UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended May 31, 2000
or
| / / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-1461
LIBERTY LIVEWIRE CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation) | 13-1679856 (IRS Employer Identification No.) | |
520 Broadway, Santa Monica, CA (Address of principal executive offices) | 90401 (zip code) |
(310) 434-7000
(Registrant's telephone number, including area code)
THE TODD-AO CORPORATION, 900 N. Seward Street, Hollywood, CA 90038, August 31
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
The number of shares of common stock outstanding at July 1, 2000 was: 4,361,143 Class A Shares and 23,156,666 Class B Shares.
LIBERTY LIVEWIRE CORPORATION
(formerly the Todd-AO Corporation)
| | Page | ||||
|---|---|---|---|---|---|
| PART I—FINANCIAL INFORMATION | |||||
| Item 1—Financial Statements | |||||
| The following financial statements are filed herewith: | |||||
| Condensed Consolidated Balance Sheets, May 31, 2000 (Unaudited) and August 31, 1999 | 3 | ||||
| Condensed Consolidated Statements of Income and Retained Earnings for the Nine and Three Months Ended May 31, 1999 and May 31, 2000 (Unaudited) | 5 | ||||
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended May 31, 1999 and May 31, 2000 (Unaudited) | 6 | ||||
| Notes to Condensed Consolidated Financial Statements for the Nine Months Ended May 31, 2000 (Unaudited) | 8 | ||||
| Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||||
PART II—OTHER INFORMATION | |||||
| Item 1—Legal Proceedings | 15 | ||||
| Item 6—Exhibits and Reports on Form 8-K | 15 | ||||
| Signature | 15 | ||||
2
LIBERTY LIVEWIRE CORPORATION
(formerly the Todd-AO Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| | August 31, 1999 | May 31, 2000 | ||||||
|---|---|---|---|---|---|---|---|---|
| | | (Unaudited) | ||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 9,739 | $ | 9,437 | ||||
| Marketable securities | 1,317 | 423 | ||||||
| Trade receivables | ||||||||
| (net of allowance for doubtful accounts of $1,215 at August 31, 1999 and $1,239 at May 31, 2000) | 18,169 | 21,473 | ||||||
| Income tax receivable | 634 | 1,128 | ||||||
| Inventories (first-in first-out basis) | 856 | 715 | ||||||
| Deferred income taxes | 755 | 855 | ||||||
| Prepaid deposits and other | 3,005 | 3,083 | ||||||
| Total current assets | 34,475 | 37,114 | ||||||
| INVESTMENTS | 892 | 7,838 | ||||||
| PROPERTY AND EQUIPMENT—At Cost: | ||||||||
| Land | 4,270 | 4,270 | ||||||
| Buildings | 17,688 | 17,418 | ||||||
| Leasehold improvements | 18,603 | 19,573 | ||||||
| Lease acquisition costs | 2,187 | 2,187 | ||||||
| Equipment | 79,651 | 94,523 | ||||||
| Equipment under capital leases | 1,151 | 1,151 | ||||||
| Construction in progress | 4,803 | 1,244 | ||||||
| Total | 128,353 | 140,366 | ||||||
| Accumulated depreciation and amortization | (48,305 | ) | (58,557 | ) | ||||
| Property and equipment—net | 80,048 | 81,809 | ||||||
| GOODWILL | ||||||||
| (net of accumulated amortization of $2,875 at August 31, 1999 and $3,891 at May 31, 2000) | 33,875 | 32,649 | ||||||
| OTHER ASSETS | 3,890 | 4,662 | ||||||
| TOTAL | $ | 153,180 | $ | 164,072 | ||||
See notes to condensed consolidated financial statements.
