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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 0-20570
SILVER KING COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2712887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2425 OLYMPIC BOULEVARD, SANTA MONICA, CALIFORNIA 90404
(Address of principal executive offices) (Zip Code)
(310) 247-7905
(Registrant's telephone number, including area code)
12425 28TH STREET, NORTH, ST. PETERSBURG, FLORIDA 33716
(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 ____.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock as of the latest
practicable date.
Total number of shares of outstanding Common Stock as of August 5, 1996:
Common Stock.............................................................. 7,075,332
Class B Common Stock...................................................... 2,415,945
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PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILVER KING COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUE
Broadcasting.............................................. $ 10,658 $ 10,680 $ 21,388 $ 21,197
Production................................................ 266 830 648 1,628
------- ------- ------- -------
Net revenue..................................... 10,924 11,510 22,036 22,825
COSTS AND EXPENSES
Cost of production........................................ 65 134 193 271
General and administrative................................ 5,875 5,566 11,774 11,079
Depreciation and amortization............................. 3,404 3,669 6,862 7,361
------- ------- ------- -------
Total costs and expenses........................ 9,344 9,369 18,829 18,711
------- ------- ------- -------
Operating profit................................ 1,580 2,141 3,207 4,114
OTHER INCOME (EXPENSES)
Interest income........................................... 591 2,205 1,210 2,544
Interest expense.......................................... (2,221) (2,799) (4,633) (5,609)
Dividend income........................................... -- -- -- 463
Miscellaneous............................................. 194 (2) 331 (58)
------- ------- ------- -------
Total other income (expense).................... (1,436) (596) (3,092) (2,660)
------- ------- ------- -------
Income before income taxes................................ 144 1,545 115 1,454
Income tax provision...................................... (596) (725) (1,173) (481)
------- ------- ------- -------
Net income (loss)......................................... $ (452) $ 820 $ (1,058) $ 973
PER SHARE OF COMMON STOCK:
NET INCOME (LOSS) PER COMMON SHARE........................ $ (.05) $ .09 $ (.11) $ .11
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING....................... 9,484 8,916 9,471 8,910
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31,
1996 1995
--------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $ 19,837 $ 19,140
Accounts receivable, net..................................................... 283 1,402
Notes receivable............................................................. 3,164 2,835
Other assets................................................................. 632 1,199
Deferred income taxes........................................................ 1,614 1,797
--------- ---------
Total current assets................................................ 25,530 26,373
PROPERTY, PLANT AND EQUIPMENT, AT COST
Computer and broadcast equipment............................................. 73,674 76,033
Buildings and leasehold improvements......................................... 18,313 19,520
Furniture and other equipment................................................ 1,918 2,991
--------- ---------
93,905 98,544
Less accumulated depreciation....................................... (71,698) (72,851)
--------- ---------
22,207 25,693
Land......................................................................... 2,158 3,334
Construction in progress..................................................... 158 244
--------- ---------
Net property plant and equipment.................................... 24,523 29,271
OTHER ASSETS
Intangible assets, net....................................................... 55,305 59,984
Capitalized bank fees, net................................................... 2,872 3,293
Notes receivable, net of current............................................. 17,321 12,188
Long-term investments........................................................ 5,140 5,135
Other........................................................................ 755 426
--------- ---------
Total other assets.................................................. 81,393 81,026
--------- ---------
$ 131,446 $ 136,670
