LOGO OF MACKENZIE PARTNERS, INC.]
156 Fifth Avenue
New York, NY 10010
(212) 929-5500 (collect)
(800) 322-2885 (toll-free)
If you would like to request documents from us, please do so by ,
2002 to receive them before the Expedia annual meeting is reconvened.
IF YOU ARE AN EXPEDIA SHAREHOLDER, YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THE JOINT PROSPECTUS/PROXY AND
INFORMATION STATEMENT AND THIS SUPPLEMENT TO VOTE ON THE USA/EXPEDIA MERGER AND
TO DECIDE WHETHER OR NOT TO MAKE AN ELECTION. INFORMATION CONTAINED ON THE
WEBSITES OF USA AND/OR EXPEDIA IS NOT INCORPORATED IN THIS SUPPLEMENT, NOR
SHOULD YOU RELY ON ANY INFORMATION CONTAINED THEREON TO DETERMINE HOW TO VOTE ON
THE USA/EXPEDIA MERGER AND/OR WHETHER OR NOT TO MAKE AN ELECTION. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS SUPPLEMENT. THIS SUPPLEMENT IS DATED JANUARY , 2002. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS SUPPLEMENT IS ACCURATE
AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS DOCUMENT TO
SHAREHOLDERS NOR THE ISSUANCE OF USA COMMON STOCK, USA PREFERRED STOCK, USA
WARRANTS, EXPEDIA CLASS B COMMON STOCK OR NEW EXPEDIA WARRANTS IN THE
RECAPITALIZATION OR THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and financial statement schedule of USA as set forth in
their report, included in USA Networks, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 2000, which is incorporated by reference in this
joint prospectus/proxy and information statement supplement. USA's consolidated
financial statements and financial statement schedule are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedule incorporated in this joint prospectus/proxy and information statement
supplement by reference from Expedia, Inc.'s Annual Report on Form 10-K for the
year ended June 30, 2001, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This joint prospectus/proxy and information statement supplement contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to the financial condition, results
of operations, cash flows, dividends, financing plans, business strategies,
operating efficiencies or synergies, budgets, capital and other expenditures,
competitive positions, growth opportunities for existing products, benefits from
new technology, plans and objectives of management, markets for stock of USA and
Expedia and other matters. Statements in this document that are not historical
facts are hereby identified as "forward-looking statements" for purposes of the
safe harbor provided by Section 21E of the Exchange Act and Section 27A of the
Securities Act. Forward-looking statements, including, without limitation, those
relating to the future business prospects, revenues, working capital, liquidity,
capital needs, interest costs and income, in each case relating to USA and
Expedia, wherever they occur in this supplement, are necessarily estimates
reflecting the best judgement of the senior management of USA and Expedia, and
involve a number of risks and uncertainties that could cause actual results to
differ materially from those suggested by the forward-looking statements. These
forward-looking statements should, therefor, be considered in light of various
important factors, including those set forth in this supplement. Important
factors that could cause actual results to differ materially from estimates or
projections contained in the forward-looking statements include without
limitation:
- material adverse changes in economic conditions generally or in the
markets served by our companies;
- a significant delay in the expected closing of the transactions;
- material changes in inflation;
- future regulatory and legislative actions affecting our companies'
operating areas;
- competition from others;
- product demand and market acceptance;
- the ability to protect proprietary information and technology or to obtain
necessary licenses on commercially reasonable terms;
- the ability to expand into and successfully operate in foreign markets;
and
- obtaining and retaining skilled workers and key executives.
The words "estimate," "project," "intend," "expect," "believe" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this
supplement and other documents incorporated in this supplement by reference,
including, but not limited to, the December 31, 2000 Annual Report on Form 10-K
of USA, including any amendments, and the June 30, 2001 Annual Report on
Form 10-K of Expedia, including any amendments. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date stated, or if no date is stated, as of the date of this supplement.
Neither USA nor Expedia undertakes any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this supplement or to reflect the occurrence of unanticipated
events.
15
INDEX TO FINANCIAL INFORMATION
PAGE
--------
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
Selected Historical Financial Information................. F-2
Selected Pro Forma Combined Condensed Financial
Information............................................. F-5
Unaudited Comparative Per Share Data...................... F-7
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Pro Forma Combined Condensed Financial Information (Giving
Effect to the USA/Expedia Merger)....................... F-10
Pro Forma Combined Condensed Financial Information (Giving
Effect to the USA/Expedia Merger and the USA/Vivendi
Universal Transaction).................................. F-15
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.............................................. F-21
USA NETWORKS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED
SEPTEMBER 30, 2001
Unaudited Condensed Consolidated Statements of
Operations.............................................. F-23
Unaudited Condensed Balance Sheets........................ F-24
Unaudited Condensed Statements of Stockholders' Equity.... F-26
Unaudited Condensed Consolidated Statements of Cash
Flows................................................... F-27
Notes to Condensed Consolidated Financial Statements...... F-28
EXPEDIA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED
SEPTEMBER 30, 2001
Unaudited Condensed Consolidated Statements of Operations
and Comprehensive Loss.................................. F-38
Unaudited Condensed Balance Sheets........................ F-39
Unaudited Condensed Statements of Stockholders' Equity.... F-40
Unaudited Condensed Consolidated Statements of Cash
Flows................................................... F-41
Notes to Condensed Consolidated Financial Statements...... F-42
F-1
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
SELECTED HISTORICAL FINANCIAL INFORMATION
USA
In the table below, USA provides you with selected historical consolidated
financial data of USA. USA prepared this information using the consolidated
financial statements of USA for each of the years in the five-year period ended
December 31, 2000 and for the nine-month periods ended September 30, 2001 and
2000. The financial statements for each of the five years in the period ended
December 31, 2000 have been audited by Ernst & Young LLP, independent auditors.
The financial statements for the nine-month periods ended September 30, 2001 and
2000 have not been audited. USA has not declared any cash dividends on USA
common stock.
When you read the selected historical financial information, you should
consider reading along with it the historical financial statements and
accompanying notes that USA has included in its December 31, 2000 Annual Report
on Form 10-K. You can obtain this report by following the instructions we
provide under "Where You Can Find More Information" on page 12.
As used in this document, the term "EBITDA" refers to net income plus
(1) extraordinary items and cumulative effect of accounting changes,
(2) provision for income taxes, (3) interest expense, (4) depreciation and
amortization, (5) minority interest and (6) amortization of non-cash
distribution and marketing expense and non-cash compensation expense. EBITDA is
presented because USA believes it is a widely accepted indicator of its ability
to service debt as well as a valuation methodology for companies in the media,
entertainment and communication industries. EBITDA should not be considered in
isolation or as a substitute for measures of financial performance or liquidity
prepared in accordance with generally accepted accounting principles. EBITDA may
not be comparable to calculations of similarly titled measures presented by
other companies.
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------------------- -------------------------
1996(1) 1997(2) 1998(3)(4) 1999(5) 2000(6) 2000 2001(7)
---------- ---------- ----------- ---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net revenues..................... $ 36,361 $1,377,145 $ 2,759,896 $3,371,745 $ 4,601,492 $ 3,285,634 $ 3,943,457
Operating profit (loss).......... (564) 105,753 249,904 269,914 56,326 162,127 195,123
Earnings (loss) from continuing
operations..................... (1,572) 34,209 63,892 16,515 (88,588) (26,291) (68,104)
Earnings (loss) before cumulative
effect of accounting change.... (6,539) 13,061 76,894 (27,631) (147,983) (67,698) 449,743
Net earnings (loss).............. (6,539) 13,061 76,894 (27,631) (147,983) (67,698) 440,556
Basic earnings (loss) per common
share from continuing
operations(8).................. (0.04) 0.16 0.22 0.05 (0.25) (0.07) (0.18)
Diluted earnings (loss) per
common share from continuing
operations(8).................. (0.04) 0.15 0.19 0.04 (0.25) (0.07) (0.18)
Basic earnings (loss) per common
share before cumulative effect
of accounting change(8)........ (0.15) 0.06 0.27 (0.08) (0.41) (0.19) 1.21
Diluted earnings (loss) per
common share before cumulative
effect of change of accounting
change(8)...................... (0.15) 0.06 0.21 (0.08) (0.41) (0.19) 0.70
Basic net earnings (loss) per
common share(8)................ (0.15) 0.06 0.27 (0.08) (0.41) (0.19) 1.18
Diluted net earnings (loss) per
common share(8)................ (0.15) 0.06 0.21 (0.08) (0.41) (0.19) 0.69
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit)........ $ (24,444) $ 60,941 $ 443,408 $ 381,046 $ 602,588 $ 515,666 $ 1,247,221
Total assets..................... 2,116,232 2,670,796 8,316,190 9,233,227 10,473,870 10,611,093 11,687,907
Long-term obligations, net of
current maturities............. 271,430 448,346 775,683 574,979 552,501 572,449 545,584
Minority interest................ 356,136 372,223 3,633,597 4,492,066 4,817,137 4,941,036 4,943,105
Stockholders' equity............. 1,158,749 1,447,354 2,571,405 2,769,729 3,439,871 3,501,933 3,993,871
F-2
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------------------- -------------------------
1996(1) 1997(2) 1998(3)(4) 1999(5) 2000(6) 2000 2001(7)
---------- ---------- ----------- ---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OTHER DATA:
Net cash provided by (used in)
Operating activities............. $ 8,198 $ 60,363 $ 256,929 $ 401,577 $ 372,507 $ 302,278 $ 479,647
Investing activities............. 1,545 (83,043) (1,201,912) (413,968) (524,556) (362,501) 163,039
Financing activities............. 16,308 105,156 1,297,654 55,948 58,346 57,810 64,334
Net cash used in discontinued
operations..................... 2,585 9,041 (20,488) (66,260) (82,563) (54,382) (48,058)
Effect of exchange rate
changes........................ -- -- (1,501) (123) (2,687) (4,133) (3,426)
EBITDA........................... 2,295 198,372 496,612 627,745 809,491 567,885 676,881
------------------------------
(1) The consolidated statement of operations data include the operations of
Savoy Pictures Entertainment, Inc. and Home Shopping Network, Inc. since
their acquisition by USA on December 19, 1996 and December 20, 1996,
respectively. Prior to USA's acquisition of USA Networks, referred to as
Networks, which consisted of USA Network and The Sci-Fi Channel cable
televisions networks, and the domestic television production and
distribution business of Universal Studios, Inc., referred to as Studios
USA, the assets of Home Shopping Network, Inc. consisted principally of
USA's retail sales programs, Home Shopping Network and America's Store.
(2) The consolidated statement of operations data include the operations of
Ticketmaster since the acquisition by USA of its controlling interest in
Ticketmaster on July 17, 1997.
(3) The consolidated statement of operations data include the operations of
Networks and Studios USA since the acquisition by USA from Universal on
February 12, 1998 and CitySearch since its acquisition by USA on
September 28, 1998.
(4) Net earnings for the year ended December 31, 1998 include a pre-tax gain of
$74.9 million related to USA's sale of its Baltimore television station
during the first quarter of 1998 and a pre-tax gain of $109.0 million
related to the CitySearch transaction during the fourth quarter of 1998.
(5) The consolidated statement of operations data include the operations of
Hotel Reservation Network, referred to as Hotel Reservations, since its
acquisition by USA on May 10, 1999 and the operations of October Films and
the domestic film distribution and development business of Universal, which
was previously operated by Polygram Filmed Entertainment, referred to as USA
Films, since their acquisition by USA on May 28, 1999. Net earnings for the
year ended December 31, 1999 includes a pre-tax gain of $89.7 million
related to the sale of securities.
(6) Includes a pre-tax gain of $104.6 million related to the Styleclick
transaction, a pre-tax gain of $3.7 million related to the HRN initial
public offering, and a pre-tax charge of $145.6 million related to
impairment of Styleclick goodwill.
(7) Includes a gain of $517.8 million related to the sale of capital stock of
certain USA Broadcasting subsidiaries and an after-tax expense of
$9.2 million related to the cumulative effect of adoption SOP 00-2,
Accounting By Producers or Distributors of Films.
(8) Earnings (loss) per common share data and shares outstanding retroactively
reflect the impact of two-for-one stock splits of USA's Common Stock and USA
Class B common stock paid on February 24, 2000 and March 26, 1998. All share
numbers give effect to such stock splits.
F-3
EXPEDIA
In the table below, Expedia provides you with selected historical
consolidated financial data of Expedia. Expedia prepared this information using
the consolidated financial statements of Expedia for each of the fiscal years in
the five-year period ended June 30, 2001 and for the three-month periods ended
September 30, 2001 and 2000. The financial statements for each of the fiscal
years in the five year period ended June 30, 2001 have been audited by
Deloitte & Touche LLP, independent auditors. The financial statements for the
three-month periods ended September 30, 2001 and 2000 have not been audited.
Expedia has not declared any dividends on Expedia common stock.
When you read the selected historical financial information, you should
consider reading along with it the historical financial statements and
accompanying notes that Expedia has included in its June 30, 2001 Annual Report
on Form 10-K and the September 30, 2001 Quarterly Report on Form 10-Q. You can
obtain this report by following the instructions we provide under "Where You Can
Find More Information" on page 12.
THREE MONTHS
ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30
----------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2000 2001
-------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Agency revenues................................... $ 1,715 $ 6,866 $ 24,677 $ 59,534 $122,987 $ 21,646 $ 39,279
Merchant revenues................................. -- -- -- 10,912 64,548 12,335 34,102
Advertising and other revenues.................... 1,027 6,961 14,022 24,185 34,685 8,124 6,097
-------- -------- -------- --------- -------- -------- --------
Revenues.......................................... 2,742 13,827 38,699 94,631 222,220 42,105 79,478
-------- -------- -------- --------- -------- -------- --------
Cost of agency revenues........................... 3,176 8,996 14,548 34,136 53,427 11,882 15,977
Cost of merchant revenues......................... -- 3,369 17,567 3,745 9,509
Cost of advertising and other revenues............ 103 696 1,402 2,643 3,280 684 801
-------- -------- -------- --------- -------- -------- --------
Cost of revenues.................................. 3,279 9,692 15,950 40,148 74,274 16,311 26,287
-------- -------- -------- --------- -------- -------- --------
Gross profit (loss)............................... (537) 4,135 22,749 54,483 147,946 25,794 53,191
-------- -------- -------- --------- -------- -------- --------
Operating expenses................................ 28,384 33,613 42,351 96,599 137,381 28,511 39,461
Operating expenses--non-cash...................... -- -- -- 78,552 93,209 29,149 13,468
-------- -------- -------- --------- -------- -------- --------
Gain (loss) from operations....................... (28,921) (29,478) (19,602) (120,668) (82,644) (31,866) 262
Net interest income and other..................... -- -- -- 2,353 4,591 1,082 1,329
USAI transaction related costs.................... -- -- -- -- -- -- (6,341)
-------- -------- -------- --------- -------- -------- --------
Net loss.......................................... $(28,921) $(29,478) $(19,602) $(118,315) $(78,053) $(30,784) $ (4,750)
======== ======== ======== ========= ======== ======== ========
Basic and diluted net loss per share................ $ (1.65) $ (0.69) $ (0.09)
======== ======== ========
Pro forma basic and diluted net loss per share...... $ (0.59) $ (3.11)
======== =========
Weighted average shares used to compute basic and
diluted net loss per common share................. 47,210 44,849 50,319
======== ======== ========
Weighted average shares used to compute pro forma
basic and diluted net loss per common share....... 33,000 38,044
======== =========
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ -- $ -- $ -- $ 60,670 $182,161 $122,339 $197,801
Working capital................................... 658 4,814 1,390 20,122 96,147 73,881 108,616
Total assets...................................... 1,645 8,333 5,756 273,050 389,844 319,287 369,780
Unearned revenue.................................. 2,337 7,963 6,215 9,696 1,545 24,486 1,074
Deferred merchant bookings........................ -- -- -- 14,424 80,326 -- 62,457
Long-term liabilities, net of current portion..... -- 5,820 3,851 4,557 1,303 1,560 --
Accumulated deficit............................... (37,684) (67,162) (86,764) -- -- -- --
Retained deficit.................................. -- -- -- (113,365) (191,418) (144,149) (196,168)
Total stockholders' equity (owner's net
deficit)........................................ (721) (92) (1,675) 207,496 230,999 251,548 234,751
F-4
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
In the two tables below, we provide you with two sets of unaudited selected
pro forma combined condensed financial information for USA. The first set of
unaudited selected pro forma combined condensed financial information assumes
that the USA/Expedia merger had been completed on January 1, 2000 for income
statement purposes and on September 30, 2001 for balance sheet purposes and
assumes that the USA/Vivendi Universal transaction has not been completed. The
second set of unaudited selected pro forma combined condensed financial
information assumes that the transactions with Expedia and Vivendi Universal had
been completed on January 1, 2000 for income statement purposes and on
September 30, 2001 for balance sheet purposes.
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," provides that any goodwill resulting from a business
combination completed subsequent to June 30, 2001 will not be amortized, but
instead is required to be tested for impairment at least annually.
USA has not declared any cash dividends on USA common stock.
Expedia will account for the USA/Expedia merger as a recapitalization.
Accordingly, the transaction will not significantly impact Expedia's financial
information and no pro forma information for Expedia is deemed necessary.
This unaudited selected pro forma combined condensed financial information
should be read in conjunction with the separate historical financial statements
and accompanying notes of USA and Expedia that are incorporated by reference in
this supplement. It is also important that you read the unaudited pro forma
combined condensed financial information and accompanying discussion that we
have included in this supplement starting on page F-9 under "Unaudited Pro Forma
Combined Condensed Financial Statements." You should not rely on the unaudited
selected pro forma financial information as an indication of the results of
operations or financial position that would have been achieved if the
transactions had taken place earlier or of the results of operations or
financial position of USA after the completion of the transactions.