3
LIBERTY LIVEWIRE CORPORATION
(formerly the Todd-AO Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
| | August 31, 1999 | May 31, 2000 | ||||||
|---|---|---|---|---|---|---|---|---|
| | | (Unaudited) | ||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 5,465 | $ | 3,925 | ||||
| Accrued liabilities: | ||||||||
| Payroll and related taxes | 3,089 | 4,260 | ||||||
| Interest | 762 | 518 | ||||||
| Equipment lease | 1,588 | 1,501 | ||||||
| Other | 4,706 | 3,313 | ||||||
| Income taxes payable | 2,247 | 482 | ||||||
| Current maturities of long-term debt | 979 | 5,999 | ||||||
| Capitalized lease obligations — current | 336 | 318 | ||||||
| Deferred income | 914 | 1,048 | ||||||
| Total current liabilities | 20,086 | 21,364 | ||||||
| LONG-TERM DEBT | 65,520 | 61,210 | ||||||
| DEFERRED COMPENSATION AND OTHER | 1,439 | 1,274 | ||||||
| DEFERRED GAIN ON SALE/LEASEBACK TRANSACTIONS | 4,046 | 2,415 | ||||||
| DEFERRED INCOME TAXES | 3,254 | 4,205 | ||||||
| Total liabilities | 94,345 | 90,468 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Common Stock: | ||||||||
| Class A; authorized 30,000,000 shares of $0.01 par value; issued 8,124,333 at August 31, 1999 and 9,102,722 at May 31, 2000 | 82 | 91 | ||||||
| Class B; authorized 6,000,000 shares of $0.01 par value; issued and outstanding 1,747,178 | 17 | 17 | ||||||
| Additional capital | 37,887 | 47,865 | ||||||
| Treasury stock (6,000 shares at cost as of August 31, 1999 and May 31, 2000) | (47 | ) | (47 | ) | ||||
| Retained earnings | 21,432 | 20,206 | ||||||
| Accumulated other comprehensive income (loss) | (536 | ) | 5,472 | |||||
| Total stockholders' equity | 58,835 | 73,604 | ||||||
| TOTAL | $ | 153,180 | $ | 164,072 | ||||
See notes to condensed consolidated financial statements.
4
LIBERTY LIVEWIRE CORPORATION
(formerly the Todd-AO Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE NINE AND THREE MONTHS ENDED MAY 31, 1999 AND MAY 31, 2000 (UNAUDITED)
(Dollars in thousands, except per share amounts)
| | Nine Months | Three Months | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 2000 | 1999 | 2000 | |||||||||
| | Restated | | | | |||||||||
| REVENUES | $ | 90,428 | $ | 96,504 | $ | 28,093 | $ | 31,829 | |||||
| COSTS AND EXPENSES: | |||||||||||||
| Operating costs and other expenses | 73,050 | 79,281 | 23,457 | 26,937 | |||||||||
| Depreciation and amortization | 9,735 | 11,741 | 3,364 | 4,171 | |||||||||
| Interest | 2,454 | 3,745 | 836 | 1,247 | |||||||||
| Equipment lease expense—net | 908 | 2,081 | 488 | 672 | |||||||||
| Other expense (income)—net | (895 | ) | 1,188 | (192 | ) | 911 | |||||||
| Total costs and expenses | 85,252 | 98,036 | 27,953 | 33,938 | |||||||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND CHANGE IN ACCOUNTING PRINCIPLE | 5,176 | (1,532 | ) | 140 | (2,109 | ) | |||||||
| PROVISION FOR INCOME TAXES | 1,749 | (306 | ) | 78 | (590 | ) | |||||||
| INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLE | 3,427 | (1,226 | ) | 62 | (1,519 | ) | |||||||
| CHANGE IN ACCOUNTING PRINCIPLE, NET OF INCOME TAXES OF $150 | (293 | ) | — | — | — | ||||||||
| NET INCOME (LOSS) | 3,134 | (1,226 | ) | $ | 62 | $ | (1,519 | ) | |||||
| RETAINED EARNINGS BEGINNING OF PERIOD | 20,538 | 21,432 | |||||||||||
| LESS: DIVIDENDS PAID | (419 | ) | — | ||||||||||
| RETAINED EARNINGS END OF PERIOD | $ | 23,253 | $ | 20,206 | |||||||||
| NET INCOME (LOSS) PER COMMON SHARE: | |||||||||||||
| Net income (loss) available to common stockholders | $ | 3,134 | $ | (1,226 | ) | $ | 62 | $ | (1,519 | ) | |||
| Effect of dilutive securities: 5% convertible debentures | 191 | — | 62 | — | |||||||||
| Net income (loss) available to common stockholders plus assumed conversions | $ | 3,325 | $ | (1,226 | ) | $ | 124 | $ | (1,519 | ) | |||
| WEIGHTED AVERAGE SHARES OUTSTANDING—BASIC | 9,489,372 | 10,383,354 | 9,455,280 | 10,816,977 | |||||||||
| Effect of dilutive securities: | |||||||||||||
| Stock options | 349,902 | — | 288,319 | — | |||||||||
