SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest event reported) February 1, 2001
--------------------------------
LIBERTY LIVEWIRE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-1461 13-1679856
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
520 Broadway, Santa Monica, California 90401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 434-7000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed from last report)
1
LIBERTY LIVEWIRE CORPORATION
FORM 8-K/A
Amendment No. 2
FEBRUARY 1, 2001
---------------------------
TABLE OF CONTENTS
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
a. Financial Statements of business acquired Page 3
b. Pro forma condensed financial information Page 20
2
Item 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
a. Financial Statements of business acquired:
The audited financial statements of Group W Network Services
for the year ended December 31, 2000 are being filed as part
of this report and include:
(1) Independent Auditor's Report
(2) Combined Balance Sheet at December 31, 2000 and 1999
(3) Combined Statements of Operations for the years ended
December 31, 2000 and 1999
(4) Combined Statements of Cash Flows for the years ended
December 31, 2000 and 1999
(5) Combined Statements of Changes in Invested Equity for the
years ended December 31, 2000 and 1999
(6) Notes to Combined Financial Statements, December 31, 2000
and 1999
3
GROUP W NETWORK SERVICES
(A Wholly Owned Operation of CBS Cable, a Division of Viacom, Inc.)
Combined Financial Statements
December 31, 2000 and 1999
(With Independent Auditors' Report Thereon)
4
INDEPENDENT AUDITORS' REPORT
The Management
Group W Network Services:
We have audited the accompanying combined balance sheets of Group W Network
Services (a wholly owned operation of CBS Cable, a division of Viacom, Inc.) as
of December 31, 2000 and 1999, and the related combined statements of operations
and comprehensive loss, cash flows, and changes in invested equity for the years
then ended. These combined financial statements are the responsibility of Group
W Network Services' management. Our responsibility is to express an opinion on
these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Group W Network
Services as of December 31, 2000 and 1999, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/S/ KPMG LLP
New York, New York
May 11, 2001
5
GROUP W NETWORK SERVICES
(A Wholly Owned Operation of CBS Cable, a Division of Viacom, Inc.)
Combined Balance Sheets
December 31, 2000 and 1999
ASSETS 2000 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 4,398,779 2,595,317
Accounts receivable:
Trade, net of allowance for doubtful accounts of $484,117 3,276,289 2,806,849
and $450,426 in 2000 and 1999, respectively
Nontrade 70,882 82,050
Related party -- 747,285
Marketable equity securities -- 550,000
Other current assets 475,953 666,798
------------ ------------
Total current assets 8,221,903 7,448,299
Property and equipment, net of accumulated
depreciation and amortization of $66,243,222 and $57,204,856
in 2000 and 1999, respectively 49,345,296 40,442,410
Investment in and advances to unconsolidated affiliate -- 3,029,646
Intangibles and other long-term assets 8,875,626 887,160
------------ ------------
Total assets $ 66,442,825 51,807,515
============ ============
LIABILITIES AND INVESTED EQUITY
Current liabilities:
Short-term bank debt $ 4,931,271 3,720,713
Short-term related party debt -- 216,379
Accounts payable and accrued expenses 6,777,537 3,489,540
Deferred revenue 702,624 1,310,077
Current portion of capital lease obligation 841,063 896,453
------------ ------------
Total current liabilities 13,252,495 9,633,162
Capital lease obligation 6,311,000 7,155,114
Long-term bank debt 7,892,457 4,586,324
Long-term related party debt -- 1,771,345
Deferred income taxes 1,215,000 4,050,446
------------ ------------
Total liabilities 28,670,952 27,196,391
------------ ------------
Minority interest deficit -- (1,320,989)
Commitments and contingencies
Invested equity 37,771,873 25,932,113
------------ ------------
Total liabilities and invested equity $ 66,442,825 51,807,515
============ ============
See accompanying notes to combined financial statements.
6
GROUP W NETWORK SERVICES
(A Wholly Owned Operation of CBS Cable, a Division of Viacom, Inc.)
Combined Statements of Operations and Comprehensive Loss
Years ended December 31, 2000 and 1999
2000 1999
------------ ------------
Revenues, net, including $2,238,000 and $3,338,000 from
a related party in 2000 and 1999, respectively $ 42,744,605 42,000,992
------------ ------------
Costs and expenses:
Operating expenses, including $2,329,000 and $2,512,000 to
a related party in 2000 and 1999, respectively 36,705,517 35,778,644
Depreciation and amortization 9,279,231 7,966,058
------------ ------------
Total costs and expenses 45,984,748 43,744,702
------------ ------------
Operating loss (3,240,143) (1,743,710)
Other expense, net (111,684) (67,474)
Minority interest (1,082,997) (377,160)
Equity in income of unconsolidated affiliate 91,230 169,476
Interest expense, net (1,630,941) (1,579,280)
------------
Loss before income tax benefit (5,974,535) (3,598,148)
Income tax benefit 2,696,377 1,710,000
------------ ------------
Net loss $ (3,278,158) (1,888,148)
============ ============
Comprehensive loss:
Net loss $ (3,278,158) (1,888,148)
------------ ------------
Other comprehensive income (loss):
Unrealized gains (loss) on marketable securities, net of tax (212,554) 212,554
Foreign currency translation adjustment (719,390) 83,442
------------ ------------
Other comprehensive income (loss) (931,944) 295,996
------------ ------------
Comprehensive loss $ (4,210,102) (1,592,152)
============ ============
See accompanying notes to combined financial statements.
