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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 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)
520 BROADWAY, SANTA MONICA, CA 90401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 434-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
COMMON STOCK, CLASS A,
$ .01 PAR VALUE
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
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates at March 25,
2001 was approximately $30,000,000.
The number of shares of common stock outstanding at March 25, 2001 was:
5,384,506 Class A Shares and 31,612,716 Class B Shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
report.
LIBERTY LIVEWIRE CORPORATION
- --------------------------------------------------------------------------------
Annual Report on Form 10-K
December 31, 2000
TABLE OF CONTENTS
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Page
Part I
Item 1 -Business 2
Item 2 -Properties 14
Item 3 -Legal Proceedings 15
Item 4 -Submission of Matters to a Vote of
Security Holders 15
Part II
Item 5 -Market for the Registrant's Common
Stock and Related Stockholder Matters 16
Item 6 -Selected Financial Data 18
Item 7 -Management's Discussion and Analysis
of Financial Condition and
Results of Operations 19
Item 8 -Financial Statements and
Supplementary Data 24
Item 9 -Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 24
Part III
Item 10 - Directors and Executive Officers
of the Registrant 25
Item 11 -Executive Compensation 27
Item 12 -Security Ownership of Certain
Beneficial Owners and Management 27
Item 13 -Certain Relationships and Related
Transactions 27
Part IV
Item 14 -Exhibits, Financial Statement Schedule
and Reports on Form 8-K 28
Signatures 29
Exhibit Index 30
Index to Financial Statements
and Schedule 33
PART I
ITEM 1. BUSINESS
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
CHANGE IN CONTROL
On June 9, 2000, the stockholders of the registrant, then known as "The Todd-AO
Corporation" ("Todd-AO"), approved a series of transactions including:
o a reclassification of the existing common stock of the registrant,
o the merger of the registrant and B-Group Merger Corp., with the
registrant surviving, and related merger proposals (collectively, the
"Todd Merger"),
o certain post-merger business combinations set forth in an Agreement
between the registrant and Liberty Media Corporation, dated as of
February 11, 2000, and
o the change of the registrant's name to Liberty Livewire Corporation
("Livewire" or the "Company").
The Todd Merger and related transactions were provided for in an Agreement and
Plan of Merger dated December 10, 1999, as amended March 6, 2000, among the
registrant, Liberty Media Corporation, B-Group Merger Corp. and AT&T Corp. (the
"Todd Merger Agreement").
Through the Todd Merger and related reclassification, which occurred
simultaneously, each issued and outstanding share of Common Stock of the
registrant ("Old Common Stock") was converted into the right to receive 0.4 of a
share of the Company's new Class A Common Stock ("Class A Common Stock") and 0.5
of a share of AT&T Corp.'s Class A Liberty Media Group tracking stock. As a
result, Liberty Media acquired 60% of the outstanding equity (representing
approximately 94% of the voting power) of Todd-AO.
Liberty Media is an indirect wholly owned subsidiary of AT&T. It's former
parent, Tele-Communications, Inc ("TCI"), was acquired by AT&T by merger in
March 1999. Liberty Media and its subsidiaries constitute substantially all of
the businesses and assets of Liberty Media Group. Liberty Media Group Class A
("LMGA") and Class B ("LMGB") Common Stock are tracking stocks of AT&T that are
intended to reflect the economic performance of the Liberty Media Group.
On August 10, 2000, the Board of Directors of Livewire approved the change of
the Company's fiscal year end from August 31 to December 31.
OVERVIEW AND GENERAL DEVELOPMENT OF BUSINESS
Livewire was incorporated in Delaware in 1952.
Livewire is the world's leading independent provider of technical and creative
services to the entertainment industry. We provide audio and video
post-production, transmission, library services, Internet hosting, and
audio/video distribution services via satellite and fiber for the major
television producers, motion picture studios, cable and broadcast networks,
advertising agencies, and other entertainment content companies. We also provide
interactive television services. Our services integrate and apply a variety of
systems and processes to enhance the creation and distribution of entertainment
content.
Livewire is the result of the combination of certain key companies with long
standing track records and respected brand names offering "cradle-to-grave"
services. Livewire is under the direction of a management team that has
extensive experience in running worldwide operations in both traditional and new
media Content Preparation (post-production sound and visual effects), Content
Management (film, tape, and digital libraries), as well as Content Distribution
(freight, fiber, satellite, and Internet) services.
Equipped with the latest technologies and staffed with talented professionals
and artists, the Company offers film and television producers, directors and
studios, as well as television advertisers effective solutions to their creative
needs. The Company's technology outsourcing solutions offer clients low
operating costs, improved response time
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and reliability, access to new technology and high standards of quality
recognized by the international technical community.
The Company was created through the following transactions:
On April 7, 2000, Liberty Media acquired 100% of Four Media Company's ("4MC")
issued and outstanding common stock.
On June 9, 2000, Liberty Media acquired 60% of the outstanding equity
(representing approximately 94% of the voting power) of the registrant through
the Todd Merger, a stock transaction valued at $109 million. On the same day,
Liberty Media contributed all of the issued and outstanding shares of 4MC to
Livewire in exchange for Livewire Class B Common Stock valued at $279.7 million.
In July 2000, Liberty Media acquired certain assets of SounDelux Entertainment
Group of Delaware, Inc. ("SounDelux") through a single-member limited liability
company for $90 million in cash. Liberty Media then contributed ownership of the
LLC to Livewire in exchange for new Livewire Class B Common Stock valued at $90
million. The registrant's Class B Common Stock and Class A Common Stock are
identical, except that the Class B Common Stock has ten votes per share and is
convertible into Class A Common Stock at any time at the option of the holder.
In July 2000, Livewire acquired privately held Triumph Communications Group
("Triumph") in a combined cash and stock transaction valued at $50.3 million.
In August 2000, Livewire acquired all of the outstanding shares of Soho Group
Limited ("Soho") through a wholly owned subsidiary for approximately $27.2
million in cash and assumed debt.
In October 2000 Livewire acquired all of the outstanding shares of Visiontext
Limited ("Visiontext") for (pound)3.7 million ($5.4 million) in cash.
On July 25, 2000, Liberty, Livewire, AT&T and a wholly owned subsidiary of AT&T
signed a merger agreement with Video Services Corporation ("VSC") to acquire all
of the outstanding capital stock of VSC in a cash and stock transaction valued
at approximately $110 million. On December 22, 2000, in accordance with that
agreement, AT&T acquired and immediately transferred to Liberty, 100% of the
outstanding capital stock of VSC.
On December 22, 2000, pursuant to a Contribution Agreement, Liberty contributed
to Livewire 100% of the outstanding capital stock of VSC. Livewire financed the
contribution and acquisition of VSC with a convertible note in the principal
amount of approximately $93 million issued under a First Amended and Restated
Credit Agreement with Liberty (the "Liberty Subordinated Credit Agreement") and
with funds provided by Livewire's institutional lenders.
On February 1, 2001, Livewire acquired substantially all the assets of the
business unit known as "Group W Network Services" ("GWNS") from Viacom, Inc. and
certain affiliates of Viacom, for $116.5 million in cash and assumed debt,
subject to a post-closing working capital adjustment. Livewire financed the
acquisition of Group W Network Services primarily with a convertible loan under
the Liberty Subordinated Credit Agreement and borrowings from Livewire's
institutional lenders.
Please see part II, item 5, of this report for a description of the convertible
notes issued under the Liberty Subordinated Credit Agreement.
BUSINESS SEGMENTS
Livewire's facilities and operating companies are generally grouped by function
into one of the Company's three principal business segments: Content
Preparation, Content Management, and Content Distribution. This delineation
allows each operation to focus on its particular client base, while maximizing
business synergies, client relationships and cross-selling opportunities.
Please see the financial statements included in this report for certain summary
financial information regarding the Company broken down by business segment and
geographical (U.S./non-U.S.) area.
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CONTENT PREPARATION SEGMENT
The Audio Services, Entertainment Television and Commercial Television Divisions
provide the technical and creative services that are necessary to conform
original film or video principal photography into a final product suitable for
the public, or traditional "post-production" services. These services
principally include creating music and sound effects, and visual effects. The
Company utilizes state-of-the-art facilities and equipment to digitally create
or manipulate sounds and images in high-resolution formats for integration into
feature films and television commercials.
AUDIO SERVICES DIVISION
Livewire is the leading independent provider of sound services to the industry
for theatrical feature films, television series, television specials,
movies-of-the-week, trailers, commercials and new media. Facilities are located
in Los Angeles, New York, Atlanta, London and Spain.
Livewire's services begin with sound design and full-service music supervision:
script breakdown and budgeting, music pre-recording, music acquisition and
clearance, on-camera music supervision, overseas recording, score production and
song placement. Feature film and television producers utilize Livewire's
state-of-the-art studio facilities and highly skilled, award winning sound
engineers for music recording, sound editing and enhancement, mixing of music,
sound effects, and dialogue and narration. A number of ancillary services derive
from these core activities, including sound effects editing, film-to-tape and
tape-to-tape transfers and duplication, automated dialogue replacement, live
recorded sound effects, equipment rental, edit room rental and sale of film and
tape stock.
The major Livewire brand names for Audio Services are Todd-AO and SounDelux.
The Todd-AO Studios brand name has contributed to the artistry and success of
many significant film and television projects. Nineteen films mixed at the
Todd-AO Studios have won Academy Awards-Registered Trademark- and television
projects have won 21 Emmys. Livewire's staff has also been the recipient of
numerous technical awards from both the Motion Picture and Television
Academies.
Todd-AO Studios consists of 23 re-recording stages (many of which accommodate
both film and videotape formats), 11 ADR/Foley recording stages, a full
complement of digital sound editorial suites and a state-of-the-art music
scoring stage. Support services include complete film and tape transfer rooms,
an audio/video layback suite, fiber optic tie lines to transmit and receive
audio and video signals worldwide, music prelay services, editorial rental rooms
and production offices.
The SounDelux Hollywood brand name has been among those at the forefront of the
motion picture sound design and sound editing industry for over 17 years.
Operations include sound mixing and sound editing services, music editing, temp
scoring for feature films and music supervision, studio facilities with 5
feature film dubbing studios, one large scoring studio and various other smaller
mixing stages.
In additional facilities in Burbank and Santa Monica, California, Livewire
edits and creates sound effects, assists in replacing dialog and re-records
all the audio elements for integration with film and video elements. Dialog
replacement is sometimes required to improve quality, replace lost dialog or
eliminate extraneous noise from the original recording. Re-recording combines
sound effects, dialog, music and laughter or applause to complete the final
product. In addition, the re-recording process enhances the listening
experience by adding specialized sound treatments, such as stereo,
Dolby-Registered Trademark- SR-Registered Trademark- and
Surroundsound-Registered Trademark-. Livewire's Burbank facility has four
studios devoted to situation comedies and one-hour dramas. The Burbank
facility also has two theater-sized re-recording stages targeted to the
feature film and made-for-television movie markets. The Santa Monica facility
has eleven studios, which primarily serve the sound needs of commercial
advertising, music videos and certain home video applications.
ENTERTAINMENT TELEVISION & COMMERCIAL TELEVISION DIVISIONS
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Livewire provides producers of original television programming and television
commercials with technical and creative services that are necessary to conform
original film or video principal photography into a final product suitable for
airing on television. These services include developing negatives, creating
music and sound effects; and creating visual effects. The Company's film and
animation unit provides creators of special visual effects with services
required to digitally create or manipulate images in high-resolution formats for
integration in feature films and television commercials. Principal video
services include film-to-video transfer ("telecine"), mastering and duplication
of professional videotape formats, film processing, videotape editing, audio
post production, visual effects and graphics, broadcast standards conversion,
closed caption/subtitling, product evaluation-quality assurance and
vaulting/storage.
The Entertainment Television Division includes the major brand names of Encore,
Hollywood Digital, RIOT (a hybrid facility serving special commercial projects
and select feature films) and Digital Symphony (which will continue as
Livewire's editorial equipment rental business) and is located in Hollywood,
Burbank and Santa Monica.
Major Livewire brand names in the Commercial Television Division include Co3,
FilmCore, Method, 525, Manhattan Transfer, and Hollywood Digital West with
locations in Santa Monica, New York City and San Francisco.
DESCRIPTION OF SERVICES
NEGATIVE DEVELOPING: Because of the creative freedom, high-resolution image
quality and flexibility attained by working with film, the majority of prime
time network and first run syndicated television programming originates on film.
The camera original negative shot during each production day, called "dailies,"
for a one-hour drama, situation comedy or movie-of-the-week are delivered to
Livewire's film laboratory for overnight development. Livewire's film laboratory
specializes in negative developing for television applications.
TRANSFER AND DIGITAL FORMATTING SERVICES: Livewire accepts developed negatives
from a laboratory and transfers the film to videotape. The transfer process
enables the customer to view a videotape of the previous day's work and begin
the creative process of editing. The transfer process is technically
challenging, and is used to integrate various forms of audio and encode with
feet and frame numbers from the original film. The Company also converts film
into various digital formats suitable for distribution through multiple mediums
including Digital Versatile Disk (DVD). Livewire believes its state-of-the-art
technology and highly skilled talent allows the Company to produce the highest
quality results attainable in the industry today.
OFF-LINE EDITING: Livewire delivers low-resolution digital images to the
customer for processing by various non-linear editing workstations. Using the
Company's systems, the customer determines a program's content and creates an
edit decision list, which will eventually be used to assemble the source
material into a final product suitable for broadcast. Livewire provides and
fully supports such editing with personnel and equipment that customers can use
either within the Company's facilities or at a designated location. In addition,
Livewire is currently enlarging the Company's communications infrastructure to
provide digital images directly from the film-to-tape transfer process to a
workstation via dedicated data lines.
VISUAL EFFECTS: Visual effects are used to enhance the viewing audience's
entertainment experience by supplementing images obtained in principal
photography with computer-generated imagery. Visual effects are typically used
to create images that cannot be created by any other cost effective means.
Livewire unit Riot, located in Santa Monica, specializes in creating visual
effects for television. Livewire generates bends, warps, morphs and 3D shapes as
well as other visual effects for customers. The Company also offers an array of
graphics and animation workstations using a variety of software to accomplish
unique effects, including 3D animation. Livewire is a leader in providing visual
effects for the television industry as evidenced by the Company's involvement in
numerous award winning series.
ASSEMBLY, FORMATTING AND DUPLICATION: Livewire implements clients' creative
decisions, including decisions regarding the integration of sound and visual
effects, to assemble the source material into its final form. Livewire's
assembly systems are among the most technologically advanced in the industry. In
addition, the Company uses sophisticated computer graphics equipment to generate
titles and character imagery and to format a given program to meet specific
network requirements, including time compression and commercial breaks. Finally,
the Company
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creates multiple master videotapes for delivery to the network for broadcast,
archival and other purposes designated by the customer.
