10-Q 1 d10q.txt FORM 10-Q FOR THE PERIOD ENDED 12/31/2001 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- Form 10-Q [X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 2001. or [_]Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 for transition period from to . Commission File No. 333-38689 ---------------- FOX SPORTS NETWORKS, LLC (Exact name of registrant as specified in its charter) Delaware 95-4577574 (State or other jurisdiction (I.R.S. Employer or of incorporation organization) Identification No.) 1440 South Sepulveda Boulevard, Los Angeles, CA 90025 (Address of principal executive offices) Registrant's telephone number, including area code: (310) 444-8123 ---------------- Indicate by check mark whether the Registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes [X] No [_] ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- PART I FINANCIAL INFORMATION Item 1. Financial Statements FOX SPORTS NETWORKS, LLC (A Delaware Limited Liability Company) CONDENSED CONSOLIDATED BALANCE SHEETS December 31, 2001 and June 30, 2001 (Dollars in thousands)

The accompanying notes are an integral part of these condensed consolidated balance sheets. 2 FOX SPORTS NETWORKS, LLC (A Delaware Limited Liability Company) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six Months Ended December 31, 2001 and 2000 (Dollars in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements. 3 FOX SPORTS NETWORKS, LLC (A Delaware Limited Liability Company) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended December 31, 2001 and 2000 (Dollars in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements. 4 FOX SPORTS NETWORKS, LLC (A Delaware Limited Liability Company) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 (unaudited) (Dollars in thousands) (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Fox Sports Networks, LLC (the "Company") have been prepared by the Company pursuant to the instructions for Form 10-Q and Article 10 of Regulation S-X and, accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted where permitted by regulation. In management's opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, primarily consisting of normal recurring accruals, necessary for a fair presentation of the consolidated results of operations for the interim periods presented. The unaudited condensed consolidated results of operations for such interim periods are not necessarily indicative of the results that may be expected for future interim periods or for the year ended June 30, 2002. These interim unaudited condensed consolidated financial statements and the notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. The Company consolidates all of its subsidiaries in which control is held by either the Company or Fox Entertainment Group, Inc. ("Fox"), its parent. The percentage of ownership, together with the degree to which the Company controls the management and operation of a regional sports network ("RSN"), determines the appropriate accounting treatment for the Company's interest in that particular RSN. If the Company owns a majority interest in a particular RSN, but neither the Company nor Fox have control, the ownership interest is accounted for using the equity method of accounting. (2) Debt Debt at December 31, 2001 and June 30, 2001 is summarized as follows:

In July 1999, 19th Holdings Corporation ("19th Holdings"), a wholly-owned subsidiary of Fox acquired the debt outstanding under a bank facility from a group of banks, ("the 19th Facility"). Borrowings under the 5 19th Facility bear interest at a fixed rate determined on an annual basis by 19th Holdings. 19th Holdings has determined that the rate of interest on this debt through June 2002 shall be 8%. In July 2000, the 19th Facility was amended to increase the total amount available to $900,000. (3) Summarized Financial Information Summarized unaudited statement of operations information for subsidiaries accounted for under the equity method for which separate financial information would be required for annual periods, is as follows:

(4) Supplemental Disclosure to Unaudited Condensed Consolidated Statements of Cash Flows Cash paid for interest on the Senior Notes was $22,188 for the six months ended December 31, 2001 and 2000. Debt increased by $32,376 and $32,532 in the six months ended December 31, 2001 and 2000, respectively, related to accrued interest on the debt outstanding under the 19th Facility. (5) Reclassifications Certain reclassifications have been made to the prior period financial statements in order to conform to the current period presentation. (6) New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, "Business Combinations" ("SFAS 141"). This statement changes the accounting rules that apply to business combinations and is applicable to acquisitions subsequent to June 30, 2001. As of December 31, 2001, SFAS 141 had no impact on