7
GROUP W NETWORK SERVICES
(A Wholly Owned Operation of CBS Cable, a Division of Viacom, Inc.)
Combined Statements of Cash Flows
Years ended December 31, 2000 and 1999
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (3,278,158) (1,888,148)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,279,231 7,966,058
Bad debt expense 63,809 230,724
Equity in income of unconsolidated affiliate (91,230) (169,476)
Minority interest 1,082,997 377,160
Other noncash items 318,642 (1,332,918)
Changes in operating assets and liabilities, net of
effects of acquisitions:
accounts receivable 2,148,484 481,548
other current assets 222,570 (411,308)
intangibles and other long-term assets 61,649 (139,868)
accounts payable and accrued expenses 2,214,973 (38,710)
deferred revenue (888,152) 1,083,617
------------ ------------
Net cash provided by operating activities 11,134,815 6,158,679
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (6,597,403) (2,424,933)
Payment for acquisitions, net of cash acquired (12,168,743) --
------------ ------------
Net cash used in investing activities (18,766,146) (2,424,933)
------------ ------------
Cash flows from financing activities:
Repayment of related party debt, net -- (13,888)
Repayment of bank debt (1,954,215) (704,836)
Reduction of obligation on capital leases (899,504) (868,410)
Capital contribution 13,007,902 --
------------ ------------
Net cash provided by (used in) financing activities 10,154,183 (1,587,134)
------------ ------------
Effects of exchange rate changes on cash and cash equivalents (719,390) 83,442
------------ ------------
Net increase in cash and cash equivalents 1,803,462 2,230,054
Cash and cash equivalents at beginning of year 2,595,317 365,263
------------ ------------
Cash and cash equivalents at end of year $ 4,398,779 2,595,317
============ ============
See accompanying notes to combined financial statements.
8
GROUP W NETWORK SERVICES
(A Wholly Owned Operation of CBS Cable, a Division of Viacom, Inc.)
Combined Statements of Changes in Invested Equity
Years ended December 31, 2000 and 1999
Balance at December 31, 1998 $ 27,129,576
Net loss (1,888,148)
Unrealized gain on marketable equity securities, net of tax 212,554
Foreign currency translation adjustment 83,442
Cash disbursements on behalf of GWNS in excess of cash receipts 394,689
------------
Balance at December 31, 1999 25,932,113
Net loss (3,278,158)
Capital contribution for Singapore acquisitions (note 4) 13,007,902
Transfer of marketable equity securities to parent, net of tax (437,554)
Foreign currency translation adjustment (719,390)
Cash disbursements on behalf of GWNS in excess of cash receipts 3,266,960
------------
Balance at December 31, 2000 $ 37,771,873
============
See accompanying notes to combined financial statements.
9
GROUP W NETWORK SERVICES
(A Wholly Owned Operation of CBS Cable, a Division of Viacom, Inc.)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(1) THE COMPANY AND NATURE OF OPERATIONS
Group W Network Services (GWNS or the Company) is an independent
full-service program production, origination, and satellite distributor
of video programming predominately in the United States and Singapore.
Accordingly, GWNS operates in one segment. GWNS's operations in Singapore
are conducted through WEAPH Ltd.'s (formerly known as Westinghouse
Electric (Asia-Pacific) Holdings Ltd.) (WEAPH) ownership of Group W
Broadcast Pte. Ltd. (formerly known as Group W Yarra Broadcasting Pte.
Ltd.) (GWB) and Asia Broadcast Centre Pte. Ltd. (ABC). On October 4,
2000, WEAPH acquired the remaining 49% interest in GWB and 51% interest
in ABC that it previously did not own. GWNS is a wholly owned operation
of CBS Cable, a division of Viacom, Inc. (Viacom). On May 4, 2000, CBS
Corporation (CBS) was merged into Viacom with Viacom as the surviving
company. GWNS has never been operated as a separate legal entity, but
rather an integral part of CBS Cable.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying combined financial statements have been prepared
in accordance with generally accepted accounting principles.
Included in the accompanying combined statement of operations are
net revenues and costs and expenses that relate directly to GWNS.
Operating expenses include those accounts that relate directly to
GWNS as well as allocations from CBS (see note 10). These
allocations are considered by management to be reasonable under
the circumstances. However, there can be no assurance that such
allocations will be indicative of future results.