| 5% convertible debentures | 661,453 | — | 643,341 | — | |||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING—DILUTED | 10,500,727 | 10,383,354 | 10,386,940 | 10,816,977 | |||||||||
| NET INCOME (LOSS) PER COMMON SHARE: | |||||||||||||
| Income (loss) before change in accounting principle—Basic | $ | 0.36 | $ | (0.12 | ) | $ | 0.01 | $ | (0.14 | ) | |||
| Change in accounting principle | (0.03 | ) | — | — | — | ||||||||
| Net income (loss)—Basic | $ | 0.33 | $ | (0.12 | ) | $ | 0.01 | $ | (0.14 | ) | |||
| Income (loss) before change in accounting principle— Diluted | $ | 0.34 | $ | (0.12 | ) | $ | 0.01 | $ | (0.14 | ) | |||
| Change in accounting principle | (0.03 | ) | — | — | — | ||||||||
| Net income (loss)—Diluted | $ | 0.31 | $ | (0.12 | ) | $ | 0.01 | $ | (0.14 | ) | |||
See notes to condensed consolidated financial statements.
5
LIBERTY LIVEWIRE CORPORATION
(formerly the Todd-AO Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 1999 AND MAY 31, 2000 (UNAUDITED)
(Dollars in thousands)
| | 1999 | 2000 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | Restated | | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
| Net income (loss) | $ | 3,427 | $ | (1,226 | ) | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Depreciation and amortization | 9,735 | 11,741 | ||||||||
| Deferred income taxes | 22 | 830 | ||||||||
| Deferred compensation and other | (229 | ) | (130 | ) | ||||||
| Foreign currency exchange rate | — | 263 | ||||||||
| Amortization of deferred gain on sale/leaseback transaction | (1,856 | ) | (556 | ) | ||||||
| (Gain) on sale of marketable securities and investments | — | (391 | ) | |||||||
| (Gain) on disposition of fixed assets | (253 | ) | (3 | ) | ||||||
| Changes in assets and liabilities (net of acquisitions): | ||||||||||
| Trade receivables, net | (1,563 | ) | (3,407 | ) | ||||||
| Inventories and other current assets | 1,094 | 34 | ||||||||
| Accounts payable and accrued liabilities | (1,936 | ) | (1,933 | ) | ||||||
| Accrued equipment lease | 182 | (81 | ) | |||||||
| Income taxes payable, net | 606 | (2,219 | ) | |||||||
| Provision for liabilities | (836 | ) | (24 | ) | ||||||
| Other assets and liabilities | (409 | ) | (1,849 | ) | ||||||
| Deferred income | 45 | 151 | ||||||||
| Net cash flows provided by operating activities | 8,029 | 1,200 | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
| Purchase of marketable securities and investments | (91 | ) | 1,219 | |||||||
| Proceeds from sale of marketable securities and investments | — | 1,381 | ||||||||
| Proceeds from disposition of fixed assets | 370 | 23 | ||||||||
| Capital expenditures | (20,023 | ) | (12,941 | ) | ||||||
| Purchase of 50% investment in 103 Estudio, S.L. | — | (1,891 | ) | |||||||
| Net cash flows (used in) investing activities | $ | (19,744 | ) | $ | (12,209 | ) | ||||
6
(formerly the Todd-AO Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE NINE MONTHS ENDED MAY 31, 1999 AND MAY 31, 2000 (UNAUDITED)
(Dollars in thousands)
| | 1999 | 2000 | ||||||
|---|---|---|---|---|---|---|---|---|
| | Restated | | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Borrowings of long-term debt | $ | 22,206 | $ | 10,847 | ||||
| Payments of long-term debt | (9,436 | ) | (2,436 | ) | ||||
| Payments on capital lease obligations | (80 | ) | (18 | ) | ||||
| Proceeds from sale/leaseback transaction | 8,500 | — | ||||||
| Proceeds from issuance of common stock | 206 | 2,388 | ||||||
| Treasury stock transactions | (1,195 | ) | — | |||||
| Dividends paid | (443 | ) | — | |||||
| Net cash flows provided by financing activities | 19,758 | 10,781 | ||||||
| Effect of exchange rate changes on cash | — | (74 | ) | |||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 883 | (302 | ) | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 5,127 | 9,739 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 6,010 | $ | 9,437 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 736 | $ | 3,913 | ||||
| Income taxes | $ | 860 | $ | 0 | ||||
See notes to condensed consolidated financial statements.