FEATURE FILM SPECIAL VISUAL EFFECTS AND ANIMATION SERVICES: Livewire's film and
animation department offers a broad range of facilities and technical and
creative services to creators of special visual effects and animation sequences
for feature films. Livewire bundles film and animation services to lower the
effective cost of certain visual effects, improve response time and consistency
of results, and to provide customers access to new technology. Clients include
most of the major studios as well as independent visual effects supervisors
contracted by producers of feature films. The Company provides services
necessary to digitally create or manipulate images in high-resolution formats
for integration into feature films. These services include Pre-Production and
Principal Photography Consulting, Effect Design and Creation, Film Scanning and
Recording, and Color Correction, Negative Developing and Printing.
PRE-PRODUCTION AND PRINCIPAL PHOTOGRAPHY CONSULTING: Using a script provided by
the production company, Livewire provides a written outline for implementing the
effects, a time frame and a preliminary effects budget. The Company makes
recommendations on how best to realize each visual effect, taking into
consideration the complexity of the desired effect, the production schedule and
budget. Even projects that would not normally be considered a special effects
feature will make use of digital techniques to create sets, backgrounds,
lighting, crowds and similar imagery. Livewire creates a storyboard as a basis
for understanding which elements will be shot and by whom prior to principal
photography. The Company also provides visual effects supervisors to assist in
principal photography that will later be incorporated in a digital effect.
Livewire will also assemble a film crew to shoot elements that are necessary to
properly integrate a visual effect into a particular scene.
EFFECT DESIGN AND CREATION: In order to reduce costs and meet shorter release
schedules, studios are limiting the amount of time available for the effect
creation process from twelve to four months. This acceleration is often at
odds with the responsibility of the visual effects supervisor to evaluate
different alternatives before making a final selection. In order to minimize
costs, Livewire first designs effects in low (i.e., video) resolution. Once
the design is approved, the Company creates visual effects in high (i.e.,
film) resolution using powerful computers, provided by Quantel and
SGI-Registered Trademark-. Quantel products are used for high-speed digital
image creation, animation, compositing, retouching, rotoscoping, and motion
and color correction. SGI-Registered Trademark- computers use a variety of
software packages to create elaborate digital effects.
FILM SCANNING AND RECORDING: Scanning is the process of digitally formatting
principal photography so that images can be created or manipulated in a digital
workstation. Livewire digitally formats film on a film scanner and transfers the
digital information to a central file server where it can be accessed by any of
the Company's workstations. Once the effect is completed and approved by the
visual effects supervisor, a technician downloads the digital information to a
digital film recorder, which records the digital information on film. The
completed conversion can then be assembled with the film negative.
COLOR CORRECTION, NEGATIVE DEVELOPING AND PRINTING: Livewire's film laboratory
is utilized to process and print the visual effect segments for viewing in film
resolution. In preparing the final cut, it is often difficult to integrate the
effect seamlessly with the principal photography on a timely or cost efficient
basis. The Company's film laboratory offers a proprietary color correction
process designed to give the visual effects supervisor more control over the
integration of the digitally created images with the principal photography.
Livewire believes that the Company has the only visual effects operation
incorporating this film laboratory quality control feature.
CONTENT MANAGEMENT SEGMENT
The Library Services Division provides the formatting, archiving, storage and
maintenance of master copies of original film and videotape in state-of-the-art
facilities. These facilities offer a high level of security, as well as a
climate-controlled environment, in order to preserve the value and integrity of
original elements and working masters. In addition, this segment restores
damaged content, transfers / converts film to video (and vice versa), provides
audio layback and standards conversion, and professional duplication. Finally,
the segment facilitates the worldwide distribution of the content in formats
ranging from HDTV to streaming media.
Livewire's facilities for restoring and preserving damaged content, archiving,
and film laboratories are located in Burbank and London. The Company's primary
DVD mastering operations are in Santa Monica, Hollywood, Paris and London.
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DESCRIPTION OF SERVICES
STORAGE OF ORIGINAL ELEMENTS AND WORKING MASTERS: The storage and handling of
videotape and film elements requires specialized security and environmental
control procedures. Throughout the entertainment industry, it is believed that
content representing millions of dollars of future revenue is stored in
physically small units that are subject to the risk of loss resulting from
physical deterioration, natural disaster, unauthorized duplication or theft.
Livewire's archive is designed to store approximately 500,000 master videotapes
and film elements in an environment protected from temperature and humidity
variation, seismic disturbance, fire, theft and other external events. In
addition to the physical security of the archive, content owners require
frequent and regular access to their libraries. Speed and accuracy of access is
a critical value added factor. Livewire is the leading independent archive
provider and believes it is the most advanced with respect to security,
environmental control and access features.
RESTORATION OF DAMAGED CONTENT: Substantially all film elements originating
prior to 1983 have faded, degraded or have been damaged. Damaged film negative
must be restored because sub-masters produced from damaged film will generally
not meet the minimum quality standards required in domestic and foreign
broadcast markets. Livewire's technicians restore damaged film negative to
original and sometimes enhanced quality through the use of proprietary optical
and electronic equipment and techniques. Livewire is well recognized for the
ability to complete technically challenging restoration assignments.
PRESERVATION OF EXISTING FILM: In order to protect film assets from degradation,
older film is frequently converted to new archival film stock. Modern film stock
is the preferred archival medium because it has the highest image resolution of
any image storage medium and a shelf life that exceeds 100 years. Using a
proprietary process, Livewire takes the original or restored film negative and
creates a new negative. Due to technical and operational advances in the
Company's proprietary preservation process, Livewire is a leader in the
preservation of existing film content.
TRANSFERRING FILM TO VIDEO: Substantially all film content ultimately is
distributed to the home video, broadcast, cable or pay-per-view television
markets. This requires film images to be transferred to a video format. Each
frame must be color corrected and adapted to the size and aspect ratio of a
television screen in order to ensure the highest level of conformity to the
original film version. Because certain film formats require transfers with
special characteristics, it is not unusual for a motion picture to be mastered
in many different versions. Technological developments, such as the domestic
introduction of television sets with a 16 x 9 aspect ratio and the
implementation of advanced and high definition digital television systems for
terrestrial and satellite broadcasting, should contribute to the growth of the
Company's film transfer business.
CONVERTING VIDEOTAPE TO FILM: Production companies may choose to originate
their work on videotape even though the ultimate market is a theatrical
release on film. Livewire has developed a process called Transform-Registered
Trademark- which converts videotape to film. Transform-Registered Trademark-
uses advanced electronic systems to transform video pictures from all current
broadcast standards to 16mm or 35mm film. The Transform-Registered Trademark-
process is used for theatrical advertising commercials, studio promotions and
trailers, as well as theatrical length presentations including feature films,
concerts and special events.
AUDIO LAYBACK AND STANDARDS CONVERSION: Audio layback is the process of creating
duplicate videotape masters with sound tracks that are different from the
original recorded master sound track. Content owners selling their assets in
foreign markets require the replacement of dialog with voices speaking local
languages. In some cases, all of the audio elements, including dialog, sound
effects, music and laughs, must be recreated, remixed and synchronized with the
original videotape. Audio sources are premixed foreign language tracks or tracks
that contain music and effects only. The latter is used to make a final
videotape product that will be sent to a foreign country to permit addition of a
foreign dialogue track to the existing music and effects track. Livewire
attracts audio layback business by offering optimum sound quality and
synchronization of audio to picture. Standards conversion is the process of
changing the frame rate of a video signal from one video standard, such as the
United States standard (NTSC), to another, such as a European standard (PAL or
SECAM). Livewire uses advanced technologies to provide the highest quality
conversion services available.
PROFESSIONAL DUPLICATION: Professional duplication is the process of creating
sub-masters for distribution to professional end users. Master tapes are used to
make sub-masters in seven domestic and international broadcast
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standards as well as up to 22 different tape formats. In addition, videotape
content is copied for use in intermediate processes, such as editing, on-air
backup and screening, and for final delivery to cable and pay-per-view
programmers, broadcast networks, television stations, airlines, home video
duplicators and foreign distributors. Livewire's duplication facility is
technically advanced and has unique characteristics that significantly increase
equipment capacity utilization while reducing error rates and labor cost.
CONTENT DISTRIBUTION SERVICES SEGMENT
The Broadcast Services Division provides the facilities and services necessary
to assemble and distribute programming content for cable and broadcast networks
via freight, fiber, satellite and the Internet to viewers in North America,
Europe and Asia. These services principally include production, on-air
promotion, language translation, assembly, origination and distribution, fiber
transport, uplink and satellite transponder services, and video equipment
rentals.
Key services include providing production support and facilities for the timely
creation of original programming such as hosted and news segments and live
shows, providing language translation and subtitling, all the way to assembling
programming provided by the customer into a 24 hour "network" format. In
addition, the broadcast and syndication division provides facilities and
services for the delivery of syndicated television programming in the United
States and Canada and also transmits special events, sports or news segments for
insertion in third party networks. Under the Triumph name, the Company has
operations in New York that provide the majority of DirecTV's local station
backhaul service and numerous customers with MPEG2 compressed satellite channels
and fiber connectivity ranging from 1.5 Mbps (T1) to full 45 Mbps (DS3)
circuits.
Livewire has major satellite facilities in Singapore, Los Angeles, Burbank, New
York, New Jersey, Stamford, Connecticut, and London and major Internet hosting
facilities in New York and Redwood City, California, as well as
point-of-presence facilities in the top forty US markets.
DESCRIPTION OF SERVICES
PRODUCTION: Timely broadcast programming, such as live shows and news, requires
immediate and precise coordination of on-camera talent, the script, pre-recorded
videotape and graphics materials, and the broadcast schedule. Livewire operates
a state-of-the-art production studio in Stamford and Singapore with cameras,
production and audio control rooms, videotape playback and record,
multi-language prompter, computerized lighting, and dressing and makeup rooms.
The Company's Singapore facility also offers a small field crew and
live-to-satellite interview and teleconference services.
ON-AIR PROMOTION: On-screen marketing and broadcast continuity depend on on-air
promotional material to support the channel's brand identity and programming.
Livewire works with the client's writers and producers to offer a complete
on-air promotion service, including graphics, editing, voice-over record, sound
effects editing, sound mixing and music composition.
LANGUAGE TRANSLATION: Programming designed for distribution in markets other
than those for which it was originally produced is prepared for export through
language translation and either subtitling or voice dubbing. The Company
provides dubbed language versioning with an audio layback and conform service
that supports various audio and videotape formats to create original
international language-specific master videotape. Livewire's Burbank facility
also creates music and effects tracks from programming shot before an audience
to prepare television sitcoms for dialog record and international distribution.
The Company's Singapore facility supports translation, and a complete on-screen
and closed-caption subtitling facility.
ASSEMBLY: Livewire provides programming to most United States broadcast
television stations through daily satellite feeds and tape shipments. Prior to
broadcast, all material is quality control checked and may be pre-complied into
final broadcast form prior to on-air playback. Pre-compilation is performed in
Livewire's editing facilities, often using proprietary systems and software
which permit the efficient assembly of high production value visual effects. The
Company also prepares syndicated programming for distribution with commercials
and similar elements that it inserts prior to distribution. The Company uses
control procedures to ensure on-air reliability. Livewire maintains a variety of
movie and shows formatting and time compression services, which are used to
prepare programming for distribution. The Company performs commercial,
promotional, billboard, warning, logo and other integration, as well as closed
captioning for the hearing impaired and source identification encoding. The
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Company also provides to programmers the following: traffic support; affiliate
relations and station coordination; library storage of broadcast master tapes;
and a syndication program library and recycled videotape inventory.
ORIGINATION AND DISTRIBUTION: Livewire provides videotape playback and
origination to cable, pay-per-view and direct-to-home networks. The Company
accepts daily program schedules, programs, promos and advertising, and delivers
24 hours of seamless daily programming to cable affiliates and home satellite
subscribers. Livewire uses automated systems for broadcast playback, which
include systems and software. The Company also operates industry-standard
encryption and/or compression systems as needed for customer satellite
distribution. Livewire uses a customized approach to satisfy each customer's
timeliness, flexibility and reliability requirements. The Company also offers
quality control, tape storage and trafficking services. Currently, over fifty
24-hour channels are supported by the Company's facilities in Singapore, London,
Los Angeles, Burbank, New York, New Jersey and Stamford.
FIBER TRANSPORT, UPLINK AND SATELLITE TRANSPONDER SERVICES: Livewire operates
satellite earth station facilities in Singapore, Los Angeles, Burbank, New
York, New Jersey and Stamford. The Company's facilities are generally staffed
24 hours a day and may be used for both downlink and turnaround services.
From its Burbank operations, Livewire currently utilizes a transponder on the
Loral Skynet Telstar 4-Registered Trademark- satellite in support of the
Company's syndication and Canadian distribution businesses. In addition,
Livewire accesses various "satellite neighborhoods," including basic and
premium cable, broadcast syndication and direct-to-home markets. Livewire
resells transponder capacity for ad hoc and other occasional use and bundles
the Company's transponder capacity with other broadcast and syndication
services to provide a complete broadcast package at a fixed price. Teleports
are high-bandwidth communications gateways for satellite, optical fiber and
microwave transmission. Livewire's facilities offer an abundance of satellite
antennas capable of transmitting and receiving domestic feeds in both C-Band
and Ku-Band frequencies. Certain facilities also have international
transmission capabilities to both PanAmSat and Orion. Livewire, through
Waterfront operations, owns and operates two video switching facilities in
New York City with connectivity to and from Washington, D.C. These facilities
are connected via over 450 fiber lines to all major news organizations and
all New York area teleports, including Atlantic Satellite's. These facilities
also provide transportable services, including point-to-point microwave
transmission, transportable up-link and downlink transmission, and broadcast
quality teleconference services.
A.F. ASSOCIATES ("AFA") AND A.F. PRODUCTS: AFA, acquired by Livewire through the
VSC transaction, designs, builds, installs, and services advanced video systems
for the broadcast and cable television industries for professional and corporate
markets. Over 50% of AFA's business is repeat business from clients who seek
AFA's technical and engineering expertise. AFA also serves as the "in house"
engineering department for the distribution business, enabling that segment to
quickly respond to customer needs and new services
AFA's clients include the four major networks; numerous cable channels,
including Turner Entertainment, Cable News Network, Inc., CNBC, Fox News
Channel, Lifetime Television, USA Networks, Inc. and Home and Garden Cable
Network; satellite broadcasters, including DirecTV and SKY Latin America;
corporate television networks, including Merrill Lynch & Co., Inc., Pfizer, AT&T
and Toys R Us; and numerous production and post-production facilities. The
Company believes that increases in cable, direct satellite and independent
broadcasting made possible by emerging compression technologies, as well as the
migration of broadcasting standards from analog to digital, will provide
significant opportunities for AFA to expand the Company's customer base.