The financial information included herein may not necessarily
reflect the results of operations, financial position, and cash
flows of GWNS in the future or what the results of operations,
financial position, and cash flows would have been had it been a
separate, stand-alone entity during the periods presented. All
significant intercompany accounts and transactions within GWNS
have been eliminated. Prior to October 4, 2000, GWNS did not have
a controlling interest in ABC and therefore accounted for its
interest in ABC using the equity method.
(b) CASH AND CASH EQUIVALENTS
GWNS' domestic operations do not maintain any cash balances. All
domestic cash transactions are handled through CBS intercompany
accounts and are, therefore, reflected as adjustments to invested
equity. GWNS considers all investment securities with a maturity
of three months or less when acquired to be cash equivalents.
(c) INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Investments are stated at fair value based on market quotes.
Adjustments to the fair value of equity investments, which are
classified as available for sale, are recorded in invested equity.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives
of the assets (generally 3 to 12 years) or, in the case of
leasehold improvements, over the shorter of the term of the lease
or the useful life of the improvement.
10
(e) TRANSPONDER RIGHTS
Transponder rights are amortized on the straight-line basis over
12 years, which is the life of the related lease. Amortization
expense was $104,172 for each of the years ended December 31, 2000
and 1999.
(f) GOODWILL
Goodwill is amortized on a straight-line basis over 15 years.
(g) INCOME TAXES
GWNS is not subject to income taxes directly. However, the
accompanying combined financial statements reflect the accounting
for income taxes as if GWNS were to have been a separate tax filer
in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
GWB was granted pioneer status under the Singapore Economic
Expansion Incentives (Relief from Income Tax) Act (Chapter 86),
effective December 1, 1995 for a period of 7 years or 8 years,
depending on the stipulated conditions being satisfied.
Non-pioneer activities of the subsidiary will be taxed at the
then-current statutory tax rate.
(h) REVENUE RECOGNITION
Revenue includes income from the sale of transponder time and
studio and other postproduction services. Cash received for
services prior to the delivery of such services is recorded as
deferred revenue. The revenues and related expenses are recognized
in the combined statement of operations when the services are
provided.
In December 1999, the SEC staff issued Staff Accounting Bulletin
No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (SAB 101).
SAB 101 summarizes certain of the SEC staff's views in applying
accounting principles generally accepted in the United States of
America to revenue recognition in financial statements. The
adoption of SAB 101 during 2000 did not have a material impact on
the Company's combined financial condition or results of
operations.
(i) USE OF ESTIMATES
The presentation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the combined
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
In estimating the fair value of financial instruments, GWNS has
assumed that the carrying amount of cash, accounts receivable,
accounts payable, and accrued expenses approximates fair value
because of the short-term nature of these instruments. The
carrying value of long-term bank debt is assumed to approximate
fair value due to the variable interest rate due on the debt. It
is not practical to estimate the fair market value of the amount
due to CBS and affiliates due to the related party nature of the
underlying transactions.
(k) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
Intangible assets and all other long-lived assets are evaluated
whenever events and circumstances indicate that the remaining
estimated useful life of the asset may warrant revision or the
remaining carrying value of such asset may not be recoverable.
When factors indicate that an asset should be evaluated for
possible impairment,
11
GWNS uses an estimate of the related asset's undiscounted future
cash flows over the remaining life of that asset in measuring
recoverability. If identifiable cash flows are not available for
the specific asset, GWNS evaluates recoverability of the specific
business to which the asset relates. If such an analysis indicates
impairment has in fact occurred, GWNS writes down the carrying
value of the asset to its estimated fair value and recognizes a
charge in costs and expenses in the accompanying combined
statement of operations. Estimated fair value is generally
measured by discounting estimated future cash flows or an active
market price for the asset.
(l) STOCK PLANS AND STOCK-BASED COMPENSATION
GWNS provides stock option and incentive plans in which certain of
GWNS's key employees are eligible to participate. SFAS No. 123,
"Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. GWNS has chosen to
continue to account for stock-based compensation using the
intrinsic value method as prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Based on the number of the options outstanding and the historical
and expected future trends of factors affecting valuation of those
options, management believes that any compensation cost which
would be expected on the combined financial statements under SFAS
No. 123 attributable to options granted is immaterial.
(m) FOREIGN EXCHANGE
Assets and liabilities of foreign operations are translated at the
rate of exchange in effect on the combined balance sheet date;
revenue and expenses are translated at the average exchange rates
in effect during the year. The resulting translation adjustments
are reflected in the cumulative foreign currency translation
adjustments in invested equity.
(n) ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), establishes comprehensive standards for
the recognition and measurement of derivatives and hedging
activities. SFAS 133, as amended, is effective for fiscal years
beginning after June 15, 2000. The adoption of SFAS 133 on January
1, 2001 will not have an effect on the Company's combined
financial position or results of operations.
(o) RECLASSIFICATIONS
Certain reclassifications have been made in the 1999 combined
financial statements to conform to the 2000 presentation.