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations.................................. $ 12,819 $ 12,456
Accrued liabilities
Payroll and payroll taxes.................................................. 2,507 1,315
Rent....................................................................... 617 722
Interest................................................................... 1,381 777
Other...................................................................... 1,455 2,217
Restructuring.............................................................. 401 1,333
--------- ---------
Total current liabilities........................................... 19,180 18,820
DEFERRED INCOME TAXES........................................................ 14,595 14,399
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES............................. 89,480 95,980
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value; 50,000 shares authorized, no shares issued
and outstanding............................................................ -- --
Common stock -- $.01 par value, 30,000,000 shares authorized, 7,075,332 and
6,996,332 shares issued and outstanding, respectively...................... 71 70
Class B convertible common stock -- $.01 par value; 2,415,945 shares
authorized, issued, and outstanding........................................ 24 24
Additional paid-in capital................................................... 127,401 126,119
Note receivable from Key Executive for common stock issuance................. (4,998) (4,998)
Deficit...................................................................... (111,181) (110,123)
Unearned compensation........................................................ (3,126) (3,621)
--------- ---------
Total stockholders' equity.......................................... 8,191 7,471
--------- ---------
$ 131,446 $ 136,670
========= =========
The accompanying notes are an integral part of these financial statements.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NOTE
RECEIVABLE
COMMON FROM
STOCK CLASS B KEY EXECUTIVE
$0.01 CONVERTIBLE ADDITIONAL FOR COMMON
PAR COMMON PAID-IN STOCK UNEARNED
VALUE STOCK CAPITAL ISSUANCE DEFICIT COMPENSATION TOTAL
------ ----------- ---------- ------------- --------- ------------ -------
(IN THOUSANDS)
BALANCE ON JANUARY 1,
1996................ $ 70 $24 $ 126,119 $(4,998) $(110,123) $ (3,621) $ 7,471
Issuance of common
stock upon exercise
of stock options.... 1 -- 695 -- -- -- 696
Income tax benefit
relating to stock
options exercised... -- -- 587 -- -- -- 587
Amortization of
unearned
compensation related
to grant of stock
options to Key
Executive........... -- -- -- -- -- 495 495
Net loss for the
quarter ended June
30,
1996................ -- -- -- -- (1,058) -- (1,058)
---- ----
---
------ ---------- -------- ----- ---------- -------- ---- --------
BALANCE ON JUNE 30,
1996................ $ 71 $24 $ 127,401 $(4,998) $(111,181) $ (3,126) $ 8,191
====== =========== ========== ============= ========== ============ ========
The accompanying notes are an integral part of these financial statements.
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SILVER KING COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
-------------------
JUNE 30, JUNE 30,
1996 1995
-------- --------
(IN THOUSANDS)
CASH FLOWS -- OPERATING ACTIVITIES:
Net income (loss).......................................................... $ (1,058) $ 973
Adjustments to reconcile net earnings (loss) to net cash provided by (used
in) operating activities
Depreciation and amortization............................................ 6,862 7,361
Non-cash interest expense................................................ 420 411
Provision for losses on accounts receivable.............................. 73 14
Amortization of unearned compensation related to grant of stock options
to Key Executive...................................................... 495 --
(Gain) loss on retirement or sale of fixed assets........................ (196) 58
Deferred income taxes.................................................... 966 151
(Increase) decrease in other assets...................................... 25 (5)
Changes in current assets and liabilities:
Decrease in accounts receivable.......................................... 1,047 2,187
Decrease in other current assets......................................... 567 212
Increase in current liabilities.......................................... 750 89
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................. 9,951 11,451
CASH FLOWS -- INVESTING ACTIVITIES:
Capital expenditures..................................................... (311) (914)
Proceeds from sale of fixed assets....................................... 2,320 --
Payment of merger costs.................................................. (622) --
