ACCESS INTEGRATED TECHNOLOGIES, INC.
d/b/a CINEDIGM DIGITAL CINEMA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 2008 and 2009
($ in thousands, except for per share data)
Segment information has been prepared in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” The Company is comprised of five reportable segments: Phase I Deployment, Phase II Deployment, Services, Content & Entertainment and Other. The segments were determined based on the products and services provided by each segment and how management reviews and makes decisions regarding segment operations. Performance of the segments is evaluated on income (loss) from operations before interest, taxes, depreciation and amortization. As a result of the change in the Company’s reportable segments, the Company has restated the segment information for the prior periods. Future changes to this organization structure may result in changes to the reportable segments disclosed.
The Phase I Deployment and Phase II Deployment segments consist of the following:
| Operations of: | | Products and services provided: |
| Phase 1 DC | | Financing vehicles and administrators for the Company’s 3,724 Systems installed nationwide in Phase 1 DC’s deployment to theatrical exhibitors. The Company retains ownership of the residual cash flows and the Systems after the repayment of all non-recourse debt and at the expiration of exhibitor master license agreements. |
| Phase 2 DC | | Financing vehicles and administrators for the Company’s second digital cinema deployment, through Phase 2 DC (the “Phase II Deployment”). The Company retains no ownership of the residual cash flows and digital cinema equipment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements. |
The Services segment consists of the following:
| Operations of: | | Products and services provided: |
| Digital Cinema Services | | Provides monitoring, billing, collection, verification and other management services to the Company’s Phase I Deployment, Phase II Deployment as well as to exhibitors who purchase their own equipment. Collects and disburses VPFs from motion picture studios and distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors. |
| Software | | Develops and licenses software to the theatrical distribution and exhibition industries, provides ASP Service, and provides software enhancements and consulting services. |
| DMS | | Distributes digital content to movie theatres and other venues having digital projection equipment and provides satellite-based broadband video, data and Internet transmission, encryption management services, video network origination and management |
| | | services and a virtual booking center to outsource the booking and scheduling of satellite and fiber networks and provides forensic watermark detection services for motion picture studios and forensic recovery services for content owners. |
The Content & Entertainment segment consists of the following:
| Operations of: | | Products and services provided: |
| USM | | Provides cinema advertising services and entertainment. |
| CEG | | Acquires, distributes and provides the marketing for programs of alternative content and feature films to movie exhibitors. |
The Other segment consists of the following:
| Operations of: | | Products and services provided: |
| Pavilion Theatre | | A nine-screen digital movie theatre and showcase to demonstrate the Company’s integrated digital cinema solutions. |
| Managed Services | | Provides information technology consulting services and managed network monitoring services through its global network command center. |
| Access Digital Server Assets | | Provides hosting services and provides network access for other web hosting services. |
Since May 1, 2007, the Company’s IDCs have been operated by FiberMedia, consisting of unrelated third parties, pursuant to a master collocation agreement. Although the Company is still the lessee of the IDCs, substantially all of the revenues and expenses were being realized by FiberMedia and not the Company and since May 1, 2008, 100% of the revenues and expenses are being realized by FiberMedia.