USA/EXPEDIA
PRO FORMA
-------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 2000 SEPTEMBER 30, 2001
----------------- ------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues....................................................................... $ 4,829,688 $ 4,158,631
Operating profit (loss)............................................................ (130,817) 171,636
Loss from continuing operations.................................................... (254,520) (85,476)
Earnings (loss) before cumulative effect of accounting change...................... (254,520) 432,371
Net loss before preferred dividend................................................. (313,915) 423,184
Net loss available to common shareholders.......................................... (326,974) 413,389
LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS
Basic.............................................................................. (0.65) (0.21)
Diluted............................................................................ (0.65) (0.21)
EARNINGS (LOSS) PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Basic.............................................................................. (0.65) 1.08
Diluted............................................................................ (0.65) 0.66
NET EARNINGS (LOSS) PER COMMON SHARE BEFORE PREFERRED DIVIDEND EARNINGS
Basic.............................................................................. (0.80) 1.05
Diluted............................................................................ (0.80) 0.64
NET EARNINGS (LOSS) PER SHARE AVAILABLE TO COMMON SHAREHOLDERS
Basic.............................................................................. (0.83) 1.03
Diluted............................................................................ (0.83) 0.63
BALANCE SHEET DATA (END OF PERIOD)
Working Capital.................................................................... $ 1,345,837
Total assets....................................................................... 13,508,491
Long-term obligations, net of current maturities................................... 545,584
Minority interest.................................................................. 5,002,410
Stockholders' equity............................................................... 5,610,121
F-5
USA/EXPEDIA/VIVENDI UNIVERSAL
PRO FORMA
--------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 2000 SEPTEMBER 30, 2001
----------------- ------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
Net Revenues.............................................. $3,192,808 $ 2,730,879
Operating loss............................................ (536,887) (210,420)
Loss from continuing operations........................... (323,965) (176,439)
Earnings (loss) before cumulative effect of accounting
change.................................................. (383,360) 341,408
Net loss before preferred dividend........................ (383,360) 341,408
Net loss available to common shareholders................. (396,419) 331,613
LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS
Basic..................................................... (0.81) (0.43)
Diluted................................................... (0.81) (0.43)
EARNINGS (LOSS) PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE
Basic..................................................... (0.95) 0.84
Diluted................................................... (0.95) 0.72
NET EARNINGS (LOSS) PER COMMON SHARE BEFORE PREFERRED
DIVIDEND EARNINGS
Basic..................................................... (0.95) 0.84
Diluted................................................... (0.95) 0.72
NET EARNINGS (LOSS) PER SHARE AVAILABLE TO COMMON
SHAREHOLDERS
Basic..................................................... (0.99) 0.81
Diluted................................................... (0.99) 0.70
ADJUSTED NET EARNINGS (LOSS) PER SHARE AVAILABLE TO COMMON
SHAREHOLDERS(A)
Basic..................................................... (1.19) 0.91
Diluted................................................... (1.19) 0.77
BALANCE SHEET DATA (END OF PERIOD)
Working capital........................................... $ 2,850,438
Total assets.............................................. 12,898,455
Long-term obligations, net of current maturities.......... 545,184
Minority interest......................................... 972,025
Common stock exchangeable for preferred interest.......... 1,347,646
Stockholders' equity...................................... 7,382,974
--------------------------
(A) Adjusted net earnings per share is calculated assuming that Vivendi
Universal's remaining 56.6 million shares following completion of the
USA/Vivendi Universal transaction are held in treasury for the purposes of
determining shares outstanding. USA's $1.75 billion face value Class B
preferred interest in the new joint venture with Vivendi Universal is
puttable and callable commencing on the 20th anniversary of the completion
of the USA/Vivendi Universal transaction at its then accreted face value for
up to 56.6 million USA shares held by Vivendi Universal. Upon exercise of
the put or call, USA will cancel those shares. Note that if USA's share
price exceeds $41 per share, less than 56.6 million shares would be
cancelled. For instance, at a share price of $45, 51.4 million shares would
be cancelled. At a share price of $50, 46.2 million shares would be
cancelled. At the election of Vivendi Universal, USA common stock to be
received by USA pursuant to the put or call can be substituted with cash
equal to the market value of such shares. If cash was substituted, it is
USA's intention to repurchase shares with the proceeds.
F-6
UNAUDITED COMPARATIVE PER SHARE DATA
In the table below, we provide you with historical per share financial
information for USA as of September 30, 2001, June 30, 2001 and December 31,
2000 and for the twelve months ended December 31, 2000. We also provide you with
historical per share financial information for Expedia as of September 30, 2001,
June 30, 2001 and December 31, 2000, for the three months ended September 30,
2001 and for the twelve months ended June 30, 2001. Expedia and Vivendi
Universal/Expedia pro forma per share financial information for USA is presented
as of September 30, 2001 and for the twelve months ended December 31, 2001. The
USA pro forma financial information assumes that the respective transactions had
been completed on January 1, 2000 for income statement purposes and on
September 30, 2001 for balance sheet purposes. Expedia will account for these
transactions as a recapitalization. Accordingly, the transactions will not
significantly impact Expedia's financial information and no pro forma
information for Expedia is deemed necessary.
Neither USA nor Expedia has declared any cash dividends during this period.
It is important that when you read this information, you read along with it
the financial statements and accompanying notes of USA and Expedia included in
the documents described on page 12 of this supplement under "Where You Can Find
More Information." It is also important that you read the pro forma combined
financial information and accompanying discussion and notes that we have
included in this supplement starting on page F-9 under "USA Unaudited Pro Forma
Combined Condensed Financial Statements." You should not rely on the pro forma
financial information as an indication of the results of operations or financial
position that would have been achieved if the transactions had taken place
earlier or the results of USA after the completion of the transactions.
USAI
--------------------------------------------
VIVENDI UNIVERSAL/ EXPEDIA VIVENDI UNIVERSAL/
EXPEDIA EXPEDIA EXPEDIA EQUIVALENT EXPEDIA EQUIVALENT
ACTUAL PRO FORMA(1) PRO FORMA(2) HISTORICAL PRO FORMA(3) PRO FORMA(3)
-------- ------------ ------------------ ---------- ------------ ------------------
BOOK VALUE PER COMMON SHARE
Common stock and Class B
common stock
September 30, 2001.......... $10.59 $13.83 $17.89 $ 4.57 $ 9.17 $11.86
June 30, 2001............... 9.43 4.60
December 31, 2000........... 9.34 4.84
LOSS PER COMMON SHARE FROM
CONTINUING OPERATIONS
Basic and diluted for the
nine months ended
September 30, 2001........ (0.18) (0.21) (0.43) (0.14) (0.29)
Basic and diluted for the
twelve months ended
June 30, 2001............. (1.65)
Basic and diluted for the
twelve months ended
December 31, 2000......... (0.25) (0.65) (0.81) (0.43) (0.53)
F-7
USAI
--------------------------------------------
VIVENDI UNIVERSAL/ EXPEDIA VIVENDI UNIVERSAL/
EXPEDIA EXPEDIA EXPEDIA EQUIVALENT EXPEDIA EQUIVALENT
ACTUAL PRO FORMA(1) PRO FORMA(2) HISTORICAL PRO FORMA(3) PRO FORMA(3)
-------- ------------ ------------------ ---------- ------------ ------------------
EARNINGS (LOSS) PER COMMON
SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE
For the nine months ended
September 30, 2001........
Basic..................... 1.21 1.08 0.84 0.71 0.55
Diluted................... 0.70 0.66 0.72 0.43 0.48
Basic and diluted for the
twelve months ended
June 30, 2001............. (1.65)
Basic and diluted for the
twelve months ended
December 31, 2000......... (0.41) (0.80) (0.95) (0.53) (0.63)
NET EARNINGS (LOSS) PER SHARE
AVAILABLE TO COMMON
SHAREHOLDERS
For the nine months ended
September 30, 2001
Basic..................... 1.18 1.03 0.81 0.68 0.54
Diluted................... 0.69 0.63 0.70 0.42 0.46
Basic and diluted for the
twelve months ended
June 30, 2001............. (1.65)
Basic and diluted for the
twelve months ended
December 31, 2000......... (0.41) (0.83) (0.99) (0.55) (0.65)
------------------------------
(1) Expedia pro forma information gives effect to the USA/Expedia merger as well
as acquisitions made by USA and Expedia in 2000 and 2001. See "Unaudited Pro
Forma Combined Condensed Financial Statements."
(2) Vivendi Universal/Expedia pro forma information gives effect to the
USA/Expedia merger and the proposed transaction between USA and Vivendi
Universal as well as acquisitions made by USA and Expedia in 2000 and 2001.
See "Unaudited Pro Forma Combined Condensed Financial Statements."
(3) The equivalent pro forma per share data for Expedia is computed by
multiplying USA's pro forma per share information by the mid-point of the
range of USA common stock exchange ratios for each share of Expedia Class B
common stock (0.663). The exchange ratio does not consider the USA preferred
stock or USA warrants to be issued in the USA/Expedia merger.
F-8
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
In the tables below, we provide you with two sets of unaudited pro forma
combined condensed financial information for USA. The first set of unaudited pro
forma combined condensed financial statements has been prepared to give effect
to the USA/Expedia merger, as well as other transactions completed by USA during
the twelve months ended December 31, 2000 and during the nine months ended
September 30, 2001 and assumes that the USA/Vivendi Universal transaction has
not occurred. The second set of unaudited pro forma combined condensed financial
statements has been prepared to give effect to the USA/Expedia merger and the
USA/Vivendi Universal transaction, as well as other transactions completed by
USA during the twelve months ended December 31, 2000 and during the nine months
ended September 30, 2001. The other transactions entered into by USA in 2000 and
2001 include:
(1) on April 5, 2000, USA acquired Precision Response Corporation ("PRC"), a
leader in outsourced customer care for both large corporations and high
growth internet-focused companies;
(2) on July 27, 2000, USA and Styleclick.com Inc. completed the merger of
Internet Shopping Network and Styleclick.com ("STYLECLICK"), forming a
new company named Styleclick, Inc.; and
(3) on January 31, 2001, Ticketmaster Online-Citysearch, Inc. ("TMCS") and
Ticketmaster Corporation ("TM"), both of which are subsidiaries of USA,
completed a transaction which combined the two companies.
In the following pages, we refer to the three transactions described
immediately above as the "Other USA Transactions."
Expedia will account for the USA/Expedia merger as a recapitalization.
Accordingly, the transaction will not significantly impact Expedia's financial
information and no pro forma information for Expedia is deemed necessary.
The pro forma combined condensed financial statements of USA reflect some
assumptions regarding the transactions and are based on the historical and pro
forma financial statements of USA and Expedia. The combined condensed financial
statements of USA, including the notes accompanying them, are qualified in their
entirety by reference to, and should be read in conjunction with, USA's and
Expedia's audited and unaudited financial statements, including the notes
accompanying them, which are either included in this supplement or previously
incorporated by reference into the joint prospectus/ proxy and information
statement previously mailed to you.
USA is in the process of evaluating the fair value of Expedia's assets
acquired and liabilities assumed in order to make a final allocation of the
excess purchase price, including allocation to intangibles other than goodwill.
Accordingly, the purchase accounting information is preliminary and has been
made solely for the purpose of developing such unaudited pro forma combined
condensed financial information. Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," provides that goodwill
resulting from a business combination completed subsequent to June 30, 2001 will
not be amortized but instead is required to be tested for impairment at least
annually.
THE PRO FORMA COMBINED CONDENSED BALANCE SHEET AND STATEMENTS OF OPERATIONS
ARE NOT NECESSARILY INDICATIVE OF THE RESULTS OF OPERATIONS OR FINANCIAL
POSITION, WHICH ACTUALLY WOULD HAVE BEEN REPORTED HAD THESE TRANSACTIONS
OCCURRED AS OF SEPTEMBER 30, 2001 OR AS OF JANUARY 1, 2000, NOR ARE THEY
NECESSARILY INDICATIVE OF USA'S FUTURE FINANCIAL RESULTS OF OPERATIONS.
F-9
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(GIVING EFFECT TO THE USA/EXPEDIA MERGER)
The pro forma combined condensed balance sheet as of September 30, 2001
gives effect to the USA/Expedia merger as if it had occurred on September 30,
2001.
The pro forma combined condensed statement of operations for the nine months
ended September 30, 2001 reflects USA's and Expedia's unaudited statements of
operations for the nine months ended September 30, 2001, adjusted for the pro
forma effects of the USA/Expedia merger, as well as the completion of the Other
USA Transactions, as if such transactions had occurred as of January 1, 2000.
The pro forma combined condensed statement of operations for the year ended
December 31, 2000 reflects USA's audited statements of operations for the year
ended December 31, 2000 and Expedia's results for the twelve months ended
December 31, 2000, as derived from Expedia's audited statement of operations for
the year ended June 30, 2000 and its unaudited statement of operations for the
six months ended December 31, 2000, adjusted for the pro forma effects of the
USA/Expedia merger, as well as the completion of the Other USA Transactions, as
if such transactions had occurred as of January 1, 2000.
F-10
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(GIVING EFFECT TO THE USA/EXPEDIA MERGER)
SEPTEMBER 30, 2001
(IN THOUSANDS)
USA
PRO FORMA PRO FORMA
USA EXPEDIA(1) ADJUSTMENTS COMBINED
----------- ---------- ----------- -----------
ASSETS
Current Assets:
Cash and short-term investments....................... $ 899,759 $197,801 $ -- $ 1,097,560
Restricted cash....................................... 5,285 -- -- 5,285
Marketable securities................................. 143,676 -- -- 143,676
Accounts and notes receivable, net.................... 1,281,711 18,425 -- 1,300,136
Inventories, net...................................... 445,628 -- -- 445,628
Other................................................. 132,692 27,419 -- 160,111
----------- -------- ---------- -----------
Total current assets.............................. 2,908,751 243,645 -- 3,152,396
Property, plant and equipment, net.................... 419,825 16,120 -- 435,945
Intangible assets including goodwill, net(5).......... 7,345,565 108,175 1,450,804 (2) 8,904,544
Cable distributions fees, net......................... 148,449 -- -- 148,449
Long-term investments................................. 190,142 -- -- 190,142
Advance to Universal.................................. 39,848 -- -- 39,848
Inventories, net...................................... 518,545 -- -- 518,545
Deferred charges and other............................ 116,782 1,840 -- 118,622
----------- -------- ---------- -----------
Total assets...................................... $11,687,907 $369,780 $1,450,804 $13,508,491
=========== ======== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................. $ 41,772 $ -- $ -- $ 41,772
Accounts payable, accrued and other current
liabilities......................................... 254,721 71,498 10,000 (2) 336,219
Accounts payable, client accounts..................... 118,095 -- -- 118,095
Obligations for program rights and film costs......... 293,004 -- -- 293,004
Deferred revenue...................................... 141,736 1,074 -- 142,810
Cable distribution fees payable....................... 33,556 -- -- 33,556
Other accrued liabilities............................. 778,646 62,457 -- 841,103
----------- -------- ---------- -----------
Total current liabilities......................... 1,661,530 135,029 10,000 1,806,559
----------- -------- ---------- -----------
Long-term debt........................................ 545,584 -- -- 545,584
Obligation for program rights and film costs.......... 325,303 -- -- 325,303
Other long-term liabilities........................... 218,514 -- -- 218,514
Minority interest..................................... 4,943,105 -- 59,305 (6) 5,002,410
Stockholders' equity.................................. 3,993,871 234,751 1,616,250 (2) 5,610,121
(234,751)(3)
----------- -------- ---------- -----------
Total liabilities and stockholders' equity........ $11,687,907 $369,780 $1,450,804 $13,508,491
=========== ======== ========== ===========
F-11
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(GIVING EFFECT TO THE USA/EXPEDIA MERGER)
TWELVE MONTHS ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USA USA EXPEDIA USA
OTHER PRO FORMA OTHER PRO FORMA PRO FORMA
USA TRANSACTIONS(4) COMBINED EXPEDIA(1) TRANSACTIONS(4) ADJUSTMENTS COMBINED
---------- --------------- ---------- ---------- --------------- --------------- ----------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios...... $1,530,464 $ -- $1,530,464 $ -- $ -- $ -- $1,530,464
Emerging networks...... 20,332 -- 20,332 -- -- -- 20,332
Filmed entertainment... 86,084 -- 86,084 -- -- -- 86,084
USA ELECTRONIC RETAILING
Electronic retailing... 1,778,986 -- 1,778,986 -- -- -- 1,778,986
USA INFORMATION AND
SERVICES
Ticketing operations... 518,565 -- 518,565 -- -- -- 518,565
HRN.................... 327,977 -- 327,977 -- -- -- 327,977
Expedia................ -- -- -- 148,687 7,971 -- 156,658
Teleservices........... 212,471 69,649 282,120 -- -- -- 282,120
Match.................. 29,123 -- 29,123 -- -- -- 29,123
Citysearch and
related.............. 50,889 -- 50,889 -- -- -- 50,889
Electronic commerce
solutions............ 24,293 -- 24,293 -- -- -- 24,293
Styleclick............. 22,308 1,889 24,197 -- -- -- 24,197
---------- -------- ---------- --------- -------- --------- ----------
Total net revenues... 4,601,492 71,538 4,673,030 148,687 7,971 -- 4,829,688
---------- -------- ---------- --------- -------- --------- ----------
OPERATING COSTS AND
EXPENSES
Cost of sales and