Long-term investments.................................................... (5) --
Proceeds from long-term notes receivable................................. 2,502 2,338
Investment in long-term notes receivable................................. (7,696) (1,600)
------- -------
NET CASH USED IN INVESTING ACTIVITIES................................. (3,812) (176)
CASH FLOWS -- FINANCING ACTIVITIES:
Principal payments on long-term obligations.............................. (6,138) (5,238)
Proceeds from exercise of stock options.................................. 696 30
------- -------
NET CASH USED IN FINANCING ACTIVITIES................................. (5,442) (5,208)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS...................................... 697 6,067
Cash and cash equivalents at beginning of period........................... 19,140 12,554
------- -------
Cash and cash equivalents at end of period................................. $ 19,837 $ 18,621
======= =======
The accompanying notes are an integral part of these financial statements.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ORGANIZATION AND DISTRIBUTION
In July 1986, Silver King Broadcasting Company, Inc. ("SKBC") was
incorporated in Delaware and began acquiring UHF television stations. SKBC was
formed as part of a strategy to broaden the viewership of the retail sales
programming produced by Home Shopping Club, Inc. ("HSC"), a wholly-owned
subsidiary of Home Shopping Network, Inc. ("HSN") and a leader in the electronic
retailing industry. HSC sells a variety of consumer goods and services by means
of HSC's live, customer-interactive retail sales programming, which is received
on a full-time or part-time basis by broadcast television stations, cable
television systems and satellite dish receivers. SKBC subsequently changed its
name to HSN Communications, Inc. ("HSNC") and, on August 25, 1992, HSNC changed
its name to Silver King Communications, Inc. ("SKC" when referring to the parent
company alone, but when referring to SKC and/or one or more of its direct or
indirect wholly-owned subsidiaries, the "Company"). Currently, the Company owns
and operates 12 independent full-power UHF television stations, including one
television satellite station (the "Stations"), which affiliate with and
primarily broadcast HSC retail sales programming. The Stations serve eight of
the 13 largest metropolitan television markets in the United States. As of March
31, 1996, the Stations reached approximately 29.0 million television households,
which is one of the largest audience reaches of any owned and operated
independent television broadcasting group in the United States.
In addition, the Company owns 26 low power television ("LPTV") stations
that broadcast HSC retail sales programming. The Company and HSC entered into a
Master Low Power Television Affiliation Agreement as of May 1, 1996 covering all
26 LPTV stations. The Company will be paid up to $550,000 annually under the
agreement.
On December 28, 1992 (the "Distribution Date"), HSN distributed the capital
stock (the "Distribution") of the Company to HSN's stockholders of record as of
December 24, 1992 (the "Record Date"), in the form of a pro-rata stock dividend.
The capital stock of Telemation, Inc. ("Telemation") was contributed to SKC
prior to the Distribution. Telemation is a video production and post-production
company providing a full range of communications services to corporations and
advertising agencies, and Telemation also produces television shows and videos
for the entertainment industry.
The Distribution resulted in 100% of the outstanding shares of the
Company's Common Stock and the Company's Class B Common Stock being distributed
to holders of HSN Common Stock and HSN Class B Common Stock on a pro-rata basis
as of the Record Date.
Roy M. Speer indirectly controls the Company through the ownership, by RMS
Limited Partnership ("RMSLP"), a Nevada limited partnership, of 100% of the
Company's Class B Common Stock. On February 11, 1993, RMSLP entered into an
agreement granting an assignable option to purchase 2,000,000 shares of its
Class B Common Stock in the Company to Liberty Media Corporation ("Liberty"),
controlling Shareholder of HSN. This agreement was subsequently amended on
September 23, 1994, and Liberty retained its option to purchase 2,000,000
shares. Liberty and Barry Diller entered into an agreement pursuant to which
Liberty and Mr. Diller have formed Silver Management Company ("SMC") to which
Liberty intends to assign the option. On March 6, 1996, the Federal
Communications Commission ("FCC") granted its approval of the transfer of
control of SKC from Mr. Speer to SMC by the proposed consummation of the option.