Information related to the segments of the Company and its subsidiaries is detailed below:
| | As of March 31, 2008 |
| | Phase I | Phase II | Services | Content & Entertainment | Other | Corporate | Consolidated |
Total intangible assets, net | $— | $— | $586 | $12,924 | $80 | $2 | $13,592 |
| Total goodwill | $— | $— | $4,306 | $6,133 | $4,110 | $— | $14,549 |
| Total assets | $291,979 | $— | $22,263 | $29,563 | $12,674 | $17,197 | $373,676 |
| | | | | | | | |
| Notes payable, non-recourse | $210,879 | $— | $— | $— | $— | $— | $210,879 |
| Notes payable | — | — | — | 184 | — | 56,624 | 56,808 |
| Capital leases | — | — | — | — | 5,903 | — | 5,903 |
| Total debt | $210,879 | $— | $— | $184 | $5,903 | $56,624 | 273,590 |
| | As of March 31, 2009 |
| | Phase I | Phase II | Services | Content & Entertainment | Other | Corporate | Consolidated |
Total intangible assets, net | $527 | $— | $156 | $10,010 | $14 | $— | $10,707 |
| Total goodwill | $— | $— | $4,306 | $1,568 | $2,150 | $— | $8,024 |
| Total assets | $250,030 | $5,330 | $19,911 | $21,391 | $9,476 | $16,259 | $322,397 |
| | | | | | | | |
| Notes payable, non-recourse | $195,448 | $— | $— | $— | $— | $— | $195,448 |
| Notes payable | — | — | 501 | 35 | — | 55,221 | 55,757 |
| Capital leases | — | — | — | 68 | 5,939 | — | 6,007 |
| Total debt | $195,448 | $— | $501 | $103 | $5,939 | $55,221 | $257,212 |
Capital Expenditures | Phase I | Phase II | Services | Content & Entertainment | Other | Corporate | Consolidated |
For the fiscal year ended March 31, 2008 | $71,255 | $— | $3,981 | $490 | $420 | $31 | $76,177 |
For the fiscal year ended March 31, 2009 | $14,074 | $3,972 | $3,407 | $285 | $274 | $20 | $22,032 |
| | For the Fiscal Year Ended March 31, 2008 |
| | Phase I | Phase II | Services | Content & Entertainment | Other | Corporate | Consolidated |
| Revenues from external customers | $42,441 | $— | $8,061 | $20,247 | $10,235 | $— | $80,984 |
| Intersegment revenues | 100 | — | 313 | — | 321 | — | 734 |
| Total segment revenues | 42,541 | $— | 8,374 | 20,247 | 10,556 | $— | 81,718 |
| Less: Intersegment revenues | (100) | — | (313) | — | (321) | — | (734) |
| Total consolidated revenues | $42,441 | $— | $8,061 | $20,247 | $10,235 | $— | $80,984 |
| Direct operating (exclusive of depreciation and amortization shown below) | 790 | — | 5,674 | 12,335 | 7,770 | — | 26,569 |
| Selling, general and administrative | 2,149 | — | 3,559 | 9,202 | 819 | 7,441 | 23,170 |
| Provision for doubtful accounts | 302 | — | 154 | 810 | 130 | — | 1,396 |
| Research and development | — | — | 162 | — | — | — | 162 |
| Stock-based compensation | 66 | — | 152 | 65 | 48 | 122 | 453 |
| Impairment of intangible asset | — | — | — | 1,588 | — | — | 1,588 |
| Depreciation and amortization of property and equipment | 24,286 | — | 2,458 | 1,206 | 1,267 | 68 | 29,285 |
| Amortization of intangible assets | — | — | 690 | 3,508 | 88 | 4 | 4,290 |
| Total operating expenses | 27,593 | — | 12,849 | 28,714 | 10,122 | 7,635 | 86,913 |
| Income (loss) from operations | $14,848 | $— | $(4,788) | $(8,467) | $113 | $(7,635) | $(5,929) |
| | For the Fiscal Year Ended March 31, 2009 |
| | Phase I | Phase II | Services | Content & Entertainment | Other | Corporate | Consolidated |
| Revenues from external customers | $48,746 | $158 | $7,228 | $17,172 | $9,710 | $— | $83,014 |
| Intersegment revenues | 13 | — | 696 | 75 | 403 | — | 1,187 |
| Total segment revenues | 48,759 | 158 | 7,924 | 17,247 | 10,113 | $— | 84,201 |
| Less :Intersegment revenues | (13) | — | (696) | (75) | (403) | — | (1,187) |
| Total consolidated revenues | $48,746 | $158 | $7,228 | $17,172 | $9,710 | $— | $83,014 |
| Direct operating (exclusive of depreciation and amortization shown below) | 935 | 48 | 4,808 | 12,062 | 7,818 | — | 25,671 |
| Selling, general and administrative | 952 | 638 | 2,136 | 6,426 | 897 | 7,021 | 18,070 |
| Provision for doubtful accounts | (150) | — | 220 | 447 | 70 | — | 587 |
| Research and development | — | — | 188 | — | — | — | 188 |
| Stock-based compensation | 82 | — | 159 | 98 | (25) | 631 | 945 |
| Impairment of goodwill | — | — | — | 4,565 | 1,960 | — | 6,525 |
| Depreciation and amortization of property and equipment | 28,540 | 87 | 1,800 | 1,021 | 1,019 | 64 | 32,531 |
| Amortization of intangible assets | 23 | — | 430 | 2,914 | 66 | 1 | 3,434 |
| Total operating expenses | 30,382 | 773 | 9,741 | 27,533 | 11,805 | 7,717 | 87,951 |
| Income (loss) from operations | $18,364 | $(615) | $(2,513) | $(10,361) | $(2,095) | $(7,717) | $(4,937) |