program costs........ 2,072,901 54,489 2,127,390 61,117 2,386 -- 2,190,893
Other costs............ 1,730,789 18,553 1,749,342 121,065 11,030 -- 1,881,437
Amortization of cable
distribution fees.... 36,322 -- 36,322 -- -- -- 36,322
Non-cash distribution
and marketing
expense.............. 11,512 -- 11,512 -- -- -- 11,512
Non-cash compensation
expense.............. -- -- 64,204 -- -- 64,204
Depreciation and
amortization(5)...... 693,642 16,133 709,775 53,187 13,175 -- 776,137
---------- -------- ---------- --------- -------- --------- ----------
Total operating costs
and expenses....... 4,545,166 89,175 4,634,341 299,573 26,591 -- 4,960,505
---------- -------- ---------- --------- -------- --------- ----------
Operating income
(loss)............. 56,326 (17,637) 38,689 (150,886) (18,620) -- (130,817)
Interest income
(expense), net....... (34,218) (740) (34,958) 4,620 (159) -- (30,497)
Gain on sale of
subsidiary stock..... 108,343 -- 108,343 -- -- -- 108,343
Miscellaneous.......... (59,046) (2) (59,048) -- -- -- (59,048)
---------- -------- ---------- --------- -------- --------- ----------
Earnings (loss) before
income taxes and
minority interest...... 71,405 (18,379) 53,026 (146,266) (18,779) -- (112,019)
Income tax (expense)..... (112,869) 9,948 (102,921) -- -- -- (102,921)
Minority interest........ (47,124) (34,151) (81,275) -- -- 41,695 (6) (39,580)
---------- -------- ---------- --------- -------- --------- ----------
EARNINGS (LOSS) FROM
CONTINUING
OPERATIONS............. (88,588) (42,582) (131,170) (146,266) (18,779) 41,695 (254,520)
Discontinued operations,
net of tax............. (59,395) -- (59,395) -- -- -- (59,395)
---------- -------- ---------- --------- -------- --------- ----------
NET EARNINGS (LOSS)
BEFORE PREFERRED STOCK
DIVIDEND............... (147,983) (42,582) (190,565) (146,266) (18,779) 41,695 (313,915)
Preferred stock
dividends.............. -- -- -- -- -- (13,059)(7) (13,059)
---------- -------- ---------- --------- -------- --------- ----------
NET EARNINGS (LOSS)
AVAILABLE TO COMMON
SHAREHOLDERS........... ($ 147,983) ($42,582) ($ 190,565) ($146,266) ($18,779) $ 28,636 ($ 326,974)
========== ======== ========== ========= ======== ========= ==========
Loss per common share
from
continuing operations
Basic and diluted...... ($ 0.25) ($ 0.36) ($ 0.65)
========== ========== ==========
Net loss per common share
before preferred stock
dividend
Basic and diluted...... ($ 0.41) ($ 0.52) ($ 0.80)
========== ========== ==========
Net loss available to
common shareholders
Basic and diluted...... ($ 0.41) ($ 0.52) ($ 0.83)
========== ========== ==========
Weighted average shares
outstanding............ 359,688 366,045 394,579
========== ========== ==========
Weighted average diluted
shares outstanding..... 359,688 366,045 394,579
========== ========== ==========
F-12
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(GIVING EFFECT TO THE USA/EXPEDIA MERGER)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USA USA USA
OTHER PRO FORMA PRO FORMA PRO FORMA
USA TRANSACTIONS(4) COMBINED EXPEDIA(1) ADJUSTMENTS COMBINED
---------- --------------- ----------- ---------- ----------- ----------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios....................... $1,280,065 $ -- $ 1,280,065 $ -- $ -- $1,280,065
Emerging networks....................... 18,125 -- 18,125 -- -- 18,125
Filmed entertainment.................... 129,562 -- 129,562 -- -- 129,562
USA ELECTRONIC RETAILING
Electronic retailing.................... 1,364,248 -- 1,364,248 -- -- 1,364,248
USA INFORMATION AND SERVICES
Ticketing operations.................... 447,904 -- 447,904 -- -- 447,904
HRN..................................... 394,830 -- 394,830 -- -- 394,830
Expedia................................. -- -- -- 215,174 -- 215,174
Teleservices............................ 228,926 -- 228,926 -- -- 228,926
Match................................... 31,686 -- 31,686 -- -- 31,686
Citysearch and related.................. 35,852 -- 35,852 -- -- 35,852
Electronic commerce solutions........... 15,560 -- 15,560 -- -- 15,560
Styleclick.............................. 7,358 -- 7,358 -- -- 7,358
Intersegment elimination.............. (10,659) -- (10,659) -- -- (10,659)
---------- -------- ----------- -------- --------- ----------
Total net revenues.................. 3,943,457 -- 3,943,457 215,174 -- 4,158,631
---------- -------- ----------- -------- --------- ----------
OPERATING COSTS AND EXPENSES
Cost of sales and program costs......... 1,809,063 -- 1,809,063 67,535 -- 1,876,598
Other costs............................. 1,457,513 -- 1,457,513 108,980 -- 1,566,493
Amortization of cable distribution
fees.................................. 29,384 -- 29,384 -- -- 29,384
Amortization of non-cash compensation... 5,431 -- 5,431 13,980 -- 19,411
Non-cash distribution and marketing
expense............................... 19,866 -- 19,866 -- -- 19,866
Depreciation and amortization(5)........ 427,077 -- 427,077 48,166 -- 475,243
---------- -------- ----------- -------- --------- ----------
Total operating costs and expenses.... 3,748,334 -- 3,748,334 238,661 -- 3,986,995
---------- -------- ----------- -------- --------- ----------
Operating income (loss)................. 195,123 -- 195,123 (23,487) -- 171,636
Interest income (expense), net.......... (34,462) -- (34,462) 3,110 -- (31,352)
Miscellaneous........................... (33,196) -- (33,196) -- -- (33,196)
---------- -------- ----------- -------- --------- ----------
Earnings (loss) before income taxes and
minority interest....................... 127,465 -- 127,465 (20,377) -- 107,088
Income tax (expense) benefit.............. (71,191) 1,005 (70,186) -- -- (70,186)
Minority interest......................... (124,378) (3,148) (127,526) -- 5,148 (6) (122,378)
---------- -------- ----------- -------- --------- ----------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS.............................. (68,104) (2,143) (70,247) (20,377) 5,148 (85,476)
Discontinued operations:
Gain on disposal of broadcasting stations,
net of tax.............................. 517,847 -- 517,847 -- -- 517,847
---------- -------- ----------- -------- --------- ----------
Earnings (loss) before cumulative effect
of accounting change.................. 449,743 (2,143) 447,600 (20,377) 5,148 432,371
Cumulative effect of accounting change,
net of tax.............................. (9,187) -- (9,187) -- -- (9,187)
---------- -------- ----------- -------- --------- ----------
NET EARNINGS (LOSS) BEFORE PREFERRED STOCK
DIVIDEND................................ 440,556 (2,143) 438,413 (20,377) 5,148 423,184
Preferred stock dividends................. (9,795)(7) (9,795)
---------- -------- ----------- -------- --------- ----------
NET EARNINGS (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS............................ $ 440,556 $ (2,143) $ 438,413 $(20,377) $ (4,647) $ 413,389
========== ======== =========== ======== ========= ==========
F-13
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (CONTINUED)
(GIVING EFFECT TO THE USA/EXPEDIA MERGER)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USA USA USA
OTHER PRO FORMA PRO FORMA PRO FORMA
USA TRANSACTIONS(4) COMBINED EXPEDIA(1) ADJUSTMENTS COMBINED
---------- --------------- ----------- ---------- ----------- ----------
Loss per common share from continuing
operations
Basic................................... $ (0.18) $ (0.19) $ (.21)
========== =========== ==========
Diluted................................. $ (0.18) $ (0.19) $ (.21)
========== =========== ==========
Earnings per common share before
cumulative effect of accounting change
Basic................................... $ 1.21 $ 1.20 $ 1.08
========== =========== ==========
Diluted................................. $ 0.70 $ 0.70 $ 0.66
========== =========== ==========
Net earnings per common share before
preferred stock dividend
Basic................................... $ 1.18 $ 1.17 $ 1.05
========== =========== ==========
Diluted................................. $ 0.69 $ 0.69 $ 0.64
========== =========== ==========
Net earnings available to common
shareholders
Basic................................... $ 1.18 $ 1.17 $ 1.03
========== =========== ==========
Diluted................................. $ 0.69 $ 0.69 $ 0.63
========== =========== ==========
Weighted average shares outstanding....... 373,227 373,227 401,761
========== =========== ==========
Weighted average diluted shares
outstanding............................. 759,661 759,661 788,195
========== =========== ==========
F-14
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(GIVING EFFECT TO THE USA/EXPEDIA MERGER AND THE USA/VIVENDI UNIVERSAL
TRANSACTION)
The pro forma combined condensed balance sheet as of September 30, 2001
gives effect to the USA/Expedia merger and the USA/Vivendi Universal transaction
as if those transactions had occurred on September 30, 2001.
The pro forma combined condensed statement of operations for the nine months
ended September 30, 2001 reflects USA's and Expedia's unaudited statements of
operations for the nine months ended September 30, 2001, adjusted for the pro
forma effects of the USA/Expedia merger and the USA/Vivendi Universal
transaction, as well as the completion of the Other USA Transactions, as if such
transactions had occurred as of January 1, 2000.
The pro forma combined condensed statement of operations for the year ended
December 31, 2000 reflects USA's audited statements of operations for the year
ended December 31, 2000 and Expedia's results for the twelve months ended
December 31, 2000, as derived from Expedia's audited statement of operations for
the year ended June 30, 2000 and its unaudited statement of operations for the
six months ended December 31, 2000, adjusted for the pro forma effects of the
USA/Expedia merger and the USA/Vivendi Universal transaction, as well as the
completion of the Other USA Transactions, as if all such transactions had
occurred as of January 1, 2000.
F-15
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(GIVING EFFECT TO THE USA/EXPEDIA MERGER AND USA/VIVENDI UNIVERSAL TRANSACTION)
SEPTEMBER 30, 2001
(IN THOUSANDS)
USAI ASSETS
CONTRIBUTED VU VU EXPEDIA
IN THE VU PRO FORMA PRO FORMA PRO FORMA PRO FORMA
USAI TRANSACTION(8) ADJUSTMENTS COMBINED EXPEDIA ADJUSTMENTS COMBINED
----------- -------------- --------------------- ----------- -------- ---------------- -----------
ASSETS
Current Assets:
Cash and
short-term
investments..... $ 899,759 $ 36,703 $1,618,710(9) $2,555,172 $197,801 $ -- $ 2,752,973
Restricted cash... 5,285 -- -- 5,285 -- -- 5,285
Marketable
securities...... 143,676 -- -- 143,676 -- -- 143,676
Accounts and notes
receivable,
net............. 1,281,711 (424,780) -- 856,931 18,425 -- 875,356
Inventories,
net............. 445,628 (228,894) -- 216,734 -- -- 216,734
Other............. 132,692 (13,219) -- 119,473 27,419 -- 146,892
----------- ----------- ---------- ----------- -------- ---------- -----------
Total current
assets........ 2,908,751 (630,190) 1,618,710 3,897,271 243,645 -- 4,140,916
Property, plant
and equipment,
net............. 419,825 (36,128) -- 383,697 16,120 -- 399,817
Intangible assets
including
goodwill, net... 7,345,565 (3,997,174) -- 3,348,391 108,175 1,450,804 (2) 4,907,370
Cable distribution
fees, net....... 148,449 (244) -- 148,205 -- -- 148,205
Long-term
investments..... 190,142 -- 1,750,000(9) 1,940,142 -- -- 1,940,142
Preferred interest
exchangeable for
common stock.... -- -- 1,347,646(9) 1,347,646 -- -- 1,347,646
Advance to
Universal....... 39,848 -- -- 39,848 -- -- 39,848
Inventories,
net............. 518,545 (518,545) -- -- -- -- --
Deferred charges
and other....... 116,782 (144,111) -- (27,329) 1,840 -- (25,489)
----------- ----------- ---------- ----------- -------- ---------- -----------
Total assets.... $11,687,907 $(5,326,392) $4,716,356 $11,077,871 $369,780 $1,450,804 $12,898,455
=========== =========== ========== =========== ======== ========== ===========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current Liabilities:
Current maturities
of long-term
debt............ $ 41,772 $ (559) $ -- $ 41,213 $ -- $ -- $ 41,213
Accounts payable,
accrued and
other current
liabilities..... 254,721 (13,357) -- 241,364 71,498 10,000 (2) 322,862
Accounts payable,
client
accounts........ 118,095 -- -- 118,095 -- -- 118,095
Obligations for
program rights
and film
costs........... 293,004 (289,097) -- 3,907 -- -- 3,907
Deferred
revenue......... 141,736 (54,322) -- 87,414 1,074 -- 88,488
Cable distrubution
fees payable.... 33,556 -- -- 33,556 -- -- 33,556
Other accrued
liabilities..... 778,646 (158,746) -- 619,900 62,457 -- 682,357
----------- ----------- ---------- ----------- -------- ---------- -----------
Total current
liabilities... 1,661,530 (516,081) -- 1,145,449 135,029 10,000 1,290,478
Long-term debt.... 545,584 (400) -- 545,184 -- -- 545,184
Obligation for
program rights
and film
costs........... 325,303 (323,801) -- 1,502 -- -- 1,502
Other long-term
Liabilities..... 218,514 (63,643) 1,203,775 (12) 1,358,646 -- -- 1,358,646
Minority
interest........ 4,943,105 (4,030,385) -- 912,720 -- 59,305 (6) 972,025
Common stock
exchangeable for
preferred
interest........ -- -- 1,347,646(9) 1,347,646 -- -- 1,347,646
Stockholders'
equity.......... 3,993,871 (392,082) 2,164,935(9)(10) 5,766,724 234,751 1,616,250 (2) 7,382,974
(234,751)(3)
----------- ----------- ---------- ----------- -------- ---------- -----------
Total
liabilities
and
stockholders'
equity........ $11,687,907 $(5,326,392) $4,716,356 $11,077,871 $369,780 $1,450,804 $12,898,455
=========== =========== ========== =========== ======== ========== ===========
F-16
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(GIVING EFFECT TO THE USA/EXPEDIA MERGER AND THE USA/VIVENDI UNIVERSAL
TRANSACTION)
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USAI USAI VU VU
USAI OTHER USAI PRO FORMA ASSETS PRO FORMA PRO FORMA
HISTORICAL TRANSACTIONS(3) COMBINED CONTRIBUTED(8) ADJUSTMENTS COMBINED
---------- --------------- ---------- -------------- -------------- ----------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios................. $1,530,464 $ -- $1,530,464 $(1,530,464) $ -- $ --
Emerging networks................. 20,332 -- 20,332 (20,332) -- --
Filmed entertainment.............. 86,084 -- 86,084 (86,084) -- --
USA ELECTRONIC RETAILING
Electronic retailing.............. 1,778,986 -- 1,778,986 -- -- 1,778,986
USA INFORMATION AND SERVICES
Ticketing operations.............. 518,565 -- 518,565 -- -- 518,565
HRN............................... 327,977 -- 327,977 -- -- 327,977
Expedia........................... -- -- -- -- -- --
Teleservices...................... 212,471 69,649 282,120 -- -- 282,120
Match............................. 29,123 -- 29,123 -- -- 29,123
Citysearch and related............ 50,889 -- 50,889 -- -- 50,889
Electronic commerce solutions..... 24,293 -- 24,293 -- -- 24,293
Styleclick........................ 22,308 1,889 24,197 -- -- 24,197
---------- -------- ---------- ----------- -------- ----------
Total net revenues.............. 4,601,492 71,538 4,673,030 (1,636,880) -- 3,036,150
---------- -------- ---------- ----------- -------- ----------
Operating costs and expenses:
Cost of sales and program costs... 2,072,901 54,489 2,127,390 (759,864) -- 1,367,526
Other costs....................... 1,730,789 18,553 1,749,342 (343,046) -- 1,406,296
Amortization of cable distribution
fees............................ 36,322 -- 36,322 -- -- 36,322
Non-cash distribution and
marketing expense............... 11,512 -- 11,512 -- -- 11,512
Non-cash compensation expense..... -- -- -- -- -- --
Depreciation and amortization..... 693,642 16,133 709,775 (127,900) -- 581,875
---------- -------- ---------- ----------- -------- ----------
Total operating costs and
expenses...................... 4,545,166 89,175 4,634,341 (1,230,810) -- 3,403,531
---------- -------- ---------- ----------- -------- ----------
Operating income................ 56,326 (17,637) 38,689 (406,070) (367,381)
Interest income (expense), net.... (34,218) (740) (34,958) 30,492 -- (4,466)
Gain on sale of subsidiary
stock........................... 108,343 -- 108,343 -- -- 108,343
Miscellaneous..................... (59,046) (2) (59,048) (254) 149,500(11) 90,198
---------- -------- ---------- ----------- -------- ----------
Earnings before income taxes and
minority interest................. 71,405 (18,379) 53,026 (375,832) 149,500 (173,306)
Income tax (expense) benefit........ (112,869) 9,948 (102,921) 14,343 (58,679) (147,257)
Minority interest................... (47,124) (34,151) (81,275) 201,223 -- 119,948
---------- -------- ---------- ----------- -------- ----------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS........................ (88,588) (42,582) (131,170) (160,266) 90,821 (200,615)
Discontinued operations, net of
tax............................... (59,395) -- (59,395) -- -- (59,395)
---------- -------- ---------- ----------- -------- ----------
NET EARNINGS (LOSS) BEFORE PREFERRED
STOCK DIVIDEND.................... (147,983) (42,582) (190,565) (160,266) 90,821 (260,010)
Preferred stock dividends........... -- -- -- -- -- --
---------- -------- ---------- ----------- -------- ----------
NET EARNINGS (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS............... $ (147,983) $(42,582) $ (190,565) (160,266) $ 90,821 $ (260,010)
========== ======== ========== =========== ======== ==========
EXPEDIA
EXPEDIA OTHER EXPEDIA PRO FORMA PRO FORMA
HISTORICAL TRANSACTIONS(3) ADJUSTMENTS COMBINED
---------- --------------- -------------- ----------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios................. $ -- $ -- $ -- $ --
Emerging networks................. -- -- -- --
Filmed entertainment.............. -- -- -- --
USA ELECTRONIC RETAILING
Electronic retailing.............. -- -- -- 1,778,986
USA INFORMATION AND SERVICES
Ticketing operations.............. -- -- -- 518,565
HRN............................... -- -- -- 327,977
Expedia........................... 148,687 7,971 -- 156,658
Teleservices...................... -- -- 282,120
Match............................. -- -- -- 29,123
Citysearch and related............ -- -- -- 50,889
Electronic commerce solutions..... -- -- -- 24,293
Styleclick........................ -- -- -- 24,197
--------- -------- ------- ----------
Total net revenues.............. 148,687 7,971 -- 3,192,808
--------- -------- ------- ----------
Operating costs and expenses:
Cost of sales and program costs... 61,117 2,386 -- 1,431,029
Other costs....................... 121,065 11,030 -- 1,538,391
Amortization of cable distribution
fees............................ -- -- -- 36,322
Non-cash distribution and
marketing expense............... -- -- -- 11,512
Non-cash compensation expense..... 64,204 -- -- 64,204
Depreciation and amortization..... 53,187 13,175 -- (5) 648,237
--------- -------- ------- ----------
Total operating costs and
expenses...................... 299,573 26,591 -- 3,729,695
--------- -------- ------- ----------
Operating income................ (150,886) (18,620) -- (536,887)
Interest income (expense), net.... 4,620 (159) -- (5)
Gain on sale of subsidiary
stock........................... -- -- -- 108,343
Miscellaneous..................... -- -- -- 90,198
--------- -------- ------- ----------
Earnings before income taxes and
minority interest................. (146,266) (18,779) -- (338,351)
Income tax (expense) benefit........ -- -- -- (147,257)
Minority interest................... -- -- 41,695 (6) 161,643
--------- -------- ------- ----------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS........................ (146,266) (18,779) 41,695 (323,965)
Discontinued operations, net of
tax............................... -- -- -- (59,395)
--------- -------- ------- ----------
NET EARNINGS (LOSS) BEFORE PREFERRED
STOCK DIVIDEND.................... (146,266) (18,779) 41,695 (383,360)