7
LIBERTY LIVEWIRE CORPORATION
(formerly the Todd-AO Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2000 (UNAUDITED)
(Dollars in Thousands, except per share amounts)
If complete notes were to accompany these statements they would be substantially in the same form as those to the Company's Financial Statements for the Year Ended August 31, 1999. In addition the following notes are applicable:
These condensed consolidated financial statements contain only information with respect to Liberty Livewire Corporation (formerly The Todd-AO Corporation) and do not reflect any activities with respect to the acquisition by Liberty Media Group of a controlling interest in the Company or of the post-merger business combination with Four Media Company referred to in Note 10 herein.
The acquisition is being accounted for under the purchase method of accounting. The following unaudited pro forma consolidated financial information for the nine months ended May 31, 1999 is presented as if the acquisition had occurred on September 1, 1998. Pro forma adjustments for Sound One are primarily for amortization of goodwill and non-compete agreements, changes in
8
executive compensation, depreciation adjustments, interest expense on borrowings in connection with the acquisition, and income taxes.
| | 1999 | ||
|---|---|---|---|
| Revenues | $ | 100,894 | |
| Net income before change in accounting principle | $ | 3,795 | |
| Net income | $ | 3,502 | |
| Net income per common share—before change in accounting principle—Basic | $ | 0.40 | |
| Net income per common share—Basic | $ | 0.37 | |
| Net income per common share—before change in accounting principle—Diluted | $ | 0.38 | |
| Net income per common share—Diluted | $ | 0.35 | |
The net equipment lease expense is as follows for the nine months ended:
| | May 31, 1999 | May 31, 2000 | |||||
|---|---|---|---|---|---|---|---|
| Equipment lease costs | $ | 2,764 | $ | 2,637 | |||
| Amortization of deferred gain on sale of equipment | (1,856 | ) | (556 | ) | |||
| Equipment lease expense, net | $ | 908 | $ | 2,081 | |||
In connection with the acquisition of Hollywood Digital, the Company issued convertible subordinated notes. In November 1999, the Company exercised its right to convert the existing Hollywood Digital notes (totaling $7,599) and in December 1999 converted the notes to 643,327 shares of Todd-AO Class A common stock.