the consolidated financial statements. In June 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). This statement changes the accounting rules that apply to goodwill and intangible assets. Under SFAS 142, new goodwill and intangible assets with indefinite lives acquired after June 30, 2001 should no longer be amortized. Existing goodwill and intangible assets with indefinite lives acquired prior to June 30, 2001 should no longer be amortized in fiscal years starting after December 15, 2001. The Company plans to adopt SFAS 142 on July 1, 2002. The Company is in the process of evaluating the impact SFAS 142 will have on the consolidated financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for the fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. SFAS No. 144 establishes an accounting model for impairment or disposal of long-lived assets to be disposed of by sale. The Company plans to adopt SFAS No. 144 on July 1, 2002. In November 2001, the FASB's Emerging Issues Task Force ("EITF") issued EITF No. 01-09, "Accounting for the Consideration Given by a vendor to a Customer or a Reseller of the Vendors' Products." This EITF, among other things, codified the issues and examples of EITF No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products." EITF No. 00-25 states that the financial statement classification of customer incentives, including the amortization of cable distribution investments, should be presented as a reduction in revenue. As required, effective January 1, 2002, the Company 6 will reclassify the amortization of cable distribution investments to revenue, net. All comparative periods will be restated. Based upon historical pro forma information, management believes that revenue could be reduced up to 2%. The amortization of cable distribution investments is included in depreciation and amortization expense and would correspondingly be reduced such that Operating income and Net income would not be affected. (7) NASCAR Sublicense The Company has a sublicense arrangement with Fox for long-term sports rights through fiscal 2006, whereby the Company may telecast certain National Association of Stock Car Auto Racing ("NASCAR") events each year for an allocated fee. The allocated fee from Fox is determined annually, based on the Company's share of revenues associated with the program material and related expenses from the Fox NASCAR programming rights agreement. Based on current estimates, the fee allocated to the Company will result in no material operating profit or loss in each remaining year of the sublicense arrangement. The profitability of this sublicense arrangement is based on the Company's best estimates of related revenues and expenses as of December 31, 2001; such estimates may change in the future, and such changes may be significant. Should the estimates change from those applied as of December 31, 2001 the allocated fee from Fox will change such that the Company will continue to recognize no operating profit or loss in each remaining year of the sublicense arrangement. (8) Subsequent Events In January 2002, the Company acquired from Comcast its approximate 23.3% interest in the Sunshine Network for approximately $23.3 million. This acquisition increased the Company's ownership percentage in the Sunshine Network to approximately 83.3%. As of the acquisition date, the Sunshine Network will be consolidated into the Company's operations. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This document contains statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words "expect," "estimate," "anticipate," "predict," "believe" and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of the Company, its members or its officers with respect to, among other things, trends affecting the Company's financial condition or results of operations. The readers of this document are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those risks and uncertainties discussed in this document under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the Company's Annual Report on Form 10-K for the year ended June 30, 2001 under the headings "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company does not ordinarily make projections of its future operating results and undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review the risk factors discussed in the other documents filed by the Company with the Securities and Exchange Commission. This report should be read in conjunction with the unaudited condensed consolidated financial statements of the Company and related notes set forth elsewhere herein. The following discussion and analysis should be read in conjunction with the Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. Introduction Fox Sports Networks, LLC (together with its subsidiaries, the "Company") was formed to provide cable programming through its interests in regional sports networks ("RSNs") and Fox Sports Net ("FSN"), a national sports programming service, and through FX Network ("FX"), a general entertainment network. The Company's interests in the sports programming business are derived through its 99.5% ownership interests in Fox Sports Net, LLC and Fox Sports RPP Holdings, LLC, while its interest in FX is derived through its 99% ownership interest in FX Networks, LLC. The Company was formed in April 1996, pursuant to a 50%/50% joint venture between Fox Entertainment Group, Inc. ("Fox"), a majority owned subsidiary of The News Corporation Limited ("News Corporation"), and Liberty Media Corporation ("Liberty"). In July 1999, News Corporation acquired substantially all of Liberty's 50% interest in the Company and its businesses. News Corporation transferred the acquired interests to Fox in exchange for common stock of Fox. In August 1997, the Company issued $500.0 million aggregate principal amount of its 8 7/8% Senior Notes due 2007 and $405.0 million aggregate principal amount at maturity ($252.3 million gross proceeds) of its 9 % Senior Discount Notes due 2007 (together, the "Offering"). The net proceeds from the offering were used, along with proceeds from the Bank Facility (as defined below), to finance the Company's acquisition of a 40% interest in Regional Programming Partners ("RPP"), which was formed to hold interests in RSNs and related businesses then owned by Rainbow Media Sports Holdings, Inc. ("Rainbow"). In connection with this transaction (the "Rainbow Transaction"), the Company and Rainbow also formed National Sports Partners (the "NSP") as a 50%/50% partnership to operate FSN, and National Advertising Partners (the "NAP") as a 50%/50% partnership to act as a national advertising sales representative for FSN and the RSNs which are affiliated with FSN. RPP is managed by Rainbow, while NSP and the NAP are managed by the Company. In connection with the consummation of the Rainbow Transaction, the Company and a group of banks amended and restated an existing credit agreement to permit borrowings by Fox Sports Net, LLC, Fox Sports RPP Holdings, LLC and FX Networks, LLC, each a subsidiary of the Company in the amount of $800.0 million 8 (the "Bank Facility"). The Bank Facility was comprised of a $400.0 million revolving credit facility and a $400.0 million term loan facility. The proceeds of the loans under the Bank Facility were used to finance, in part, the Rainbow Transaction. In July 1999, 19th Holdings Corporation ("19th Holdings"), a wholly-owned subsidiary of Fox, acquired the debt outstanding under the Bank Facility from the group of banks, and in so doing, assumed the rights and obligations of the group of banks under the Bank Facility. The Company and 19th Holdings subsequently amended and restated the Bank Facility to provide, among other things, a fixed rate of interest, determined by 19th Holdings on an annual basis, and eliminated substantially all of the affirmative and negative covenants other than with respect to the payment of principal and interest (the "19th Facility"). In July 2000, the Company and 19th Holdings amended the 19th Facility to increase the revolving facility to $500.0 million and the total facility to $900.0 million. The Company currently expects that remaining availability under the 19th Facility will primarily be used for investments in certain subsidiaries of the Company and for working capital purposes. Significant Accounting Practices Basis of Presentation The Company's ownership interests in the RSNs are held either directly or indirectly and have different voting rights attached thereto. The Company consolidates all of its subsidiaries in which control is held by either the Company or Fox, its parent. The percentage of ownership, together with the degree to which the Company controls the management and operation of an RSN, determines the appropriate accounting treatment for the Company's interest in that particular RSN. If the Company owns a majority interest in a particular RSN, but neither the Company nor Fox have control, the ownership interest is accounted for using the equity method of accounting. Under the equity method of accounting, the financial condition and results of operations of entities are not reflected on a consolidated basis and, accordingly, the consolidated revenues and expenses of the Company, as reported on its consolidated statements of operations, do not include revenues and expenses related to the entities accounted for under the equity method. In February 2001, the Company acquired certain assets and assumed certain liabilities of Midwest Sports Channel ("MSC"), a regional sports network serving the Minneapolis, Minnesota and Milwaukee, Wisconsin areas, from Viacom Inc. ("Viacom") pursuant to an agreement between the Company, Viacom and Comcast Corporation ("Comcast"). The agreement assigned Comcast's rights and obligations