Preferred stock dividends........... -- -- (13,059)(7) (13,059)
--------- -------- ------- ----------
NET EARNINGS (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS............... $(146,266) $(18,779) $28,636 $ (396,419)
========= ======== ======= ==========
F-17
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (CONTINUED)
(GIVING EFFECT TO THE USA/EXPEDIA MERGER AND THE USA/VIVENDI UNIVERSAL
TRANSACTION)
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USAI USAI VU VU
USAI OTHER USAI PRO FORMA ASSETS PRO FORMA PRO FORMA EXPEDIA
HISTORICAL TRANSACTIONS(3) COMBINED CONTRIBUTED(8) ADJUSTMENTS COMBINED HISTORICAL
---------- --------------- --------- -------------- ----------- ---------- ----------
Loss per common share from Continuing
Operations
Basic and diluted..................... $ (0.25) $ (0.36) $ (0.54)
========== ======== ==========
Net loss per common share before
preferred stock dividend
Basic and diluted..................... $ (0.41) $ (0.52) $ (0.70)
========== ======== ==========
Net loss available to common
shareholders
Basic and diluted..................... $ (0.41) $ (0.52) $ (0.70)
========== ======== ==========
Weighted average shares outstanding..... 359,688 366,045 373,125
========== ======== ==========
Weighted average diluted shares
outstanding........................... 359,688 366,045 373,125
========== ======== ==========
EXPEDIA
OTHER EXPEDIA PRO FORMA PRO FORMA
TRANSACTIONS(3) ADJUSTMENTS COMBINED
--------------- ----------- ----------
Loss per common share from Continuing
Operations
Basic and diluted..................... $ (0.81)
==========
Net loss per common share before
preferred stock dividend
Basic and diluted..................... $ (0.95)
==========
Net loss available to common
shareholders
Basic and diluted..................... $ (0.99)
==========
Weighted average shares outstanding..... 401,658
==========
Weighted average diluted shares
outstanding........................... 401,658
==========
F-18
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(GIVING EFFECT TO THE USA/EXPEDIA MERGER AND THE USA/VIVENDI UNIVERSAL
TRANSACTION)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USAI USAI
USAI OTHER PRO FORMA ASSETS
HISTORICAL TRANSACTIONS(3) COMBINED CONTRIBUTED(8)
---------- --------------- ---------- --------------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios.............. $1,280,065 -- $1,280,065 $(1,280,065)
Emerging networks.............. 18,125 -- 18,125 (18,125)
Filmed entertainment........... 129,562 -- 129,562 (129,562)
USA ELECTRONIC RETAILING
Electronic retailing........... 1,364,248 -- 1,364,248 --
USA INFORMATION AND SERVICES
Ticketing operations........... 447,904 -- 447,904 --
HRN............................ 394,830 -- 394,830 --
Expedia........................ -- -- -- --
Teleservices................... 228,926 -- 228,926 --
Match.......................... 31,686 -- 31,686 --
Citysearch and related......... 35,852 -- 35,852 --
Electronic commerce
solutions.................... 15,560 -- 15,560 --
Styleclick..................... 7,358 -- 7,358 --
Intersegment elimination....... (10,659) -- (10,659) --
---------- -------- ---------- -----------
Total net revenues........... 3,943,457 -- 3,943,457 (1,427,752)
---------- -------- ---------- -----------
OPERATING COSTS AND EXPENSES
Cost of sales and program
costs........................ 1,809,063 -- 1,809,063 (690,381)
Other costs.................... 1,457,513 -- 1,457,513 (254,529)
Amortization of cable
distribution fees............ 29,384 -- 29,384 --
Amortization of non-cash
compensation................. 5,431 -- 5,431 --
Non-cash distribution and
marketing expense............ 19,866 -- 19,866 --
Depreciation and
amortization(5).............. 427,077 -- 427,077 (100,786)
---------- -------- ---------- -----------
Total operating costs and
expenses................... 3,748,334 -- 3,748,334 (1,045,696)
---------- -------- ---------- -----------
Operating income (loss)...... 195,123 -- 195,123 (382,056)
Interest income (expense),
net.......................... (34,462) -- (34,462) 24,259
Miscellaneous.................. (33,196) -- (33,196) 7,789
---------- -------- ---------- -----------
Earnings (loss) before income
taxes and minority interest.... 127,465 -- 127,465 (350,008)
Income tax (expense) benefit..... (71,191) 1,005 (70,186) 12,736
Minority interest................ (124,378) (3,148) (127,526) 178,193
---------- -------- ---------- -----------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS..................... (68,104) (2,143) (70,247) (159,079)
Discontinued operations:
Gain on disposal of
broadcasting stations, net of
tax.......................... 517,847 -- 517,847 --
---------- -------- ---------- -----------
Earnings (loss) before cumulative
effect of accounting change.... 449,743 (2,143) 447,600 (159,079)
Cumulative effect of accounting
change, net of tax............. (9,187) -- (9,187) 9,187
---------- -------- ---------- -----------
NET EARNINGS (LOSS) BEFORE
PREFERRED STOCK DIVIDEND....... 440,556 (2,143) 438,413 (149,892)
Preferred stock dividends........ -- -- -- --
---------- -------- ---------- -----------
NET EARNINGS (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS............ $ 440,556 $ (2,143) $ 438,413 $ (149,892)
========== ======== ========== ===========
VU VU EXPEDIA
PRO FORMA PRO FORMA EXPEDIA PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED HISTORICAL(3) ADJUSTMENTS COMBINED
--------------- ---------- ------------- -------------- ----------
NET REVENUES:
USA ENTERTAINMENT
Cable and studios.............. $ -- $ -- $ -- $ -- $ --
Emerging networks.............. -- -- -- -- --
Filmed entertainment........... -- -- -- -- --
USA ELECTRONIC RETAILING
Electronic retailing........... -- 1,364,248 -- -- 1,364,248
USA INFORMATION AND SERVICES
Ticketing operations........... -- 447,904 -- -- 447,904
HRN............................ -- 394,830 -- -- 394,830
Expedia........................ -- -- 215,174 -- 215,174
Teleservices................... -- 228,926 -- -- 228,926
Match.......................... -- 31,686 -- -- 31,686
Citysearch and related......... -- 35,852 -- -- 35,852
Electronic commerce
solutions.................... -- 15,560 -- -- 15,560
Styleclick..................... -- 7,358 -- -- 7,358
Intersegment elimination....... -- (10,659) -- -- (10,659)
--------- ---------- ---------- -------- ----------
Total net revenues........... -- 2,515,705 215,174 -- 2,730,879
--------- ---------- ---------- -------- ----------
OPERATING COSTS AND EXPENSES
Cost of sales and program
costs........................ -- 1,118,682 67,535 -- 1,186,217
Other costs.................... -- 1,202,984 108,980 -- 1,311,964
Amortization of cable
distribution fees............ -- 29,384 -- -- 29,384
Amortization of non-cash
compensation................. -- 5,431 13,980 -- 19,411
Non-cash distribution and
marketing expense............ -- 19,866 -- -- 19,866
Depreciation and
amortization(5).............. -- 326,291 48,166 -- 374,457
--------- ---------- ---------- -------- ----------
Total operating costs and
expenses................... -- 2,702,638 238,661 -- 2,941,299
--------- ---------- ---------- -------- ----------
Operating income (loss)...... -- (186,933) (23,487) -- (210,420)
Interest income (expense),
net.......................... -- (10,203) 3,110 -- (7,093)
Miscellaneous.................. 112,125(11) 86,718 -- -- 86,718
--------- ---------- ---------- -------- ----------
Earnings (loss) before income
taxes and minority interest.... 112,125 (110,418) (20,377) -- (130,795)
Income tax (expense) benefit..... (44,009) (101,459) -- -- (101,459)
Minority interest................ -- 50,667 -- 5,148(6) 55,815
--------- ---------- ---------- -------- ----------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS..................... 68,116 161,210 (20,377) 5,148 (176,439)
Discontinued operations:
Gain on disposal of
broadcasting stations, net of
tax.......................... -- 517,847 -- -- 517,847
--------- ---------- ---------- -------- ----------
Earnings (loss) before cumulative
effect of accounting change.... 68,116 356,637 (20,377) 5,148 341,408
Cumulative effect of accounting
change, net of tax............. -- -- -- -- --
--------- ---------- ---------- -------- ----------
NET EARNINGS (LOSS) BEFORE
PREFERRED STOCK DIVIDEND....... 68,116 356,637 (20,377) 5,148 341,408
Preferred stock dividends........ -- -- -- (9,795)(7) (9,795)
--------- ---------- ---------- -------- ----------
NET EARNINGS (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS............ $ 68,116 $ 356,637 $ (20,377) $ (4,647) $ 331,613
========= ========== ========== ======== ==========
F-19
USA NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (CONTINUED)
(GIVING EFFECT TO THE USA/EXPEDIA MERGER AND THE USA/VIVENDI UNIVERSAL
TRANSACTION)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
USAI USAI VU
USAI OTHER PRO FORMA ASSETS PRO FORMA
HISTORICAL TRANSACTIONS(3) COMBINED CONTRIBUTED(8) ADJUSTMENTS
---------- --------------- ---------- -------------- ---------------
Loss per common share from
continuing operations
Basic............................ $ (0.18) $ (0.19)
========== ==========
Diluted.......................... $ (0.18) $ (0.19)
========== ==========
Earnings per common share before
cumulative effect of accounting
change
Basic............................ $ 1.21 $ 1.20
========== ==========
Diluted.......................... $ 0.70 $ 0.70
========== ==========
Net earnings per common share
before preferred stock dividend
Basic............................ $ 1.18 $ 1.17
========== ==========
Diluted.......................... $ 0.69 $ 0.69
========== ==========
Net earnings available to common
shareholders
Basic............................ $ 1.18 $ 1.17
========== ==========
Diluted.......................... $ 0.69 $ 0.69
========== ==========
Weighted average shares
outstanding...................... 373,227 373,227
========== ==========
Weighted average diluted shares
outstanding...................... 759,661 759,661
========== ==========
VU EXPEDIA
PRO FORMA EXPEDIA PRO FORMA PRO FORMA
COMBINED HISTORICAL(3) ADJUSTMENTS COMBINED
---------- ------------- -------------- ----------
Loss per common share from
continuing operations
Basic............................ $ (0.42) $ (0.43)
========== ==========
Diluted.......................... $ (0.42) $ (0.43)
========== ==========
Earnings per common share before
cumulative effect of accounting
change
Basic............................ $ 0.94 $ 0.84
========== ==========
Diluted.......................... $ 0.80 $ 0.72
========== ==========
Net earnings per common share
before preferred stock dividend
Basic............................ $ 0.94 $ 0.84
========== ==========
Diluted.......................... $ 0.80 $ 0.72
========== ==========
Net earnings available to common
shareholders
Basic............................ $ 0.94 $ 0.81
========== ==========
Diluted.......................... $ 0.80 $ 0.70
========== ==========
Weighted average shares
outstanding...................... 380,307 408,840
========== ==========
Weighted average diluted shares
outstanding...................... 438,804 467,338
========== ==========
F-20
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) Represents the financial position and results of operations for Expedia
based on historical information of Expedia.
(2) Acquisition costs and the preliminary determination of the unallocated
excess of the USA/Expedia merger consideration over net assets acquired are
set forth below:
Value of equity securities expected to be issued by USA..... $1,596,250
Contribution in lieu of National Leisure Group, Inc. ("NLG")
option.................................................... 20,000
----------
1,616,250
Estimated transaction costs................................. 10,000
----------
Total acquisition costs..................................... 1,626,250
Less: majority ownership portion of net tangible assets
acquired.................................................. 175,446
----------
Unallocated excess of merger consideration over assets
acquired preliminarily allocated to goodwill.............. $1,450,804
==========
Under the terms of the definitive agreement, Expedia shareholders will have
the option, subject to proration, to elect to exchange in a tax-free merger
transaction each Expedia share for:
- a fraction of a share of USA common stock ranging in value from $15.54 (if
Microsoft is the only shareholder that elects to receive Expedia Class B
common stock in the recapitalization) to $17.50 (if the maximum number of
37,500,000 shares of Expedia Class B common stock are issued in the
recapitalization) if the measurement period value of a share of USA common
stock ranges from $23.00 to $31.00. If the measurement period value is
either greater than $31.00 or less than $23.00, the exact USA common stock
exchange ratio will be based on the fraction obtained assuming the
measurement period value was $31.00 or $23.00, respectively. The
measurement period value for USA common stock is the average closing price
of USA common stock over a ten consecutive trading-day period ending on
the second trading day prior to the date of the reconvened annual meeting;
- a fraction of a share of USA preferred stock ranging from 0.3892 (if
Microsoft is the only shareholder that elects to receive Expedia Class B
common stock in the recapitalization) to 0.3500 (if the maximum number of
37,500,000 shares of Expedia Class B common stock are issued in the
recapitalization). Each share of USA preferred stock has a $50 face value,
a 1.99% annual dividend, two votes per share, and is convertible at any
time into USA common stock at a conversion price of $33.75 per USA share,
subject to downward adjustment to the extent that the average share price
of USA common stock over a ten trading-day period prior to conversion is
greater than $35.10; and
- a fraction of a USA warrant ranging from 0.3873 to 0.4524, the exact
fractional amount to be based on a measurement period value for USA common
stock ranging from $25.75 to $28.25 per share. The exact USA warrant
exchange ratio will be based on the measurement period value for USA
common stock as set forth in Annex F to the joint prospectus/proxy and
information statement mailed in November 2001. Each USA warrant has a
seven-year term and an exercise price of $35.10 per share of USA common
stock.
Expedia shareholders who do not exchange their shares for USA securities
will retain their shares of Expedia common stock and receive for each share of
Expedia common stock held 0.1920 of a new Expedia warrant with a seven-year term
and an exercise price of $52.00 per share. The amount reflects USA's
attributable share of Expedia, after giving effect to the minority interest in
Expedia.
F-21
The pro forma financial statements are prepared assuming that 37,500,000
shares of Expedia Class B common stock are issued in the recapitalization
resulting in the issuance of 28.5 million USA common shares, which is the
maximum number of USA common shares issuable in the USA/ Expedia merger. As
a result the value of the USA common stock is assumed to be $17.50 per
Expedia share.
The value of the newly issued preferred shares and warrants to acquire USA
and Expedia common stock were determined based upon internal valuations. The
amount reflects USA's attributable share of Expedia, after giving effect to
the minority interest in Expedia.
USA will contribute $75 million in media time over five years and an option
to participate in USA's proposed travel channel. In addition, for purposes
of the pro forma combined condensed financial statements, a $20 million
contribution from USA to Expedia is reflected in the merger consideration in
lieu of the option to acquire NLG. The media time and the option to
participate in the proposed travel channel are not valued in the merger
consideration and are not reflected in the pro forma combined condensed
financial statements.
(3) Reflects the elimination of Expedia's historical equity.
(4) Reflects the pro forma results of other transactions completed by USA in
2000 and 2001. The transactions include the acquisitions of PRC and
Styleclick by USA and the combination of TMCS and TM. All acquisitions,
except the TMCS/TM combination, were accounted for under the purchase method
of accounting. The TMCS/TM combination has been accounted for as entities
under common control in a manner similar to a pooling of interest. See USA's
Form 10-K for the year ended December 31, 2000 and Form 10-Q for the three
and nine months ended September 30, 2001 for more information on the USA
transactions. The other transactions completed by Expedia in the twelve
months ended December 31, 2000 include the acquisition of Travelscape and
Vacation Spot on March 17, 2000. See Expedia's 10-K for the year ended
June 30, 2001 for more information on these transactions.
(5) The unallocated excess of acquisition costs over net assets acquired has
been preliminarily allocated to goodwill. Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," provides that
goodwill resulting from business combinations completed subsequent to
June 30, 2001 will not be amortized but instead is required to be tested for
impairment at least annually. In connection with finalizing the purchase
price allocation, USA is currently evaluating the fair value of assets
acquired and liabilities assumed in the transaction. Following the
conclusion of the evaluation, USA will use this information to make a final
allocation of the purchase price, including allocation to intangibles other
than goodwill. Accordingly, the purchase accounting information is
preliminary.
USA recorded $568.0 million and $302.3 million of goodwill amortization
during the year ended December 31, 2000 and the nine months ended
September 30, 2001, respectively. Expedia recorded $16.1 million and
$10.2 million of goodwill amortization during the year ended December 31,
2000 and the nine months ended September 30, 2001, respectively. No periodic
amortization of goodwill will be recorded subsequent to December 31, 2001.
(6) Represents the minority interest in the financial position and the results
of operations of Expedia, based upon a 74.7% expected equity ownership by
USA of Expedia.
(7) Represents the 1.99% preferred stock dividend.
(8) Reflects USA's contribution of businesses to the joint venture formed with
Vivendi Universal.
(9) Reflects the consideration received by USA in connection with its
contribution to the joint venture formed with Vivendi Universal. Commencing
on the 20th anniversary of the completion of the USA/Vivendi Universal
transaction, USA's $1.75 billion face value Class B preferred interest in
the new joint venture with Vivendi Universal is puttable and callable at its
then accreted face value for up to 56.6 million USA shares held by Vivendi
Universal. At the election of Vivendi Universal, USA common stock to be
received by USA pursuant to the put or call can be substituted with cash
equal to the market value of such shares. If cash was substituted, it is
USA's intention to repurchase shares with the proceeds. The pro forma
financial statements do not reflect the application of cash proceeds
received by USA from Vivendi Universal to reduce outstanding debt and
associated interest expense.
(10) Reflects the estimated fair value of warrants to purchase USA common stock
granted to Vivendi Universal.
(11) Reflects the cash and PIK dividend for the Class A and Class B preferred
interest in the Vivendi Universal Entertainment joint venture formed with
Vivendi Universal.
(12) Reflects the preliminary estimate of deferred taxes associated with the
contribution of businesses to the joint venture formed with Vivendi
Universal and the receipt of consideration from Vivendi Universal.
