SECURITIES AND EXCHANGE COMMISSION SECURITIES
Washington, D.C. 20549
FORM 10-Q/A
(AMENDMENT No. 2)
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 1, 1998
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: 0-21943
__________
FOUR MEDIA COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 95-4599440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2813 West Alameda Avenue, Burbank, CA 91505
(Address of principal executive offices) (Zip code)
818-840-7000
(Registrant's telephone number including area code)
__________
Not applicable
(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 ______
------
Number of shares of common stock, par value $0.01 per share, of the
registrant outstanding as of December 1, 1998: 10,363,256 shares.
FOUR MEDIA COMPANY
Index
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements Number
-------
Consolidated Balance Sheets as of August 2, 1998
and November 1, 1998............................................................. 4
Consolidated Statements of Operations for the
Three Months Ended November 2, 1997 and November 1, 1998......................... 5
Consolidated Statements of Cash Flows for the
Three Months Ended November 2, 1997 and November 1, 1998......................... 6
Notes to Consolidated Financial Statements....................................... 7
Signatures ................................................................................. 10
2
PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Item 1 of the registrant's Quarterly Report on Form 10-Q for the quarter ended
November 1, 1998, filed with the Securities and Exchange Commission on December
16, 1998 is hereby amended and restated in its entirety as follows:
3
FOUR MEDIA COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
August 2, November 1,
1998 1998
---- ----
ASSETS
Current assets:
Cash................................................................................... $ 3,301 $ 6,616
Trade accounts receivable, net of allowance for doubtful accounts of $1,258 and........ 31,657 44,370
$1,784 as of August 2, 1998 and November 1, 1998, respectively
Inventory.............................................................................. 1,263 1,426
Prepaid expenses and other current assets ............................................ 5,624 6,379
-------- --------
Total current assets.................................................................. 41,845 58,791
Property, plant and equipment, net...................................................... 124,230 154,613
Deferred taxes.......................................................................... 6,572 6,572
Long-term receivable.................................................................... 3,276 2,787
Goodwill, less accumulated amortization of $529 and $919 as of August 2, 1998........... 37,507 77,053
and November 1, 1998, respectively
Other assets............................................................................ 2,914 2,220
-------- --------
Total assets.......................................................................... $216,344 $302,036
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations..................... $ 6,184 $ 7,378
Accounts payable....................................................................... 10,781 13,428
Accrued and other liabilities.......................................................... 5,980 9,772
Deferred income taxes.................................................................. 1,615 1,615
-------- --------
Total current liabilities............................................................. 24,560 32,193
Long-term debt and capital lease obligations............................................ 124,671 198,109
-------- --------
Total liabilities..................................................................... 149,231 230,302
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, 150,000 Series A
Convertible shares issued and outstanding; liquidation preference $15,000,000......... 2 2
Common stock, $.01 par value; 50,000,000 shares authorized, 9,876,770 shares
issued and outstanding as of August 2, 1998 and 10,363,256 as of November 1,
1998.................................................................................. 99 104
Additional paid-in capital ........................................................... 59,577 61,702
Foreign currency translation adjustment .............................................. (1,567) (1,060)
Retained earnings .................................................................... 9,002 10,986
-------- --------
Total stockholders' equity .......................................................... 67,113 71,734
-------- --------
Total liabilities and stockholders' equity .......................................... $216,344 $302,036
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
FOUR MEDIA COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
November 2, November 1,
1997 1998
--------- ----------
Revenues:
Manufacturing and distribution............................... $ 8,129 $11,322
Broadcast and syndication.................................... 5,582 5,331
Television................................................... 12,654 31,631
Film and animation........................................... 901 1,312
------- -------
Total revenues............................................... 27,266 49,596
------- -------
Cost of services:
Personnel.................................................... 11,157 18,557
Material..................................................... 2,254 3,086
Facilities................................................... 1,416 2,466
Other........................................................ 2,913 5,275
------- -------
Total cost of services....................................... 17,740 29,384
------- -------
Gross profit................................................ 9,526 20,212
------- -------
Operating expenses:
Sales, general and administrative............................ 3,937 8,351
Depreciation and amortization................................ 4,016 6,356
------- -------
Total operating expenses..................................... 7,953 14,707
------- -------
Income from operations...................................... 1,573 5,505