Projects recently completed by AFA include: new network operations facilities
for Turner Entertainment; a complete digital TV station for the PBS flagship,
WNET-13; and a major cable head end for Israel's largest cable operator, "Golden
Channels." Current projects include a new all-digital television station for
NBC-owned WTVJ-TV in Miami; a direct-to-home satellite broadcast center in
Argentina; and a major expansion of the Home and Garden cable network.
VIDEO RENTALS, INC. ("VRI"): VRI (acquired by Livewire in the VSC transaction)
rents broadcast and industrial video equipment to the broadcast and professional
video industries and provides support and maintenance for such services. VRI
specializes in network sports production. As the exclusive field shop for Fox
Sports, VRI is responsible for storing, shipping and maintaining equipment owned
by the network and used for their coverage of major sporting events, including
the National Football League and Major League Baseball. VRI also serves as a
rental agent for the rental of this equipment to third parties.
9
OTHER OPERATIONS
In addition to Divisions in the three major segments described above, Livewire
has two Divisions considered important to the Company's long-term growth
strategy.
INTERACTIVE DEVELOPMENT DIVISION
This Division serves as an incubator for Livewire's development of
interactive television. This includes the development of HyperTV-Registered
Trademark-, a joint venture with ACTV, that provides for the integration and
simulcast of television and Internet broadcasts. The product automatically
delivers compelling, interactive Web content, Web-based advertising, and
e-commerce opportunities synchronized to live or pre-recorded TV programming.
The initial target population is the estimated 44 million households in the
U.S. that have co-located personal computers and TV's, which is expected by
DataQuest to grow to 52 million households by the end of 2001.
The Company's work in interactive television is founded on what it believes are
three fundamental premises related to new media:
THE NATURE OF THE WORK:
The Internet side of interactive TV content (authoring, hosting and Internet
distribution) exactly parallels the post-production, library services and
distribution of the traditional picture and sound content services business.
THE NEEDS OF THE CREATIVE COMMUNITY:
The most artistically correct and cost-effective way to produce, archive and
distribute interactive television elements is for the material to be produced,
post-produced, archived and distributed at the same time and under the same
creative control as the traditional elements.
SOUND BUSINESS PRINCIPLES:
Livewire's clients will demand superior creative talent, cutting-edge technology
and world-class quality assurance, coupled with tight cost controls, complete
third party solutions and financial stability. This combination is best provided
by a provider, like Livewire, able to merge new-media assets with traditional
post-production services.
Building on Livewire's existing relationship with ACTV, Inc. and the
availability of internet connectivity via the AT&T IP backbone, Livewire is well
positioned to become a leading force in interactive TV as increased demand for
interactive television occurs. Similar to its core operations, Livewire will be
able to offer "cradle to grave" post-production, library and distribution
services and be able to respond to the needs of producers, programmers, studios
and networks, and advertising agencies in the interactive TV arena.
Livewire's joint venture with ACTV, "HyperTV-Registered Trademark- with
Livewire" ("HTVL") provides turnkey services for the synchronized delivery of
television and Internet content, including application hosting, web authoring
services, data management, e-commerce and other value-added services for
advertisers, television programmers, studios and networks. The venture
combines ACTV's patented convergence technologies with Livewire's worldwide
leadership position in providing creative, post-production, web hosting and
distribution services to the entertainment and advertising industries. HTVL
enables TV networks, programmers and advertisers to automatically deliver
compelling interactive Web content, Web-based advertising, e-commerce, and
community chat features that are synchronized to live or pre-recorded TV
programming. In other words, a viewer can watch video on their standard
television set while viewing synchronized web content on a co-located
computer.
For example, a user watching a rock concert on television can be "pushed" a web
stream on their computer in synch with the video, which is simultaneously
providing relevant content such as lyrics to the current song, bios of featured
band members, interactive trivia questions about the artist, an interactive link
to the band's fan club site, a recent article about the band from a music
magazine, or e-commerce applications such as opportunities to purchase related
merchandise like a CD, DVD or apparel. During a commercial break in the program,
an advertisement for a new car can be enhanced by simultaneously delivering
information from the car company's Web site or the site of a local dealership
where users receive more information that complements the video.
This approach supports analog or digital television from any source, cable, DBS,
over-the-air broadcast or DVD - literally any video that can be displayed on any
TV set. There is no need for the subscriber or network programmer to upgrade
existing infrastructure in order to enjoy the experience today. There is no
additional hardware, chip or
10
platform dependency. The approach operates on any of today's computers, with any
of the major operating systems. The user need only have their PC in reasonable
proximity to their TV set. On first use, the subscriber registers online and
downloads the ACTV software plug-in. Once installed, the subscriber logs on
through their normal ISP, goes to a web site offering the service, and enjoys
their new interactive television experience.
HTVL has been successful in attracting some of the industry's highest profile
companies interested in providing convergence programming. In 2000, The Box
Music Network, an MTV Networks company, began using HyperTV-Registered
Trademark- to power BOX FUSION (http://www.boxfusion.com), the first and only
fully programmed interactive, enhanced TV convergence service available
nationwide 24-hours-a-day. Showtime Online has also used HTVL to enhance
airings of Showtime Networks' original series, STARGATE SG-1. The TBS
Superstation also used HTVL on its Wednesday night lineup including WCW
THUNDER and RIPLEY'S BELIEVE IT OR NOT.
These services are currently in their embryonic stage and this division is
intended to be the incubator for the infrastructure for Livewire's development
of interactive television and HTVL. Subsequently, the activities will be tightly
integrated into the Content Preparation, Content Library Management and Content
Distribution Segments
EUROPEAN/U.K. DIVISION
The Company maintains a separate management structure for its European/United
Kingdom operations because of the size and scope of these activities. However,
the various operations in the U.K. are also grouped according to function and
client base and are tightly linked to the Company's major domestic operating
segments. For example, SVC, Rushes, and Soho 601 serve commercial television
clients almost exclusively, while the other facilities serve producers and
distributors of entertainment television programming.
INDUSTRY OVERVIEW
ENTERTAINMENT SERVICES INDUSTRY
The entertainment services industry has historically been highly fragmented,
with a variety of traditional services performed piecemeal by numerous small
companies, each specializing in a unique aspect of the process, as well as the
more vertically and horizontally integrated motion picture studios. The industry
principally serves the filmed entertainment industry (motion pictures,
television programming and commercials, and interactive multimedia content).
Services provided by the industry facilitate the distribution of that content
through theatrical exhibition, home video, pay and basic cable television,
Internet and other channels.
Livewire's businesses benefit from the volume of content being created and
distributed rather than the success or popularity of individual content. The
following trends in the entertainment industry are expected to continue to
contribute and have a positive impact on Livewire's businesses.
o Increased worldwide demand for original entertainment content o The
development of new business opportunities for existing content
libraries
o Proliferation of new distribution channels (I.E., cable and DBS and
Internet)
o Wider application of digital technologies to content manipulation and
distribution
o Increased outsourcing of technical and creative post-production services o
Increased demand for innovation and creative quality
The wider applications of digital technologies to content enhancement and
distribution have also increased the demand for technical and creative
post-production services for a given volume of content. Changes in broadcast
technology, such as digital programming, have led to the emergence of new format
standards. This is positive for the post-production industry because a program
may require several post-production services such as reediting, remixing sound
and dubbing for international distribution, and in multiple broadcast standards.
For instance, the development of the THX, DTS and SDDS sound standards have
added formats for which separate master elements are required.
Additionally, the vast libraries of the major U.S. film and television companies
are an ongoing source of programming. For use in a digital environment, these
libraries must be re-mastered, augmented, restored, re-colored, converted and
reformatted. In addition, the new digital environment has contributed to the
lack of
11
uniformity in worldwide television standards (PAL and NTSC), thus creating the
need for post production-generated masters in unique formats.
Globally, the demand for entertainment content and products, and thus the need
for the associated technical and creative services offered by Livewire, is
expanding significantly. At the same time, the pace of technological change is
accelerating. As a result, the industry is faced with the challenge of providing
uniform, high quality services in an increasingly complex mix of product
formats, broadcast standards, geographic locations, languages and cultures.
Film and television studios are finding that because post-production, library
management and distribution are not their primary focus, they are better served
by outsourcing these services. Livewire expects that it will continue to benefit
from the trend towards outsourcing, particularly as a result of its increasing
ability to provide customers with an end-to-end technology outsourcing solution.
In addition, Livewire believes that growth in entertainment content shifts even
higher to meet demand, thus driving the need for post-production services;
Livewire is well positioned to experience internal growth across all of the
Company's divisions. Furthermore, Livewire's business expects to continue to
benefit from the trend towards outsourcing, particularly as the Company examines
further acquisition opportunities that reinforce the Company's ability to
provide customers with a beginning-to-end technology outsourcing solution.
MOTION PICTURE PRODUCTION AND DISTRIBUTION INDUSTRY
The domestic motion picture industry encompasses the production, distribution
and exhibition of feature-length motion pictures, including their distribution
in home video, broadcast and cable television and other ancillary businesses.
While the domestic motion picture industry continues to be dominated by the
major studios (Paramount Pictures, Sony Pictures Corporation, Twentieth Century
Fox, Universal Pictures, The Walt Disney Company, and Warner Bros.), independent
production companies also play an important role in the production of motion
pictures for domestic and international feature film markets
TELEVISION PRODUCTION AND DISTRIBUTION INDUSTRY
The North American television production and distribution industry serves the
largest broadcast customer base in the world, with a population of approximately
285 million and more than 102 million television households. In North America,
programming is delivered to television households via conventional broadcast
networks, cable channels, individual television stations and satellite delivery
systems. Broadcast television networks in the United States penetrate over 98.2%
of domestic households and provide access to a broad-based mass audience for
television advertisers. Spending for television advertising drives the
production of new programming and the sale of existing archival content
libraries. While the networks have seen an erosion of their penetration and
reduced advertising revenues, the basic cable networks have increased
penetration, programming and advertising revenues.
The significant increase in international demand for entertainment content has
further driven the need for new and re-purposed content. Over the last decade,
the privatization of broadcasting systems outside the United States, the
proliferation of broadcast licenses, and the introduction of sophisticated
delivery technologies, such as cable and satellite transmission systems, have
led to the explosive growth of broadcasting and cable television markets outside
North America.
European television is the most visible example of the growth in programming
outlets. Germany and France have each added six broadcast networks and the
United Kingdom has added four. The introduction of new television broadcast
systems is just beginning in Asia and Eastern Europe. Most foreign broadcasters
require both local programming to satisfy the local content requirements and
popular international programming, largely produced in the U.S. In fact, recent
growth in international revenue for filmed entertainment produced in the U.S.
has far exceeded growth in North American revenues, with international revenues
now accounting for nearly 50% of total revenue.
12
BROADBAND PRODUCTION AND DISTRIBUTION INDUSTRY
The interactive multimedia industry encompasses video games, "edutainment" and
on-line interactive services, as well as rudimentary interactive offerings over
digital cable systems (usually on a test basis in the U.S.), where operators
have upgraded plants for two-way communications and deployed advanced set-top
boxes. Technological improvements increased availability and less costly
communication bandwidth (including internet, cable modems, and direct satellite
access), the proliferation of channels for the distribution of entertainment
products and services, and the involvement of large entertainment companies,
will provide critical mass to support the growth of broadband distribution of
entertainment content. The Company expects online advertising spending to
reflect anticipated increases in online penetration of worldwide households and
advances in online commerce.
The content currently being created for online access integrates various forms
of media including live action video, animation, graphics and audio. The Company
anticipates that there will ultimately be increased demand for content
specifically formulated for interactive applications both for Internet and
television distribution. Rapid growth of the broadband production and
distribution industry will positively impact the Company, specifically in the
areas of video compression, digitization, 2D and 3D graphics, and authoring,
particularly for server-based content on-demand services.
CUSTOMERS
On a consolidated basis, the ten largest customers accounted for approximately
25% of Livewire's total revenue. No single customer is responsible for more than
4% of the Company's total revenue.
Livewire's customer base for the content preparation segment is composed of the
major domestic film studios and broadcast networks that are engaged in the
production of original programming, as well as a large number of independent
production companies servicing theatrical releases, home video, cable, pay
television, syndication, network, satellite, multimedia and advertising markets.
The ten largest customers in the content preparation segment are responsible for
approximately 23% of its total revenue. No single customer is responsible for
more than 5% of the combined revenue for the segment.
The content management segment's customer base includes the major domestic
studios (and their international divisions) as well as independent owners of
television and film libraries. The ten largest customers in the content
management segment are responsible for approximately 66% of its total revenue.
The Walt Disney Company and its affiliated companies represent approximately 21%
and MGM represents approximately 12% of the total revenue for the segment
The content distribution segment's customer base includes broadcast and cable
television networks, local television channels, broadcast syndicators, satellite
broadcasters and corporate television networks as well as production and
post-production facilities and mobile truck operators. The ten largest customers
in the content distribution segment are responsible for approximately 76% of its
total revenue. DirecTV, MTV, and TVN are responsible for approximately 22%, 19%,
and 18%, respectively, of the total revenue for the segment.
In Europe, the ten largest customers represent approximately 29% of the
division's total revenue. No single customer is responsible for more than 8% of
the total revenue.
COMPETITION
Although the entertainment services industry is highly fragmented, it is highly
competitive in each of Livewire's business segments. Much of the competition is
centered in Los Angeles, the largest and most competitive location, particularly
for domestic television and feature film production, as well as for content
libraries.
Some existing and potential service providers, particularly those who perform
services in-house (such as the major film studios), have substantially greater
financial, technical, creative, marketing and other resources than Livewire.
These companies likewise could devote substantially greater resources to the
development and marketing of new competitive services. Conversely, Livewire also
actively competes with certain industry participants who may be smaller but have
a unique operating niche or specialty business. Livewire expects that overall
competition will increase as a result of industry consolidations and alliances,
as well as the emergence of new competitors.
13
However, the Company believes that it is unique among independent providers in
terms of the breadth of operating divisions and the depth of service offerings
within each business segment. Livewire's recognized and well-respected brand
names, cost efficiencies and economies of scale, and its ability to offer an
end-to-end technology outsourcing solution in each of its principal business
segments will allow the Company's service offerings to be competitive with both
in-house operations and with independent specialty service providers.
REGULATION
The Livewire companies hold FCC licenses, authorizations and registrations
required for the conduct of their business(es), including various classes of
wireless licenses and an authorization to provide certain services pursuant to
Section 214 of the Communications Act. Most of the FCC licenses held by the
Livewire companies are for transmit/receive earth stations, which cannot be
operated without individual licenses. The licenses for these stations are
granted for a period of ten years and generally are renewed routinely. However,
there can be no assurance that the Company's licenses will be renewed at their
expiration dates. No FCC license is required for receiving transmissions from
domestic satellites from points within the United States. Livewire relies on
third party licenses or authorizations when the Company transmits domestic
satellite traffic through earth stations operated by third parties.