F-22
USA NETWORKS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED SEPTEMBER 30, 2001
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET REVENUES
USA ENTERTAINMENT
Cable and studios......................................... $ 398,211 $ 336,047 $1,280,065 $1,105,688
Emerging networks......................................... 5,784 8,591 18,125 12,862
Filmed entertainment...................................... 15,995 14,468 129,562 65,548
USA ELECTRONIC RETAILING
Electronic retailing...................................... 453,447 427,058 1,364,248 1,245,323
USA INFORMATION AND SERVICES
Ticketing operations...................................... 133,897 124,929 447,904 395,909
Hotel reservations........................................ 151,242 94,619 394,830 227,964
Teleservices.............................................. 72,610 70,162 228,926 140,374
Match..................................................... 12,477 7,600 31,686 21,978
Citysearch and related.................................... 11,079 13,962 35,852 36,798
Electronic commerce solutions............................. 4,817 7,174 15,560 15,634
Styleclick................................................ 901 5,147 7,358 17,556
Intersegment elimination.................................. (4,128) -- (10,659) --
---------- ---------- ---------- ----------
Total net revenues........................................ 1,256,332 1,109,757 3,943,457 3,285,634
Operating costs and expenses:
Cost of sales............................................. 579,744 523,087 1,809,063 1,471,554
Program costs............................................. 166,917 146,000 569,423 485,037
Selling and marketing..................................... 169,888 135,749 468,278 389,231
General and administrative................................ 111,774 105,077 331,235 299,540
Other operating costs..................................... 30,865 27,217 88,577 70,883
Amortization of cable distribution fees................... 9,986 8,845 29,384 25,335
Amortization of non-cash distribution and marketing
expense................................................. 5,218 2,693 19,866 4,566
Amortization of non-cash compensation expense............. 1,268 1,235 5,431 7,391
Depreciation and amortization............................. 142,948 137,012 427,077 369,970
---------- ---------- ---------- ----------
Total operating costs and expenses........................ 1,218,608 1,086,915 3,748,334 3,123,507
---------- ---------- ---------- ----------
Operating profit.......................................... 37,724 22,842 195,123 162,127
Other income (expense):
Interest income........................................... 8,658 12,163 23,850 38,051
Interest expense.......................................... (18,789) (20,341) (58,312) (62,006)
Other, net................................................ (12,943) 69,920 (33,196) 67,360
---------- ---------- ---------- ----------
(23,074) 61,742 (67,658) 43,405
---------- ---------- ---------- ----------
Earnings from continuing operations before income taxes,
minority interest and cumulative effect of accounting
change.................................................... 14,650 84,584 127,465 205,532
Income tax expense.......................................... (21,901) (27,452) (71,191) (86,524)
Minority interest........................................... (33,192) (63,004) (124,378) (145,299)
---------- ---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS............................. $ (40,443) $ (5,872) $ (68,104) $ (26,291)
DISCONTINUED OPERATIONS:
Discontinued operations, net of tax......................... -- (14,367) -- (41,407)
Gain on disposal of Broadcasting stations, net of tax....... 468,018 -- 517,847 --
---------- ---------- ---------- ----------
Earnings (loss) before cumulative effect of accounting
change, net of tax........................................ 427,575 (20,239) 449,743 (67,698)
Cumulative effect of accounting change, net of tax.......... -- -- (9,187) --
---------- ---------- ---------- ----------
NET EARNINGS (LOSS)......................................... $ 427,575 $ (20,239) $ 440,556 $ (67,698)
========== ========== ========== ==========
LOSS PER SHARE FROM CONTINUING OPERATIONS:
Basic and diluted loss.................................... $ (.11) $ (.02) $ (.18) $ (.07)
EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE:
Basic earnings (loss) per common share.................... $ 1.14 $ (.06) $ 1.21 $ (.19)
Diluted earnings (loss) per common share.................. $ .59 $ (.06) $ 1.13 $ (.19)
NET EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per common share.................... $ 1.14 $ (.06) $ 1.18 $ (.19)
Diluted earnings (loss) per common share.................. $ .59 $ (.06) $ 1.11 $ (.19)
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-23
UNAUDITED CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2001 2000
-------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 899,759 $ 244,223
Restricted cash equivalents................................. 5,285 2,021
Marketable securities....................................... 143,676 126,352
Accounts and notes receivable, net of allowance of $72,374
and $61,141, respectively................................. 1,281,711 646,196
Inventories, net............................................ 445,628 404,468
Investments held for sale................................... 320 750
Deferred tax assets......................................... 59,211 43,975
Other current assets, net................................... 73,161 52,631
Net current assets of discontinued operations............... -- 7,788
----------- -----------
Total current assets.................................. 2,908,751 1,528,404
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 359,784 322,140
Buildings and leasehold improvements........................ 140,937 132,874
Furniture and other equipment............................... 119,393 100,734
Land........................................................ 15,605 15,658
Projects in progress........................................ 38,033 45,084
----------- -----------
673,752 616,490
Less accumulated depreciation and amortization........ (253,927) (172,496)
----------- -----------
419,825 443,994
OTHER ASSETS
Intangible assets, net...................................... 7,345,565 7,461,862
Cable distribution fees, net................................ 148,449 159,473
Long-term investments....................................... 52,633 49,355
Notes and accounts receivable, net of current portion
($81,091 and $22,575 from related parties)................ 137,509 38,301
Advance to Universal........................................ 39,848 95,220
Inventories, net............................................ 518,545 485,941
Deferred charges and other, net............................. 116,782 83,239
Net non-current assets of discontinued operations........... -- 128,081
----------- -----------
$11,687,907 $10,473,870
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-24
UNAUDITED CONDENSED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, DECEMBER 31,
2001 2000
---------------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 41,772 $ 25,457
Accounts payable, trade..................................... 254,721 283,066
Accounts payable, client accounts........................... 118,095 97,687
Obligations for program rights and film costs............... 293,004 283,812
Cable distribution fees payable............................. 33,556 33,598
Deferred revenue............................................ 141,736 93,125
Other accrued liabilities................................... 778,646 356,502
----------- -----------
Total current liabilities............................. 1,661,530 1,173,247
LONG-TERM OBLIGATIONS (net of current maturities)........... 545,584 552,501
OBLIGATIONS FOR PROGRAM RIGHTS AND FILM COSTS, net of
current................................................... 325,303 295,210
OTHER LONG-TERM LIABILITIES................................. 88,551 97,526
DEFERRED INCOME TAXES....................................... 129,963 98,378
MINORITY INTEREST........................................... 4,943,105 4,817,137
STOCKHOLDERS' EQUITY
Preferred stock--$.01 par value; authorized 15,000,000
shares; no shares issued and outstanding.................. -- --
Common stock--$.01 par value; authorized 1,600,000,000
shares; issued and outstanding, 313,953,890 and
305,436,198 shares, respectively.......................... 3,139 3,055
Class B--convertible common stock--$.01 par value;
authorized, 400,000,000 shares; issued and outstanding,
63,033,452 shares......................................... 630 630
Additional paid-in capital.................................. 3,913,058 3,793,764
Retained earnings (Accumulated deficit)..................... 238,215 (202,341)
Accumulated other comprehensive loss........................ (15,359) (10,825)
Treasury stock.............................................. (140,814) (139,414)
Note receivable from key executive for common stock
issuance.................................................. (4,998) (4,998)
----------- -----------
Total stockholders' equity............................ 3,993,871 3,439,871
----------- -----------
$11,687,907 $10,473,870
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-25
UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
NOTE
RECEIVABLE
FROM KEY
EXECUTIVE
CLASS B ACCUM. FOR
CONVERTIBLE ADDIT. OTHER COMMON
COMMON COMMON PAID-IN ACCUM. COMP. TREASURY STOCK
TOTAL STOCK STOCK CAPITAL DEFICIT LOSS STOCK ISSUANCE
---------- -------- ----------- ---------- --------- -------- --------- ----------
(IN THOUSANDS)
BALANCE AT DECEMBER 31,
2000...................... $3,439,871 $3,055 $630 $3,793,764 $(202,341) $(10,825) $(139,414) $(4,998)
Comprehensive income:
Net earnings for the nine
months ended
September 30, 2001...... 440,556 -- -- -- 440,556 -- -- --
Decrease in unrealized
gains in available for
sale securities......... (37) -- -- -- -- (37) -- --
Foreign currency
translation............. (4,497) -- -- -- -- (4,497) -- --
----------
Comprehensive income...... 436,022
----------
Issuance of common stock
upon exercise of stock
options................... 73,545 83 -- 73,462 -- -- -- --
Income tax benefit related
to stock options
exercised................. 41,286 -- -- 41,286 -- -- -- --
Issuance of stock in
connection with other
transactions.............. 4,548 2 -- 4,546 -- -- -- --
Purchase of Treasury
Stock..................... (1,401) (1) -- -- -- -- (1,400) --
---------- ------ ---- ---------- --------- -------- --------- -------
BALANCE AT SEPTEMBER 30,
2001...................... $3,993,871 $3,139 $630 $3,913,058 $ 238,215 $(15,359) $(140,814) $(4,998)
========== ====== ==== ========== ========= ======== ========= =======
Accumulated other comprehensive income is comprised of unrealized (losses)
gains on available for sale securities of $(5,598) and $(5,561) at
September 30, 2001 and December 31, 2000, respectively and foreign currency
translation adjustments of $(9,761) and $(5,264) at September 30, 2001 and
December 31, 2000, respectively.
Comprehensive income for the three months ended September 30, 2001 was
$430,485.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-26
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS)
Cash Flows From Operating Activities:
Loss from continuing operations........................... $ (68,104) $ (26,291)
Adjustments to reconcile net loss from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization........................... 427,077 369,970
Amortization of cable distribution fees................. 29,384 25,335
Amortization of program rights and film costs........... 550,363 474,142
Amortization of deferred financing costs................ 1,149 2,997
Non-cash distribution and marketing expense............. 19,866 4,566
Amortization of non-cash compensation expense........... 5,431 7,391
Deferred income taxes................................... 4,945 544
Equity in losses of unconsolidated affiliates........... 22,021 40,896
Gain on sale of subsidiary stock........................ -- (108,343)
Non-cash interest income................................ (3,396) (6,880)
Minority interest....................................... 124,378 145,299
CHANGES IN CURRENT ASSETS AND LIABILITIES:
Accounts receivable................................... (65,833) (52,972)
Inventories........................................... 4,490 (1,888)
Accounts payable...................................... (16,854) (66,308)
Accrued liabilities and deferred revenue.............. 97,353 111,201
Payment for program rights and film costs............. (612,906) (594,121)
Increase in cable distribution fees................... (18,511) (39,251)
Other, net............................................ (21,206) 15,991
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 479,647 302,278
Cash Flows From Investing Activities:
Acquisitions, net of cash acquired........................ (193,857) (203,029)
Capital expenditures...................................... (100,232) (102,331)
Recoupment of advance to Universal........................ 58,698 68,333
Increase in long-term investments and notes receivable.... (76,707) (16,518)
Purchase of marketable securities......................... (21,373) (78,172)
Proceeds from sale of broadcasting stations............... 510,374 --
Other, net................................................ (13,864) (30,784)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES......... 163,039 (362,501)
Cash Flows From Financing Activities:
Borrowings................................................ 21,974 50,211
Principal payments on long-term obligations............... (11,941) (81,926)
Purchase of treasury stock................................ (1,401) (129,908)
Payment of mandatory tax distribution to LLC partners..... (17,369) (68,065)
Proceeds from sale of subsidiary stock.................... 10,447 92,604
Proceeds from issuance of common stock and LLC shares..... 73,545 207,795
Other, net................................................ (10,921) (12,901)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 64,334 57,810
NET CASH USED IN DISCONTINUED OPERATIONS.................... (48,058) (54,382)
Effect of exchange rate changes on cash and cash
equivalents............................................. (3,426) (4,133)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 655,536 (60,928)
Cash and cash equivalents at beginning of period............ 244,223 423,176
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 899,759 $ 362,248
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
F-27
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
USA Networks, Inc. (the "Company" or "USA") is focused on the new
convergence of entertainment, information and direct selling.
On January 31, 2001, Ticketmaster Online-Citysearch, Inc. ("TMCS") and
Ticketmaster Corporation, both of which are subsidiaries of USA, completed a
transaction which combined the two companies. The combined company has been
renamed "Ticketmaster". Under the terms of the transaction, USA contributed
Ticketmaster Corporation to Ticketmaster Online-Citysearch and received
52 million Ticketmaster Online-Citysearch Class B Shares. The Ticketmaster
Class B common stock is quoted on the Nasdaq Stock Market. As of January 31,
2001, USA beneficially owned 68% of the outstanding Ticketmaster common stock,
representing 85% of the total voting power of Ticketmaster's outstanding common
stock.
On July 27, 2000, USA and Styleclick.com Inc., an 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.
On April 5, 2000, the Company acquired Precision Response Corporation
("PRC") (the "PRC Transaction"). See Note 3.
As disclosed in our report for the quarterly period ended June 30, 2001, on
July 16, 2001, USA announced an agreement to acquire a controlling interest in
Expedia, Inc. (NASDAQ: EXPE), a leading provider of branded online travel
services for leisure and small business travelers. Under the terms of the
definitive agreement, USA will acquire up to 37,500,000 shares of Expedia common
stock. The acquisition of Expedia is subject to customary closing conditions and
is expected to close during the fourth quarter of 2001.
USA's segments are organized into three units, USA Entertainment, USA
Electronic Retailing and USA Information and Services. The units and segments
are as follows:
USA ENTERTAINMENT
- CABLE AND STUDIOS, consisting of the cable networks USA Network and Sci Fi
Channel and Studios USA, which produces and distributes television
programming.
- EMERGING NETWORKS, consists primarily of the cable television properties
Trio and News World International, which were acquired on May 19, 2000,
and SciFi.com, an emerging Internet content and commerce site.
- FILMED ENTERTAINMENT, consisting primarily of USA Films, which is in the
film distribution and production businesses.
USA ELECTRONIC RETAILING
- ELECTRONIC RETAILING, consisting primarily of HSN and America's Store, HSN
International and HSN Interactive, including HSN.com.
F-28
NOTE 1--ORGANIZATION (CONTINUED)
USA INFORMATION AND SERVICES
- TICKETING OPERATIONS, consisting primarily of Ticketmaster and
Ticketmaster.com, which provide offline and online automated ticketing
services.
- HOTEL RESERVATIONS, which includes Hotel Reservations Network, a leading
consolidator of hotel rooms for resale in the consumer market.
- TELESERVICES, consisting of Precision Response Corporation, a leader in
outsourced customer care for both large corporations and high-growth
internet-focused companies.
- MATCH, consisting of an online personals business.
- CITYSEARCH AND RELATED, which primarily consists of Citysearch, which
operates an online network that provides locally oriented services and
information to users.
- ELECTRONIC COMMERCE SOLUTIONS, which primarily represents the Company's
electronic commerce solutions business.
- STYLECLICK, a facilitator of e-commerce websites and Internet enabled
applications.
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, 2000.
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.
ACCOUNTING ESTIMATES
Management of the Company is required to make certain estimates and
assumptions during the preparation of consolidated financial statements in
accordance with accounting principles generally accepted in the United States.
These estimates and assumptions impact the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities as of the date
of the consolidated financial statements. They also impact the reported amount
of net earnings during any period. Actual results could differ from those
estimates.
Significant estimates underlying the accompanying consolidated financial
statements include the inventory carrying adjustment, program rights and film
cost amortization, sales return and other revenue allowances, allowance for
doubtful accounts, recoverability of intangibles and other long-lived assets,
estimates of film revenue ultimates and various other operating allowances and
accruals.
F-29
NOTE 1--ORGANIZATION (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
FILM ACCOUNTING. The Company adopted SOP 00-2, ACCOUNTING BY PRODUCERS OR
DISTRIBUTORS OF FILMS ("SOP 00-2") during the nine months ended September 30,
2001. SOP 00-2 established new film accounting standards, including changes in
revenue recognition and accounting for advertising, development and overhead
costs. Specifically, SOP 00-2 requires advertising costs for theatrical and
television product to be expensed as incurred. This compares to the Company's
previous policy of first capitalizing these costs and then expensing them over
the related revenue streams. In addition, SOP 00-2 requires development costs
for abandoned projects and certain indirect overhead costs to be charged
directly to expense, instead of those costs being capitalized to film costs,
which was required under the previous accounting rules. SOP 00-2 also requires
all film costs to be classified in the balance sheet as non-current assets.
Provisions of SOP 00-2 in other areas, such as revenue recognition, generally
are consistent with the Company's existing accounting policies.
SOP 00-2 was adopted as of January 1, 2001, and the Company recorded a
one-time, non-cash expense of $9.2 million, net of tax. The net effect is
reflected as a cumulative effect of an accounting change in the accompanying
consolidated statement of operations.
GOODWILL AND OTHER INTANGIBLE ASSETS. In June 2001, the Financial
Accounting Standards Board issued Statements of Financial Accounting Standards
No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible
Assets," effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives. The Company will apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of 2002, and is presently in the process of evaluating the potential
impacts of the new rules.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the 2001 presentation, including all amounts
charged to customers for shipping and handling, which are now presented as
revenue.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (the "2000 Form 10-K") for a summary of all significant
accounting policies.
NOTE 3--BUSINESS ACQUISITIONS
The following unaudited pro forma condensed consolidated financial
information for the nine months ended September 30, 2001 and 2000, is presented
to show the results of the Company, as if the PRC Transaction and the Styleclick
Transaction and the merger of Ticketmaster and Ticketmaster Online-Citysearch,
which did not impact revenues or operating profit, but rather minority interest
and income taxes, had occurred at the beginning of the periods presented. The
pro forma results include certain adjustments, including increased amortization
related to goodwill, and are not necessarily indicative of what the results
would have been had the transactions actually occurred on the
F-30
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
aforementioned dates. Note that the amounts exclude USAB, the sale of which was
announced in December 2000 and is now presented as a discontinued operation.
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net revenues......................................... $3,943,457 $3,357,172
Loss from continuing operations...................... (69,640) (65,954)
Basic and diluted loss from continuing operations per
common share....................................... $ (.19) $ (.18)
NOTE 4--STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001:
For the nine months ended September 30, 2001, interest accrued on the
$200.0 million advance to Universal amounted to $3.3 million.
For the nine months ended September 30, 2001, the Company incurred non-cash
distribution and marketing expense of $19.9 million and non-cash compensation
expense of $5.4 million.
During the nine months ended September 30, 2001, the Company realized a
pre-tax loss of $6.7 million related to the write-off of investments to fair
value.
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000:
On January 20, 2000, the Company completed its acquisition of Ingenious
Designs, Inc. ("IDI"), by issuing approximately 190,000 shares of USA common
stock for all the outstanding stock of IDI, for a total value of approximately
$5.0 million.
On January 31, 2000, TMCS completed its acquisition of 2b Technology, Inc.
("2b"), by issuing approximately 458,005 shares of TMCS Class B Common Stock for
all the outstanding stock of 2b, for a total value of approximately
$17.1 million.
On April 5, 2000, USA completed its acquisition of PRC by issuing
approximately 24.3 million shares of USA common stock for all of the outstanding
stock of PRC, for a total value of approximately $711.7 million.
On May 26, 2000, TMCS completed its acquisition of Ticketweb, Inc.
("Ticketweb"), by issuing approximately 1.8 million shares of TMCS Class B
Common Stock for all of the outstanding stock of Ticketweb, for a total value of
approximately $35.3 million.
For the nine months ended September 30, 2000, interest accrued on the
$200.0 million advance to Universal amounted to $6.9 million.
For the nine months ended September 30, 2000, the Company incurred non-cash
distribution and marketing expense of $4.6 million and non-cash compensation
expense of $7.4 million.
F-31
NOTE 4--STATEMENTS OF CASH FLOWS (CONTINUED)
During the second quarter, the Company recorded $11.6 million of expenses
related to an agreement with an executive. Of this amount, $3.8 million is a
non-cash stock compensation charge related to restricted stock.
During the third quarter, the Company realized a pre-tax loss of
$30.5 million related to the write-off of investments to fair value.