Interest expense, net......................................... 1,348 3,521
------- -------
Income before income tax.................................... 225 1,984
Provision for income tax...................................... -- --
------- -------
Net income.................................................. $ 225 $ 1,984
======= =======
Earnings per common share:
Basic........................................................ $0.02 $0.19
======= =======
Diluted...................................................... 0.02 0.16
======= =======
Weighted average common and common equivalent shares
outstanding:
Basic........................................................ 9,553 10,203
======= =======
Diluted...................................................... 10,169 12,275
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
FOUR MEDIA COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
November 2, November 1,
1997 1998
---------------- ----------------
Cash flows from operating activities:
Net income......................................................................... $ 225 $ 1,984
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................................... 4,016 6,356
Provision for doubtful accounts................................................... 141 284
Changes in operating assets and liabilities:
(Increase) in trade and long term receivables................................... (5,304) (6,129)
(Increase) decrease in inventory................................................ (78) 90
(Increase) decrease in prepaid expenses and other current assets................ (1,236) 241
(Decrease) in accounts payable.................................................. (1,430) (350)
Increase (decrease) in accrued and other liabilities............................ 974 (695)
------- --------
Net cash provided by (used in) operating activities............................ (2,692) 1,781
Cash flows from investing activities:
Purchases of property, plant and equipment......................................... (4,784) (10,708)
Acquisition of business, net of cash acquired...................................... -- (42,991)
------- --------
Net cash used in investing activities.......................................... (4,784) (53,699)
Cash flows from financing activities:
Repayments of mortgage loans....................................................... -- (28)
Proceeds from term loans........................................................... -- 45,000
Repayments of term loans........................................................... -- (188)
Proceeds from revolving credit facility............................................ 3,328 29,000
Proceeds from equipment notes...................................................... 1,799 --
Repayment of equipment notes and capital lease obligations......................... (2,612) (18,701)
------- --------
Net cash provided by financing activities...................................... 2,515 55,083
Effect of exchange rate changes on cash............................................. (249) 150
------- --------
Net increase (decrease) in cash..................................................... (5,210) 3,315
Cash at beginning of period......................................................... 6,089 3,301
------- --------
Cash at end of period............................................................... $ 879 $ 6,616
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.......................................................................... $ 1,348 $ 3,245
Non cash investing and financing activities:
Capital lease obligations incurred................................................ $ 9,050 $ --
Stock issued in connection with Encore acquisition................................ $ -- $ 2,131
The accompanying notes are an integral part of these consolidated financial
statements.
6
FOUR MEDIA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business, Organization and Basis of Presentation
Four Media Company (the "Company") is a provider of technical and creative
services to owners, producers and distributors of television programming,
feature films and other entertainment content. The Company's services integrate
and apply a variety of systems and processes to enhance the creation and
distribution of entertainment content.
While the Company believes that it operates in one business segment, which
is providing services to the entertainment industry, the Company has organized
its activities into four divisions: manufacturing and distribution, broadcast
and syndication, television, and film and animation services. The manufacturing
and distribution division, located in Burbank and Universal City, California,
manages, formats and distributes content worldwide. The broadcast and
syndication division, located in Burbank and the Republic of Singapore,
assembles and distributes television networks and programming via satellite to
viewers in the United States, Canada and Asia. The television division, located
in Burbank, Hollywood, Universal City and Santa Monica, California, assembles
film or video principal photography into a form suitable for network,
syndicated, cable or foreign television. The film and animation division,
located in Santa Monica, digitally creates and manipulates images in high-
resolution formats for use in feature films.
Organization. On February 2, 1998, the Company acquired all the outstanding
shares of capital stock of Visualize d/b/a Pacific Ocean Post ("POP"). The
purchase price of the transaction was $30.1 million, of which $25.4 million was
paid in cash, $1.2 million was represented by promissory notes, and $3.5 million
represented transaction costs.
On May 4, 1998, the Company, through its wholly owned subsidiary VSDD
Acquisition Corp., acquired all of the outstanding ownership interests in
Symphonic Video LLC and Digital Doctors LLC from their parent companies Video
Symphony, Inc. and Digital Doctors, Inc. (collectively "VSI"). In this
transaction, the Company effectively acquired all of the operations of VSI. The
purchase price of the transaction was $3.3 million, of which $3.1 million was
paid in the Company's common stock and $0.2 million represented transaction
costs.