However, the FCC attached certain conditions to the grant and also adopted a
stay order released on the same day as the grant delaying the effectiveness of
the grant until the agency completed an investigation of allegations raised
against SKC by Urban Broadcasting Corporation ("Urban") that questioned SKC's
qualifications as an FCC licensee. SMC filed a pleading requesting that the FCC
delete or modify one of the conditions to the grant which required prior FCC
approval if Liberty's parent company, Tele-Communications, Inc. ("TCI"),
materially increases its cable systems' percentage of subscribers in any of the
11 markets served by the Company's Stations. In a Memorandum Opinion and Order
and Notice of Apparent Liability released June 14, 1996, the FCC lifted the stay
order on its approval of the transfer of control applications and deleted the
condition to the grant requiring FCC approval if Liberty's parent company, TCI,
materially
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increases its cable systems' percentage of subscribers in any of the 11 markets
served by the Company's Stations. The ruling provides that the FCC must be
notified at any time TCI acquires subscribers representing more than 50% of the
television households in a Company Station market. The FCC also fined Urban
$25,000 for abdicating control of its station, WTMW (TV), Arlington, Virginia,
to the Company during the station construction period. The Company was fined
$150,000 for assuming unauthorized control of the station during the
construction period and for violating the FCC's duopoly rules during that time
period as a result of the signal overlap between WTMW (TV) and the Company's
Baltimore, Maryland Station, WHSW-TV, notwithstanding the agency's ruling that
control of WTMW (TV) reverted back to Urban at the time the station commenced
operations. The FCC also required that certain aspects of the contracts between
Urban and the Company, as Urban's lender and a shareholder, be reformed. If a
sale pursuant to exercise of the option is consummated between RMSLP and SMC,
Mr. Speer will no longer control the Company. See "Note D -- Subsequent Events"
regarding the exercise of such option by SMC.
The Company has changed its fiscal year end from August 31st to December
31st effective January 1, 1996.
NOTE B -- BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements include the
accounts of SKC and all subsidiaries, all of which are wholly-owned. All
intercompany transactions and accounts have been eliminated. The Condensed
Consolidated Financial Statements are unaudited and should be read in
conjunction with the audited Consolidated Financial Statements and notes thereto
for the transition Form 10-Q for the period ended December 31, 1995.
In the opinion of management, all adjustments necessary for a fair
presentation of such Condensed Consolidated Financial Statements have been
included. Such adjustments consist only of normal recurring items. Interim
results are not necessarily indicative of results for a full year. The Condensed
Consolidated Financial Statements and notes thereto are presented as permitted
by the Securities and Exchange Commission and do not contain certain information
included in the Company's annual Consolidated Financial Statements and notes
thereto as discussed above.
NOTE C -- LITIGATION
On May 22, 1995, Silver King Broadcasting of Virginia, Inc. ("SKVA"), a
wholly-owned subsidiary of the Company, and Urban Broadcasting Corporation
("Urban") and its principals settled a lawsuit relating to Urban's default on a
note receivable of $10.5 million to SKVA. Pursuant to the settlement, SKVA
received approximately $3.5 million on May 23, 1995, consisting of $1.8 million
in interest income and $1.7 million in principal on SKVA's $10.5 million loan to
Urban. The principal balance of the receivable on December 31, 1995 was $8.1
million. Additionally, SKVA forgave approximately $.1 million of interest under
the terms of the settlement and Urban dismissed its $6.5 million Amended
Counterclaim. Urban remained obligated to repay the outstanding principal
balance of approximately $8.8 million over the remaining term of the loan.
On July 3, 1995, Urban and Theodore M. White, the President, sole director
and owner of all the voting stock of Urban, separately filed voluntary Chapter
11 bankruptcy petitions. On September 26, 1995, the bankruptcy court entered a
final cash collateral order with respect to the Urban bankruptcy executed by
Urban and SKVA that lasted until December 31, 1995 and will continue thereafter
for successive periods of three months unless Urban or SKVA gives 30 days'
notice of termination prior to the end of any such three-month period. To date,
no such notice has been provided. Accordingly, the final cash collateral order
shall remain in effect at least until September 30, 1996. Under the cash
collateral order, the escrow agreement SKVA and Urban entered into pursuant to
the settlement of SKVA's lawsuit against Urban remains in effect. Under the
escrow agreement, HSC makes affiliation payments due Urban under its affiliation
agreement with HSC into an escrow account. The escrow agents thereafter disburse
the proceeds to SKVA in an amount equal to the loan payment due SKVA from Urban,
and any remaining proceeds are disbursed to Urban. As of August 1,
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996, Urban is current on its loan payment obligations and the remaining
principal balance is $7.3 million. On June 24, 1996, the Court approved the
disclosure statements of both Urban and the Official Committee of Unsecured
Creditors. A hearing on confirmation of both plans of reorganization has been
scheduled for September 5-6, 1996.