NOTE 5--INDUSTRY SEGMENTS
The Company operates principally in the following industry segments: Cable
and studios, Emerging networks, Filmed entertainment, Electronic retailing,
Ticketing operations, Hotel reservations, Teleservices, Match, Citysearch and
related, Electronic commerce solutions and Styleclick. The Cable and studios
segment consists of the cable networks USA Network and Sci Fi Channel and
Studios USA, which produces and distributes television programming. The Emerging
networks segment consists primarily of the cable television properties Trio and
News World International, which were acquired on May 19, 2000, and SciFi.com, an
emerging Internet content and commerce site. The Filmed entertainment segment
consists primarily of USA Films, which engages in the film distribution and
production businesses. The Electronic retailing segment consists principally of
the Home Shopping Network, America's Store, HSN International and HSN
Interactive, including HSN.com, which are engaged in the sale of merchandise
through electronic retailing. The Ticketing operations segment primarily
consists of Ticketmaster and Ticketmaster.com, which provide offline and online
automated ticketing services. The Hotel reservations segment consists of Hotel
Reservations Network, a leading consolidator of hotel rooms for resale in the
consumer market. The Teleservices segment was formed on April 5, 2000 in
conjunction with the acquisition of PRC, which handles outsourced customer care
for both large corporations and high-growth internet-focused companies. The
Match segment consists of an online personals business. The Citysearch and
related segment primarily consists of Citysearch, which operates an online
network that provides locally oriented services and information to users. The
Electronic commerce solutions segment primarily represents the Company's
electronic solutions business. The Styleclick segment represents Styleclick, a
facilitator of e-commerce websites and Internet enabled applications.
F-32
NOTE 5--INDUSTRY SEGMENTS (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(IN THOUSANDS)
REVENUE
USA ENTERTAINMENT
Cable and studios............................. $ 398,211 $ 336,047 $1,280,065 $1,105,688
Emerging networks............................. 5,784 8,591 18,125 12,862
Filmed entertainment.......................... 15,995 14,468 129,562 65,548
USA ELECTRONIC RETAILING
Electronic retailing.......................... 453,447 427,058 1,364,248 1,245,323
USA INFORMATION AND SERVICES
Ticketing operations.......................... 133,897 124,929 447,904 395,909
Hotel reservations............................ 151,242 94,619 394,830 227,964
Teleservices.................................. 72,610 70,162 228,926 140,374
Match......................................... 12,477 7,600 31,686 21,978
Citysearch and related........................ 11,079 13,962 35,852 36,798
Electronic commerce solutions................. 4,817 7,174 15,560 15,634
Styleclick.................................... 901 5,147 7,358 17,556
Intersegment Elimination...................... (4,128) -- (10,659) --
---------- ---------- ---------- ----------
$1,256,332 $1,109,757 $3,943,457 $3,285,634
========== ========== ========== ==========
OPERATING PROFIT (LOSS)
USA ENTERTAINMENT
Cable and studios............................. $ 124,558 $ 90,394 $ 397,680 $ 312,371
Filmed entertainment.......................... (2,046) (8,244) (7,414) (12,794)
Developing networks........................... (4,860) (1,875) (13,998) (6,669)
USA ELECTRONIC RETAILING
Electronic retailing.......................... 5,179 27,232 44,320 92,041
USA INFORMATION AND SERVICES
Ticketing operations.......................... (651) (2,735) 25,440 22,667
Hotel reservations............................ 5,895 1,899 10,574 3,650
Teleservices.................................. (17,102) (1,597) (28,561) (4,586)
Match......................................... 1,054 (2,565) (5,704) (9,003)
Citysearch and related........................ (40,540) (45,789) (123,123) (137,112)
Electronic commerce solutions................. (12,749) (7,451) (28,076) (19,961)
Styleclick.................................... (5,525) (18,156) (36,496) (37,382)
Other......................................... (15,489) (8,271) (39,519) (41,095)
---------- ---------- ---------- ----------
$ 37,724 $ 22,842 $ 195,123 $ 162,127
========== ========== ========== ==========
The Company operates principally within the United States.
F-33
NOTE 6--GAIN ON SALE OF BROADCAST STATIONS
In December 2000, the Company announced that Univision Communications Inc.
("Univision") would acquire, for $1.1 billion in cash, all of the capital stock
of certain USA Broadcasting ("USAB") subsidiaries that own 13 full-power
television stations and minority interests in four additional full-power
stations. In August 2001, the Company completed the sale. The gain on the sale
of the stations was $468 million, net of taxes of $343 million and
$518 million, net of taxes of $377 million for the three and nine months ended
September 30, 2001, respectively. To date, the Company has received proceeds of
$510.4 million. A note receivable of $589.6 million is reflected in current
assets.
NOTE 7--SAVOY SUMMARIZED FINANCIAL INFORMATION (UNAUDITED)
The Company has not prepared 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.
SUMMARY CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
(IN THOUSANDS)
Net sales................................................... $3,428 $4,632
Operating expenses.......................................... 2,796 1,408
Operating income............................................ 632 3,224
Net income.................................................. 2,969 4,165
SUMMARY CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(IN THOUSANDS)
Current assets...................................... $ 441 $ --
Non-current assets.................................. 163,822 158,561
Current liabilities................................. 14,251 17,021
Non-current liabilities............................. 38,768 38,902
NOTE 8-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
On November 23, 1998, the Company and USANi LLC as co-issuers completed an
offering of $500.0 million 6 3/4% Senior Notes due 2005 (the "Old Notes"). In
May 1999, the Old Notes were exchanged in full for $500.0 million of new 6 3/4%
Senior Notes due 2005 (the "Notes") that have terms that are substantially
identical to the Old Notes. Interest is payable on the Notes on May 15 and
November 15 of each year, commencing May 15, 1999. The Notes are jointly,
severally, fully and unconditionally guaranteed by certain subsidiaries of the
Company, including Home Shopping Network, Inc. ("Holdco"), a non-wholly owned,
direct subsidiary of the Company, and all of the subsidiaries of USANi LLC
(other than subsidiaries that are, individually and in the aggregate,
F-34
NOTE 8-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
inconsequential to USANi LLC on a consolidated basis) (collectively, the
"Subsidiary Guarantors"). All of the Subsidiary Guarantors (other than Holdco)
(the "Wholly Owned Subsidiary Guarantors") are wholly owned, directly or
indirectly, by the Company or USANi LLC, as the case may be.
The following tables present condensed consolidating financial information
for the three and nine months ended September 30, 2001 and 2000 for: (1) the
Company on a stand-alone basis, (2) Holdco on a stand-alone basis, (3) USANi LLC
on a stand-alone basis, (4) the combined Wholly Owned Subsidiary Guarantors
(including Wholly Owned Subsidiary Guarantors that are wholly owned subsidiaries
of USANi LLC), (5) the combined non-guarantor subsidiaries of the Company
(including the non-guarantor subsidiaries of USANi LLC (collectively, the
"Non-Guarantor Subsidiaries")), and (6) the Company on a consolidated basis.
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.
WHOLLY
OWNED
USANI SUBSIDIARY NON-GUARANTOR USA
USA HOLDCO LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ----------- -------------- ------------ ------------
(IN THOUSANDS)
BALANCE SHEET AS OF SEPTEMBER
30, 2001:
Current Assets................ $ 609,572 $ -- $ 677,026 $ 965,065 $ 657,088 $ -- $ 2,908,751
Property and equipment, net... -- -- 23,502 194,633 201,690 -- 419,825
Goodwill and other intangible
assets, net................. 72,122 -- -- 4,809,036 2,464,407 -- 7,345,565
Investment in subsidiaries.... 3,585,269 1,317,087 7,061,144 101,355 -- (12,064,855) --
Other assets.................. 42,064 -- -- 723,620 841,442 (593,360) 1,013,766
---------- ---------- ---------- ---------- ---------- ------------ -----------
Total assets.................. $4,309,027 $1,317,087 $7,761,672 $6,793,709 $4,164,627 $(12,658,215) $11,687,907
========== ========== ========== ========== ========== ============ ===========
Current liabilities........... $ 413,467 $ -- $ 2,835 $ 715,951 $ 535,598 $ (6,321) $ 1,661,530
Long-term debt, less current
portion..................... -- -- 498,439 1,634 45,511 -- 545,584
Other liabilities............. (110,593) -- 942,604 375,084 549,209 (1,212,487) 543,817
Minority interest............. -- -- (141,138) 162,362 385,197 4,536,684 4,943,105
Interdivisional equity........ 12,282 -- -- 5,538,678 2,649,112 (8,200,072) --
Stockholders' equity.......... 3,993,871 1,317,087 6,458,932 -- -- (7,776,019) 3,993,871
---------- ---------- ---------- ---------- ---------- ------------ -----------
Total liabilities and
stockholders equity......... $4,309,027 $1,317,087 $7,761,672 $6,793,709 $4,164,627 $(12,658,215) $11,687,907
========== ========== ========== ========== ========== ============ ===========
STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED
SEPTEMBER 30, 2001
Revenue....................... $ -- $ -- $ -- $ 784,541 $ 476,349 $ (4,558) $ 1,256,332
Operating expenses............ (3,411) -- (11,878) (654,017) (553,860) 4,558 (1,218,608)
Interest expense, net......... (5,253) -- 2,455 (8,104) 771 -- (10,131)
Other income, expense......... (31,779) 18,023 92,347 108 (13,051) (78,591) (12,943)
Income tax expense............ -- -- -- (20,606) (1,295) -- (21,901)
Minority interest............. -- -- -- (51,613) 18,421 -- (33,192)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Earnings (loss) from
continuing operations....... $ (40,443) $ 18,023 $ 82,924 $ 50,309 $ (72,665) $ (78,591) $ (40,443)
Gain on disposal of
Broadcasting Stations....... 468,018 -- -- -- -- -- 468,018
---------- ---------- ---------- ---------- ---------- ------------ -----------
Net earnings (loss)........... $ 427,575 $ 18,023 $ 82,924 $ 50,309 $ (72,665) $ (78,591) $ 427,575
========== ========== ========== ========== ========== ============ ===========
F-35
NOTE 8-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
WHOLLY
OWNED
USANI SUBSIDIARY NON-GUARANTOR USA
USA HOLDCO LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ----------- -------------- ------------ ------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Revenue....................... $ -- $ -- $ -- $2,448,238 $1,507,042 $ (11,823) $ 3,943,457
Operating expenses............ (8,481) -- (29,892) (2,017,292) (1,704,492) 11,823 (3,748,334)
Interest expense, net......... (18,195) -- 5,665 (24,478) 2,546 -- (34,462)
Other income, expense......... (41,428) 68,849 304,043 (7,297) (25,899) (331,464) (33,196)
Provision for income taxes.... -- -- -- (56,598) (14,593) -- (71,191)
Minority interest............. -- -- -- (173,353) 48,975 -- (124,378)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Earnings (loss) from
continuing operations....... $ (68,104) $ 68,849 $ 279,816 $ 169,220 $ (186,421) $ (331,464) $ (68,104)
Gain on disposal of
Broadcasting Stations....... 517,847 -- -- -- -- -- 517,847
Cumulative effect of
accounting change........... (9,187) -- -- 2,438 (11,625) 9,187 (9,187)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Net earnings (loss)........... $ 440,556 $ 68,849 $ 279,816 $ 171,658 $ (198,046) $ (322,277) $ 440,556
========== ========== ========== ========== ========== ============ ===========
CASH FLOW FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2001
Cash flow from (used in)
operations.................. $ (18,882) $ -- $ (9,300) $ 408,452 $ 99,377 $ -- $ 479,647
Cash flow provided (used in)
investing activities........ 54,240 -- (4,367) (76,229) 189,395 -- 163,039
Cash flow from financing
activities.................. (35,358) -- 652,265 (273,517) (279,056) -- 64,334
Net Cash used by Discontinued
Operations.................. -- -- -- (48,058) -- -- (48,058)
Effect of exchange rate....... -- -- (278) 91 (3,239) -- (3,426)
Cash at beginning of period... -- -- 78,079 (28,949) 195,093 -- 244,223
---------- ---------- ---------- ---------- ---------- ------------ -----------
Cash at end of period......... $ -- $ -- $ 716,399 $ (18,210) $ 201,570 $ -- $ 899,759
========== ========== ========== ========== ========== ============ ===========
STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
Revenue....................... $ -- $ -- $ -- $ 719,812 $ 391,878 $ (1,933) $ 1,109,757
Operating expenses............ (3,353) -- (5,764) (615,381) (464,350) 1,933 (1,086,915)
Interest expense, net......... (7,718) -- 6,471 (5,836) (1,095) -- (8,178)
Other income, expense......... 6,019 34,197 147,313 (46,172) (1,987) (69,450) 69,920
Income tax expense............ (820) -- -- (17,856) (8,776) -- (27,452)
Minority interest............. -- -- -- (4,087) 28,309 (87,226) (63,004)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Earnings (loss) from
continuing operations....... (5,872) 34,197 148,020 30,480 (56,021) (156,676) (5,872)
Earnings (loss) from
discontinued operations..... (14,367) -- -- (14,367) -- 14,367 (14,367)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Net earnings (loss)........... $ (20,239) $ 34,197 $ 148,020 $ 16,113 $ (56,021) $ (142,309) $ (20,239)
========== ========== ========== ========== ========== ============ ===========
F-36
NOTE 8-- NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
WHOLLY
OWNED
USANI SUBSIDIARY NON-GUARANTOR USA
USA HOLDCO LLC GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ----------- -------------- ------------ ------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Revenue....................... $ -- $ -- $ -- $2,207,099 $1,080,352 $ (1,817) $ 3,285,634
Operating expenses............ (12,164) -- (29,627) (1,856,120) (1,227,332) 1,736 (3,123,507)
Interest expense, net......... (18,499) -- 16,260 (20,024) (1,692) -- (23,955)
Other income, expense......... 3,850 78,571 382,640 (72,179) (5,442) (320,080) 67,360
Provision for income taxes.... 522 -- (27,351) (36,017) (23,678) -- (86,524)
Minority interest............. -- -- -- (8,778) 71,998 (208,519) (145,299)
-- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ------------ -----------
Earnings (loss) from
continuing operations....... (26,291) 78,571 341,922 213,981 (105,794) (528,680) (26,291)
Earnings (loss) from
discontinued operations..... (41,407) -- -- (41,407) -- 41,407 (41,407)
---------- ---------- ---------- ---------- ---------- ------------ -----------
Net earnings (loss)........... $ (67,698) $ 78,571 $ 341,922 $ 172,574 $ (105,794) $ (487,273) $ (67,698)
========== ========== ========== ========== ========== ============ ===========
CASH FLOW FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2000
Cash flow from (used in)
operations.................. $ (29,055) $ -- $ (2,018) $ 304,656 $ 28,695 $ -- $ 302,278
Cash flow provided (used in)
investing activities........ 9,870 -- (44,131) (165,498) (162,742) -- (362,501)
Cash flow from financing
activities.................. 19,185 -- (63,944) (124,514) 227,083 -- 57,810
Net Cash used by discontinued
operations.................. -- -- -- (54,382) -- -- (54,382)
Effect of exchange rate....... -- -- -- (15) (4,118) -- (4,133)
Cash at beginning of period... -- -- 276,678 (25,067) 171,565 -- 423,176
---------- ---------- ---------- ---------- ---------- ------------ -----------
Cash at end of period......... $ -- $ -- $ 166,585 $ (64,820) $ 260,483 $ -- $ 362,248
========== ========== ========== ========== ========== ============ ===========
F-37
EXPEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED
SEPTEMBER 30, 2001
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 2001
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Agency revenues............................................. $ 21,646 $39,279
Merchant revenues........................................... 12,335 34,102
Advertising and other revenues.............................. 8,124 6,097
-------- -------
Revenues.................................................... 42,105 79,478
-------- -------
Cost of agency revenues (excluding recognition of
stock-based compensation of $189 and $43 for the three
months ended September 30, 2000 and 2001)................. 11,882 15,977
Cost of merchant revenues (excluding recognition of
stock-based compensation $297 and of $65 for the three
months ended September 30, 2000 and 2001)................. 3,745 9,509
Cost of advertising and other revenues (excluding
recognition of stock-based compensation of $73 and $10 for
the three months ended September 30, 2000 and 2001)....... 684 801
Cost of revenues............................................ 16,311 26,287
-------- -------
Gross profit................................................ 25,794 53,191
-------- -------
Operating expenses:
Product development (excluding recognition of stock-based
compensation of $9,087 and $2,263 for the three months
ended September 30, 2000 and 2001)...................... 5,270 7,209
Sales and marketing (excluding recognition of stock-based
compensation of $1,150 and $183 for the three months
ended September 30, 2000 and 2001)...................... 17,899 26,071
General and administrative (excluding recognition of
stock-based compensation of $2,821 and $1,000 for the
three months ended September 30, 2000 and 2001)......... 5,342 6,181
Amortization of goodwill and intangibles.................. 15,532 9,904
Recognition of stock-based compensation................... 13,617 3,564
-------- -------
Total operating expenses.................................... 57,660 52,929
-------- -------
(Loss) income from operations............................... (31,866) 262
Net interest income and other............................... 1,082 1,329
USAI transaction related costs.............................. -- (6,341)
-------- -------
Loss before provision for income taxes...................... (30,784) (4,750)
Provision for income taxes.................................. -- --
Net loss.................................................... $(30,784) $(4,750)
-------- -------
Net loss.................................................... $(30,784) $(4,750)
Currency translation adjustment........................... (10) 19
-------- -------
Comprehensive loss.......................................... $(30,794) $(4,731)
-------- -------
Basic and diluted net loss per common share................. $ (0.69) $ (0.09)
-------- -------
Weighted average shares used to compute basic and diluted
net loss per common share................................. 44,849 50,319
-------- -------
F-38
UNAUDITED CONDENSED BALANCE SHEETS
JUNE 30, SEPTEMBER 30,
2001 2001
-------- -------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $182,161 $197,801
Accounts receivable, net of allowance of $513 and $628.... 29,716 18,425
Prepaid merchant bookings................................. 30,170 18,690
Prepaid expenses and other current assets................. 11,642 8,729
-------- --------
Total current assets.................................... 253,689 243,645
Property and equipment, net................................. 16,778 16,120
Investment and restricted deposits.......................... 1,298 1,840
Intangible assets, net...................................... 43,298 29,285
Goodwill.................................................... 74,781 78,890
-------- --------
Total assets............................................ $389,844 $369,780
======== ========
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 33,994 $ 29,063
Accrued expenses.......................................... 40,831 40,879
Due to Microsoft.......................................... 801 1,556
Deferred merchant bookings................................ 80,326 62,457
Current portion of notes payable.......................... 45 --
Unearned revenue.......................................... 1,545 1,074
-------- --------
Total current liabilities............................... 157,542 135,029
Notes payable, net of current portion....................... 1,303 --
-------- --------
Total liabilities....................................... 158,845 135,029
-------- --------
Commitments and contingencies (Note 8)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 120,000 shares authorized,
50,176 and 51,378 issued and outstanding.................. 502 514
Preferred stock, $.01 par value, 10,000 shares authorized,
none issued and outstanding............................... -- --
Additional paid-in-capital.................................. 437,903 442,371
Unearned stock-based compensation........................... (16,172) (12,131)
Retained deficit............................................ (191,418) (196,168)
Accumulated other comprehensive income:
Cumulative currency translation adjustment................ 184 165
-------- --------
Total stockholders' equity.............................. 230,999 234,751
-------- --------
Total liabilities and stockholders' equity.............. $389,844 $369,780
======== ========
See accompanying notes.