to purchase MSC from Viacom to the Company. Concurrent with this transaction, the Company sold its 34.298% interest in D.C./Baltimore RSN to Comcast. MSC has been rebranded as Fox Sports Net ("North RSN"). The following RSNs, together with Fox Sports Direct and FX Networks, LLC, are consolidated in the financial statements of the Company, at December 31, 2001 and 2000: Arizona RSN, Detroit RSN, Midwest RSN, Northwest RSN, Pittsburgh RSN, Rocky Mountain RSN, South RSN, Southwest RSN, Utah RSN, West RSN, and West 2 RSN. The North RSN was acquired in February 2001 and is consolidated from the date of its acquisition. As of December 31, 2001 and 2000, the following are accounted for using the equity method of accounting: Bay Area RSN, Chicago RSN, NAP, NSP, RPP and Sunshine RSN. The Company's interest in the D.C./Baltimore RSN was sold in February 2001 and was accounted for using the equity method of accounting at December 31, 2000. Because the Company reports the results of a significant number of its subsidiary entities using the equity method, its financial results do not represent the total combined revenues and expenses of all the businesses in which the Company holds ownership interests. The Company has a sublicense arrangement with Fox for long-term sports rights through fiscal 2006, whereby the Company may telecast certain National Association of Stock Car Auto Racing ("NASCAR") 9 events each year for an allocated fee. The allocated fee from Fox is determined annually, based on the Company's share of revenues associated with the program material and related expenses from the Fox NASCAR programming rights agreement. Based on current estimates, the fee allocated to the Company will result in no material operating profit or loss in each remaining year of the sublicense arrangement. The profitability of this sublicense arrangement is based on the Company's best estimates of related revenues and expenses as of December 31, 2001; such estimates may change in the future, and such changes may be significant. Should the estimates change from those applied as of December 31, 2001 the allocated fee from Fox will change such that the Company will continue to recognize no operating profit or loss in each remaining year of the sublicense arrangement. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, "Business Combinations" ("SFAS 141"). This statement changes the accounting rules that apply to business combinations and is applicable to acquisitions subsequent to June 30, 2001. As of December 31, 2001, SFAS 141 had no impact on the consolidated financial statements. In June 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). This statement changes the accounting rules that apply to goodwill and intangible assets. Under SFAS 142, new goodwill and intangible assets with indefinite lives acquired after June 30, 2001 should no longer be amortized. Existing goodwill and intangible assets with indefinite lives acquired prior to June 30, 2001 should no longer be amortized in fiscal years starting after December 15, 2001. The Company plans to adopt SFAS 142 on July 1, 2002. The Company is in the process of evaluating the impact SFAS 142 will have on the consolidated financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for the fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. SFAS No. 144 establishes an accounting model for impairment or disposal of long-lived assets to be disposed of by sale. The Company plans to adopt SFAS No. 144 on July 1, 2002. In November 2001, the FASB's Emerging Issues Task Force ("EITF") issued EITF No. 01-09, "Accounting for the Consideration Given by a vendor to a Customer or a Reseller of the Vendors' Products." This EITF, among other things, codified the issues and examples of EITF No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products." EITF No. 00-25 states that the financial statement classification of customer incentives, including the amortization of cable distribution investments, should be presented as a reduction in revenue. As required, effective January 1, 2002, the Company will reclassify the amortization of cable distribution investments to revenue, net. All comparative periods will be restated. Based upon historical pro forma information, management believes that revenue could be reduced up to 2%. The amortization of cable distribution investments is included in depreciation and amortization expense and would correspondingly be reduced such that Operating income and Net income would not be affected. Results of Operations Three months ended December 31, 2001 as compared with the three months ended December 31, 2000 Total revenues for the three months ended December 31, 2001 were $263.8 million, an increase of $36.6 million, or 16%, over the three months ended December 31, 2000. Programming revenue was the largest source of revenue, representing 55% of total revenue, or $145.9 million, for the three months ended December 31, 2001. Advertising and direct broadcast revenue represented 22% and 18%, respectively, of total revenue, or $58.5 million and $48.0 million, respectively, for the three months ended December 31, 2001. For the three months ended December 31, 2000, programming revenue was $116.0 million and advertising and direct broadcast revenue were $61.4 and $39.8 million, respectively, or 51%, 27% and 18%, respectively of total revenues. Programming and direct broadcast revenues increased by $29.9 million and $8.1 million, respectively, and advertising revenues decreased by $2.9 million in the three months ended December 31, 2001 as compared to the three months ended December 31, 2000. This represents a 26% and 20% increase in programming, and direct broadcast revenue, respectively, and a 5% decrease in advertising revenue between the periods. 10 The increase in programming revenue of 26% is comprised primarily of increases in the average rate per subscriber at the RSNs, a 23% increase in average cable subscribers at FX and the acquisition of the North RSN. The financial results of the North RSN are not included in the three months ended December 31, 2000, as the RSN was acquired in February 2001. The increase in direct broadcast revenue is comprised of a 19% increase at the RSNs and a 25% increase at FX. Direct broadcast revenue at the RSNs increased due to the acquisition of the North RSN and a 14% growth in average direct broadcast subscribers at the remaining RSNs. The increase in direct broadcast revenue at FX is due to a 25% growth in average direct broadcast subscribers. The decrease in advertising revenue of 5% is primarily comprised of declines at the RSNs while FX was relatively unchanged. Advertising revenue at the RSNs for the three months ended December 31, 2001 decreased by 20%, excluding the acquisition of the North RSN, as compared to the same period in the prior year, primarily due to declines in pricing, partially offset by the rescheduled MLB games that were postponed during the week following the September 11th events. Most of these rescheduled games were telecast, and the advertising revenues associated with them were recognized, in October 2001 with no comparable games in the same period in the prior year. Advertising revenue at FX was relatively unchanged with the prior year as increases in average audience were offset by declines in pricing. Operating expenses totaled $181.6 million for the three months ended December 31, 2001, representing 69% of total revenues and an increase of $30.7 million, or 20%, over the same period in the prior year. Operating expenses for the three months ended December 31, 2000 totaled $150.9 million, or 66% of total revenues. These expenses consist primarily of rights fees, programming and production costs. The increase in operating expenses is primarily the result of the acquisition of the North RSN in February 2001, an 11% increase at the remaining RSNs, and a 56% increase at FX. The increase at the RSNs, excluding the North RSN, primarily relates to additional professional events and higher average rights fees per event. The increase in professional events is primarily due to the MLB games that were rescheduled and telecast in October 2001, following the September 11th events. The 56% increase at FX is primarily due to program rights amortization associated with the debut of FX's new programming schedule, which includes "Ally McBeal," "The Practice," "24," and "Buffy the Vampire Slayer," and increased costs for original programming. General and administrative expenses totaled $24.9 million for the three months ended December 31, 2001, which represented 9% of total revenues. General and administrative expenses for the three months ended December 31, 2000 totaled $21.2 million, or 9% of total revenues. The increase in general and administrative expenses is primarily due to the acquisition of the North RSN and higher facilities expenses incurred in connection with the relocation of the Company's corporate office space. Depreciation and amortization expenses totaled $16.3 million and $14.3 million for the three months ended December 31, 2001 and 2000, respectively. The increase between the periods is primarily due to increased amortization of cable distribution investments and increased depreciation expense associated with the Company's expansion and upgrade of its technical facilities. Interest expense for the three months ended December 31, 2001 and 2000 was relatively unchanged at $36.6 million as increased interest accrued on the Senior Discount Notes was substantially offset by reduced interest from lower average outstanding indebtedness under the 19th Facility. Equity loss of affiliates for the three months ended December 31, 2001 and 2000 was $2.1 million and $1.2 million, respectively. In February 2001, the Company sold its interest in Home Team Sports, which was profitable in the three months ended December 31, 2000. This decline was partially offset by improvements at Bay Area RSN and Chicago RSN resulting from significant increases in subscriber rates as compared to the prior year. Six months ended December 31, 2001 as compared with the six months ended December 31, 2000 Total revenues for the six months ended December 31, 2001 were $532.0 million, an increase of $71.8 million, or 16%, over the six months ended December 31, 2000. Programming revenue was the largest source of revenue, representing 54% of total revenue, or $288.7 million, for the six months ended December 31, 2001. 