The FCC also establishes technical standards for satellite transmission
equipment that change from time to time and requires coordination of earth
stations with land-based microwave systems at certain frequencies to assure
non-interference. Transmission equipment must also be installed and operated in
a manner that avoids exposing humans to harmful levels of radio-frequency
radiation. The placement of earth stations or other antennae is typically
subject to regulation under local zoning ordinances.
EMPLOYEES
Livewire employs approximately 3,500 employees, some on a project-by-project
basis. We have employment agreements with approximately 200 of our key
management, creative and technical personnel. Some of Livewire's creative and
technical personnel are subject to a collective bargaining agreement with the
International Association of Theatrical and Stage Employees. We have never
experienced a work stoppage and we consider our relations with our employees to
be satisfactory.
PRINCIPAL STOCKHOLDER
Approximately 85.5% of the Company's outstanding shares (representing over 98%
of the voting power) are owned by Liberty Media.
ITEM 2. PROPERTIES.
The Company's current operations are conducted in various owned, leased or
licensed premises in California, various locations on the East Coast of the
United States, London, U.K., the Republic of Singapore and Mexico. The Company's
facilities are adequate to support its current and currently anticipated
business.
The Company owns approximately 520,500 square feet ("sq. ft.") of building
and parking space and we lease approximately 1 million sq. ft. of building space
worldwide.
In California, the Company owns approximately 454,000 sq. ft. of building
and parking space. The facilities are located in Los Angeles, Santa Monica and
Burbank and are used primarily for post-production services. Approximately
26,000 sq. ft. is used for parking space. We utilize approximately 558,000 sq.
ft. under lease and license agreements with terms expiring between June 2001 and
December 2010. Some of the leases have extension clauses. The leased properties
are used for post-production facilities, storage, and office space and are
located throughout the state.
On the East Cost of the U.S., the Company owns and occupies approximately
35,000 sq. ft. of building space in New York and New Jersey. The facilities are
used in its operations and for administrative offices. We lease approximately
303,400 sq. ft. in nine facilities, located in New York, New Jersey, Georgia and
Florida, under agreements terminating between December 2001 and December 2010.
Some of the leases have extension clauses.
14
Internationally, we own approximately 31,500 sq. ft. of building space in
London, U.K. that is used for post-production services and offices. We lease
approximately 155,000 sq. ft. in more than 20 locations in London under
agreements terminating between December 2001 and March 2017. One of the London
leases has a termination date of February 2063. Approximately half of the London
leases have extension clauses. The Company leases approximately 21,000 sq. ft.
in the Republic of Singapore for its broadcast and syndication operations. The
Singapore lease expires in September 2002 and has an extension clause. In
Mexico, we lease about 500 sq. ft. in Juarez for our operations. The lease
expires June 2002 and has an extension clause.
The Company also owns two undeveloped parcels of land in Killeen, Texas and
one undeveloped parcel of land in Northvale, New Jersey.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.
On June 9, 2000, in connection with the merger of the Company (then known
as "The Todd-AO Corporation") and B-Group Merger Corp. (the "Todd Merger"), the
Company amended and restated in its entirety its Certificate of Incorporation.
Under the prior Certificate of Incorporation, the Company was authorized to
issue 30,000,000 shares of Class A Common Stock ("Old Class A Stock") and
6,000,000 shares of Class B Common Stock ("Old Class B Stock"). Under the
Restated Certificate of Incorporation, the authorized common stock consists of
300,000,000 shares of Class A Common Stock and 100,000,000 shares Class B Common
Stock, as described below. The Restated Certificate of Incorporation also
authorizes up to 5,000,000 shares of preferred stock, issuable in such series as
the Board of Directors from time to time may designate. No shares of preferred
stock are issued and outstanding as of the date of this report and no such
series of preferred stock has been designated. There were approximately 238
record holders of Class A Common Stock, and one record holder of Class B Common
Stock, as of March 28, 2001. The number of holders of Class A Common Stock does
not include an indeterminate number of shareholders whose shares are held by
brokers in "street name."
OLD CLASS A STOCK AND CLASS A COMMON STOCK
The Company's Old Class A Stock was traded on the Nasdaq National Market
System under the symbol "TODDA" until June 9, 2000. Since that date, Livewire's
Class A Common Stock is traded on the Nasdaq National Market System under the
symbol "LWIRA". The following table sets forth, for the periods indicated, the
high and low sales prices for the Old Class A Stock and the current Class A
Common Stock as reported on the Nasdaq National Market.
STOCK PRICE RANGES
OLD CLASS A STOCK: CLOSE
------------------
FISCAL YEAR HIGH LOW
1999 -------- -------
>
First Quarter............................................................................ 9 1/4 5 1/2
Second Quarter........................................................................... 9 5/8 7 5/8
Third Quarter............................................................................ 8 1/2 5 13/16
Fourth Quarter........................................................................... 14 3/4 8 9/16
CALENDAR YEAR
1999
Fourth Quarter........................................................................... 36 1/4 13 1/2
2000
First Quarter............................................................................ 41 11/16 28 3/8
Second Quarter........................................................................... 40 1/8 18 1/4
CURRENT CLASS A COMMON STOCK:
2000
Second Quarter........................................................................... 71 1/2 39
Third Quarter............................................................................ 74 11/16 28
Fourth Quarter........................................................................... 31 2/7 5 3/16
The holders of Old Class A Stock were entitled to cumulative cash dividends
at an annual rate of $.045 per share before any cash dividends could be declared
or paid on the Old Class B Stock. The Company paid cash dividends of $.045 per
Old Class A Stock share for the fiscal year 1999.
The Company's Board of Directors did not declare or pay a cash dividend on
any shares of the Company's stock in the fourth quarter of fiscal year 1999 or
for any quarter thereafter.
The Transfer Agent and Registrar for the Class A Common Stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York, NY 10004.
16
OLD CLASS B STOCK AND CLASS B COMMON STOCK
A holder of shares of Class B Common Stock has special voting rights (ten
votes per share, as compared to one vote per share for holders of the Class A
Common Stock). In all other respects, the Class A Common Stock and Class B
Common Stock are substantially identical and have equal rights and privileges,
except that shares of Class B Common Stock are convertible into shares of Class
A Common Stock, on a one-to-one basis, at the option of the holder at any time.
Holders of Old Class B Stock were entitled to cash dividends equal to 90%
of the cash dividends paid on the Old Class A Stock. Dividends in the amount of
$.0405 per share of Old Class B Stock were paid for fiscal year 1999.
The Company's Board of Directors did not declare or pay a cash dividend on
any shares of the Company's stock in the fourth quarter of fiscal year 1999 or
for any quarter thereafter.
The Company acted as Transfer Agent for the Old Class B Stock.
As of December 31, 2000, 31,612,716 Class B Common Stock shares were
outstanding and owned by one shareholder, Liberty Media. The Transfer Agent and
Registrar for the Class B Common Stock is Continental Stock Transfer and Trust
Company, 2 Broadway, New York, NY 10004.
UNREGISTERED ISSUANCES OF SECURITIES
Liberty Media owns 31,612,716 shares of the Class B Common Stock, par
value $.01 per share, of the Company and subordinated convertible notes in
the aggregate principal amount of $174.5 million at March 30, 2001. Pursuant
to the amended and restated certificate of incorporation of the Company, the
Class B shares are convertible into shares of Class A Common Stock, par value
$.01 per share, at any time at the option of the holder, at a conversion
ratio of 1-to-1, as the same may be adjusted from time to time as the result
of any stock split, reverse stock split or similar event effecting the Class
A Common Stock. The notes are convertible into shares of Class B Common
Stock, at any time at the option of the holder, at a conversion price of
$10.00 per share. If not earlier converted, the notes will become due and
payable in full on June 30, 2008. Interest accrues on the notes at a rate of
10% per annum, payable quarterly either in cash, shares of Class B Common
Stock of Livewire, or a combination thereof, subject to certain limits. To
the extent interest is paid in shares of Class B Common Stock of Livewire,
such shares will be valued at 95% of the ten day trailing average closing
price per share of the Class A Common Stock of Livewire on the interest
payment date.
Liberty Media acquired these securities through the Todd Merger, including
an Amended and Restated Stock Option Fulfillment Agreement entered into in
connection therewith, and Livewire's acquisitions of 4MC, the post-production
and related businesses of SounDelux, VSC, and GWNS, each of which transactions
are described elsewhere in this report. The issuances of such securities were
not registered under the Securities Act of 1933, as amended, in reliance upon
the exemption from registration afforded by section 4(2) of that Act.
The following describes the terms of the transactions in which the above
securities were issued:
In the Todd Merger, on June 9, 2000, AT&T Corp. issued 5,501,256 shares
of Class A Liberty Media Group Common Stock, par value $1.00 per share
(taking into account a 2-for-1 stock split effected on the Liberty Media
Group tracking stock on June 9, 2000), to acquire 6,519,907 shares of
Livewire's Class B Common Stock. AT&T then contributed such shares of
Livewire Class B Common Stock to Liberty Media Corporation.
Also on June 9, 2000, Liberty Media acquired an additional 16,614,952
shares of Livewire Class B Common Stock in exchange for the contribution by
Liberty Media to Livewire of 100% of the outstanding common stock of 4MC.
On July 19, 2000, Liberty SEG Acquisition Sub, LLC, a limited liability
company of which Liberty was the sole member, acquired the post-production,
content and sound editorial businesses of SounDelux, for $90 million in cash.
Immediately following this closing, Liberty contributed 100% of its ownership
interests in that limited liability company to Livewire in exchange for
8,181,818 shares of Livewire Class B Common Stock.
17
On January 26, 2001, Livewire executed and delivered to Liberty Media a
convertible promissory note, dated December 22, 2000, in the aggregate original
principal amount of $92.5 million. This note was issued in connection with the
acquisition by Livewire of 100% of the capital stock of VSC from Liberty Media,
pursuant to the Liberty Subordinated Credit Agreement and the Contribution
Agreement between Liberty Media and Livewire dated as of December 22, 2000.
On February 1, 2001, Livewire executed and delivered to Liberty Media
Corporation a second convertible promissory note under the Liberty Subordinated
Credit Agreement, in the aggregate original principal amount of $82 million. The
proceeds of such note were used by Livewire as partial payment of the purchase
price for Livewire's acquisition of GWNS from Viacom.
In February 2001, Liberty Media and Livewire entered into an Amended and
Restated Stock Option Fulfillment Agreement dated as of June 10, 2000. Pursuant
to that agreement, Livewire has issued an aggregate of 296,039 shares of Class B
Common Stock to Liberty Media, in consideration of $5.1 million in cash paid by
Liberty Media to Livewire to help fund Livewire's purchase, on the open market,
of shares of Liberty Media Group tracking stock required by Livewire to fulfill
its obligations under certain stock options of Livewire, which became
exercisable in part for shares of Liberty Media Group tracking stock in
connection with the Todd Merger.
In addition to the securities issued to Liberty Media described above, in
July 2000, the Company issued 705,554 shares of Livewire Class A Common Stock to
Paul J. Dujardin, as partial consideration for the acquisition of Triumph. These
shares were issued without registration under the Securities Act in reliance
upon the exemption afforded by section 4(2) of that Act.
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
Seven Months | Five Months Four Months
Ended | Ended Ended
December 31,| May 31, December 31, Years Ended August 31
------------ | ------------ ------------- ----------------------------------------------
2000 | 2000 1999 1999 1998 1997 1996
----------- | ------------ ------------ ---------- ---------- ---------- ----------
|
Revenues $ 253,099 | $ 53,243 $ 43,261 $ 118,517 $ 102,614 $ 78,971 $ 62,920
- --------------------------------=========== | ============ ============ ========== ========== ========== ==========
|
Net income (Loss) $ (9,793) | $ (1,675) $ 449 $ 1,313 $ 3,419 $ 6,005 $ 4,844
=========== | ============ ============ ========== ========== ========== ==========
|
Income (loss) per Common Share- |
Basic (1) $ (.28) | $ (.16) $ .05 $ .14 $ .34 $ .63 $ .59
=========== | ============ ============ ========== ========== ========== ==========
|
Income (loss) per Common Share- |
Diluted (2) $ (.28) | $ (.16) $ .04 $ .13 $ .30 $ .59 $ .55
=========== | ============ ============ ========== ========== ========== ==========
|
Total Assets $1,175,845 | $ 159,448 $ 162,004 $ 153,180 $ 135,366 $ 103,451 $ 64,186
=========== | ============ ============ ========== ========== ========== ==========
|
|
Total Long-Term DebtObligations $ 492,573 | $ 61,210 $ 65,866 $ 65,520 $ 44,654 $ 25,430 $ 9,354
=========== | ============ ============ ========== ========== ========== ==========
Cash Dividends: |
Class A Shares $ 0 | $ 0 $ 0 $ .045 $ .06 $ .06 $ .06
=========== | ============ ============ ========== ========== ========== ==========
|
Class B Shares $ 0 | $ 0 $ 0 $ .0405 $ .054 $ .054 $ .054
=========== | ============ ============ ========== ========== ========== ==========
Weighted average share |
outstanding: |
Basic 34,463,373 | 10,768,773 9,927,077 9,570,187 9,987,429 9,539,312 8,191,065
=========== | ============ ============ ========== =========== ========== ==========
Diluted 34,463,373 | 10,768,773 10,656,340 9,832,614 11,218,051 10,207,503 8,845,321
=========== | ============ ============ ========== =========== ========== ==========
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
The following discussion and analysis provides information concerning our
results of operations and financial condition and should be read in conjunction
with the accompanying consolidated financial statements and notes. The following
discussion focuses on material trends, risks and uncertainties affecting our
results of operations and financial condition.
OVERVIEW OF BUSINESS
The Company believes that it is the world's leading independent provider of
technical and creative services to the entertainment industry. We provide audio
and video post-production, transmission, library services, Internet hosting, and
audio/video distribution services via satellite and fiber for the major
television producers, motion picture studios, cable and broadcast networks,
advertising agencies, and other entertainment content companies. We also provide
interactive television services. Our services integrate and apply a variety of
systems and processes to enhance the creation and distribution of entertainment
content.
Livewire is the result of the combination of certain key companies with
long standing track records and respected brand names offering "cradle-to-grave"
services. Key companies acquired include Todd-AO, 4MC, the sound,
post-production and certain related businesses of SounDelux, VSC, Group W
Network Services (in 2001) and other smaller niche players. Livewire is under
the direction of a management team with extensive experience in running
worldwide operations in both traditional and new media Content Preparation
(post-production sound and visual effects), Content Management (film, tape, and
digital libraries), as well as Content Distribution (freight, fiber, satellite,
and Internet) services.