9
fiscal 1999. Comprehensive income is defined as all changes in shareholders' equity, except those resulting from investments by or distributions to shareholders. The Company's comprehensive income is as follows for the nine months ended:
| | May 31, 1999 | May 31, 2000 | |||||
|---|---|---|---|---|---|---|---|
| Net income | $ | 3,427 | $ | (1,226 | ) | ||
| Unrealized gain on marketable securities and long-term investments | 41 | 9,799 | |||||
| Less: Classification adjustment for gains included in net income | — | (224 | ) | ||||
| Foreign currency translation adjustments | (153 | ) | 263 | ||||
| Tax effect on other comprehensive income | (76 | ) | (3,395 | ) | |||
| Comprehensive income | $ | 3,239 | $ | 5,217 | |||
Summarized financial information concerning the Company's reportable segments is shown in the following tables:
| | Sound Services | Video Services | Other | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended May 31, 1999: | |||||||||||||
| Revenues | $ | 30,698 | $ | 59,730 | $ | — | $ | 90,428 | |||||
| Income before income taxes, interest, depreciation and amortization of intangibles | 2,940 | 14,251 | 174 | 17,365 | |||||||||
| Identifiable assets | 30,682 | 75,308 | 2,746 | 108,736 | |||||||||
| Intangible assets, net | — | 28,281 | — | 28,281 | |||||||||
| Capital expenditures | 3,144 | 16,879 | — | 20,023 | |||||||||
| Depreciation expense | 1,687 | 7,132 | — | 8,819 | |||||||||
Nine Months Ended May 31, 2000: | |||||||||||||
| Revenues | $ | 35,950 | $ | 60,554 | $ | — | $ | 96,504 | |||||
| Income (loss) before income taxes, interest, depreciation and amortization of intangibles | 60 | 14,974 | (1,080 | ) | 13,954 | ||||||||
| Identifiable assets | 44,540 | 77,062 | 9,821 | 131,423 | |||||||||
| Intangible assets, net | 6,972 | 25,677 | — | 32,649 | |||||||||
| Capital expenditures | 7,586 | 5,355 | — | 12,941 | |||||||||
| Depreciation expense | 2,933 | 7,777 | — | 10,710 | |||||||||
10
The following table reconciles segment income before income taxes, interest, depreciation and amortization of intangibles to the Company's consolidated net income:
| | Nine Months Ended | ||||||
|---|---|---|---|---|---|---|---|
| | May 31, 1999 | May 31, 2000 | |||||
| Income before income taxes, interest, depreciation and amortization of intangibles | $ | 17,365 | $ | 13,954 | |||
| Amortization of intangibles | 916 | 1,031 | |||||
| Interest expense | 2,454 | 3,745 | |||||
| Depreciation | 8,819 | 10,710 | |||||
| Provision for income taxes | 1,749 | (306 | ) | ||||
| Net income before change in accounting principle | 3,427 | (1,226 | ) | ||||
| Change in accounting principle, net | (293 | ) | — | ||||
| Net income | $ | 3,134 | $ | (1,226 | ) | ||
On June 9, 2000 and in connection with Liberty Media's acquisition of a controlling interest in the Company, the Company amended its bank credit facility and certain sale/leaseback agreements to allow Robert Naify, Marshall Naify, and Salah M. Hassanein to relinquish their aggregate control of more than 20% of the capital stock and more than 50% of the voting power of the Company to Liberty Media. In connection with the Company's post-merger acquisition of Four Media Company ("4MC"), the Company also obtained a written waiver which allowed the exclusion of 4MC's existing indebtedness from certain covenants and restrictions under the credit agreement and confirmed the existing indebtedness of 4MC as non-recourse to the Company and its subsidiaries.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Dollars in thousands, except amounts per share)
Under a new long-term credit agreement dated June 30, 1999 and expiring on May 31, 2004, the Company may borrow up to $80,000 in revolving loans until May 31, 2002. On that date and thereafter, the revolving loan commitment will reduce incrementally to nil by the expiration of the agreement. Prior to May 31, 2002 the Company may request an automatic extension of the revolving period of the facility for one year that will also extend the term period and the expiration date of the agreement. Prior to December 31, 2000 the Company may make a one-time request to increase the credit line by up to $20,000. Such increase is at the sole discretion of the Banks; however, the Company has the option to bring a new bank to the syndicate, thereby avoiding the Banks' discretion. In addition to the revolving loans, the Company also has the availability of Standby Letters of Credit up to $20,000 under the facility. The credit facility provides for borrowings based on the Bank's Reference, CD, and LIBOR rates. The facility includes commitment fees on the unused balance of the credit facility. Other material restrictions include: the Fixed Charge Coverage Ratio may not be less than 1.25:1; Other Indebtedness (excluding up to $35,000 in Capital or Off Balance Sheet Leases, the convertible subordinated notes issued in the Hollywood Digital acquisition, non-recourse debt up to $50,000 of less than 100% owned Joint Ventures, $5,000 in purchase money mortgage financing and the existing TeleCine mortgage debt for the Charlotte Street property) may not exceed $10,000; Leverage Ratio is not to exceed 4:1 through May 31, 2001 (decreasing thereafter); Net Worth is not to be less than $54,000 plus net proceeds from issuance of equity plus 50% of consolidated net income subsequent to May 31, 1998 (excluding the effect of stock repurchases up to $3,000 from the closing date through the fiscal year ending August 31, 2000). The Company is in compliance with its covenants.