(3) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2000 and 1999 comprise the
following:
2000 1999
-------------- --------------
Land $ 2,375,250 2,375,250
Buildings 10,529,649 486,661
Leasehold improvements 10,057,738 9,579,791
Furniture and fixtures 4,185,763 3,356,959
Technical and transportation equipment 74,309,692 71,765,869
Construction-in-process 4,280,426 232,736
Leased equipment under capital leases 9,850,000 9,850,000
-------------- --------------
115,588,518 97,647,266
Less accumulated depreciation and amortization (66,243,222) (57,204,856)
-------------- --------------
Property and equipment, net $ 49,345,296 40,442,410
============== ==============
Depreciation and amortization expense was $9,038,366 and $7,861,886 for
the years ended December 31, 2000 and 1999, respectively.
12
(4) ACQUISITIONS
On October 4, 2000, WEAPH acquired the remaining 51% interest in ABC and
49% interest in GWB that it previously did not own for approximately $13
million, including the repayment of related party debt. The purchase
price was financed through a capital contribution from parent. The
acquisitions were accounted for under the purchase method.
The assets and liabilities and results of ABC have been consolidated with
those of WEAPH and combined with those of GWNS since October 4, 2000.
Previously, GWNS' investment in ABC was accounted for using the equity
method of accounting.
The assets and liabilities and results of GWB have previously been
consolidated with those of GWNS and the resulting minority interest
reflected on the combined balance sheet and combined statement of
operations.
Upon acquisition, the excess of the purchase price over the net book
value of the net assets acquired of approximately $8.2 million has been
preliminarily allocated to goodwill. Such allocation will be revised, at
a later date, upon receipt of an independent appraisal. Amortization
expense was $137,000 for the year ended December 31, 2000.
The following unaudited pro forma information reflects the results of
operations of the Company combined with those of GWB and ABC for the
years ended December 31, 2000 and 1999 as if the acquisitions had
occurred on January 1, 1999. The pro forma results give effect to
additional amortization expense from goodwill and the related tax
effects.
PRO FORMA RESULTS
(UNAUDITED)
YEAR ENDED DECEMBER 31
------------------------------
2000 1999
------------ ------------
Net revenue $ 45,443,000 45,572,000
Net loss (2,873,000) (1,836,000)
This pro forma financial information is presented for comparative
purposes only and is not necessarily indicative of the operating results
that actually would have occurred had the GWB and ABC acquisitions been
consummated on January 1, 1999. In addition, these results are not
intended to be a projection of future results and do not reflect any
synergies that might be achieved from combining the operations.
(5) INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATE
Prior to October 4, 2000, the 49% ownership interest in ABC was accounted
for under the equity method of accounting. The following summarized
financial information reflects ABC's balance sheet information as of
November 30, 1999 and its results of operations for the year then ended:
Statement of operations data:
Revenue $ 11,534,824
Net profit 345,870
============
Balance sheet data:
Current assets $ 1,863,273
Noncurrent assets 12,800,577
------------
Total assets $ 14,663,850
============
Current liabilities $ 3,119,496
Noncurrent liabilities 12,143,175
------------
Total liabilities $ 15,262,671
============
13
As of December 31, 1999, GWNS had advanced approximately $3,323,000 to
ABC which is offset by GWNS' share of the retained deficit of ABC.
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 2000 and 1999
comprise the following:
2000 1999
------------ ------------
Accounts payable $ 1,036,124 1,505,120
Accrued salaries, benefits and stay 3,656,270 399,946
bonuses
Other 2,085,143 1,584,474
------------ ------------
$ 6,777,537 3,489,540
============ ============
(7) DEBT
(a) RELATED PARTY DEBT
As of December 31, 1999, GWB had amounts owing in local currency
to its then minority shareholder which were unsecured and had no
fixed terms of repayment. In respect of the interest-bearing loan,
interest of 5% to 6% per annum was charged during 2000 and 1999,
respectively. Interest expense was $48,778 and $59,424 for the
years ended December 31, 2000 and 1999, respectively. GWNS has
imputed an interest cost on the portion of noninterest-bearing
debt due to related parties. The imputed interest rate used was
based on the average annual rate charged for the interest-bearing
debt due to related parties. Interest expense imputed was $46,700
and $29,712 for the years ended December 31, 2000 and 1999,
respectively. The amounts owing as of December 31, 1999, are
identified below. All amounts were repaid in 2000 in connection
with the acquisition described in note 4.
Related party debt as of December 31, 1999 consisted of the
following:
Current:
Interest-free $ 216,379
============
Long term:
Interest-free 590,448
Interest-bearing 1,180,897
------------
1,771,345
------------
Total $ 1,987,724
============
As of December 31, 1999, GWB had a minority interest receivable of
$1,320,989.