EBITDA
We believe that EBITDA is an important measure of our financial
performance. "EBITDA" is defined as earnings before interest, taxes,
depreciation and amortization, excluding gains and losses on asset sales and
nonrecurring charges. Our investments in new infrastructure, machine capacity,
technology and goodwill arising from our significant acquisition activity have
produced a relatively high depreciation and amortization expense and will remain
a significant non-cash charge to earnings. EBITDA is calculated before
depreciation and amortization charges and, in businesses with significant
non-cash expenses, is widely used as a measure of cash flow available to pay
interest and repay debt, and, to the extent available after debt service and
other required uses, to make acquisitions or invest in capital equipment and new
technologies. As a result, we intend to report EBITDA as a measure of financial
performance. EBITDA does not represent cash generated from operating activities
in accordance with generally accepted accounting principles ("GAAP") and should
not be considered in isolation or as a substitute for other measures of
performance prepared in accordance with GAAP. EBITDA does not reflect that
portion of our capital expenditures that may be required to maintain our market
share, revenues and leadership position in our industry. Moreover, not all
EBITDA will be available to pay interest or repay debt. Our presentation of
EBITDA may not be comparable to similarly titled measures reported by other
companies.
RESULTS OF OPERATIONS
In the following analysis and discussion, Livewire's operations are
compared with reference to the segments as described in note 10 to the
accompanying financial statements as well as to the combination of key companies
acquired through merger and acquisitions.
The operations of Livewire prior to the acquisition and merger in June 2000
are referred to as the operations of Todd-AO (the former name of Livewire prior
to the acquisition) for the purpose of these analysis and discussion and include
only a portion of the Sound Division and a very small proportion of the
Entertainment and Commercial Television Divisions of our Content Preparation
operating segment and a small portion of our Content Management segment. In
addition, Todd-AO operations include a portion of the European operating segment
19
The year ended December 31, 2000 represents the operations of Todd-AO prior
to the acquisition and merger for the five months ended May 31, 2000 and the
combined operations of Livewire for the seven months ended December 31, 2000.
Periods prior to calendar year 2000 represent only the operations of Todd-AO.
For the purpose of the following discussion, the operating results of
Livewire for the seven months ended December 31, 2000 have been combined with
the operating results of Todd-AO for the five months ended May 31, 2000, and the
resulting annual operating results are compared to the operating results of
Todd-AO for the years ended August 31, 1999 and 1998. The operating results are
not comparable between the annual periods as the five months ended May 31, 2000
and the years ended August 31, 1999 and 1998 do not include the effects of
purchase accounting adjustments related to the Todd Merger, and the subsequent
period representing the seven months ended December 31, 2000 does include the
effects of the purchase accounting adjustments related to the Todd Merger.
The following sets forth, for the periods indicated, certain information
relating to the Company's operations expressed as a percentage of the Company's
revenues:
SEVEN MONTHS FIVE MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, MAY 31, AUGUST 31, AUGUST 31,
----------- ---------- ---------- ----------
2000 2000 1999 1998
----------- ---------- ---------- ----------
Revenues................................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating costs and other expenses....................... 86.5 85.9 83.0 81.2
SARs compensation (income) (11.7) --
Depreciation and amortization............................ 20.4 13.0 10.8 10.4
Restructuring and other charges......................... -- -- 0.7 2.7
Interest................................................. 7.6 3.1 3.1 1.8
Other (income) expense, net.............................. (0.3) 2.0 0.3 (0.6)
Total costs and expenses.............................. 102.5 104.0 97.9 95.5
----------- ---------- ---------- ----------
Income (loss) before provision for income taxes......... (2.5) (4.0) 2.1 4.5
Provision for income tax................................ 1.4 (0.8) 0.7 1.2
----------- ---------- ---------- ----------
Net income (loss) before change in
accounting principle................................ (3.9) (3.1) 1.4 3.3
Change in accounting principle, net..................... -- -- (0.3)
----------- ---------- ---------- ----------
Net income (loss)....................................... (3.9)% (3.1)% 1.1% 3.3%
=========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1999.
Revenues increased $187.8 million or 158.5% from $118.5 million to $306.3
million. Increases in Content Preparation ($107.7 million), Content Management
($25.8 million), Content Distribution ($19.8 million) and Europe Operations
($34.5 million) were primarily the result of the acquisitions of 4MC ($150.1
million), SounDelux ($14.1 million), Triumph ($9.5 million), Soho ($7.9 million)
and Visiontext ($2.5 million), which totaled $184.1 million of the increase. In
addition, Sound One, acquired by Todd-AO in June 1999 was responsible for an
increase in revenue of approximately $5 million.
Operating costs and other expenses increased $136.7 million or 139% from
$98.4 million to $235.1 million. Increases in Content Preparation ($87.5
million), Content Management ($19.3 million), Content Distribution ($18.9
million), Europe Operations ($30.4 million) and a decrease in Other Corporate
costs ($17.2 million) were primarily the result of the acquisitions described
above. In connection with the acquisition of 4MC, Liberty Media stock
appreciation rights ("SARs") were recorded by the Company. Due to a net decline
in the underlying stock price of Liberty Media, a credit adjustment of $29.6
million is reflected in Other Corporate costs for the period.
As a result of the above, EBITDA, as defined by the Company, increased
$51.1 million or 253.7% from $20.1 million to $71.2 million for the newly
combined Livewire.
20
Depreciation and amortization increased $45.6 million or 355.8% primarily
due to the equipment, goodwill and other intangibles acquired with respect to
the acquisitions and to the increase in goodwill and other intangibles
(approximately $89.5 million) as a result of the purchase accounting adjustments
made in connection with the Todd Merger.
Interest expense increased $17.2 million or 474.3% primarily due to
financing for the acquisitions and indebtedness assumed and/or refinanced in the
acquisitions.
Other expense decreased $1 million primarily due to a loss on equipment
lease commitments ($788,000) recorded by the Company in August 1999.
As a result of the above, income before taxes and net change in accounting
principles decreased $10.7 million from $2.5 million income to a $8.2 million
net loss.
Provision for income tax increased $2.4 million from $880,000 to $3.2
million. The Company's effective income tax rate for the current year is
approximately 60.2% primarily due to permanent differences of approximately $5
million arising from disallowed tax deductions for goodwill.
Net income before net change in accounting principles decreased $13.1
million from $1.6 million income to a $11.5 million net loss.
In the fiscal year ended August 31, 1999 the Company elected early adoption
of Statements of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" and reported the cumulative effect of a change in accounting
principles, as described in Accounting Principles Board Opinion No. 20, in the
amount of $293,000, net of income tax benefit in the amount of $150,000.
As a result of the election described above, net income after net change in
accounting principles decreased $12.8 million from net income of $1.3 million to
a net loss of $11.5 million.
FISCAL YEAR ENDED AUGUST 31, 1999 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1998
Revenues increased $15.9 million or 15.5% from $102.6 million to $118.5
million primarily due to the acquisitions of TeleCine in May 1998 ($14.7
million) and Sound One in June 1999 ($2.2 million) and to the formation of
Todd-AO DVD ("TAO DVD") in May 1998 to provide DVD product services to the major
Hollywood studios and others ($3.8 million). These increases were offset by
lower utilization and activity in the Company's sound services divisions ($3.9
million) and the Company's other video services divisions ($1 million).
Operating costs and other expenses increased $13.9 million or 16.7% from
$83 million to $96.9 million. Cost increases are primarily related to the
TeleCine ($11.1 million) and Sound One ($1.9 million) acquisitions and to the
formation of TAO DVD ($1.6 million). Costs in connection with the Company's
other sound and video services divisions decreased as a result of the revenue
decreases described above.
For fiscal year 1999, restructuring and other charges pertain to one of the
Company's sale/leaseback agreements that matured December 1999. As of August 31,
1999 the lease commitment amount exceeded the estimated fair value of the
equipment, as determined by an independent valuation, by approximately $788,000.
The Company recorded a pre-tax loss on equipment lease commitments in this
amount. This amount is less than a pre-tax restructuring charge of $2.8 million
recorded by the Company in the previous year to recognize the impairment of
certain assets.
Depreciation and amortization increased $2.1 million or 20.1% primarily due
to the equipment and goodwill acquired with the TeleCine and Sound One
acquisitions and to current year capital expenditures.
Interest expense increased $1.8 million or 100.2% primarily due to the
TeleCine and Sound One acquisitions financing.
Net equipment lease expense increased $1.2 million primarily as a result of
the sale/leaseback to the Company's financial institution of certain equipment
in December 1998.
21
Net other expense increased $1 million primarily due to employment
severance costs ($612,000) and a provision for post retirement benefits in
connection with Todd-AO Filmatic.
The effective income tax rate increased from 26.5% to 35.7% primarily due
to the termination of a state income tax credit program.
As a result of the above, income before taxes and net change in accounting
principles decreased $2.2 million from $4.6 million to $2.5 million and net
income before net change in accounting principles decreased $1.8 million from
$3.4 million to $1.6 million.
The Company has elected early adoption of Statements of Position No. 98-5,
"Reporting on the Costs of Start-Up Activities" and is reporting the cumulative
effect of a change in accounting principles, as described in Accounting
Principles Board Opinion No. 20, in the amount of $293,000, net of income tax
benefit in the amount of $150,000.
As a result of the election described above, net income after net change in
accounting principles decreased $2.1 million from $3.4 million to $1.3 million.
MATERIAL CHANGES IN CASH FLOWS
For the year ended December 31, 2000, the Company generated $23.4 million
in cash from operating activities compared to $13.1 million in 1999. A net loss
of $11.5 million adjusted for depreciation and amortization of $58.5 million and
for a decrease in SARs compensation provisions of $29.6 million provided cash of
$17.4 million in 2000 compared to $11.7 million in 1999 without SARs
compensation provisions. Trade receivables and other current assets increased
$7.1 million in 2000 compared to a decrease of $1.7 million in 1999. Accounts
payable and accrued expenses decreased $0.6 million in 2000 and increased $2.5
million in 1999. Cash provided by operations was utilized primarily to fund
capital expenditures and trade receivables in 2000 and in 1999.
Borrowings under the Company's credit facilities and the Liberty Media
Agreement of $477.3 million supplemented by cash generated from the exercise of
stock options of $6.1 million, proceeds from the issuance of common stock of
$7.1 million and cash acquired in the 4MC contribution of $14.1 million were
used to refinance existing debt, to pay refinancing fees and costs, to fund the
acquisitions of Triumph, Soho, Visiontext and VSC and to reinvest in capital
assets of the Company in 2000. Net borrowings from the Company's credit facility
of $34.2 million supplemented by cash generated from the exercise of stock
options of $1.1 million and cash acquired through the sale/leaseback of certain
equipment in the amount of $8.8 million were used to pay down debt, to fund the
acquisition of Sound One and to reinvest in capital assets of the Company in
1999.
OTHER BUSINESS INFORMATION
The existing collective bargaining agreement governing contracts and
agreements with members of the Writers Guild of America is due to expire on
April 30, 2001. Additionally, the existing collective bargaining agreement
governing contracts and agreements with members of the Screen Actors Guild is
set to expire on June 30, 2001. In the event that either or both of these
collective bargaining agreements is allowed to expire and a strike or strikes
occur, dependent upon the length of any such strike(s), such strike(s) could
have a materially adverse effect on the operations, cash flows and financial
position of the Company during 2001.
LIQUIDITY AND CAPITAL RESOURCES
Under a new long-term credit agreement dated December 22, 2000 with several
banks and other financial institutions, including Banc of America Securities,
LLC, as agent and a lender, Livewire may borrow up to $415 million in term and
revolving loans, subject to compliance with certain financial covenants and
other borrowing conditions. Livewire may add new lenders to the agreement (with
the consent of the current lenders) increasing the available borrowings up to an
additional $135 million ("additional commitment") for a total commitment of $550
million.
The total commitment provided under the Company's bank credit agreement is
divided into three tranches: Term loan B, term loan A and a revolving credit
facility (the "Revolver"). Term loan B has a current commitment of $58.5 million
with an additional commitment of $41.5 million available. Term loan B matures on
June 30, 2007. Principal payments begin on June 30, 2001 and are due
semi-annually from that date. Each principal installment is 0.5% of the original
principal amount with the remaining 94% due on the maturity date. Term loan A
has a current commitment of $125 million with an additional commitment of $25
million available. Term loan B must be fully
22
extended to its current commitment before the term loan A funds are received.
Term loan A matures on December 22, 2006. Principal payments begin on September
30, 2002 and are due semi-annually from that date. Principal installments range
from 2.5% of the original principal amount in the first year of installments to
21.25% at the maturity date. The Revolver has a current commitment of $231.5
million with an additional commitment of $68.5 million available. Revolver loans
are available from December 28, 2000 through December 21, 2006. The termination
date for Revolver loans is December 22, 2006. Interest for all the loans is paid
quarterly in arrears and is based on the "Alternate Base Rate" or the
"Eurodollar Rate", whichever is applicable to the loan, plus margins based on
the leverage ratio as defined in the agreement for term A and the Revolver loans
and defined margins for term B loans. The Alternate Base Rate is a daily
fluctuating rate per annum equal to the higher of the Federal Funds Rate plus
0.5% and the Prime Rate. The Eurodollar Rate is the rate per annum equal to the
average British Bankers Association Interest Settlement Rate for deposits in the
relevant currency or an alternate base, as defined in the agreement, if that
rate is unavailable. The Revolver is also subject to a commitment fee of 0.375%
to 0.5% per annum subject to the leverage ratio and based on the unused portion
of the current commitment. The loans are collateralized by substantially all of
the operating assets of the Company. Material restrictions include: the Interest
Coverage Ratio may not be less than 2.5:1 through December 31, 2003 (increasing
thereafter); the Fixed Charge Coverage Ratio may not be less than 1:1 beginning
January 1, 2002 through December 31, 2003 (increasing thereafter); Other
Indebtedness may not exceed $75 million; the Leverage Ratio is not to exceed
4.25:1 through June 30, 2002 (decreasing thereafter); Consolidated Operating
Cash Flow may not be less than $32 million. The agreement permits debt under the
First Amended and Restated Credit Agreement with Liberty Media described below
up to $310 million.
The above credit facilities are available to refinance existing debt and
for general corporate purposes, capital expenditures and acquisitions.
Management believes that funds generated from operations, the borrowings
available under the credit facility and other debt instruments will be
sufficient to meet the needs of the Company at least through the end of 2001.