11 Advertising and direct broadcast revenue represented 24% and 18%, respectively, of total revenue, or $126.0 million and $95.2 million, respectively, for the six months ended December 31, 2001. For the six months ended December 31, 2000, programming revenue was $232.3 million and advertising and direct broadcast revenue were $125.0 and $77.5 million, respectively, or 50%, 27% and 17%, respectively of total revenues. Programming, advertising and direct broadcast revenues increased by $56.3 million, $1.1 million and $17.7 million, respectively, in the six months ended December 31, 2001 as compared to the six months ended December 31, 2000. These represent a 24%, 1% and 23% increase in programming, advertising and direct broadcast revenue, respectively, between the periods. The increase in programming revenue of 24% is comprised primarily of increases in the average rate per subscriber at the RSNs, a 26% increase in average cable subscribers at FX and the acquisition of the North RSN. The financial results of the North RSN are not included in the six months ended December 31, 2000, as the RSN was acquired in February 2001. The increase in advertising revenue of 1% is primarily comprised of a 7% increase at FX mostly offset by declines at the RSNs. The 7% increase of advertising revenue at FX is due to increases in average audience, partially offset by declines in pricing. Advertising revenue at the RSNs for the six months ended December 31, 2001 decreased by 11%, excluding the acquisition of the North RSN, as compared to the same period in the prior year, due to declines in pricing. The increase in direct broadcast revenue of 23% is comprised of a 21% increase at the RSNs and a 26% increase at FX. Direct broadcast revenue at the RSNs increased due to the acquisition of the North RSN and a 16% growth in average direct broadcast subscribers at the remaining RSNs. The increase in direct broadcast revenue at FX is due to a 30% growth in average direct broadcast subscribers. Operating expenses totaled $357.7 million for the six months ended December 31, 2001, representing 67% of total revenues and an increase of $59.2 million, or 20%, over the same period in the prior year. Operating expenses for the six months ended December 31, 2000 totaled $298.5 million, or 65% of total revenues. These expenses consist primarily of rights fees, programming and production costs. The increase in operating expenses is primarily the result of the acquisition of the North RSN in February 2001, a 6% increase at the remaining RSNs, costs associated with national MLB cable telecasts previously telecast by an equity affiliate and a 31% increase at FX. The increase at the RSNs, excluding the North RSN, primarily relates to an increase in the number of professional events and higher average rights fees per event. The 31% increase at FX is primarily due to program rights amortization associated with the debut of FX's new programming schedule, which includes "Ally McBeal," "The Practice," "24," and "Buffy the Vampire Slayer," and increased costs for original programming. General and administrative expenses totaled $52.3 million for the six months ended December 31, 2001, which represented 10% of total revenues. General and administrative expenses for the six months ended December 31, 2000 totaled $42.5 million, or 9% of total revenues. The increase in general and administrative expenses is primarily due to the acquisition of the North RSN and higher facilities expenses incurred in connection with the relocation of the Company's corporate office space. Depreciation and amortization expenses totaled $32.5 million and $28.2 million for the six months ended December 31, 2001 and 2000, respectively. The increase between the periods is primarily due to increased amortization of cable distribution investments and increased depreciation expense associated with the Company's expansion and upgrade of its technical facilities. Interest expense for the six months ended December 31, 2001 and 2000 totaled $73.6 million and $72.0 million, respectively. The increase in interest expense is primarily due to increased interest accreted on the Senior Discount Notes. Equity loss of affiliates for the six months ended December 