NOTE D -- SUBSEQUENT EVENTS
On August 13, 1996, the Company was informed that Liberty had assigned the
option relating to 2,000,000 shares of the Company's Class B Common Stock to SMC
and that SMC had exercised such option (see Note A -- Organization and
Distribution). As a result of this exercise, Mr. Speer no longer indirectly
controls the Company, and the Company is controlled by SMC.
On August 13, 1996, the Company entered into an Amendment to the merger
agreement entered into as of November 27, 1995 among the Company, Savoy Pictures
Entertainment, Inc. and a subsidiary of the Company. See Item 5 in this Form
10-Q for additional information concerning the terms and the status of the
Merger.
NOTE E -- RESTRUCTURING
In 1995, the Company accrued $2.0 million in restructuring charges (the
"Restructuring"), which related to termination benefits (including severance and
out placement assistance) and $.1 million for the estimated charge to relocate
the corporate headquarters to Los Angeles, California. The total number of
employees to be terminated related to this Restructuring is 95. The actual
termination benefits paid and charged against the accrual as of June 30, 1996
are approximately $1.6 million. There were no adjustments to the original $2.0
million accrual for the Restructuring during the transition period.
NOTE F -- RECLASSIFICATIONS
Certain amounts in the Company's balance sheet have been reclassified to
reflect more recent information than was available when the transition Form 10-Q
for the period ended December 31, 1995 was filed.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
A. RESULTS OF OPERATIONS
The following is a discussion of material changes in the consolidated
results of operations of Silver King Communications, Inc. and its subsidiaries
("SKC" when referring to the parent company alone, but when referring to SKC
and/or one or more of its direct or indirect wholly-owned subsidiaries, the
"Company") which occurred in the three and six months ended June 30, 1996
compared to the three and six months ended June 30, 1995. The Company's primary
business is the operation of 12 independent full-power television stations which
primarily broadcast Home Shopping Club ("HSC") retail sales programming.
THREE AND SIX MONTHS ENDED JUNE 30, 1996 VS. THREE AND SIX MONTHS ENDED JUNE 30,
1995
The operations and financial position of the Company will not be indicative
of future financial results or conditions if one or both of the Savoy and HSN
transactions discussed in Note A of the financial statements is consummated.
NET REVENUE
Net revenue decreased $.6 million to $10.9 million in the three months
ended June 30, 1996 from $11.5 million in the three months ended June 30, 1995.
Net revenue decreased $.8 million to $22 million in the six months ended June
30, 1996 from $22.8 million in the six months ended June 30, 1995. The decrease
for both three and six months ended June 30, 1996 primarily relates to the
closing of the Denver Telemation facility in December 1995.