Liberty Media and Livewire are parties to a First Amended and Restated
Credit Agreement dated as of December 22, 2000 (the "Liberty Agreement"),
pursuant to which Liberty Media has agreed to make subordinated convertible
loans to Livewire up to $213.6 million and not less than $145 million subject to
additional commitments under the Bank Agreement described above (the "Senior
Credit Agreement") and to the completion of proposed transactions as defined in
the agreement. Notes issued under the Liberty Agreement are convertible at the
option of the holder, at any time prior to maturity, into shares of Class B
Common Stock of Livewire at a conversion price of $10 per share. If not earlier
converted, notes issued under the Credit Agreement will become due and payable
on June 30, 2008. Interest accrues on the notes at a rate of 10% per annum,
payable quarterly either in cash, shares of Class B Common Stock of Livewire or
a combination thereof, subject to certain limits. To the extent interest is paid
in shares of Class B Common Stock of Livewire, such shares will be valued at 95%
of the ten trailing day average closing price of shares of the Class A Common
Stock of Livewire on the interest payment date.
In December 2000, Livewire used $183.5 million under term loans A and B
(the total current commitment) plus $193.5 million of the Revolver commitment
for a total of $377 million to refinance existing debt, pay off interest accrued
on the existing debt, pay fees and costs incurred in the refinancing and to fund
$9.6 million of the VSC acquisition. Livewire used $92.5 million under the
Liberty Agreement to fund the VSC acquisition.
Through August 31, 1999 Todd-AO 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 was sold and leased back. The Company exercised
its option to purchase for $5,699 the equipment leased under the transaction
that matured in December 1999. The purchase was funded by borrowings under the
credit facilities. This borrowing was not included in the refinancing of
existing debt discussed above and is payable over two years maturing in December
2002 with interest based on LIBOR rates. The equipment for the remaining two
agreements were purchased and the agreements terminated as part of the
refinancing of existing debt for a total of $13 million.
Livewire expects to incur capital expenditures of approximately $91 million
for its facilities in the next twelve months. These capital expenditures will be
financed by internally generated funds and borrowings under credit facilities.
23
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 and other 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, and the possibility of an industry-wide strike or other job action by
or affecting the Writers Guild, Screen Actors Guild or other major entertainment
industry union. 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISKS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks.
Effective December 28, 2000 the Company entered into a one-year interest
rate swap agreement with Bank of America, N.A. for a notional amount of $365
million to hedge the impact of fluctuations in interest rates on its floating
rate credit facility. Under the agreement, the Company is obligated to pay 6.03%
in exchange for receiving three-month LIBOR on the notional amount. Settlements
are quarterly and the contract expires December 28, 2001.
FOREIGN CURRENCY RISK
We do not, at present, have a policy for managing foreign exchange rate
risk beyond the utilization of local currency borrowings to fund foreign
acquisitions whenever possible.
Substantially all of our foreign transactions are denominated in foreign
currencies, including the liabilities of our foreign subsidiaries. Although our
foreign transactions are not generally subject to significant foreign exchange
transactions gains or losses, the financial statements of our foreign
subsidiaries are translated into United States dollars as part of our
consolidated financial reporting. Fluctuations in the exchange rate therefore
will affect our consolidated balance sheets and income statements. Until the
current year, the British pound and the Singapore dollar have been stable
relative to the United States dollar. However, during the year ended December
31, 2000, the British pound lost approximately 7.7% and the Singapore dollar
lost approximately 4% of their value relative to the US dollar.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 in Part IV of this 10-K Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On July 13,2000, Livewire replaced Arthur Andersen LLP as its principal
accountants and terminated the relationship following the acquisition of the
Company by Liberty Media on June 9, 2000. The Company appointed Liberty Media's
independent auditor KPMG LLP as of July 13, 2000.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item regarding Section 16(a) Beneficial
Ownership Reporting Compliance is incorporated herein by reference to the
definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2001 Annual Meeting of Stockholders.
On December 31, 2000, the executive officers and directors of the Company are as
follows:
NAME AGE POSITION WITH COMPANY
William R. Fitzgerald (1) (2) 43 Chairman of the Board and Director
David P. Beddow (1) 57 Chief Executive Officer and Director
Robert T. Walston 42 President and Chief Operating Officer and Director
Jeffrey J. Marcketta 46 Executive Vice President and Chief Financial Officer
Marcus O. Evans 51 Executive Vice President, General Counsel and Secretary
Gavin W. Schutz 47 Executive Vice President and Chief Technology Officer
William E. Niles 37 Senior Vice President and Assistant Secretary
M. David Cottrell 44 Vice President and Controller
Silas Cross 61 Vice President, Treasurer and Assistant Secretary
Robert R. Bennett (1) 42 Director
Salah M. Hassanein 79 Director
Gary S. Howard (2) 49 Director
David P. Malm (2) (3) 36 Director
Sydney Pollack (2) (3) 66 Director
Larry E. Romrell 61 Director
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
WILLIAM R. FITZGERALD was elected a Director and appointed Chairman of the Board
in August 2000. He has served as Senior Vice President of Liberty Media Group
since August 2000. Mr. Fitzgerald served as Chief Operating Officer, Operations
Administration, of TCI, from August 1999 to May 2000 and Executive Vice
President and Chief Operating Officer of TCI from March 1999 to August 1999. Mr.
Fitzgerald served as Executive Vice President and Chief Operating Officer of TCI
Communications, Inc. ("TCIC"), the domestic cable subsidiary of TCI, from
November 1998 to March 1999, served as an Executive Vice President of TCIC from
December 1997 to March 1999 and served as a Senior Vice President of TCIC from
March 1996 to December 1997. Mr. Fitzgerald was a Senior Vice President and a
Partner in Daniels & Associates, a brokerage and investment banking company,
from 1988 to 1996.
DAVID P. BEDDOW was appointed Chief Executive Officer of the Company in June
2000. Mr. Beddow most recently served as Vice President of Technology at Liberty
Media Corporation. Mr. Beddow previously served as executive vice president of
AT&T Broadband, and was an executive vice president of TCI Communications, Inc.
and president and chief executive officer of TCI's National Digital Television
Center from August 1998 through April 2000. Prior to Liberty/AT&T, Mr. Beddow
held various positions at TCI, TCI Technology Ventures, Primestar, COMSAT and
Westinghouse Broadcasting and Cable. Mr. Beddow is a director of Universal
Electronics, Inc.
ROBERT T. WALSTON was appointed President & Chief Operating Officer of the
Company in June 2000. Mr. Walton was the founder of Four Media Company and has
served as the Chairman and Chief Executive Officer of the Company since 1993.
Prior to Four Media, Mr. Walston spent ten years as a banker, investment banker
and private equity investor, working on merger and acquisition assignments and
debt and equity offerings.
JEFFREY J. MARCKETTA was appointed Executive Vice President and Chief Financial
Officer of the Company in June 2000. Mr. Marcketta served as Four Media's
President and Chief Operating Officer and has had extensive
25
experience with the entertainment industry, having spent over 10 years on a
combined basis with Panavision Inc. in a variety of senior positions, including
Executive Vice President and Chief Financial Officer of Panavision Inc.
MARCUS O. EVANS was appointed Executive Vice President and General Counsel of
the Company in June 2000. Mr. Evans previously served as Senior Vice President
and General Counsel of direct broadcast satellite (DBS) service provider
Primestar, Inc./Primestar Partners from 1991 through 1999. Previously, Mr. Evans
held a variety of senior positions with Group W Broadcasting & Cable, Inc. or
its affiliates in the cable television, television and radio industries.
GAVIN W. SCHUTZ was appointed Executive Vice President and Chief Technology
Officer of the Company in June 2000. Mr. Schutz has been with Four Media since
1993, prior to which he spent 13 years as Vice President and Director of
Engineering of Image Transform, Inc., a company Four Media acquired in 1993. Mr.
Schutz has been the principal architect of the Company's successful deployment
of digital infrastructure.
WILLIAM E. NILES was appointed Senior Vice President and Assistant Secretary of
the Company in June 2000. Mr. Niles most recently served as General Counsel and
Vice President of Business Affairs for Four Media Company from February 1998 to
April 2000, and was General Counsel and Vice President of Business Affairs for
Visualize (dba POP), a leading provider of post production and visual effects
services, from 1997 to February 1998. From 1991 to 1997, Mr. Niles practiced law
as a partner at Stein & Kahan, A Law Corporation, specializing in corporate,
transactional, and real estate law. Previously, he was an associate in the Los
Angeles office of Baker & McKenzie.
M. DAVID COTTRELL was appointed Vice President and Controller of the Company in
June 2000. Mr. Cottrell most recently served as Vice President of Administration
of Todd-AO Corporation from 1998 to June 2000. Mr. Cottrell previously served as
Executive Vice President and Chief Financial Officer for Todd-AO/Hollywood
Digital from 1993 to 1998. Prior to 1993, Mr. Cottrell served as Vice President
of Finance for The Post Group, Inc.
SILAS CROSS was appointed a Vice President of the Company in 1988. In 1995, he
was appointed Treasurer and Assistant Secretary. Mr. Cross previously served as
Assistant Treasurer of United Artists Communication, Inc ("UACI"), and has
served the Company in various capacities since 1965.
ROBERT R. BENNETT was elected a Director in June 2000. Mr. Bennett has served as
President and Chief Executive Officer of Liberty Media since April 1997 and as a
director since September 1994. Mr. Bennett also served as acting Chief Financial
Officer of Liberty Digital, Inc. from June 1997 to July 1997. Mr. Bennett served
as Executive Vice President of TCI from April 1997 to March 1999. Mr. Bennett
served as Executive Vice President, Secretary and Treasurer of Liberty Media
from June 1995 through March 1997, Chief Financial Officer from May 1996 through
March 1997, and in various executive positions since their inception in 1990.
Mr. Bennett is a director of Gemstar-TV Guide International, Inc., Liberty
Satellite & Technology, Inc., USANi LLC and Telewest Communications plc and
serves as Chairman of the Board of Liberty Digital, Inc.
SALAH M. HASSANEIN was elected a Director in 1962. From 1994 to June 2000, Mr.
Hassanein served as President and Chief Executive Officer of Todd-AO
Corporation. Prior to 1994, he was the Todd-AO Corporation's Senior Executive
Vice President. Mr. Hassanein also served as President of Warner Bros.
International Theatres Co. from 1988 to June 30, 1994. Mr. Hassanein previously
served as Executive Vice President and director of UACI and President of United
Artists Eastern Theatres, Inc. Mr. Hassanein is a principal of SMH
Entertainment, Inc. and a director of Software Technologies Corporation and
Nuesoft Technologies, Inc.
GARY S. HOWARD was elected a Director in June 2000. Mr. Howard has served as
Executive Vice President, Chief Operating Officer and director of Liberty Media
since July 1998. Mr. Howard has also served as Chairman of the Board of Liberty
Satellite & Technology, Inc. since August 2000. Mr. Howard served as Chief
Executive Officer of Liberty Satellite & Technology, Inc. from December 1996 to
April 2000. Mr. Howard also served as Executive Vice President of TCI from
December 1997 to March 1999, as Chief Executive Officer, Chairman of the Board
and a director of TV Guide, Inc. (prior to its merger with Gemstar) from June
1997 to March 1999; and as President and Chief Executive Officer of TCI Ventures
Group, LLC from December 1997 to March 1999. Mr. Howard served as President of
TCIC from October 1994 to December 1996; and as Vice President of TCIC from
December 1991 through October 1994. Mr. Howard is a director of Liberty Digital,
Inc., Liberty Satellite & Technology, Inc., Teligent, Inc. and On Command
26
DAVID P. MALM was elected a Director in 1997. He is currently a partner of
Halpern, Denny & Company, a Boston based private equity investment firm, a
director of Tealuxe, Inc., E-Z Serve/Swifty Mart Convenience Stores, Ecce Panis,
Inc., H.C. Shaw Company, and Chairman of Brown Broadcasting Service, Inc. Prior
to forming Halpern, Denny & Company in 1991, Mr. Malm was affiliated with Bain
Capital, a private equity investment firm, and Bain & Company, a corporate
strategy consulting firm. He also previously worked in the Investment Banking
Group at Morgan Stanley & Company.
SYDNEY POLLACK was elected a director in 1998. A renowned director, Mr.
Pollack's 17 films have received 46 Academy Award(R) nominations, including four
for Best Picture. His film "Out of Africa" won seven Oscars including Best
Picture anD Best Director. In addition to winning the New York Film Critics'
Award for his 1982 film "Tootsie", Mr. Pollack won the Golden Globe for Best
Director twice, the National Society of Film Critics Award, and the NATO
Director of the Year Award. Mr. Pollack formed Mirage Enterprises in 1985, which
produces motion picture feature films. He is a founding member of The Sundance
Institute, The Chairman Emeritus of The American Cinematheque, and serves on the
Board of Directors of the Film Preservation Board and The Motion Picture and
Television Fund Foundation.
LARRY E. ROMRELL was elected a director in June 2000. He has also served as a
consultant to Liberty Media since March 1999. Mr. Romrell served as Executive
Vice President of TCI from January 1994 to March 1999 and since March 1999 has
served as a consultant to AT&T Broadband. Mr. Romrell also served, from December
1997 to March 1999, as Executive Vice President and Chief Executive Officer of
TCI Business Alliance and Technology Co., a subsidiary of TCI prior to the TCI
merger that oversaw and developed TCI's technology activities; from December
1997 to March 1999, as Senior Vice President of TCI Ventures Group, LLC; and,
from September 1994 to October 1997, as President of TCI Technology Ventures,
Inc., a subsidiary of TCI prior to the TCI merger that invested in and developed
companies engaged in advancing telecommunications technology. Mr. Romrell served
as Senior Vice President of TCIC from 1991 to October 1994. Mr. Romrell is a
director of Liberty Media, and General Communication, Inc.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference
to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2001 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by reference
to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2001 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference
to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2001 Annual Meeting of Stockholders.
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) Financial Statements and Schedules are as listed in the "Index to
Financial Statements and Financial Statement Schedule" on page 33 of
this 10-K Report.
(b) (1) A report on Form 8-K was filed on January 8, 2001 and a report on
Form 8-K/A was filed on February 15, 2001 disclosing the acquisition
on December 22, 2000 of 100% of the outstanding common stock of Video
Services Corporation of Northvale, New Jersey and to disclose the
First Amended and Restated Credit Agreement dated as of December 22,
2000 between Liberty Media and the Registrant.
(2) A report on Form 8-K was filed on February 15, 2001 disclosing the
acquisition on January 5, 2001 of a 1% interest in Livewire Network
Services, LLC for cash through an Ownership Interest Purchase
Agreement and disclosing the terms of an Operating Agreement between
Livewire and Ascent Entertainment Group, Inc.
(3) A report on Form 8-K was filed on February 16, 2001 disclosing the
acquisition on February 1, 2001 of substantially all of the assets of
the business unit known as "Group W Network Services" from Viacom,
Inc. pursuant to a Purchase Agreement dated October 23, 2000.