F-39
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
CUMULATIVE
COMMON STOCK ADDITIONAL UNEARNED CURRENCY
------------------- PAID-IN STOCK-BASED RETAINED TRANSLATION
SHARE AMOUNT CAPITAL COMPENSATION DEFICIT ADJUSTMENT TOTAL
-------- -------- ---------- ------------ --------- ------------ --------
(IN THOUSANDS)
Balance, June 30, 2001............ 50,176 $502 $437,903 $(16,172) $(191,418) $184 $230,999
Proceeds from issuance of common
stock and common stock
warrants...................... 351 4 (4) --
Proceeds from exercise of
options....................... 851 8 4,949 4,957
Recognition of stock-based
compensation.................. 3,564 3,564
Forfeiture of stock-based
Compensation.................. (477) 477 --
Net loss........................ (4,750) (4,750)
Other comprehensive income:
Currency translation
adjustment.................. (19) (19)
------ ---- -------- -------- --------- ---- --------
Balance, September 30, 2001....... 51,378 $514 $442,371 $(12,131) $(196,168) $165 $234,751
====== ==== ======== ======== ========= ==== ========
See accompanying notes.
F-40
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 2001
-------- --------
(IN THOUSANDS)
Operating activities:
Net loss.................................................. $(30,784) $ (4,750)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................... 555 2,644
Recognition of stock-based compensation................. 13,617 3,564
Amortization of goodwill and intangibles................ 15,532 9,904
USAI transaction related costs.......................... -- 6,341
Cash provided (used) by changes in operating assets and
liabilities:
Accounts receivable..................................... 4,889 11,291
Due (from) to Microsoft................................. (117) 755
Prepaid expenses and other current assets............... (2,131) 2,913
Prepaid merchant bookings............................... (30) 11,480
Accounts payable and accrued expenses................... 1,784 (4,883)
Deferred merchant bookings.............................. 6,097 (17,869)
Unearned revenue........................................ (5,731) (471)
-------- --------
Net cash provided by operating activities............. 3,681 20,919
-------- --------
Investing activities:
Additions to property and equipment....................... (2,644) (3,374)
Proceeds from sale of building............................ -- 1,388
Funding of restricted deposits, net....................... (514) (542)
-------- --------
Net cash used by investing activities................. (3,158) (2,528)
-------- --------
Financing activities:
Repayment of notes payable................................ (73) (1,348)
Net proceeds from issuance of common stock and warrants... 60,483 --
Net proceeds from exercise of options..................... 746 4,957
USAI transaction related costs............................ -- (6,341)
-------- --------
Net cash provided (used) by financing activities...... 61,156 (2,732)
-------- --------
Effect of foreign exchange rates changes on cash and cash
equivalents............................................... (10) (19)
-------- --------
Net increase in cash and cash equivalents................... 61,669 15,640
Cash and cash equivalents at beginning of period............ 60,670 182,161
-------- --------
Cash and cash equivalents at end of period.................. $122,339 $197,801
-------- --------
SUPPLEMENTAL DISCLOSURES TO CASH FLOW STATEMENTS:
Cash paid for interest.................................... $ 64 $ 28
Forfeiture of stock-based compensation.................... 571 477
See accompanying notes.
F-41
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION
In October 1996, Microsoft Corporation (Microsoft) launched its online
travel services product called Expedia-Registered Trademark-. Since that launch,
Expedia, Inc. (the Company) has become a leading provider of branded online
travel services for leisure and business travelers. The Company operates eight
websites, located at Expedia.com-Registered Trademark-, Expedia.co.uk,
Expedia.de, Expedia.ca-TM-, Expedia.it, Expedia.nl, VacationSpot.com-TM- and
Rent-a-Holiday.com. The Expedia-branded websites also serve as the travel
channel on MSN.com, Microsoft's online services network. In addition, during the
quarter, the Company began redirecting traffic from the Travelscape.com-TM- and
LVRS.com websites. Visitors to these websites are automatically transferred to
the Expedia.com website.
The Company's goal is to sell the broadest possible array of travel services
to the broadest possible range of customers around the world. This encompasses
providing real-time access to schedule, pricing and availability information for
booking reservations for airlines, hotels, rental cars, and cruises. The Company
sells these reservations both individually and as components of dynamically
assembled packaged travel vacations and trips. In addition, the Company provides
content on its websites that provides travelers information about travel
destinations, maps, and other travel details.
The Company was incorporated in the state of Washington on August 23, 1999.
On October 1, 1999, Microsoft separated the assets and contributed them in
exchange for 33,000,000 shares of Expedia common stock or 100% of the
outstanding common stock at that date. Concurrent with this, the Company entered
into a number of agreements with Microsoft to facilitate the operation of the
Company and its assets after the separation.
On November 10, 1999, the Company completed an initial public offering in
which it sold 5,890,000 shares of common stock at a price of $14.00 per share,
raising $83.7 million in gross proceeds. After deducting $5.3 million in
aggregate underwriters' discounts and commissions and $1.8 million in related
expenses, net proceeds from this offering totaled $76.6 million. Microsoft's
interest has since been further diluted as a result of option exercises, a
private placement of shares and the exercise of warrants associated with the
private placement, and shares issued in conjunction with acquisitions.
In March 2000, the Company acquired Travelscape.com, Inc. (Travelscape), a
Delaware corporation based in Las Vegas, Nevada.
Travelscape-Registered Trademark- is a leading Internet travel wholesaler and
packager with discounted rate contracts with hotel and travel suppliers
worldwide. Hotel rooms, car rentals, and travel services from those suppliers
are offered on all of the Expedia-branded websites. In July 2001, Travelscape
also operates under the business name, WWTE, which is a private label online
travel business that supplies car and hotel inventory to third parties.
In March 2000, the Company also acquired VacationSpot.com, Inc.
(VacationSpot), a Delaware corporation based in Seattle, Washington.
VacationSpot is a leading reservation network for vacation homes, rental
condominiums, inns and bed & breakfasts around the world. VacationSpot was
subsequently merged into the Company. The VacationSpot.com-TM- and
Rent-a-Holiday.com websites, acquired as part of the acquisition, offer unique
properties in vacation destinations and countries worldwide and operate as
independent websites. In addition, the majority of this inventory is also
offered on all of the Expedia-branded websites and the private label websites.
The Company classifies revenues into three categories: agency, merchant and
advertising and other. Agency revenues are derived from travel-related sales
transactions where the Company receives commissions and fees from travel
suppliers. Merchant revenues primarily come from travel-related sales
transactions where the Company both purchases from the supplier and sells to the
customer the requested travel service. In addition, the Company derives revenues
from advertisements on its websites. The Company has also licensed components of
its technology and editorial content. Both
F-42
1. BUSINESS DESCRIPTION (CONTINUED)
advertising and licensing revenues are categorized as "Advertising and Other"
revenues in the Company's consolidated statements of operations and
comprehensive loss.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated balance sheets and related interim
condensed consolidated statements of operations, cash flows, and changes in
stockholders' equity, are unaudited and in the opinion of management, include
all adjustments (consisting only of normal recurring items) necessary for their
fair presentation in conformity with accounting principles generally accepted in
the United States of America. Preparing financial statements requires the
Company to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Actual results may differ from those
estimates. Interim results are not necessarily indicative of results for a full
year. Readers of the condensed consolidated financial statements should read the
information included in this Form 10-Q in conjunction with Management's
Discussion and Analysis and consolidated financial statements and notes included
in the Company's Annual Report filed on Form 10-K with the Securities and
Exchange Commission on August 22, 2001.
3. GOODWILL AND OTHER INTANGIBLES
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized, but are
reviewed annually for impairment or more frequently if impairment indicators
arise. Separable intangible assets that have finite lives will continue to be
amortized over their useful lives. The Company elected to adopt SFAS No. 142 on
July 1, 2001. As required under the standard, the Company continues to amortize
intangibles assets with finite lives and has ceased the amortization
prospectively on goodwill upon the adoption of the standard.
The Company has completed its initial impairment assessment of the goodwill,
which is attributable to the Destinations segment, by comparing the fair value
of the segment to its carrying value. Fair value was determined using a
discounted cash flow methodology. This impairment test is required to be
performed upon adoption of the SFAS No. 142 and at least annually thereafter.
Based on the initial impairment test, none of the goodwill recorded was
impaired. Impairment adjustments recognized after adoption, if any, generally
are recognized as operating expenses.
The financial information for the acquired intangible assets is as follows:
ORIGINAL ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
-------- ------------ --------
Amortized Intangible Assets
Supplier relationships.............................. $26,200 $20,143 $ 6,057
Trademarks and tradenames........................... 20,300 10,405 9,895
Distribution agreements............................. 24,900 19,143 5,757
Other............................................... 18,800 11,224 7,576
------- ------- -------
$90,200 $60,915 $29,285
======= ======= =======
In connection with adopting SFAS No. 142, the Company also reassessed the
useful lives and the classification of identifiable intangible assets. The only
change was the reclassification of $4.1 million for the intangible asset
"acquired workforce", which was identified in previous acquisitions in
accordance with accounting guidance prior to SFAS No. 142, as goodwill.
Amortization expense for the
F-43
3. GOODWILL AND OTHER INTANGIBLES (CONTINUED)
acquired intangible assets for the quarter ended September 30, 2001, was
$9.9 million and annual estimated amortization for the acquired intangible
assets for the next three fiscal years are as follows:
2002........................................................ $30,943
2003........................................................ 7,141
2004........................................................ 1,104
-------
$39,188
=======
The table below shows the effect on net loss and net loss per share had SFAS
No. 142 been adopted in prior periods:
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 2001
-------- --------
Reported net loss........................................... $(30,784) $(4,750)
Amortization of goodwill.................................... 5,421 --
-------- -------
Adjusted net loss........................................... $(25,363) $(4,750)
-------- -------
Reported basic and diluted net loss per share............... $ (0.69) $ (0.09)
Amortization of goodwill.................................... 0.12 --
-------- -------
Adjusted basic and diluted net loss per share............... $ (0.57) $ (0.09)
-------- -------
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement establishes accounting standards for recognition and
measurement of a liability for an asset retirement obligation and the associated
asset retirement cost. This statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company does not
expect the adoption of SFAS No. 143 to have a material effect on its financial
position or result of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Assets to Be Disposed
Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously defined
in that opinion). SFAS No. 144 established a single accounting model, based on
the frame work established in SFAS No. 121 for long-lived assets to be disposed
of for sale. It retains the fundamental provisions of SFAS No. 121 for
(a) recognition and measurement of the impairment of long-lived assets to be
held and used and (b) measurement of long-lived assets to be disposed of by
sale. SFAS No. 144 is effective for fiscal years beginning after December 15,
2001, with earlier applications encouraged. The Company has not yet determined
the impact of adopting SFAS No. 144 on its financial position or results of
operations.
5. INCOME TAXES
Effective October 1, 1999, the Company entered into a tax allocation
agreement with Microsoft. On March 18, 2000, Microsoft's investment in the
Company fell below 80% ownership. As such, from March 18, 2000 onward, the
Company must file a separate tax return. Based on the tax allocation agreement,
the Company may be reimbursed by Microsoft for tax losses incurred during the
period from October 1, 1999 to March 17, 2000 that are utilized on the Microsoft
consolidated U.S. federal tax return. As of September 30, 2001, the Company has
received no such reimbursement from
F-44
5. INCOME TAXES (CONTINUED)
Microsoft. Reimbursements of approximately $2.5 million are expected to be
received from Microsoft under this agreement. Any reimbursement from Microsoft
will be recorded as a capital contribution.
In November 2001, the Company entered into an agreement with Microsoft
setting forth the manner in which the Company will compensate Microsoft for
compensation deductions attributable to the "Inherent Bargain Element" as used
in the tax allocation agreement. Under this agreement, the Company generally
will be required to compensate Microsoft for the actual federal and state tax
savings that the Company realizes as a result of the use of the compensation
deductions, as and when the Company realizes such tax savings.
At September 30, 2001, the Company has a net operating loss carryforward of
approximately $105 million for federal income tax purposes. The net operating
loss carryforwards begin to expire in 2017. Of this amount, $5 million is the
amount available to the Company from the period ended March 17, 2000. In
addition, $31 million of the loss carryforward is from acquired companies, the
utilization of which in each carryforward year may be limited by the Internal
Revenue Code. Under the tax allocation agreement with Microsoft which was
subsequently amended in November 2001, the Company must pay Microsoft for a
portion of the tax savings resulting from the exercise of certain stock options.
The Company will pay Microsoft approximately $36 million under this agreement
when the tax savings are utilized on the Company's tax return. The Company has
not utilized the tax savings as of September 30, 2001. Reimbursements to
Microsoft will be recorded as a capital distribution.
Because of the Company's limited operating history, losses incurred to date
and the difficulty in accurately forecasting long-term future results, the
Company has applied a valuation allowance equivalent to the expected tax benefit
from its net operating loss carryforward and other deferred tax assets. As a
result, the Company has not recorded a benefit for current federal and state
income taxes or a related deferred tax asset. Management evaluates, on a
quarterly basis, the recoverability of the deferred tax assets and the level of
the valuation allowance.
6. NET LOSS PER SHARE
Net loss per share has been computed in accordance with SFAS No. 128,
Earnings per Share. Net loss per share is computed by dividing the net loss for
the period by the weighted average number of common shares outstanding. Common
stock equivalent shares related to stock options, warrants and shares subject to
repurchase are excluded from the calculation as their effect is anti-dilutive.
Accordingly, basic and diluted loss per share are equivalent.
7. RELATED PARTY TRANSACTIONS
In June 2001, the Company signed an amended and restated carriage and cross
promotion agreement with Microsoft. Under this agreement, Microsoft's domestic
and international MSN websites promote co-branded versions of the Expedia
websites that include the logos of both the Company and MSN in the U.S., the
U.K., Germany and Canada, the countries in which the Company is currently
present. These co-branded websites are the preferred travel transaction services
offered on MSN, except in international markets where Expedia does not have a
presence. Under the agreement, the parties also agreed to certain restrictions
regarding the promotion of competitors on MSN.com and on the MSN Expedia
co-branded travel websites accessed via MSN.com. The Company pays Microsoft
slotting fees and performance fees under this agreement. These fees are
calculated in accordance with the terms of the agreement and, in certain cases,
a letter agreement entered into between the parties in July 2001. The Company
pays Microsoft an annual slotting fee of $500,000 for the U.S. co-branded travel
website. This fee is credited toward the performance fees that the Company is
required to pay Microsoft. The Company pays Microsoft an annual slotting fee of
$250,000 for each non-U.S. co-branded travel website. These fees are credited
toward the performance fees the Company is
F-45
7. RELATED PARTY TRANSACTIONS (CONTINUED)
required to pay Microsoft only if these non-U.S. websites exceed specified
revenue targets. The performance fees the Company pays to Microsoft are based on
the number of transactions of each transaction type that occur on the co-branded
websites multiplied by the average gross profit per transaction achieved by the
Company for each transaction type multiplied by the agreed percentage of gross
profit to be shared for each transaction type. This agreement runs through
June 30, 2005.
The Company entered into an amended and restated services agreement with
Microsoft on October 1, 1999 whereby Microsoft provides the Company with certain
administrative and operational services. This agreement was subsequently amended
and restated effective January 1, 2001 and further amended as of July 1, 2001.
The Company intends to enter into a second amended and restated services
agreement in connection with the USAI transaction, which is discussed in
Note 10. The second amended and restated services agreement will extend through
September 30, 2002, although Microsoft may elect in limited circumstances to
terminate certain services if Microsoft determines, in good faith after
consultation with USAI and Expedia, that it is inappropriate for Microsoft to
provide such services to an unaffiliated third party.
Under the second amended and restated services agreement, Microsoft will
continue to provide the Company with specified administrative and operational
services. In return, the Company will pay Microsoft fees based on the total
direct and indirect costs incurred by Microsoft in providing these services to
the Company. The Company has been developing and will continue to develop its
own resources in these administrative and operational areas.
In August 2001, in connection with the USAI transactions, the Company and
Microsoft entered into a hosting services agreement under which Microsoft
provides the Company with internet service provider services for the Expedia
websites. Microsoft previously provided these services to the Company under the
amended and restated services agreement. The hosting services agreement has a
four-year term. The Company pays Microsoft for the hosting services on a cost
basis.
On October 1, 1999, the Company and Microsoft entered into a license
agreement under which Microsoft provides the Company with rights to intellectual
property used in its business. Microsoft assigned to the Company the trademarks
and domain names associated with the name "Expedia." In addition, Microsoft
assigned to the Company copyrights for software relating to online travel
services. The Company licenses the right to use some of Microsoft's retail
products and other technology under the license agreement. All of the licenses
relating to Expedia-specific software content and data and patents are
royalty-free, irrevocable and perpetual. Upon completion of the USAI
transaction, the license agreement will be terminated, however, the perpetual
licenses will remain.
In August 2001, the Company signed an amended and restated map server
license agreement with Microsoft. Under this agreement, Microsoft will develop,
maintain, host and serve maps to the Expedia websites. The maps will be
customized for the Company's websites and will include both the Company's logo
and Microsoft's MapPoint.Net logo. The Company will pay route transaction fees,
location lookup transaction fees and map transaction fees to Microsoft. This
agreement was applied retroactively to December 2000. The agreement runs through
August 2005.
On September 25, 2001, Expedia and Microsoft entered into the following
agreements that provide Expedia with worldwide rights to use some of Microsoft's
retail products: Microsoft Business Agreement; Microsoft Enterprise Agreement;
Microsoft Enterprise Enrollment Agreement; Microsoft Select Agreement; and
Microsoft Select Enrollment Agreement to replace some of the licenses in the
license agreement dated October 1, 1999.
Effective October 1, 1999, the Company entered into a tax allocation
agreement with Microsoft relating to periods during which the Company was
included in Microsoft's U.S. federal tax return. In November 2001, the Company
entered into an agreement with Microsoft setting forth the manner in
F-46
7. RELATED PARTY TRANSACTIONS (CONTINUED)
which the Company will compensate Microsoft for compensation deductions
attributable to the "Inherent Bargain Element" as used in the tax allocation
agreement. Under this agreement, the Company generally will be required to
indemnify Microsoft for the actual federal and state tax savings that the
Company realizes as a result of the use of the compensation deductions, as and
when the Company realizes such tax savings.
