SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
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 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-1461
LIBERTY LIVEWIRE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1679856
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
900 N. SEWARD STREET, HOLLYWOOD, CALIFORNIA 90038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (323) 962-5304
Former name of registrant: THE TODD-AO CORPORATION
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)
QUARTERLY REPORT ON FORM 10-Q
May 31, 2000
INDEX
- --------------------------------------------------------------------------------
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)
ASSETS
AUGUST 31, MAY 31,
------------- -------------
1999 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 89,899
Equipment under capital leases......................................... 1,151 1,151
Construction in progress............................................... 4,803 1,244
------------- -------------
Total.................................................................. 128,353 135,742
Accumulated depreciation and amortization.............................. (48,305) (57,876)
------------- -------------
Property and equipment - net........................................... 80,048 77,866
------------- -------------
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 $ 160,129
============= =============
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, MAY 31,
--------------- ---------------
1999 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.................................. 979 300
Capitalized lease obligations - current............................... 336 318
Deferred income....................................................... 914 1,048
---------------- ---------------
Total current liabilities............................................. 20,086 15,665
---------------- ---------------
LONG-TERM DEBT........................................................ 65,520 61,210
DEFERRED COMPENSATION AND OTHER....................................... 1,439 1,274
DEFERRED GAIN ON SALE/LEASEBACK TRANSACTIONS.......................... 4,046 3,490
DEFERRED INCOME TAXES................................................. 3,254 4,205
---------------- ---------------
Total liabilities..................................................... 94,345 85,844
---------------- ---------------
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 20,887
Accumulated other comprehensive income (loss) ........................ (536) 5,472
---------------- ---------------
Total stockholders' equity............................................ 58,835 74,285
---------------- ---------------
TOTAL.................................................................
$ 153,180 $ 160,129
================ ===============
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 11,060 3,364 3,762
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 97,355 27,953 33,529
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND CHANGE IN
ACCOUNTING PRINCIPLE ........................................ 5,176 (851) 140 (1,700)
PROVISION FOR INCOME TAXES .................................... 1,749 (306) 78 (590)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE ....................................... 3,427 (545) 62 (1,110)
CHANGE IN ACCOUNTING PRINCIPLE,
NET OF INCOME TAXES OF $150 ................................ (293) -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) ............................................. 3,134 (545) $ 62 $ (1,110)
============ ============
RETAINED EARNINGS BEGINNING OF PERIOD ......................... 20,538 21,432
LESS: DIVIDENDS PAID........................................... (419) --
------------ ------------
RETAINED EARNINGS END OF PERIOD ............................... $ 23,253 $ 20,887
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) available to common stockholders ............ $ 3,134 $ (545) $ 62 $ (1,110)
Effect of dilutive securities: 5% convertible debentures ..... 191 -- 62 --
------------ ------------ ------------ ------------
Net income (loss) available to common stockholders
plus assumed conversions ................................... $ 3,325 $ (545) $ 124 $ (1,110)
============ ============ ============ ============
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 $ (0.05) $ 0.01 $ (0.10)
Change in accounting principle ............................. (0.03) -- --
------------ ------------ ------------ ------------
Net income (loss) - Basic .................................. $ 0.33 $ (0.05) $ 0.01 $ (0.10)
============ ============ ============ ============
Income (loss) before change in
accounting principle - Diluted .......................... $ 0.34 $ (0.05) $ 0.01 $ (0.10)
Change in accounting principle ............................. (0.03) -- -- --
------------ ------------ ------------ ------------
Net income (loss) - Diluted ................................ $ 0.31 $ (0.05) $ 0.01 $ (0.10)
============ ============ ============ ============
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 $ (545)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................. 9,735 11,060
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)
Deferred income ........................................ 45 151
-------- --------
Net cash flows provided by operating activities ................ 8,438 3,049
-------- --------
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) (8,317)
Purchase of 50% investment in 103 Estudio, S.L ............... -- (1,891)
Other assets ................................................. (409) (774)
-------- --------
Net cash flows (used in) investing activities .................. $(20,153) $ (8,359)
-------- --------
6
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)
(CONTINUED)
1999 2000
------------- ------------
RESTATED
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt ..................... $ 22,206 $ 5,148
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 5,082
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:
1. In the opinion of management for the Company, all adjustments (which
comprise only normal recurring accruals) necessary for a fair presentation
of the results of operations have been included.
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.
2. The condensed consolidated financial statements include the Company and its
wholly owned subsidiaries.
3. During fiscal year 1999, the Company adopted the Statements of Position
(SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities". The effect
of the adoption was to record an expense, net of tax, of $293 in 1999. The
quarter ended November 30, 1998 has been restated to reflect this change.
The restatement had no impact on previously reported income before change
in accounting principle.
4. Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. When
dilutive, stock options are included as share equivalents in computing
diluted earnings per share using the treasury stock method.
5. In June 1999 all of the issued and outstanding shares of Sound One
Corporation ("Sound One"), a New York corporation, were acquired by the
Company through a Merger Agreement signed June 8, 1999. Todd-AO East, Inc.,
an indirect wholly owned subsidiary of the Company, was merged into Sound
One extinguishing all of the issued and outstanding shares of common stock
of Sound One in exchange for a cash consideration of $11.50 per share. In
consideration of the purchase, the Company paid $11,962 in cash for the
common stock and an additional $353 in cash for costs incurred in
connection with the acquisition. In addition, $800 is represented by
non-compete agreements. Sound One is the leading post production sound
facility in New York servicing the entertainment industry.
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 executive compensation, depreciation adjustments,
interest expense on borrowings in connection with the acquisition, and
income taxes.