Each of the Company's Stations and then-owned LPTV stations entered into
Affiliation Agreements with HSC on the Distribution Date. The Company has since
entered into a Master Low Power Television Affiliation Agreement with HSC
covering all 26 of its LPTV stations. The Affiliation Agreements with the
Stations, which provide for payment to the Stations of a minimum affiliation fee
for carriage of HSC programming, are the primary source of the Company's
revenue. Station revenue can exceed the hourly affiliation fee if HSC's net
sales credited to the Stations meet certain criteria. The Affiliation
Agreements, as amended November 30, 1995, provide for the broadcast by each
Station of HSC's electronic retail sales programming for 159 hours per week and
the availability to the Stations of two and one-half minutes of broadcast time
each hour. Each Affiliation Agreement has an initial term of five years and is
renewable for two additional five-year terms at each Station's sole option. The
Affiliation Agreements are cancelable by the Stations with 18 months' written
notice prior to the end of any scheduled term. The Company and HSC have amended
the Affiliation Agreements to extend the date by which the Stations must give
notice of nonrenewal with respect to the next five-year term from June 28, 1996
until December 28, 1996. Under the Affiliation Agreements, each Station has nine
hours per week available for non-HSC programming, which are currently used for
one hour Monday through Friday and four hours each Sunday morning for the
broadcast of issue-responsive, children's, ethnic, religious and/or paid
informational programming. Additionally, under the Affiliation Agreements, the
Stations may use two and one-half minutes of each broadcast hour for advertising
inserts and public service programming. Each Station may also preempt HSC
programming for an additional three hours per week (i.e., 156 hours per year)
subject to forfeiture of twice the applicable hourly affiliation fee provided
for in such Station's Affiliation Agreement. Notwithstanding anything else to
the contrary, a Station may also preempt any amount of HSC programming for
public interest reasons and in such event, such Station will forfeit twice the
hourly affiliation fee for such preemption period.
The Station Affiliation Agreements provide for higher compensation to the
Stations if a Station's Compensation Amount, which is based upon a formula
involving HSC's net sales credited to the Station, exceeds the minimum
affiliation fee based upon that Station's hourly affiliation rate. The
determination is made on an annual basis within 30 days of each anniversary of
the Affiliation Agreements. As a result of the
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
July 2, 1993 Federal Communications Commission ruling that television stations
with home shopping formats are eligible for "must carry" status, the Company
believes that its Stations increased their viewership due to an increase in the
number of cable systems that carried the Stations. Management believes this
increased viewership, to some degree, increased the sales by HSC credited to the
Stations during calendar year 1994, resulting in a portion of the additional
affiliation fees received by the Company in January 1995. Based upon reported
HSC sales performance for calendar year 1995, the Company received $.8 million
of additional affiliation fees in January 1996 accrued in December 1995 for
sales by HSC credited to the Stations in calendar year 1995.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $.3 million to $5.9 million
in the three months ended June 30, 1996 from $5.6 million in the three months
ended June 30, 1995 and increased $.7 million to $11.8 million in the six months
ended June 30, 1996 from $11.1 million in the six months ended June 30, 1995.
The Company recognized for the three and six months ended June 30, 1996
approximately $.9 million and $1.8 million, respectively of charges under the
terms of the Equity and Bonus Compensation Agreement (the "Agreement") between
the Company and its Chairman, Barry Diller. The increase in compensation for the
three months and six months ended June 30, 1996 was offset by decreases of $.8
million and $1.6 million, respectively in payroll expenses due to the
Restructuring which took place in December 1995. The remaining increase for the
three and six months ended June 30, 1996 is primarily due to additional
consulting and legal expenses associated with the terms of the Agreement. The
Company has recently hired certain experienced broadcast executives which will
increase general and administrative expenses in future periods.
In the event one or both of the Savoy Merger and the acquisition of certain
shares of the capital stock of HSN are not consummated, transaction costs of
approximately $4.0 million will be charged to operations and will increase
general and administrative expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased $.3 million to $3.4 million in the
three months ended June 30, 1996 from $3.7 million in the three months ended
June 30, 1995 and decreased $.5 million to $6.9 million in the six months ended
June 30, 1996 from $7.4 million in the six months ended June 30, 1995. The
decrease for the three and six months ended June 30, 1996 was primarily due to
the closure of the Denver Telemation facility in December 1995. The Company sold
many of the assets of Telemation thereby decreasing the depreciation expense for
the first six months of 1996.
OTHER INCOME (EXPENSE)
Other expense increased $.8 million to $1.4 million in the three months
ended June 30, 1996 from $.6 million in the three months ended June 30, 1995 and
increased $.4 million to $3.1 million in the six months ended June 30, 1996 from
$2.7 million in the six months ended June 30, 1995. The increases for the three
and six months ended June 30, 1996 are principally a result of the recognition
in the prior year of additional interest income in May 1995 related to the
settlement of the Company's lawsuit against Urban Broadcasting Corporation
("Urban") as discussed in Note C of the financial statements which offset
interest expense.