In November 2001, the Company entered into an agreement to assign patent
applications and royalty sharing agreement with Microsoft. Under this agreement,
Microsoft assigned to the Company all of Microsoft's patents relating to the
operation of the Company's websites. The assignment agreement includes a limited
license of such patents from the Company to Microsoft. Further, the agreement
includes a royalty sharing agreement under which the Company will pay a
percentage of any royalties collected by the Company for licenses to such
patents that are granted by the Company to third parties for use in products
and/or services other than online travel services.
The Company incurs various charges from the above agreements as follows (in
thousands):
THREE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2000 2001
-------- --------
Revenues.................................................... $ (44) $ --
Cost of revenues............................................ 526 1,035
Product development......................................... 383 760
Sales and marketing......................................... 1,222 2,327
General and administrative.................................. 438 414
------ ------
Net expense................................................. $2,525 $4,536
------ ------
8. COMMITMENTS AND CONTINGENCIES
The Company has multi-year agreements with certain travel service providers
that make available the services accessed through the Company's website. Under
these agreements, the Company pays monthly service fees to the service providers
based on the volume of activity. The Company expenses these amounts as the
services are provided.
Between June 5 and July 26, 2001, four class action complaints, alleging
violations of Section 11 of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934, were filed in the Southern District of New York
against the Company, certain of its officers and directors and certain
underwriters of the Company's initial public offering (IPO). The complaint
alleges that the Company's prospectus was false or misleading in that it failed
to disclose (i) that the underwriters allegedly were paid excessive commissions
by certain customers in return for receiving shares in the IPO and (ii) that
certain of the underwriters' customers allegedly agreed to purchase additional
shares of the Company in the aftermarket in return for an allocation of shares
in the IPO. Plaintiffs contend that as a result of those omissions from the
prospectus, the price of the Company's stock was artificially inflated between
November 9, 1999 and December 6, 2000 and that the defendants are liable for
unspecified damages to those persons who purchased stock during that period. On
August 9, 2001, these actions were consolidated before a single judge along with
cases brought against numerous other issuers and their underwriters that make
similar allegations involving the IPO's of those issuers. The consolidation was
for purposes of pretrial motions and discovery only. The Company intends to
defend this matter vigorously.
In addition to the matter discussed above, the Company is subject to various
legal proceedings and claims that arise in the ordinary course of business.
Management believes that the resolution of all such
F-47
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
matters will not have a material impact to the Company's financial position,
results of operations or cash flows.
9. SEGMENT INFORMATION
The Company has five reportable segments: Transportation, Destinations,
Advertising, International and Corporate. The Transportation segment serves
primarily as an agent for U.S.-originated airline tickets and car rentals. The
Destinations segment generates most of its revenues from U.S.-originated hotel
bookings where the Company acts as merchant of record. The Advertising segment
sells advertisements on the domestic websites. The International segment
generates most of its revenues as agency revenues from airline tickets, car
rentals and hotel bookings on its websites in the United Kingdom, Germany,
Belgium, Italy, the Netherlands and Canada. The Corporate segment generates
revenues from the licensing of technology and generates expenses consisting of
the amortization of goodwill and intangibles, recognition of stock-based
compensation and certain corporate headquarters costs.
Segment information is presented in accordance with SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. This
standard is based on a management approach, which requires segmentation based
upon the Company's internal organization and disclosures of revenue and
operating loss based upon internal accounting methods.
Management evaluates each segment's performance based upon income or loss
from operations. This involves significant allocations of various expenses to
the non-Corporate segments. These allocations are primarily based on transaction
volumes and other metrics.
The segment information for the three months ended September 30, 2000 and
2001, are as follows (in thousands):
TRANSPORTATION DESTINATIONS ADVERTISING INTERNATIONAL CORPORATE TOTAL
-------------- ------------ ----------- ------------- --------- --------
For the three months ended
September 30, 2000
Revenues.......................... $18,645 $14,060 $3,087 $ 1,621 $ 4,692 $ 42,105
------- ------- ------ ------- -------- --------
Depreciation and amortization..... $ 125 $ 271 $ 10 $ 34 $ 15,647 $ 16,087
------- ------- ------ ------- -------- --------
Income (loss) from operations..... $(1,720) $ 291 $1,826 $(3,491) $(28,772) $(31,866)
------- ------- ------ ------- -------- --------
For the three months ended
September 30, 2001
Revenues.......................... $41,621 $28,628 $3,467 $ 4,121 $ 1,641 $ 79,478
------- ------- ------ ------- -------- --------
Depreciation and amortization..... $ 625 $ 733 $ 103 $ 254 $ 10,833 $ 12,548
------- ------- ------ ------- -------- --------
Income (loss) from operations..... $ 8,717 $ 8,858 $1,221 $(2,199) $(16,335) $ (262)
------- ------- ------ ------- -------- --------
Assets of the segments are not relevant for management of the business.
However, depreciation and amortization expense, excluding amortization of
goodwill and intangibles that has been exclusively allocated to the Corporate
segment, has been allocated to the five segments for these segment disclosures
based on a usage metric. There are no reconciling items between the segment
information indicated above to the consolidated statements of operations, nor
are there any inter-segment revenues.
The Company has allocated revenues from external customers to geographic
areas by selling location. The Transportation, Destinations and Advertising
segments derive revenues from the Company's U.S. websites and the International
segment derives revenues from the Company's international websites.
F-48
10. USAI TRANSACTION
On July 16, 2001, the Company announced that it had entered into a merger
agreement with Microsoft and USA Networks, Inc. (USAI), among others, whereby
USAI agreed to acquire up to 37,500,000 shares of Expedia common stock,
representing a controlling interest in the Company. In connection with the
transaction, the Company will create a Class B common stock with fifteen votes
per share, subject to certain limitations. Following the completion of the
recapitalization of Expedia's common stock, which will take place immediately
prior to the merger, and the completion of the merger, USAI is expected to hold
all Class B common shares and hold over 90% of the voting interest in the
Company. As part of the agreement, Microsoft will elect to exchange all
33,602,258 of its Expedia shares and all 120,452 of its warrants in exchange for
a package of USAI securities (described below), subject to a ratable reduction
depending upon the number of elections made by other shareholders. Under the
terms of the transaction agreements, the Company's shareholders may elect to
either retain their common stock in the Company and receive for each share of
common stock, 0.192 warrants to purchase the Company's common stock at $52 per
common share or exchange their shares of the Company's common stock for a
package of USAI securities consisting of USAI common stock, USAI convertible
redeemable preferred stock and warrants to acquire USAI common stock. Also,
under the terms of the transaction agreements, the Company's employee option
holders and in, certain cases, the Company's existing warrant holders will
receive 0.192 warrants per option or warrant to purchase the Company's common
stock at $52 per common share. Warrants granted to each employee option holder
will have the same vesting schedule as such employee's unvested options.
As part of the transaction, USAI will contribute $75 million in media time
on its media outlets to the Company over a five year period following closing.
In addition, the Company will acquire an option to participate in a new
television channel to be developed by USAI called the USA Travel Channel. The
terms of the transaction also provide for the Company to have an option to
purchase from USAI the National Leisure Group (NLG), a supplier of cruise travel
products. In the event that USAI does not acquire NLG within 6 months of the
completion of the merger agreement, the Company will be entitled to a payment
from USAI of $20 million plus interest.
The completion of the transaction is subject to the approval of the
Company's shareholders. The Company has incurred $6.3 million of costs related
to the transaction for the quarter ended September 30, 2001 and anticipates
incurring further costs for investment banking, legal, and accounting services
in order to complete this transaction. The Company anticipates completing the
transaction by the end of December 2001.
USAI holds approximately 90% of the voting rights in Hotel Reservations
Network, Inc. (HRN), a competitor of the Company. USAI has announced publicly
that HRN and the Company will continue to operate independently despite being
controlled by a common parent.
11. SEPTEMBER 11, 2001--TERRORIST ATTACKS
The terrorist attacks of September 11, 2001 had an impact on this quarter's
revenues. The mandated grounding of all flights by the FAA for several days
coupled with the slow ramp-up of flights and cutbacks in schedules by the
airlines reduced this quarter's revenues. In addition, airlines allowed
customers with non-refundable tickets to refund them and hotels relaxed their
cancellation policies, resulting in lost agency and merchant revenue for
Expedia. Also, the volume of calls and length of calls at the Company's call
centers increased as the call centers were addressing customers' travel
concerns, thereby increasing cost of revenues.
F-49
PART II INFORMATION
NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Restated Certificate of Incorporation limits, to the
maximum extent permitted by Delaware law, the personal liability of directors
for monetary damages for breach of their fiduciary duties as a director. The
Registrant's Amended and Restated Bylaws provide that the directors and officers
(and legal representatives of such directors and officers) will be indemnified
to the fullest extent authorized by the Delaware General Corporation Law with
respect to third-party actions, suits, investigations or proceedings provided
that any such person has met the applicable standard of conduct set forth in the
Delaware General Corporation Law described below. The Registrant's Amended and
Restated Bylaws further provide that directors and officers (and legal
representatives of such directors and officers) will be indemnified with respect
to actions or suits initiated by such person only if such action was first
approved by the board of directors. The Registrant's Amended and Restated Bylaws
allow the Registrant to pay all expenses incurred by a director or officer (or
legal representative of such director or officer) in defending any proceeding
within the scope of the indemnification provisions as such expenses are incurred
in advance of its final disposition, upon an undertaking by such party to repay
such expenses, if it is ultimately determined that such party was not entitled
to indemnity by the Registrant. From time to time, officers and directors may be
provided with indemnification agreements that are consistent with the foregoing
provisions. The Registrant believes that these agreements and arrangements are
necessary to attract and retain qualified persons as directors and officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent who was or is a
party, or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he was a director, officer, employee or agent of the corporation or was
serving at the request of the corporation against expenses (including attorney's
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
2.1 Amended and Restated Agreement and Plan of Recapitalization and Merger, dated as of July 15, 2001,
by and among the Registrant, Taipei, Inc., Expedia, Inc., Microsoft Corporation and Microsoft
E-Holdings, Inc. (included as Annex A to the joint prospectus/proxy and information statement
incorporated as part of this registration statement).
2.2 Transaction Agreement, dated as of December 16, 2001, among Vivendi Universal, S.A., Universal
Studios, Inc., the Registrant, USANi LLC and Liberty Media Corporation (incorporated by reference to
Exhibit 2.1 to the Registrant Form 8-K filed on December 18, 2001).
3.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000).
3.2 Amendment to Restated Certificate of Incorporation of Registrant (included as Exhibit A to
Registrant's Definitive Information Statement, filed on November 19, 2001).
II-1
3.3 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to
Registrant's Form 8-K, dated January 9, 1998).
4.1 Form of Certificate of Designations of Series A Cumulative Convertible Preferred Stock of the
Registrant.*
4.2 Form of Equity Warrant Agreement between the Registrant and The Bank of New York.*
4.3 Form of Equity Warrant Agreement between the Registrant and The Bank of New York, as equity warrant
agent (incorporated by reference to Exhibit 4.1 to the Registrant Form 8-K filed on December 18,
2001).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the legality of the shares being issued.*
8.1 Opinion of Shearman & Sterling as to certain U.S. federal income tax matters.*
10.1 Form of Registration Rights Agreement by and between the Registrant and Expedia, Inc.*
10.2 Amended and Restated Governance Agreement, dated as of December 16, 2001, among the Registrant,
Universal Studios, Inc., Liberty Media Corporation, Barry Diller and Vivendi Universal, S.A.
(incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on December 18, 2001).
10.3 Amended and Restated Stockholders Agreement, dated as of December 16, 2001, among Universal Studios,
Inc., Liberty Media Corporation, Barry Diller and Vivendi Universal, S.A. (incorporated by reference
to Exhibit 99.2 to the Registrant Form 8-K filed on December 18, 2001).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.1).
23.4 Consent of Shearman & Sterling (included in Exhibit 8.1).
23.5 Consent of Morgan Stanley & Co.*
24 Powers of Attorney.*
99.1 Form of Proxy Card of Expedia, Inc.*
99.1.1 Form of Proxy Card for reconvened annual meeting of Expedia, Inc.
99.2 Form of Election Form and Letter of Transmittal.*
99.3 2001 Expedia Annual Meeting Instruction Booklet for Expedia Shareholders, Warrantholders and
Optionholders.*
99.3.1 Form of Notice of Guaranteed Delivery.*
99.3.2 Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.*
99.4 Terms of NLG Call Option.*
99.5 Terms of Travel Channel Option.*
99.6 Terms of Media Arrangements in USA Media, LLC.*
99.7 Voting and Election Agreement, dated July 15, 2001, between the Registrant, Microsoft and Microsoft
E-Holdings (included as Annex E to the joint prospectus/proxy and information statement incorporated
as part of this registration statement).*
II-2
99.8 Form of Limited Liability Limited Partnership Agreement of [Vivendi Universal Entertainment],
L.L.L.P., among a wholly owned subsidiary of Universal Studios, Inc., the Registrant, USANi Sub LLC
and Barry Diller (incorporated by reference to Exhibit 99.1 to the Registrant's Form 8-K filed on
December 18, 2001).
------------------------
* Previously filed
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(e) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
II-3
(f) That every prospectus: (i) that is filed pursuant to paragraph (e)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(g) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in the documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(h) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 7, 2002.
USA NETWORKS, INC.
By: /s/ BARRY DILLER*
-----------------------------------------
Barry Diller
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this registration
statement has been signed below by the following persons in the capacities as of
January 7, 2002.
SIGNATURE TITLE
--------- -----
/s/ BARRY DILLER*
------------------------------------------- Chairman of the Board,
Barry Diller Chief Executive Officer and Director
/s/ VICTOR A. KAUFMAN*
------------------------------------------- Vice Chairman and Director
Victor A. Kaufman
/s/ WILLIAM J. SEVERANCE*
------------------------------------------- Vice President and
William J. Severance Controller (Chief Accounting Officer)
/s/ MICHAEL SILECK*
------------------------------------------- Senior Vice President and
Michael Sileck Chief Financial Officer
/s/ PAUL G. ALLEN*
------------------------------------------- Director
Paul G. Allen
------------------------------------------- Director
Robert R. Bennett
/s/ EDGAR BRONFMAN, JR.*
------------------------------------------- Director
Edgar Bronfman, Jr.
/s/ ANNE M. BUSQUET*
------------------------------------------- Director
Anne M. Busquet
II-5
SIGNATURE TITLE
--------- -----
/s/ PHILIPPE GERMOND*
------------------------------------------- Director
Philippe Germond
/s/ DONALD R. KEOUGH*
------------------------------------------- Director
Donald R. Keough
/s/ GEORG KOFLER*
------------------------------------------- Director
Georg Kofler
/s/ MARIE-JOSEE KRAVIS*
------------------------------------------- Director
Marie-Josee Kravis
/s/ PIERRE LESCURE*
------------------------------------------- Director
Pierre Lescure
------------------------------------------- Director
John C. Malone
/s/ JEAN-MARIE MESSIER*
------------------------------------------- Director
Jean-Marie Messier
/s/ WILLIAM D. SAVOY*
------------------------------------------- Director
William D. Savoy
/s/ GEN. H. NORMAN SCHWARZKOPF*
------------------------------------------- Director
Gen. H. Norman Schwarzkopf
/s/ DIANE VON FURSTENBERG*
------------------------------------------- Director
Diane Von Furstenberg
*By: /s/ JULIUS GENACHOWSKI*
--------------------------------------
Julius Genachowski
ATTORNEY-IN-FACT
II-6
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
2.1 Amended and Restated Agreement and Plan of Recapitalization
and Merger, dated as of July 15, 2001, by and among the
Registrant, Taipei, Inc., Expedia, Inc., Microsoft
Corporation and Microsoft E-Holdings, Inc. (included as
Annex A to the joint prospectus/proxy and information
statement incorporated as part of this registration
statement).
2.2 Transaction Agreement, dated as of December 16, 2001, among
Vivendi Universal, S.A., Universal Studios, Inc., the
Registrant, USANi LLC and Liberty Media Corporation
(incorporated by reference to Exhibit 2.1 to the Registrant
Form 8-K filed on December 18, 2001).
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2000).
3.2 Amendment to Restated Certificate of Incorporation of
Registrant (included as Exhibit A to Registrant's Definitive
Information Statement, filed on November 19, 2001).
3.3 Amended and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3.1 to Registrant's Form 8-K, dated
January 9, 1998).
4.1 Form of Certificate of Designations of Series A Cumulative
Convertible Preferred Stock of the Registrant.*
4.2 Form of Equity Warrant Agreement between the Registrant and
The Bank of New York.*
4.3 Form of Equity Warrant Agreement between the Registrant and
The Bank of New York, as equity warrant agent (incorporated
by reference to Exhibit 4.1 to the Registrant Form 8-K filed
on December 18, 2001).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the
legality of the shares being issued.*
8.1 Opinion of Shearman & Sterling as to certain U.S. federal
income tax matters.*
10.1 Form of Registration Rights Agreement by and between the
Registrant and Expedia, Inc.*
10.2 Amended and Restated Governance Agreement, dated as of
December 16, 2001, among the Registrant, Universal Studios,
Inc., Liberty Media Corporation, Barry Diller and Vivendi
Universal, S.A. (incorporated by reference to Exhibit 10.1
to the Registrant's Form 8-K filed on December 18, 2001).
10.3 Amended and Restated Stockholders Agreement, dated as of
December 16, 2001, among Universal Studios, Inc., Liberty
Media Corporation, Barry Diller and Vivendi Universal, S.A.
(incorporated by reference to Exhibit 99.2 to the Registrant
Form 8-K filed on December 18, 2001).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Wachtell, Lipton, Rosen & Katz (included in
Exhibit 5.1).
23.4 Consent of Shearman & Sterling (included in Exhibit 8.1).
23.5 Consent of Morgan Stanley & Co.*
24 Powers of Attorney.*
99.1 Form of Proxy Card of Expedia, Inc.*
99.1.1 Form of Proxy Card for reconvened annual meeting of Expedia,
Inc.
99.2 Form of Election Form and Letter of Transmittal.*
99.3 2001 Expedia Annual Meeting Instruction Booklet for Expedia
Shareholders, Warrantholders and Optionholders.*
99.3.1 Form of Notice of Guaranteed Delivery.*
99.3.2 Form of Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.*
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
99.4 Terms of NLG Call Option.*
99.5 Terms of Travel Channel Option.*
99.6 Terms of Media Arrangements in USA Media, LLC.*
99.7 Voting and Election Agreement, dated July 15, 2001, between
the Registrant, Microsoft and Microsoft E-Holdings (included
as Annex E to the joint prospectus/proxy and information
statement incorporated as part of this registration
statement).*
99.8 Form of Limited Liability Limited Partnership Agreement of
[Vivendi Universal Entertainment], L.L.L.P., among a wholly
owned subsidiary of Universal Studios, Inc., the Registrant,
USANi Sub LLC and Barry Diller (incorporated by reference to
Exhibit 99.1 to the Registrant's Form 8-K filed on December
18, 2001).
------------------------
* Previously filed