(b) BANK DEBT
2000 1999
------------ ------------
WEAPH fixed-advance facility $ 2,309,403 2,290,981
GWB 10-year term loan 4,204,824 5,420,997
GWB 5-year term loan 190,072 595,059
ABC 10-year term loan 6,119,429 --
------------ ------------
12,823,728 8,307,037
Less current maturities 4,931,271 3,720,713
------------ ------------
Long-term debt, net $ 7,892,457 4,586,324
============ ============
14
The WEAPH fixed-advance facility relates to drawdowns on the May
1995 $4,500,000 fixed-advance facility, which is denominated in
local currency. The borrowings bear interest at the prevailing
SWAP Offer Rate plus 1% per annum. The related interest rate in
2000 was between 3.65% and 6.75% and in 1999 was between 2.29% and
4.07%. The term of each advance is 1, 2, 3, or 6 months at WEAPH's
option, with the ability to refinance the advance. The associated
covenants require WEAPH to maintain positive net worth at all
times.
The GWB 10-year local currency term loan is unsecured and bears
interest at the prevailing SWAP Offer Rate plus 1-1/2% per annum.
The related interest rates in 2000 and 1999 were between 4.15% and
4.57% and 2.79% and 4.57%, respectively. The loan is repayable
over 30 quarters of varying amounts which began on February 1,
1998.
The GWB 5-year local currency term loan is unsecured and bears
interest at the prevailing three-month SWAP Offer Rate plus 1-1/2%
per annum. The related interest rates in 2000 and 1999 were
between 4.15% and 4.87% and 2.73% and 4.87%, respectively. The
loan is repayable over 12 quarters of equal amounts which began on
October 1, 1998.
The ABC 10-year local currency term loan is unsecured and bears
interest at the prevailing SWAP Offer Rate plus 1-1/2% per annum.
The related interest rates in 2000 were between 4.15% and 4.57%.
The loan is repayable over 29 quarters of varying amounts which
began on February 1, 1998.
GWB also has a $600,000 overdraft facility and ABC has a
$1,200,000 overdraft facility, which are denominated in local
currency, for which GWB and ABC had no balance outstanding at
December 31, 2000 and 1999. The interest rate on the overdraft
facilities is 1/2% above the prevailing prime rate of the lender.
The GWB and ABC term loans and overdraft facilities are guaranteed
by Viacom. The term loans and overdraft facilities also contain
covenants requiring GWB and ABC to maintain certain financial
ratios including a limitation that total liabilities to net worth
of the combined GWB and ABC companies not exceed a specified
amount. Covenants relevant to the GWB and ABC 10-year term loans
also include a limitation that the combined GWB and ABC debt
service ratio not exceed a specified amount.
As of December 31, 2000 and 1999, the Company was in compliance
with the financial convenants.
Maturities of long-term debt are as follows:
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ------
2001 $ 4,931,271
2002 2,429,150
2003 2,429,150
2004 2,429,150
2005 605,007
Thereafter --
------------
$ 12,823,728
============
Interest expense was $432,292 and $289,039 for the years ended December
31, 2000 and 1999, respectively.
All amounts were repaid in February 2001 in connection with the sale of
the Company to Liberty Livewire Corporation ("Liberty Livewire") (see
note 14).
(8) INCOME TAXES
The components of income tax benefit at December 31, 2000 and 1999 were
as follows:
Deferred:
Federal $ 2,214,377 1,408,000
State 482,000 302,000
------------ ------------
$ 2,696,377 1,710,000
============ ============
15
If GWNS were to have been a separate tax filer, a hypothetical deferred
tax liability, primarily representing the tax-effected accelerated
depreciation offset by net operating loss carryforwards of $1.9 million
and $800,000 in 2000 and 1999, respectively, would have amounted to $
1,215,000 and $4,050,000 at December 31, 2000 and 1999, respectively.
At December 31, 1999, GWB had unabsorbed wear and tear allowances
amounting to $2 million for offset against future taxable profits from
the same trade for which the pioneer status was awarded. The allowance
was fully utilized during 2000. In assessing the realizability of this
allowance, management considers whether it is more likely than not that
some portion or all of the allowance will not be realized. At year end
1999, management has determined that a valuation allowance for the entire
amount was necessary. Since the unabsorbed wear and tear allowance was
utilized during 2000, the deferred tax valuation allowance was reversed
in 2000.
The difference between total expected tax benefit using the statutory
rate and the effective rate of tax benefit for the years ended December
31, is as follows:
2000 1999
------------ ------------
Federal income tax benefit at $ (2,100,000) (1,127,000)
statutory rate
Foreign income not subject to tax (319,000) (369,000)
State income tax benefit, net of federal (315,000) (197,000)
effect
Other 37,623 (17,000)
------------ ------------
Income tax benefit $ (2,696,377) (1,710,000)
============ ============
16
(9) COMMITMENTS AND CONTINGENCIES
GWNS currently leases equipment under noncancelable operating leases
expiring in various years through 2018. Certain leases provide for
renewal options. Rental payments may be adjusted for cost increases.