On September 18, 1998, the Company acquired all the outstanding shares of
capital stock of MSCL, Inc. ("Encore") and the real estate occupied by Encore.
The purchase price of the transaction was approximately $46.0 million. This
amount includes $41.9 million paid in cash to the Encore shareholders (including
$11.2 million for the purchase of real estate), $2.0 million in estimated
transaction costs, and the issuance of 486,486 shares of Company common stock
valued at $4.38 per share.
The following unaudited pro forma summary combines the consolidated results
of operations of the Company, POP, VSI and Encore as if the acquisitions had
occurred at the beginning of fiscal 1998 after giving effect to certain
adjustments, including amortization of goodwill, revised depreciation based on
estimated fair market values, utilization of net operating losses, revised
interest expense based on the terms of the acquisition debt and elimination of
certain acquisition related costs. The pro forma summary does not necessarily
reflect the results of operations as they would have been if the Company and
POP, VSI and Encore had constituted a single entity during such periods:
(in thousands)
Three Months Three Months
Ended Ended
November 2, 1997 November 1, 1998
Revenues.............................................................................. $52,892 $53,672
Net income............................................................................ 2,936 2,189
Earnings per common share
Basic............................................................................ $ 0.28 $ 0.21
Diluted.......................................................................... 0.27 0.18
7
FOUR MEDIA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business, Organization and Basis of Presentation (continued)
Basis of Presentation. The accompanying consolidated financial statements
of Four Media Company and its subsidiaries as of August 2, 1998 and November 1,
1998 and for the three month periods ended November 2, 1997 and November 1, 1998
have been prepared in accordance with generally accepted accounting principles
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The
balance sheet at August 2, 1998 was derived from audited financial statements
included in the Company's Form 10-K. The financial statements at November 1,
1998 and for the three month periods ended November 2, 1997 and November 1, 1998
have not been audited by independent accountants, but include all adjustments
(consisting of normal recurring adjustments) which are, in management's opinion,
necessary for a fair presentation of the financial condition, results of
operations and cash flows for such periods. However, these results are not
necessarily indicative of results for any other interim period or for the full
year.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Form 10-K dated August 2, 1998.
The accompanying financial statements as of August 2, 1998 and for the
three months ended November 2, 1997 and November 1, 1998 are presented on a
consolidated basis and include the accounts of Four Media Company and its wholly
owned subsidiaries 4MC-Burbank, Inc., Digital Magic Company, Four Media Company
Asia PTE Ltd, Anderson Video Company, Co3, Visualize (dba POP), POP Animation,
VSDD Acquisition Corp. and MSCL, Inc. (dba Encore). All material inter-company
accounts and transactions have been eliminated in consolidation.
2. Earnings Per Share
Effective with the period ended February 1, 1998, the Company adopted the
earnings per share calculation and disclosure requirements of SFAS No. 128,
"Earnings per Share". The table below demonstrates the earnings per share
calculations for the periods presented:
(in thousands except per share data)
Three Months Ended Three Months Ended
November 2, 1997 November 1, 1998
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Net income.................... $225 -- $1,984 --
Basic EPS..................... 225 9,553 $0.02 1,984 10,203 $0.19
===== =====
Effects of Dilutive Securities:
Options and convertible preferred
stock...................... -- 616 -- 2,072
---- ------ ------ ------
Diluted EPS................... $225 10,169 $0.02 $1,984 12,275 $0.16
==== ====== ===== ====== ====== =====
Options omitted............... 700 1,510
====== ======
Certain options were omitted in 1997 and 1998 because the exercise prices
(between $7 and $10) exceeded the average price during the periods.
8
FOUR MEDIA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income
(SFAS No. 130"). The Company adopted SFAS No. 130 beginning in the first
quarter of 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
(in thousands):
Three Months Ended
November 2, 1997 November 1, 1998
Net income............................. $ 225 $1,984
Foreign currency translation........... (485) 507
adjustments.......................... ----- ------
Comprehensive income (loss)............. $(260) $2,491
===== ======
9
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.
FOUR MEDIA COMPANY
Date: June 24, 1999 By: /s/ Christopher M.R. Phillips
-------------------------------------
Christopher M.R. Phillips
Executive Vice President and
Chief Financial Officer
10