In January 1998 the Company entered into a three-year interest rate swap agreement for a notional amount of $10,000 to hedge the impact of fluctuations in interest rates on its floating rate credit facility. Under the agreement, the Company is obligated to pay 5.65% in exchange for receiving three-month LIBOR on the notional amount. Settlements are quarterly and the contract expires in March 2001.
Through August 31, 1999 the Company has signed three agreements with its bank to implement the sale/leaseback of certain equipment. An aggregate of $28,527 of sound studio and video equipment has been sold and leased back. The agreements, as amended, terminate on December 30, 2000, December 1, 2002 and December 30, 2005. All the agreements provide for interest based on LIBOR rates.. In December 1999 the Company exercised its option to purchase for $5,699 the equipment currently being leased under the sale/leaseback transaction maturing in December 2000. The purchase was funded by borrowings under credit facilities.
The credit facilities are available for general corporate purposes, capital expenditures and acquisitions. Management believes that funds generated from operations, proceeds from the sale/leaseback agreements and the borrowings available under the restated credit facility will be sufficient to meet the needs of the Company at least through the next twelve months.
In June 1997, the Company used $15,760 under its credit facility to acquire the assets of Hollywood Digital. In May 1998, the Company used $14,000 to fund a substantial portion of the TeleCine acquisition. In June 1999, $11,962 was used to fund the Sound One acquisition. In September 1999, $2,084 was used to acquire a 50% interest in a Barcelona-based sound facility named 103 Estudio, S.L. As of May 31, 2000, the Company had $55,574 outstanding under the credit facility, which has been used principally to fund the acquisitions described and for capital expenditures.
12
In December 1999, the Company converted subordinated notes totaling $7,599 issued in connection with the Hollywood Digital acquisition into 643,327 shares of Todd-AO Class A common stock.
The Company expects capital expenditures of approximately $14,000 for its Los Angeles, Santa Monica, New York City, Atlanta and London facilities in fiscal 2000. These capital expenditures will be financed by internally generated funds and borrowings under credit facilities.
The Company does not believe that it is currently exposed to any material foreign exchange rate risk and, at present, does not have a policy for managing such risk beyond the utilization of local currency borrowings to fund foreign acquisitions whenever possible.
Nine Months Ended May 31, 2000 compared to Nine Months Ended May 31, 1999
Revenues increased $6,076 or 6.72% from $90,428 to $96,504. Increases in revenue due to the acquisition of Sound One in June 1999 ($8,271) were offset by lower utilization and activity in the Company's other sound services divisions ($3,019) while the Company's video services divisions increased revenues by $823.
Operating costs and other expenses increased $6,231 or 8.53% from $73,050 to $79,281. Cost increases related to the acquisition of Sound One ($6,908) were primarily responsible for the increase while the costs in the Company's other sound and video divisions remained relatively flat.
Depreciation and amortization increased $2,006 or 20.61% due to the equipment and goodwill acquired with the Sound One acquisition and the Company's capital expenditures.
Interest expense increased $1,291 or 52.61% primarily due to the Sound One acquisition financing.
Net equipment lease expense increased $1,173 primarily as a result of the sale/leaseback to the Company's financial institution of certain equipment in December 1998.
Net other expense increased $2,083 primarily due to costs incurred to date in connection with the Liberty Media Corporation merger transaction ($1,723).