Operating lease expenses were $1,254,000 and $786,000 in 2000 and 1999,
respectively.
In January 1995, GWNS entered into an agreement to lease service on a
satellite transponder for approximately 12 years. The transaction was
treated as a capital lease and the recorded lease obligation bears
interest at 7.75%. The terms of the lease agreement require GWNS to
notify and obtain prior written consent from the lessor prior to
assigning or transferring its rights or obligations under the lease. Upon
request of an assignment or transfer, the lessor will not unreasonably
withhold consent; however, the lessor may elect, in lieu of consenting to
the assignment or transfer, to terminate the lease agreement. In the
event that GWNS resells any services provided under the lease agreement
or otherwise permits the use of such services by any third party, GWNS
will be the guarantor of compliance by the third party and any breach by
a third party will be deemed to have been committed by GWNS.
Future minimum annual rental commitments under such leases at December
31, 2000 are as follows:
OPERATING CAPITAL
YEAR ENDING DECEMBER 31 LEASES LEASES
----------------------- ------ ------
2001 $ 1,308,895 2,159,868
2002 1,017,197 2,100,000
2003 348,165 2,100,000
2004 182,155 2,100,000
2005 99,150 2,100,000
Thereafter 1,264,164 2,100,000
------------ ------------
$ 4,219,726 12,659,868
============
Less estimated executory costs included
in capital lease (1,800,000)
------------
Net minimal lease payments under
capital lease 10,859,868
Less amount representing interest (3,707,805)
------------
Present value of net minimum
lease payments under capital lease 7,152,063
Less current installments (841,063)
------------
Obligations under capital leases,
excluding current installments $ 6,311,000
============
At December 31, 2000 and 1999, the gross amount of equipment and related
accumulated depreciation recorded under these leases was as follows:
2000 1999
------------ ------------
Transponder equipment $ 9,850,000 9,850,000
Less accumulated depreciation 4,924,800 4,104,000
------------ ------------
$ 4,925,200 5,746,000
============ ============
17
(10) RELATED PARTY TRANSACTIONS
(a) REVENUE
GWNS provides program production origination and satellite
distribution of video programming to various CBS-owned cable
programming entities. Revenues earned by GWNS from these related
parties were $2,238,000 and $3,338,000 during 2000 and 1999,
respectively.
(b) SERVICE AGREEMENT
Pursuant to a service agreement, CBS Cable provides cash
management services to GWNS. The net excess or deficiency of
disbursements by CBS Cable over cash receipts to CBS Cable will
result in a payable to or receivable from CBS Cable for such
amount. At December 31, 2000 and 1999, cash disbursements on
behalf of the Company exceeded CBS Cable's cash receipts on behalf
of the Company.
(c) GENERAL ALLOCATIONS
CBS allocates certain costs incurred on behalf of GWNS in
accordance with a service agreement. Such costs include: vacation
liability, payroll processing costs, insurance expense, management
information systems, human resources, legal services and
accounting services. Allocated costs totaled $2,329,000 and
$2,512,000, respectively, for the years ended December 31, 2000
and 1999, respectively.
(d) SAVINGS PROGRAM AND PENSION PLAN
Under the service agreement and allocations described above, GWNS
employees participate in the CBS Employee Investment Fund 401(k)
Savings Program (EIF) (a defined contribution plan), the CBS
Combined Pension Plan (a defined benefit plan), and other
postretirement and postemployment medical and welfare plans of
CBS.
Every full-time employee of GWNS is eligible to participate in the
EIF upon the first day of employment. Eligible employees
contribute a percentage of their base pay up to the annual
Internal Revenue Service (IRS) limit and are immediately vested in
their own contributions. CBS has a performance-based discretionary
match and may make contributions matching a portion of employees'
before-tax savings up to a maximum of 5% of employee
contributions. Eligible employees are fully vested in the current
value of any CBS contributions after three years of service. The
plan provisions are governed by the plan document.
The CBS Combined Pension Plan (Pension Plan) is available to
employees hired before March 31, 1999. Plan provisions are
governed by the plan document. The Pension Plan includes three
formerly separate plans, which were merged into one plan effective
December 31, 1997. The participants of the three formerly separate
plans continue to be governed by the eligibility rules in the
respective plan documents in effect prior to the merger. The
employees of GWNS, if eligible, participate in the Group W
Component of the Pension Plan. Effective April 1, 1999, the CBS
Cash Balance Plan was created as a component of the Pension Plan
to provide a "cash balance" benefit formula for certain active
participants in the Pension Plan.
GWNS also participates in a CBS-sponsored post retirement plan
that provides defined medical, dental, and life insurance benefits
for eligible retirees and dependents.
Under a service agreement with CBS Cable, CBS Cable shall be
reimbursed for expenses incurred in providing the employee benefit
services described above. The costs associated with the Savings
Program, the Pension Plan, and other postretirement and
postemployment medical and welfare plans are recorded as expenses
in the accompanying combined statement of operations.