INCOME TAXES
The Company's effective tax rate for periods presented differed from the
statutory rate due primarily to the amortization of goodwill and other acquired
intangible assets relating to acquisitions from prior years, other nondeductible
items, and state income taxes.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
State taxes are more significant than federal taxes for the Company as some
of the Company's subsidiaries generate taxable income while others generate net
operating losses. For federal tax purposes, the net operating losses offset the
taxable income as the corporations file a consolidated federal tax return.
B. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $6.4 million as of June 30, 1996,
compared with working capital of $7.6 million as of December 31, 1995.
The Company historically has generated sufficient cash flow to fund its
operating, investing and financing activities.
The Company has used its internally generated cash flow for investing
activities to fund capital expenditures and investments in television
broadcasting companies controlled by FCC-recognized minority groups. During the
quarter ended June 30, 1996, the Company had capital expenditures of
approximately $.3 million. The Company expects to fund additional expenditures
of approximately $.7 million during the 1996 calender year, although the Company
has no contractual commitments with any parties.
The Company has used its internally generated cash flow for financing
activities to service principal obligations under its Credit Agreement with
Chemical Bank and other named Lenders (the "Bank Group"). During the six months
ended June 30, 1996, the Company paid approximately $6.1 million of principal
obligations to the Bank Group and expects to pay approximately $8.6 million
during the remainder of 1996, including a mandatory prepayment as a result of
the sale of the corporate headquarters building. Under certain conditions, the
Company's Borrowing Group, which consists of all Company entities with the
exception of SKC, Silver King Investment Holdings, Inc., Thames Acquisition
Corp. (which will be merged into Savoy if such transaction is consummated) and
SKC Investments, Inc., is required to fund mandatory principal prepayments in
advance of scheduled principal payments to the Bank Group. The Borrowing Group
may at any time fund optional principal prepayments in satisfaction of mandatory
principal prepayments or in advance of scheduled principal payments to the Bank
Group.
Based on current projections, the Company expects that all operating,
investing and financing activities for calendar year 1996 will be met from
either internally generated cash flow or available cash. However, in the event
that these projections are not met, the Borrowing Group has a revolving credit
facility available from the Bank Group of $15.0 million.
On, June 26, 1996, the Company sold its corporate headquarters building in
St. Petersburg, Florida for $2.3 million, net of expenses, all of which was held
in a cash collateral account for purposes of the mandatory prepayment to the
Bank Group. The Company recorded a gain on the sale of the building of
approximately $.2 million.
On April 26, 1996, an entity in which the Company holds a 49% nonvoting
common stock interest consummated the acquisition of Station KPST-TV, Vallejo,
California which serves the San Francisco market. SKC Investments, Inc., a
subsidiary of the Company, loaned the purchasing entity $7.9 million on similar
terms to other loans of this nature to finance the acquisition. On August 1,
1996, the Company funded an additional $.7 million and may fund an additional
$.3 million for construction of a new studio.
On May 8, 1996, the Company received a prepayment of approximately $1.4
million in full satisfaction of the note receivable from RBC. The Company still
retains a 45% nonvoting convertible common stock interest in RBC. In addition,
during the six months ended June 30, 1996, collections from other notes
receivable were $1.1 million.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. OTHER SIGNIFICANT MATTERS
The Company has an option to purchase a 45% nonvoting common stock interest
in Station WJYS(TV), Hammond, Indiana, serving the Chicago, Illinois television
market. In a Memorandum Opinion and Order and Notice of Apparent Liability
released June 14, 1996, the FCC ruled that, consistent with FCC regulations and
policies, the Company may exercise that portion of the option which will provide
it with a 33% nonvoting common stock interest in Station WJYS(TV). The Company
has a loan agreement with the station licensee and the FCC also required that
certain aspects of the loan documents between the licensee of WJYS(TV) and the
Company be reformed. The licensee of WJYS(TV) has filed a petition with the FCC
requesting clarification as to whether the agency intended to rewrite the option
to permit a partial exercise and argues that if it did so intend, the FCC lacked
the authority to do so. The Company has opposed that petition.