As a result of the above, income before taxes and net change in accounting principle decreased $6,708 from $5,176 to a loss of $1,532 and net income before change in accounting principle decreased $4,653 from $3,427 to a loss of $1,226.
The Company elected early adoption of Statements of Position No. 98-5, "Reporting on the Costs of Start-Up Activities" in the prior year and reported the cumulative effect of a change in accounting principle, as described in Accounting Principles Board Opinion No. 20, in the amount of $293, net of income tax benefit in the amount of $150.
As a result of the above, net income after net change in accounting principle decreased $4,360 from $3,134 to a loss of $1,226.
Three Months Ended May 31, 2000 compared to Three Months Ended May 31, 1999
Revenues increased $3,736 or 13.3% from $28,093 to $31,829. Increases in revenue due to the acquisition of Sound One in June 1999 ($2,464) were augmented by higher utilization and activity in the Company's other sound services divisions ($1,126) while the Company's video services divisions remained flat, increasing revenues by $145.
Operating costs and other expenses increased $3,480 or 14.84% from $23,457 to $26,937. Cost increases related to the acquisition of Sound One ($2,289) were augmented by cost increases in the Company's other sound and video divisions as a result of the revenue increases described above.
13
Depreciation and amortization increased $807 or 23.99% primarily due to the equipment and goodwill acquired with the Sound One acquisition and the Company's capital expenditures.
Interest expense increased $411 or 49.16% primarily due to the Sound One acquisition financing.
Net equipment lease expense increased $184 primarily as a result of the sale/leaseback to the Company's financial institution of certain equipment in December 1998.
Net other expense increased $1,103 due to costs incurred in the current quarter in connection with the Liberty Media Corporation merger transaction ($931) and to the reduction of expenses in connection with the Company's loss on the sale of assets reported in the prior period.
As a result of the above, income before taxes decreased $2,249 from $140 to a loss before taxes of $2,109 and net income decreased $1,581 from $62 to a net loss of $1,519.
Material Changes in Cash Flows
For the nine months ended May 31, 2000, the Company generated $1,200 in cash from operating activities compared to $8,029 in 1999. A net loss of $1,226 adjusted for depreciation and net amortization of $11,185 provided cash of $9,959 in 2000 compared to $11,306 in 1999. Trade receivables increased $3,407 in 2000 compared to $1,563 in 1999. Decreases in accounts payable and other liabilities were $5,955 in 2000 compared to $2,348 in 1999. Cash provided by operations was utilized primarily to pay down accounts payable and other liabilities and to fund trade receivables in 2000 and cash provided by operations was utilized primarily to fund capital expenditures in 1999.
Net borrowings from the Company's credit facility of $8,411 supplemented by net cash generated from the sale of marketable securities and the cash proceeds from issuing common stock totaling $4,988 were also used to acquire a 50% interest in a Barcelona-based sound facility named 103 Estudio, S.L. for $1,891 and to reinvest in capital assets of the Company.
Forward Looking Statements
When used in this document, the words "believes," "expects," "anticipates," "intends" and similar expressions are intended to identify forward looking statements. Such statements are subject to a number of known risks and uncertainties. Actual results in the future could differ materially from those described in the forward looking statements. Such risks and uncertainties include, but are not limited to, industry-wide market factors such as the timing of, and spending on, feature film and television programming production, foreign and domestic television advertising, and foreign and domestic spending by broadcasters, cable companies and syndicators on first run and existing content libraries. In addition, the failure of the company to maintain relationships with key customers and certain key personnel, more rapid than expected technological obsolescence, and failure to integrate acquired operations in expected time frames could also cause actual results to differ materially from those described in forward looking statements.
14
Item 1. Legal Proceedings
The Company is involved in litigation and similar claims incidental to the conduct of its business. None of the pending actions is likely to have a material adverse impact on the Company's financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
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.
| LIBERTY LIVEWIRE CORPORATION (formerly the Todd-AO Corporation) | ||
May 29, 2001 Date | /s/ M. DAVID COTTRELL M. David Cottrell Vice-President, Controller and Chief Accounting Officer |
15