8
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
===========
6. In December 1998, November 1997 and December 1994 the Company signed
agreements with its bank to implement the sale/leaseback of certain
equipment. The agreements, as amended, terminate on December 30, 2005,
December 1, 2002 and December 30, 2000, respectively, and are being treated
as operating leases for financial statement purposes. On December 30, 1998,
November 3, 1997 and December 30, 1994 an aggregate of $8,809, $8,500 and
$11,218, respectively, of sound studio and video equipment was sold and
leased back. The total deferred gain on the transactions to be amortized
over five to seven years is $12,525. The annual lease cost currently is
approximately $3,350.
The net equipment lease expense is as follows for the nine months ended:
MAY 31, MAY 31,
------------- --------------
1999 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 December 2000, one of the Company's sale/leaseback agreements is
maturing. In fiscal year 1999, the Company exercised its option to purchase
for $5,699 the equipment currently being leased under this agreement. The
purchase price exceeds the equipment's estimated fair value, as determined
by an independent valuation, by approximately $788. The Company recorded a
pre-tax loss on equipment lease commitments in this amount during the
fiscal year ended August 31, 1999.
7. In September 1998, the Company adopted a stock repurchase program under
which 2,300,000 shares could be purchased from time to time in the open
market or in private transactions. As of May 31, 2000, 1,621,756 shares had
been repurchased. 1,555,303 of these shares have been cancelled and
returned to authorized but unissued status. 60,453 of these shares were
transferred to the Company's 401(k) plan. Purchases under this program were
discontinued in April 1999.
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
8. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." 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 for the nine months ended:
MAY 31, MAY 31,
-------------- --------------
1999 2000
-------------- -------------
Net income .................................. $ 3,427 $ (545)
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 $ 5,898
======= =======
9. The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," for its fiscal year ended August 31,
1999, which changed the way the Company reports information about its
operating segments. The Company's business units have been aggregated into
two reportable operating segments: sound and video services. The Other
column includes corporate related items and income and expenses not
allocated to reportable segments. The Company's reportable operating
segments have been determined in accordance with the Company's internal
management structure, which is organized based on operating activities. The
Company evaluates performance based upon several factors, including segment
income (loss) before income taxes, interest, depreciation and amortization
of intangibles.
Summarized financial information concerning the Company's reportable
segments is shown in the following tables:
SOUND VIDEO
SERVICES 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 ................... 40,597 77,062 9,821 127,480
Intangible assets, net ................ 6,972 25,677 -- 32,649
Capital expenditures .................. 2,962 5,355 -- 8,317
Depreciation expense .................. 2,252 7,777 -- 10,029
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, MAY 31,
-------------- --------------
1999 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 10,029
Provision for income taxes ......................... 1,749 (306)
---------- ----------
Net income before change in accounting principle ... 3,427 (545)
Change in accounting principle, net ................ (293) --
---------- ----------
Net income ......................................... $ 3,134 $ (545)
========== ==========
10. On June 9, 2000, the Company's stockholders approved the acquisition by
Liberty Media Group of a controlling interest in Todd-AO (and related
merger proposals), voted in favor of the Company's post-merger business
combination with Four Media Company, and allowed the change of Todd-AO's
name to Liberty Livewire Corporation. In the transaction, each issued and
outstanding share of Todd-AO Common Stock was converted into the right to
receive 0.4 of a share of Class A Liberty Livewire Common Stock and 0.5 of
a share of Class A Liberty Media Group Stock. Subsequent to the stockholder
meeting, the merger and change in name became effective immediately upon
the filing of an Amended Certificate of Incorporation and Certificate of
Merger. The post-merger business combination with Four Media Company was
completed on June 9, 2000, and provided for the acquisition by the Company
from Liberty Media Group of 100% of the capital stock of Four Media Company
in exchange for 16,614,952 shares of the Company's Class B common stock.
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)
1. Material Changes in Financial Condition
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.
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
The Company has exercised its option to purchase for $5,699 the equipment
currently being leased under the sale/leaseback transaction maturing in
December 2000. The purchase will be funded by borrowings under credit
facilities.
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.
2. Material Changes in Results of Operations
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 $1,325 or 13.61% 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 $6,027 from $5,176 to a loss of $851 and net income
before change in accounting principle decreased $3,972 from $3,427 to a
loss of $545.
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 $3,680 from $3,135 to a loss of $545.
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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.
Depreciation and amortization increased $398 or 11.83% primarily due to the
equipment and goodwill acquired with the Sound One acquisition.
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 $1,840 from $140 to
a loss before taxes of $1,700 and net income decreased $1,172 from $62 to a
net loss of $1,110.
MATERIAL CHANGES IN CASH FLOWS
For the nine months ended May 31, 2000, the Company generated $3,049 in
cash from operating activities compared to $8,438 in 1999. A net loss of
$545 adjusted for depreciation and net amortization of $10,504 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 $4,257 in 2000 compared to $939 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 $2,712 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.
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PART II - OTHER INFORMATION
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
(a). (1) A report on Form 8-K was filed on June 9, 2000 disclosing an
announcement by Todd-AO Corporation and Liberty Media Group
regarding changes in a previously announced transaction with
SoundDelux Entertainment Group, Inc.
(2) A report on Form 8-K was filed on June 13, 2000 disclosing a
change in control of Registrant, an announcement that
Todd-AO Corporation had changed its name to Liberty Livewire
Corporation, the completion of its previously announced
transaction with Liberty Media Group and the acquisition of
100% of the capital stock of Four Media Company.
(3) Exhibit 27 Financial Data Schedule.
SIGNATURE
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)
JULY 14, 2000 /s/ JEFFERY J. MARCKETTA
- -------------------------------- -------------------------------------
Date Jeffery J. Marcketta
Chief Financial Officer
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