In a Memorandum Opinion issued May 14, 1996, the U.S. Court of Appeals for
the Ninth Circuit refused to enforce an order of the National Labor Relations
Board certifying the National Association of Broadcast Employees and Technicians
as the collective bargaining agent of the employees of the Company's Ontario,
California broadcast and Telemation facilities.
The Company and HSC entered into a Master Low Power Television Affiliation
Agreement as of May 1, 1996 covering all of the Company's LPTV stations. The
Company will be paid up to $550,000 annually under the agreement.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Part I, Item 1. Financial Statements. Note C -- Litigation
ITEM 5. OTHER INFORMATION.
On August 13, 1996, the Company, Savoy and Thames Acquisition Corp. ("Sub")
entered into an Amendment ("Amendment No. 2") to the Merger Agreement.
Pursuant to, and subject to the terms and conditions of, the Merger
Agreement as amended by Amendment No. 2, each issued and outstanding share of
Common Stock of Savoy ("Savoy Common Stock"), other than shares owned by the
Company, Sub or any other wholly owned subsidiary of the Company, will be, upon
consummation of the Merger, converted into the right to receive 0.14 of a fully
paid and nonassessable share of common stock, $.01 par value per share, of the
Company ("Company Common Stock"). Pursuant to Amendment No. 2, the Company and
Savoy agreed to reduce the exchange ratio from 0.20 to 0.14 of a share of the
Company Common Stock for each share of Savoy Common Stock in light of, among
other things, the recent performance of Savoy's four television stations. No
fractional shares of Company Common Stock will be issued upon consummation of
the Merger; in lieu thereof, a cash payment will be made.
The Boards of Directors of the Company and Savoy each have, by a unanimous
vote of those directors voting, approved Amendment No. 2 and recommended that
the Company's and Savoy's stockholders, respectively, vote in favor of the
Merger Agreement, as amended, and the transactions contemplated thereby.
In addition, Amendment No. 2 extended to December 31, 1996 (subject to
extension in certain circumstances) the date after which the Merger Agreement
may be terminated by either the Company or Savoy.
The foregoing description of the Merger Agreement, as amended, is qualified
in its entirety by reference to the text of the Merger Agreement and Amendment
No. 2. The text of the Merger Agreement (which was filed as Exhibit 3.2 to the
Company's Form 8-K dated November 27, 1995) and Amendment No. 2 (which is
attached hereto as Exhibit 2.1) is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2.1 Amendment No. 2 to the Agreement and Plan of Merger, dated as of August 13, 1996
among Savoy Pictures Entertainment, Inc, Silver King Communications, Inc and
Thames Acquisition Corp.
10.1 Waiver, dated as of December 14, 1995, to the Credit Agreement by and between the
Company and Chemical Bank and other participating lenders.
10.2 Second Amendment and Waiver, dated as of June 6, 1996, to the Credit Agreement by
and between the Company and Chemical Bank and other participating lenders.
10.3 Agreement, dated as of June 6, 1996, by and between SKC Investments, Inc. and
Chemical Bank.
10.4 Master Low Power Television Affiliation Agreement, dated as of May 1, 1996, by and
between the Company and Home Shopping Club, Inc.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 2, 1996 providing its
audited consolidated financial statements for the four-month transition period
ended December 31, 1995 together with an independent auditors' report with
respect to such statements.
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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.
SILVER KING COMMUNICATIONS, INC.
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(Registrant)
Date: August 14, 1996
/s/ JAMES J. MILLER
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James J. Miller
Acting Chief Financial Officer
Vice President and Controller
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