(c) Exhibits are as listed in the Exhibit Index on page 29 of this 10-K
Report.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 28, 2001 By /s/ JEFFREY J. MARCKETTA
--------------------------------------------
Jeffrey J. Marcketta
Executive Vice President and Chief Financial Officer
and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
March 28, 2001 By /s/ WILLIAM R. FITZGERALD March 28, 2001 By /s/ DAVID P. BEDDOW
---------------------------- ----------------------
William R. Fitzgerald David P. Beddow
Chairman of the Board and Chief Executive Officer
Director and Director
March 28, 2001 By /s/ ROBERT T. WALSTON March 28, 2001 By /s/ ROBERT R. BENNETT
--------------------------- ------------------------
Robert T. Walston Robert R. Bennett
Director, President and Director
Chief Operating Officer
March 28, 2001 By /s/ SALAH M. HASSANEIN March 28, 2001 By /s/ GARY S. HOWARD
--------------------------- -----------------------
Salah M. Hassanein Gary S. Howard
Director Director
March 28, 2001 By /s/ DAVID P. MALM March 28, 2001 By /s/ SYDNEY POLLACK
--------------------------- -----------------------
David P. Malm Sydney Pollack
Director Director
March 28, 2001 By /s/ LARRY E. ROMRELL
----------------
Larry E. Romrell
Director
29
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- --------- ------------
3.1 Restated Certificate of Incorporation of Liberty Livewire Corporation
dated as of June 9, 2000 (incorporated by reference to the
registrant's Current Report on Form 8-K filed June 13, 2000).
3.2 Bylaws of Liberty Livewire Corporation dated as of June 9, 2000
(incorporated by reference to the registrant's Current Report on Form
8-K filed June 13, 2000).
4.1 Specimen stock certificate representing shares of the registrant's
Class A Common Stock (to be filed by Amendment).
9.1 Voting Agreement, dated as of December 10, 1999, among Liberty Media
Corporation and certain stockholders of the registrant (then known as
The Todd-AO Corporation) (incorporated by reference to AT&T Corp.'s
Registration Statement on Form S-4 filed May 5, 2000, registration no.
333-36458).
10.32 Agreement and Exhibits for the Purchase and Sale of Assets dated June
18, 1997 among The Todd-AO Corporation, Todd-AO HD, Inc. and Hollywood
Digital Limited Partnership, Hollywood Digital Inc., The Palladion
Limited Partnership, HDZ Digital Limited Partnership, Phemus
Corporation, Rand Gladden, William Romeo, David Cottrell and Michael
Jackson is incorporated by reference from the Registrant's Form 8-K
filed on July 7, 1997.
10.34 Recommended Offer by Astaire and Partners Limited on behalf of Todd-AO
Europe Holding Company Limited (a wholly owned subsidiary of The
Todd-AO Corporation) for the entire issued and to be issued ordinary
share capital of Tele-Cine Cell Group plc. is incorporated by
reference from the Registrant's Form 8-K filed on May 18, 1998.
10.37 Merger Agreement among The Todd-AO Corporation, Todd-AO East, Inc.,
and Sound One Corporation dated as of June 8, 1999 is incorporated by
reference from the Registrant's Form 8-K filed on June 21, 1999.
10.40 Purchase Agreement dated as of September 22, 1999 between 103 Estudio,
S.A. and Todd-AO, Espana is incorporated by reference from the
Registrant's Form 10-K filed on December 7, 1999.
10.39 Agreement and Plan of Merger dated as of December 6, 1999, by and
among AT&T Corp., D-Group Merger Corp., Liberty Media Corporation and
Four Media Corporation (incorporated by reference to AT&T Corp.'s
Registration Statement on Form S-4, filed February 11, 2000,
registration no. 333-30250, Exhibit 2.01).
30
EXHIBIT
NO. DESCRIPTION
- --------- ------------
10.41 Agreement and Plan of Merger dated as of December 10, 1999, by and
among AT&T Corp., B-Group Merger Corp., Liberty Media Corporation and
the registrant (then known as The Todd-AO Corporation) (incorporated
by reference from AT&T Corp.'s Registration Statement on Form S-4
filed May 5, 2000, registration no. 333-36458).
10.42 Amendment No. 1, dated as of March 6, 2000, to the Agreement and Plan
of Merger dated as of December 10, 1999, by and among AT&T Corp.,
B-Group Merger Corp., Liberty Media Corporation and the registrant
(then known as The Todd-AO Corporation) (incorporated by reference to
AT&T Corp.'s Registration Statement on Form S-4 filed May 5, 2000,
registration no. 333-36458).
10.43 Consulting Agreement dated December 10, 1999, between the registrant
(then known as The Todd-AO Corporation), Liberty Media Corporation,
Salah M. Hassanein, and SMH Entertainment, Inc. (incorporated by
reference to the registrant's Current Report on Form 8-K filed
December 22, 1999).
10.44 Agreement dated as of February 11, 2000, between Liberty Media
Corporation and the registrant (then known as The Todd-AO Corporation)
(incorporated by reference to AT&T Corp.'s Registration Statement on
Form S-4 filed May 5, 2000, registration no. 333-36458).
10.45 Contribution Agreement dated as of June 9, 2000, between Liberty Media
Corporation and the registrant (re: capital stock of Four Media
Corporation) (incorporated by reference to the registrant's Current
Report on Form 8-K filed August 3, 2000).
10.46 Amendment No. 1, dated July 19, 2000, between Liberty Media
Corporation and the registrant to the Contribution Agreement dated as
of February 11, 2000 (re: certain assets of SounDelux) (incorporated
by reference to Liberty Media Corporation's Schedule 13D/A filed July
26, 2000, Commission file no. 005-10246).
10.47 Asset Purchase Agreement dated as of July 19, 2000, by and among, the
registrant, Liberty SEG Acquisition Sub, LLC, SounDelux Entertainment
Group of Delaware, Inc., each of the other Sellers named therein, and
each of the shareholders of SounDelux named therein (to be filed by
Amendment).
10.48 Registration Rights Agreement dated as of July 25, 2000, between the
registrant and Paul J. Dujardin (incorporated by reference to Mr.
Dujardin's Schedule 13D filed August 4, 2000, Commission file no.
005-10246).
10.49 Agreement and Plan of Merger dated as of July 25, 2000, by and among
AT&T Corp., E-Group Merger Corp., Liberty Media Corporation and Video
Services Corporation (incorporated by reference to AT&T Corp.'s
Registration Statement on Form S-4, Amendment No. 1, filed November
17, 2000, registration no. 333-48606, Exhibit 2.01).
10.50 Contribution Agreement dated as of December 22, 2000, between Liberty
Media Corporation and the registrant (re: capital stock of VSC)
(incorporated by reference to the registrant's Current Report on Form
8-K filed January 8, 2001), Exhibit 2.
10.51 First Amended and Restated Credit Agreement dated as of December 22,
2000, between Liberty Media Corporation and the registrant (re:
subordinated convertible loans) (incorporated by reference to the
registrant's Current Report on Form 8-K filed January 8, 2001),
Exhibit 3.
10.52 Purchase Agreement dated as of October 23, 2000, by and among Viacom,
Inc., Westinghouse Electric G.m.b.H., Westinghouse CBS Holding
Company, Inc., CBS Broadcasting, Inc., the registrant and GWNS
Acquisition Sub, Inc. (incorporated by reference to the registrant's
Current Report on Form 8-K filed February 16, 2001), Exhibit 1.
31
EXHIBIT
NO. DESCRIPTION
- --------- ------------
10.53 Amendment Purchase Agreement dated as of October 23, 2000, by and
among Viacom, Inc., Westinghouse Electric G.m.b.H., Westinghouse CBS
Holding Company, Inc., CBS Broadcasting, Inc., the registrant and GWNS
Acquisition Sub, Inc. (incorporated by reference to the registrant's
Current Report on Form 8-K filed February 16, 2001), Exhibit 2.
10.54 Credit Agreement, dated as of December 22, 2000, among Liberty
Livewire Corporation, the several banks and other financial
institutions from time to time parties to the Agreement, Bank of
America, N.A., as issuer of certain letters of credit and as swingline
lender, Banc of America Securities LLC, as lead arranger and book
manager, Bank of America, N.A., as administrative agent for the
lenders , Salomon Smith Barney Inc., as syndication agent for the
lenders and the Bank of New York Company, Inc. as documentation agent
for the lenders is filed herewith.
10.55 Share Purchase Agreement for the issued and outstanding ordinary
shares of Visiontext, Limited by and between the shareholders of
Visiontext, Limited and Four Media Company (UK) Limited, a wholly
owned subsidiary of the Registrant is filed herewith.
21.1 The subsidiaries of the Registrant
Filed herewith
32
LIBERTY LIVEWIRE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
----
Independent Auditors' Report 34
Report of Independent Public Accountants 35
Consolidated Balance Sheets, December 31, 2000 and 1999 36
Consolidated Statements of Income for the Seven Months Ended December 31, 2000, the
Five Months Ended May 31, 2000, the Four Months Ended December 31, 1999, and the
Years Ended August 31, 1999 and 1998 38
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the
Years Ended August 31, 1998 and 1999, the Four Months Ended December 31, 1999, the
Five Months Ended May 31, 2000 and the Seven Months Ended December 31, 2000 39
Consolidated Statements of Cash Flows for the Seven Months Ended December 31, 2000, the
Five Months Ended May 31, 2000, the Four Months Ended December 31, 1999, and the
Years Ended August 31, 1999 and 1998 41
Notes to Consolidated Financial Statements 46
Supplemental Financial Statement Schedule:
Schedule II:
Valuation and Qualifying Accounts for the Seven Months Ended December 31, 2000, the
Five Months Ended May 31, 2000, the Four Months Ended December 31, 1999, and the
Years Ended August 31, 1999 and 1998 63
Schedules other than those listed above have been omitted because of the absence
of the conditions under which they are required or because the required
information, where material, is shown in the financial statements or the notes
thereto.
33
Independent Auditors' Report
The Board of Directors and Stockholders
Liberty Livewire Corporation:
We have audited the accompanying consolidated balance sheets of Liberty
Livewire Corporation and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for the seven months ended December 31,
2000, the five months ended May 31, 2000, and the four months ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Liberty
Livewire Corporation and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the seven months ended
December 31, 2000, the five months ended May 31, 2000, and the four months ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.
As discussed in note 1 to the consolidated financial statements, effective
June 9, 2000, Liberty Media Corporation obtained a controlling interest in
Liberty Livewire Corporation in a business combination accounted for as a
purchase. As a result of the business combination, the consolidated financial
information for the period after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and therefore, is
not comparable.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule II is presented for purposes of complying with the Securities and
Exchange Commissions' rules and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole for the seven months ended December 31, 2000, the
five months ended May 31, 2000 and the four months ended December 31, 1999.
/s/ KPMG LLP
Los Angeles, California
March 2, 2001
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Todd-AO Corporation:
We have audited the accompanying consolidated balance sheets of The Todd-AO
Corporation (a Delaware corporation) and its subsidiaries as of August 31, 1998
and 1999, and the related consolidated statements of income, stockholders'
equity and comprehensive income (loss), and cash flows for the years then ended.