31, 2001 was $21.6 million and equity income of affiliates was $2.5 million for the six months ended December 31, 2000. The decrease over the same period in the prior year is primarily due to increased losses at RPP attributable to certain player contract write-offs at MSG. In February 2001, the Company sold its interest in the D.C./Baltimore RSN, which was profitable in the six 12 months ended December 31, 2000. These declines were partially offset by improvements at NAP, Bay Area RSN and Chicago RSN. NAP improved primarily due to reduced operating expenses. Bay Area RSN and Chicago RSN improved from significant increases in subscriber rates as compared to the prior year. Liquidity and Capital Resources The Company's liquidity requirements arise from (i) funding general working capital needs, (ii) its strategic plan to invest in and secure distribution for its sports and general entertainment programming, (iii) the acquisition of programming rights, and (iv) capital expenditure requirements. Net cash flows provided by operating activities for the six months ended December 31, 2001 were $44.4 million, an increase of $66.4 million over the six months ended December 31, 2000. The increase was primarily attributed to lower contractual rights prepayments on certain long-term rights deals and improved collections on trade accounts receivable. Net cash flows used in investing activities for the six months ended December 31, 2001 were $6.1 million, a decrease of $10.9 million over the six months ended December 31, 2000. The decrease was primarily due to higher net advances from equity affiliates and lower property and equipment additions, partially offset by lower distributions from equity affiliates. Net cash flows used in financing activities for the six months ended December 31, 2001 were $45.6 million, an increase of $81.3 million over the six months ended December 31, 2000. The increase in cash used in financing activities was primarily due to higher repayments on the 19th Facility funded by improved operating cashflows. In August 1997, the Company issued $500.0 million aggregate principal amount of its 8 7/8 % Senior Notes due 2007 and $405.0 million aggregate principal amount at maturity ($252.3 million gross proceeds) of its 9% Senior Discount Notes due 2007 (collectively, the "Notes") through the Offering. The indentures pursuant to which the Notes were issued include certain covenants regarding, among other things, limitations on the incurrence of debt and distributions to partners. As of December 31, 2001, the Company was in compliance with its covenants related to the Notes. Borrowings under the 19th Facility bear interest at a fixed rate determined on an annual basis by 19th Holdings. 19th Holdings has determined that the rate of interest on this debt through June 2002 shall be 8%. During the six months ended December 31, 2001, the Company made net payments of $39.5 million bringing the total amount borrowed under the 19th Facility to $768.1 million as of December 31, 2001. The total unused commitment pursuant to the 19th Facility was $131.9 million as of December 31, 2001. In January 2002, the Company acquired from Comcast its approximate 23.3% interest in the Sunshine Network for approximately $23.3 million. This acquisition increased the Company's ownership percentage in the Sunshine Network to approximately 83.3%. As of the acquisition date, the Sunshine Network will be consolidated into the Company's operations. Future capital requirements will be substantial as the Company continues to invest in developing networks, acquire sports and entertainment programming rights and explore opportunities to expand its distribution. Although no assurances can be given in this regard, the Company believes that its existing funds and the proceeds from borrowings under its credit facility, will be sufficient to meet its plan to secure distribution, maintain and/or acquire programming, make anticipated capital expenditures, and meet its projected working capital requirements. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable. 13 PART II OTHER INFORMATION Item 1. Legal Proceedings As of December 31, 2001, there are no material pending legal proceedings against the Company, other than routine litigation incidental to the Company's business, except as described in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001. Item 2. Changes in Securities and Use of Proceeds Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. Item 5. Other Information Not Applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the period covered by this report. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FOX SPORTS NETWORKS, LLC Dated: February 13, 2002 /s/ Andrew R. Hubsch By: _________________________________ Andrew R. Hubsch Senior Vice President, Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) 15

FOX SPORTS NETWORKS LLC 10-Q