These obligations are being accounted for by GWNS consistent with
multiemployer plans.
18
(11) MAJOR CUSTOMERS
The following summarizes significant customers comprising 10% or more of
the Company's net revenues for the years ended December 31, 2000 and
1999.
2000 1999
-------- --------
Customer A 20% 18%
Customer B 16% 15%
The aggregate accounts receivable balance for these customers was
approximately $900,000 and $816,000 at December 31, 2000 and 1999,
respectively.
12) SUPPLEMENTAL CASH FLOW INFORMATION
During 1999, GWNS remitted cash of approximately $1,548,400 and $27,000
for third-party interest and income taxes, respectively.
During 2000, GWNS remitted cash of approximately $1,574,472 and $55,126
for third-party interest and income taxes, respectively.
During 1999, GWNS accepted a $75,000 note receivable and shares of common
stock with a then-fair market value of $225,000 from a customer in
satisfaction of a $300,000 trade accounts receivable. As of December 31,
1999, an unrealized gain of $212,554, net of taxes of $112,446, was
recorded related to these shares. During 2000, these shares were
transferred to CBS Cable at their then book value.
(13) SEGMENT INFORMATION
The Company operates in one segment. The Company's operations are
primarily based in the United States. However, net revenues of $9.8
million and $7.8 million in 2000 and 1999, respectively, were derived
from the Company's foreign operations in Singapore.
(14) SUBSEQUENT EVENT
Liberty Livewire purchased substantially all of the U.S. assets of GWNS
and 100% of the outstanding capital stock of ABC and GWB on February 1,
2001 for an aggregate consideration of $116.5 million, including $7.4
million which represents the assumption of debt.
19
b. Pro Forma Condensed Financial Information
Liberty Livewire Corporation, Group W Network Services and Asia Broadcast
Centre Pte Ltd Pro Forma Condensed Combined Financial Statements
(Unaudited):
I. Balance Sheet as of December 31, 2000
II. Statement of income for the year ended December 31, 2000
III. Footnotes to Financial Statements
Liberty Livewire Corporation ("Liberty Livewire") purchased
substantially all of the U.S. assets of the business unit
known as Group W Network Services and 100% of the outstanding
capital stock of Asia Broadcast Centre Pte Ltd and Group W
Yarra Broadcast Pte Ltd. (collectively, "GWNS") on February 1,
2001 for an aggregate consideration of $116,527,480 including
$7,360,000 which represents the assumption of debt. The
following pro forma condensed financial information and
explanatory notes are presented to show the estimated pro
forma effect of the acquisition of GWNS on Liberty Livewire's
historical results of operations. The acquisition is reflected
in the pro forma condensed financial information using the
purchase method of accounting.
The Pro Forma Condensed Balance Sheet as of December 31, 2000
assumes the acquisition was consummated on that date. The Pro
Forma Condensed Income Statement assumes the acquisition was
consumated on January 1, 2000 for the year ended
December 31, 2000. Such Pro Forma Condensed Financial
Information is not necessarily indicative of the financial
position or results of operations as they may be in the future
or as they might have been had the acquisition been effected
on the assumed date.
The pro forma adjustments are based upon currently available
information and upon certain assumptions that management of
Liberty Livewire believes are reasonable. The Group W
acquisition will be recorded based upon the estimated fair
market value of the net assets acquired at the date of
acquisition. The adjustments included in the unaudited pro
forma condensed combined financial statements represent the
Company's preliminary estimates based upon available
information. Although Liberty Livewire does not believe that
such preliminary estimates will differ significantly from the
actual adjustments, no assurance can be given.
20
The unaudited pro forma condensed combined financial
statements are based on the historical financial statements of
each of Liberty Livewire, GWNS and Asia Broadcast Centre, Pte.
Ltd. ("ABC") and the assumptions and adjustments described in
the accompanying notes. Liberty Livewire believes that the
assumptions on which the unaudited pro forma financial
statements are based are reasonable. The unaudited pro forma
condensed combined financial statements are provided for
informational purposes only and do not purport to represent
what the Company's financial position or results of operations
actually would have been if the foregoing transactions
occurred as of the dates indicated or what such results will
be for any future periods.
The Pro Forma Condensed Combined Financial Information should
be read in conjunction with the historical financial
statements and the notes thereto of Liberty Livewire, the
audited historical financial statements and notes thereto of
GWNS and notes to the Pro Forma Condensed Financial
Information.
