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New-Look USA's Finances Impress

4/28/2002 8:00 PM Eastern

In its last quarterly conference call before the pending combination of its Entertainment Group and Vivendi Universal S.A. — and the subsequent formation of USA Interactive — USA Networks Inc. turned in one of its best quarters ever.

Cash flow at the company's online and home-shopping assets was up 58 percent, while revenue rose 23 percent.

USA Networks first announced its deal to combine its Entertainment Group — which consists of cable networks USA Network, Sci Fi Channel, Trio and Newsworld International, its Studios USA television production unit and its USA Films movie studio — with Vivendi's Universal Studios in December.

The deal, then valued at about $10.3 billion, will create Vivendi Universal Entertainment.

Also as part of the deal, USA Networks Inc. will change its name to USA Interactive and shift its focus to its online and home-shopping properties, including Home Shopping

Network, Ticketmaster, Expedia.com and Hotel Reservations Network.

On April 23, about 87 percent of USA shareholders approved the Vivendi deal, which is expected to close in May.

USA Networks chairman Barry Diller, who will head up the Vivendi Universal Entertainment joint venture, will also be chairman of USA Interactive.

PROSPERING ALONE

Based on its first-quarter performance, USA won't miss the cable properties.

On a pro forma basis, reflecting the pending Vivendi transaction, cash flow rose 58 percent in the quarter, to $155.6 million. Revenue was up 23 percent, to $926.6 million.

According to its press release, revenue at the networks was down 17.7 percent in the quarter to $405 million, while cash flow dipped 27.6 percent to $116.3 million.

But Diller didn't want to talk about traditional cable networks on the conference call. Instead, he focused on the tremendous growth at USA's online properties.

Leading the charge was USA's HSN.com. shopping Web site, which grew 120 percent in the first quarter.

HSN.com — the online counterpart to USA's Home Shopping Network — accounts for about 11 percent of the network's total sales.

USA's existing online travel company, Expedia.com, also showed exponential growth, increasing cash flow six fold in the first quarter, to $122 million. At its Hotel Reservations Network (www.hoteldiscounts.com), an online site at which customers can book hotel rooms, cash flow was up 63 percent.

Most analysts expect Diller to be hot on the acquisition trail, especially with the $3 billion in cash that USA Interactive will pocket from the Vivendi Universal Entertainment deal. Though he didn't deny he's talking with potential targets, Diller declined to give details.

"We are and have been engaged in negotiations," Diller said in a separate conference call with reporters. "That's the only thing I should say."

USA has made about 60 acquisitions since its inception in 1998 and will probably make more, he said.

"This acquisitive trail for us is going to be when transaction meets opportunity," Diller said. "We love this [online] area. We've been very successful at it, and there is a ton of opportunity out there."

One acquisition USA made earlier this month — the United Kingdom-based TV Travel Group — will, as expected, be the launching pad for a long-awaited U.S. travel commerce network.

"[TV Travel] is very effective at what it does," Diller said on the analyst call. "It's a real factor in British travel. They will supervise the launch of the U.S. video travel channel."

The U.S. travel channel would be launched during the last six months of this year, Diller later added.

Diller stressed that his new job running the Vivendi Universal Entertainment operation will not distract him from his main goal of growing USA Interactive.

"There are people with far more diverse responsibilities than I've got who seem to handle it OK," Diller said. "I think that both of the areas I'm engaged in — interactive and Vivendi Universal Entertainment — my colleagues would say what I feel, which is I'm much more focused about each. I think I am, oddly enough, spending more time on each."

DEFENDS MESSIER

While Diller did not want to comment directly on the problems surrounding his new boss, Vivendi Universal chairman Jean-Marie Messier, he did defend him.

Messier has come under fire in France for dismissing Canal Plus S.A. chairman Pierre Lescure, after the French film and television unit suffered five consecutive years of heavy losses. Canal Plus employees picketed Vivendi's headquarters, calling for the chairman's ouster.

That all came to a head April 24, at Vivendi's annual shareholder meeting. Messier weathered some heated comments from shareholders, but managed to maintain the support of Vivendi's board of directors.

"This has been a huge media storm, more than I think the facts on the ground dictate," Diller said. "The fact is that a management change was made in an operating business that had for years not performed.

"All the politics aside, and all the drama aside, that's all that happened."

September