21
LIBERTY LIVEWIRE
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
ASSETS
HISTORICAL
--------------------------
LIBERTY GWNS LIBERTY
LIVEWIRE AS OF AS OF LIVEWIRE
DECEMBER DECEMBER PRO FORMA COMBINED
31, 2000 31, 2000 SUBTOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
Cash and marketable securities $ 24,880 $ 4,399 $ 29,279 $ (4,399)(1) $ 24,880
Trade accounts receivable, net 106,158 3,347 109,505 109,505
Other current assets 26,104 476 26,580 26,580
----------- ----------- ----------- ----------- -----------
Total current assets 157,142 8,222 165,364 (4,399) 160,965
Property and equipment, net 366,944 49,345 416,289 416,289
Due from parent 7,245 - 7,245 7,245
Goodwill and other intangibles, net 631,196 8,876 640,072 62,428(1) 702,500
Other assets, net 13,318 - 13,318 13,318
----------- ----------- ----------- ----------- -----------
Total assets $ 1,175,845 $ 66,443 $ 1,242,288 $ 58,029 $ 1,300,317
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 108,780 $ 6,778 $ 115,558 $ 115,558
Other current liabilities 10,644 6,474 17,118 17,118
----------- ----------- ----------- ----------- -----------
Total current liabilities 119,424 13,252 132,676 132,676
Long term debt and capital lease
obligations 492,573 14,204 506,777 $ 95,801(1) 602,578
Other liabilities 10,721 1,215 11,936 11,936
----------- ----------- ----------- ----------- -----------
Total liabilities 622,718 28,671 651,389 95,801 747,190
Stockholders' equity
Common stock 370 - 370 370
Additional paid in capital 570,185 - 570,185 570,185
Deferred tax asset-parent (409) (409) (409)
Unearned stock compensation (273) (273) (273)
Treasury stock (19) (19) (19)
Retained earnings (9,793) 37,772 27,538 (37,772)(1) (9,793)
Accumulated other comprehensive income
(loss) (6,934) (6,934) (6,934)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity 553,127 37,772 590,458 (37,772) 662,295
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity $ 1,175,845 $ 66,443 $ 1,242,288 $ 58,029 $ 1,300,317
=========== =========== =========== =========== ===========
See accompanying notes to pro forma condensed combined financial statements
22
LIBERTY LIVEWIRE
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
HISTORICAL
------------------------------------
(2)
LIVEWIRE GWNS ABC LIVEWIRE
FOR THE FOR THE FOR THE PRIOR LIBERTY
YEAR ENDED YEAR ENDED PERIOD ENDED ACQUISITION LIVEWIRE
DECEMBER DECEMBER OCTOBER PRO FORMA PROFORMA COMBINED
31, 2000 31, 2000 4, 2000 ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ---------- ---------- ---------- ----------
Revenues $ 306,342 $ 42,744 $ 2,699 $ 268,026 $ 619,811 $ 619,811
Operating costs and other expenses 264,708 36,705 1,520 224,450 527,383 527,383
Non-cash compensation (29,577) - - - (29,577) (29,577)
Depreciation and amortization 58,470 9,279 872 53,484 122,105 $ 3,143(4) 125,248
Operating income 12,741 (3,240) 307 (9,908) (100) (3,143) (3,243)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Interest expense, net of interest
income 20,773 1,631 - 20,897 43,301 9,554 (3) 52,855
Minority interest & equity - 992 - - 992 (992)(5) -
Other expense (income) 198 111 - 1,332 1,641 1,641
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (8,230) (5,974) 307 (32,137) (46,034) (11,705) (57,739)
Provision for income taxes 3,238 (2,696) - (4,321) (3,779) (5,804)(6) (9,583)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations ($ 11,468) ($ 3,278) $ 307 ($ 27,816) ($ 42,255) ($ 5,901) ($ 48,156)
========== ========== ========== ========== ========== ========== ==========
Income from continuing operations
per share:
Basic and Diluted $ (0.33) ($ 1.40)
Weighted average shares:
Basic and Diluted 34,463 34,463
See accompanying notes to pro forma condensed combined financial statements
23
LIBERTY LIVEWIRE
FOOTNOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2000
(1) To record adjustments relating to purchase including reduction for
cash not acquired, recording of excess purchase price as goodwill,
elimination of GWNS debt paid off in acquisition, debt incurred by
Livewire to fund acquisition and elimination of GWNS equity.
FOOTNOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(2) Pro Forma adjustments for Livewire prior acquisitions for the year
ended 12/31/00. For further information on prior acquisitions see
Livewire's report on Form 10-K for the year ended December 31, 2000
as amended by Amendment No. 1 on Form 10-K/A.
(3) To adjust interest expense for GWNS remaining debt and acquisition
debt incurred by borrowings from Liberty Media Corp (approx $96
million) and from its institutional lenders (approx $13 million).
(4) To record amortization of goodwill arising from GWNS acquisition based
on an estimated useful life of 20 years.
(5) To eliminate minority interest and equity for Singapore subsidiaries
which are wholly owned at December 31, 2000.
(6) To record income tax effect of pro forma adjustments.
24
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
----------------------------
(Registrant)
/s/ M. David Cottrell
-------------------------------------
M. David Cottrell
Chief Accounting Officer
May 14, 2001
------------
Date
25