These consolidated financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of The Todd-AO Corporation and
its subsidiaries as of August 31, 1998 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
September 1, 1998, the Company changed its method of accounting for the cost of
start-up activities in accordance with Statements of Position No. 98-5.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commissions' rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
November 9, 1999
35
LIBERTY LIVEWIRE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
LIVEWIRE | TODD-AO
--------------- | -------------
DECEMBER 31, | DECEMBER 31,
--------------- | -------------
2000 | 1999
--------------- | -------------
|
Current assets: |
Cash and cash equivalents ...................................................... $ 19,466 | $ 10,300
Marketable securities .......................................................... 5,414 | 416
Trade receivables (net of allowance for doubtful accounts of $ 5,567 at |
December 31, 2000 and $1,388 at December 31, 1999) .......................... 106,158 | 23,896
Income tax receivable .......................................................... -- | 675
Inventories (first-in first-out basis) ......................................... 4,932 | 786
Deferred income taxes, net ..................................................... 4,742 | 573
Prepaid deposits and other ..................................................... 16,430 | 2,925
------------ | ------------
|
Total current assets ........................................................... 157,142 | 39,571
------------ | ------------
|
Non current assets: |
Land ........................................................................... 46,145 | 4,270
Buildings and improvements ..................................................... 71,903 | 38,785
Equipment ...................................................................... 283,752 | 89,250
Construction in progress ....................................................... 220 | 2,631
------------ | ------------
Property, plant and equipment - at cost: ....................................... 402,020 | 134,936
Accumulated depreciation and amortization ...................................... (35,076) | (52,575)
------------ | ------------
|
Property, plant and equipment - net ............................................ 366,944 | 82,361
------------ | ------------
|
Investments and other non current receivables .................................. 2,445 | 3,718
|
Due from parent - net .......................................................... 7,245 | --
Goodwill (net of accumulated amortization of $16,411 at |
December 31, 2000 and $3,354 at December 31, 1999) .......................... 582,171 | 33,396
Identifiable intangible assets (net of accumulated amortization |
of $4,945 at December 31, 2000) .............................................. 49,025 | --
|
|
Other assets (net of accumulated amortization of $555 at December 31, 2000) .... 10,873 | 2,958
------------ | ------------
Total assets ................................................................... $ 1,175,845 | $ 162,004
============ | ============
See notes to consolidated financial statements
36
LIBERTY LIVEWIRE CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
LIVEWIRE | TODD-AO,
--------------- | ---------------
DECEMBER 31, | DECEMBER 31,
--------------- | ---------------
2000 | 1999
--------------- | ---------------
|
Current liabilities: |
Accounts payable .......................................................... $ 65,679 | $ 5,039
Accrued liabilities: |
Payroll and related taxes .............................................. 10,948 | 2,649
Interest ............................................................... 1,120 | 1,177
SARs compensation payable .............................................. 979 | --
Other .................................................................. 31,155 | 8,152
Current maturities of long-term debt and capital lease obligations ........ 8,545 | 4,030
Income taxes payable ...................................................... 998 | 1,097
------------ | ------------
Total current liabilities ................................................. 119,424 | 22,144
------------ | ------------
|
Long-term debt and capital lease obligations .............................. 492,573 | 65,866
Other liabilities ......................................................... 3,764 | 1,797
Deferred income taxes, net ................................................ 6,957 | 3,337
------------ | ------------
|
Total liabilities ......................................................... 622,718 | 93,144
------------ | ------------
|
Commitments and contingencies |
|
Stockholders' equity: |
Common stock: |
Class A; authorized 300,000,000 shares of $0.01 par value; |
issued 5,384,506 at December 31, 2000 and 8,951,404 at |
December 31, 1999 ...................................................... 54 | 91
Class B; authorized 100,000,000 shares of $0.01 par value; |
issued and outstanding 31,612,716 at December 31, 2000 and |
1,747,178 at December 31, 1999 ......................................... 316 | 17
Additional paid-in capital ................................................ 570,185 | 47,089
Unearned stock compensation ............................................... (273) | --
Treasury stock (shares at cost: 2,400 at December 31, 2000 and 6,000 |
at December 31, 1999) ................................................... (19) | (47)
Retained earnings ......................................................... (9,793) | 21,881
Deferred tax asset to be utilized by parent ............................... (409) | --
Accumulated other comprehensive income (loss) ............................. (6,934) | (171)
------------ | ------------
|
Total stockholders' equity ................................................ 553,127 | 68,860
------------ | ------------
|
Total ..................................................................... $ 1,175,845 | $ 162,004
============ | ============
See notes to consolidated financial statements
37
LIBERTY LIVEWIRE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIVEWIRE TODD-AO
------------ | -----------------------------------------------------------
SEVEN MONTHS | FIVE MONTHS FOUR MONTHS YEAR YEAR
ENDED | ENDED ENDED ENDED ENDED
DECEMBER 31, | MAY 31, DECEMBER 31, AUGUST 31, AUGUST 31,
------------ | ------------ ------------ ------------ ------------
2000 | 2000 1999 1999 1998
------------ | ------------ ------------ ------------ ------------
|
Revenues ....................................... $ 253,099 | $ 53,243 $ 43,261 $ 118,517 $ 102,614
------------ | ------------ ------------ ------------ ------------
Costs and expenses: |
Operating costs and other expenses ............. 218,985 | 45,723 36,347 98,384 83,279
SARs compensation expense (income) ............. (29,577) | -- -- -- --
Depreciation and amortization .................. 51,545 | 6,925 4,816 12,829 10,685
Interest ....................................... 19,132 | 1,641 1,384 3,617 1,807
Restructuring and other charges: |
Equipment ................................... -- | -- -- -- 2,414
Lease costs ................................. -- | -- -- -- 353
Loss on equipment lease commitments ......... -- | -- -- 788 --
Other (income) expense - net ................... (872) | 1,070 130 413 (573
------------ | ------------ ------------ ------------ ------------
Total costs and expenses ....................... 259,213 | 55,359 42,677 116,031 97,965
------------ | ------------ ------------ ------------ ------------
Income (loss) before provision for income |
taxes and change in accounting principle ..... (6,114) | (2,116) 584 2,486 4,649
Provision for income taxes ..................... 3,679 | (441) 135 880 1,230
------------ | ------------ ------------ ------------ ------------
Income (loss) before change in |
accounting principle ........................ (9,793) | (1,675) 449 1,606 3,419
Change in accounting principle, |
net of income taxes of $150 ................. -- | -- -- (293) --
------------ | ------------ ------------ ------------ ------------
Net income (loss) .............................. $ (9,793) | $ (1,675) $ 449 $ 1,313 $ 3,419
============ | ============ ============ ============ ============
Net income (loss) available to common |
stockholders ................................ $ (9,793) | $ (1,675) $ 449 $ 1,313 $ 3,419
Effect of dilutive securities: |
5% convertible debentures ................... -- | -- -- -- 302
------------ | ------------ ------------ ------------ ------------
Net income (loss) available to common |
stockholders) plus assumed conversions ...... $ (9,793) | $ (1,675) $ 449 $ 1,313 $ 3,721
============ | ============ ============ ============ ============
Weighted average shares outstanding - basic .... 34,463,373 | 10,768,773 9,927,077 9,570,187 9,987,429
Effect of dilutive securities: |
Stock options ............................... -- | -- 729,263 262,427 519,565
5% convertible debentures ................... -- | -- -- -- 711,057
------------ | ------------ ------------ ------------ ------------
Weighted average shares outstanding - diluted .. 34,463,373 | 10,768,773 10,656,340 9,832,614 11,218,051
============ | ============ ============ ============ ============
Net income (loss) per common share: |
Income (loss) before change in accounting |
principle-basic ............................. $ (0.28) | $ (0.16) $ 0.05 $ 0.17 $ 0.34
Change in accounting principle .............. -- | -- -- (0.03) --
------------ | ------------ ------------ ------------ ------------
Net income (loss) - basic ................... $ (0.28) | $ (0.16) $ 0.05 $ 0.14 $ 0.34
============ | ============ ============ ============ ============
Income (loss) before change in accounting |
principle-diluted ........................... $ (0.28) | $ (0.16) $ 0.04 $ 0.16 $ 0.33
Change in accounting principle .............. -- | -- -- (0.03) --
------------ | ------------ ------------ ------------ ------------
Net income (loss) - diluted ................. $ (0.28) | $ (0.16) $ 0.04 $ 0.13 $ 0.33
============ | ============ ============ ============ ============
See notes to consolidated financial statements
38
LIBERTY LIVEWIRE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED AUGUST 31, 1998 AND
1999, THE FOUR MONTHS ENDED DECEMBER
31, 1999, THE FIVE MONTHS ENDED MAY
31, 2000 AND THE SEVEN MONTHS ENDED
DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
COMMON STOCK
--------------------------------------------------
CLASS A CLASS B
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
Balance at August 31, 1997 ............. 8,290,494 $ 83 1,747,178 $ 17
Exercise of stock options .............. 98,206 1 -- --
Tax benefit from exercise
of stock options .................... -- -- -- --
Purchase of treasury shares ............ -- -- -- --
Treasury shares transfer to 401(k) ..... -- -- -- --
Shares issued for stock award .......... 50,000 -- -- --
Unrealized gain on
investment securities ............... -- -- -- --
Gain on foreign currency translation ... -- -- -- --
Cash dividends:
Class A ($.06) per share ............ -- -- -- --
Class B ($.054) per share ........... -- -- -- --
Net income ............................. -- -- -- --
---------- ---------- ---------- ----------
Balance at August 31, 1998 ............. 8,438,700 84 1,747,178 17
Exercise of stock options .............. 274,080 3 -- --
Tax benefit from exercise
of stock options .................... -- -- -- --
Purchase of treasury shares ............ -- -- -- --
Treasury shares cancelled .............. (723,447) (7) -- --
Treasury shares transfer to 401(k) ..... -- -- -- --
Shares issued as compensation .......... 135,000 2 -- --
Unrealized (loss) on
investment securities ............... -- -- -- --
(Loss) on foreign currency ............. -- -- -- --
translation
Cash dividends:
Class A ($.045) per share ........... -- -- -- --
Class B ($.0405) per share .......... -- -- -- --
Net income ............................. -- -- -- --
---------- ---------- ---------- ----------
Balance at August 31, 1999 ............. 8,124,333 $ 82 1,747,178 $ 17
========== ========== ========== ==========
ACCUMULATED
OTHER
COMPRE- COMPRE-
ADDITIONAL HENSIVE HENSIVE
PAID-IN RETAINED TREASURY INCOME INCOME
CAPITAL EARNINGS STOCK OTHER LOSS (LOSS)
---------- ---------- ---------- ---------- ---------- ----------
Balance at August 31, 1997 ............. $ 39,996 $ 17,711 $ (691) $ -- $ 263 $ 6,485
Exercise of stock options .............. 341 -- -- -- --
Tax benefit from exercise
of stock options .................... 200 -- -- -- --
Purchase of treasury shares ............ -- -- (1,857) -- --
Treasury shares transfer to 401(k) ..... -- -- 210 --
Shares issued for stock award .......... 268 -- -- -- --
Unrealized gain on
investment securities ............... -- -- -- -- 104 $ 104
Gain on foreign currency translation ... -- -- -- -- 847 847
Cash dividends:
Class A ($.06) per share ............ -- (506) -- -- --
Class B ($.054) per share ........... -- (86) -- -- --
Net income ............................. -- 3,419 -- -- -- 3,419
---------- ---------- ---------- ---------- ---------- ----------
Balance at August 31, 1998 ............. 40,805 20,538 (2,338) -- 1,214 $ 4,370
==========
Exercise of stock options .............. 1,095 -- -- -- --
Tax benefit from exercise
of stock options .................... 123 -- -- -- --
Purchase of treasury shares ............ -- -- (3,288) -- --
Treasury shares cancelled .............. (5,316) -- 5,323 -- --
Treasury shares transfer to 401(k) ..... -- -- 256 -- --
Shares issued as compensation .......... 1,180 -- -- -- --
Unrealized (loss) on
investment securities ............... -- -- -- -- (148) $ (148)
(Loss) on foreign currency ............. -- -- -- -- (1,602) (1,602)
translation
Cash dividends:
Class A ($.045) per share ........... -- (349) -- -- --
Class B ($.0405) per share .......... -- (70) -- -- --
Net income ............................. -- 1,313 -- -- -- 1,313
---------- ---------- ---------- ---------- ---------- ----------
Balance at August 31, 1999 ............. $ 37,887 $ 21,432 $ (47) $ -- $ (536) $ (437)
========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements
39
LIBERTY LIVEWIRE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED AUGUST 31, 1998 AND
1999, THE FOUR MONTHS ENDED DECEMBER
31, 1999, THE FIVE MONTHS ENDED MAY
31, 2000 AND THE SEVEN MONTHS ENDED
DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
COMMON STOCK
--------------------------------------------------------------------------
CLASS A CLASS B
---------------------------- ------------------------------------------
ADDITIONAL
PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------
Balance at August 31, 1999 ................ 8,124,333 $ 82 1,747,178 $ 17 $ 37,887
Exercise of stock options ................. 183,735 2 -- -- 1,610
Conversion of subordinated notes .......... 643,336 7 -- -- 7,592
Unrealized gain on
investment securities .................. -- -- -- -- --
Gain on foreign currency translation ...... -- -- -- -- --
Net income ................................ -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 .............. 8,951,404 91 1,747,178 17 47,089
Exercise of stock options ................. 151,318 -- -- -- 776
Unrealized gain on
investment securities .................. -- -- -- -- --
(Loss) on foreign currency ................ -- -- -- -- --
translation
Net (loss) ................................ -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at May 31, 2000 ................... 9,102,722 91 1,747,178 17 47,865
- ------------------------------------------------------------------------------------------------------------------------
Conversion of equity in Todd-AO
merger .................................... (4,772,729) (48) 4,772,729 48 91,474
Unearned stock compensation ............... -- -- -- -- (2,458)
Exercise of stock options ................. 348,959 4 296,039 3 1,413
Unrealized (loss) on
investment securities .................. -- -- -- -- --
-- -- -- --
(Loss)on foreign currency translation ..... (2,043)
Stock issued for Acquisitions ............. 705,554 7 24,796,770 248 413,973
SAR adjustments ........................... -- -- -- -- --
Contribution to Capital ................... -- -- -- -- 17,918
Net Loss .................................. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 .............. 5,384,506 $ 54 31,612,716 $ 316 $ 570,185
============ ============ ============ ============ ============
ACCUMULATED
OTHER
COMPRE- COMPRE-
HENSIVE HENSIVE
RETAINED TREASURY INCOME INCOME
EARNINGS STOCK OTHER (LOSS) (LOSS)
------------ ------------ ------------ ------------ ------------
Balance at August 31, 1999 ................ $ 21,432 $ (47) $ -- $ (536) $ (437)
=============
Exercise of stock options ................. -- -- -- --
Conversion of subordinated notes .......... -- -- -- --
Unrealized gain on
investment securities .................. -- -- -- 242 $ 242
Gain on foreign currency translation ...... -- -- -- 123 123
Net income ................................ 449 -- -- -- 449
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 .............. 21,881 (47 -- (171) $ 814
============
Exercise of stock options ................. -- -- -- --
Unrealized gain on
investment securities .................. -- -- -- 6,078 $ 6,078
(Loss) on foreign currency ................ -- -- -- (435) (435)
translation
Net (loss) ................................ (1,675 -- -- -- (1,675)
------------ ------------ ------------ ------------ ------------
Balance at May 31, 2000 ................... 20,206 (47) -- 5,472 $3,968
- --------------------------------------------------------------------------------------------------------------------------
============
Conversion of equity in Todd-AO
merger .................................... (20,206) (28) (2,858) (3,549)
Unearned stock compensation ............... -- -- 2,585 --
Exercise of stock options ................. -- -- -- --
Unrealized (loss) on
investment securities .................. -- -- -- (4,200) (4,200)
-- -- -- -- (2,043)
(Loss)on foreign currency translation .....
Stock issued for Acquisitions ............. -- -- -- (2,614)
SAR adjustments ........................... -- -- (409) --
Contribution to Capital ................... -- -- -- --
Net Loss .................................. (9,793) -- -- -- (9,793)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 2000 .............. $ (19) $ (9,793) $ (682) $ (6,934) $ (16,036)
============ ============ ============ ============ ============
See notes to consolidated financial statements.
40
LIBERTY LIVEWIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
------------ | ------------------------------------------------------------
LIVEWIRE | TODD-AO
------------ | ------------------------------------------------------------
SEVEN MONTHS | FIVE MONTHS FOUR MONTHS YEAR YEAR
ENDED | ENDED ENDED ENDED ENDED
DECEMBER 31, | MAY 31, DECEMBER 31, AUGUST 31, AUGUST 31,
------------ | ------------ ------------ ------------ ------------
2000 | 2000 1999 1999 1998
------------ | ------------ ------------ ------------ ------------
|
Cash flows from operating activities: |
Net income (loss) ............................ $ (9,793) | $ (1,675) $ 449 $ 1,313 $ 3,419
Adjustments to reconcile net income to net |
cash provided by operating activities: |
Depreciation and amortization ............. 51,545 | 6,925 4,816 12,829 10,685
Restructuring and other charges ........... -- | -- -- 788 2,767
Deferred income taxes ..................... 12,995 | 565 265 (2,695) 327
Tax benefit from exercise of stock options -- | -- -- 123 200
Amortization of unearned compensation ..... 127 | -- -- -- --
Foreign currency exchange (gain) loss ..... -- | -- 73 (718) 847
Amortization of deferred gain on |
sale/leaseback transaction ............ -- | -- (276) (2,425) (2,288)
(Gain) loss on sale of marketable |
securities and investments ............... -- | -- (391) (115) (83)
Loss (gain) on disposition of fixed assets -- | -- (4) (254) (209)
Shares issued for stock award ............. -- | -- -- -- 268
Changes in assets and liabilities (net of |
acquisitions): |
Trade receivables, net ................. (7,442) | 2,469 (5,727) 1,053 2,241
Inventories and other current assets ... (2,000) | (115) 150 645 (526)
Accounts payable and accrued |
liabilities ........................ 662 | (1,513) (400) 1,202 712
SARs compensation payable .......... (29,576) | -- -- -- --
Accrued equipment lease ................ -- | 525 (612) 231 290
Income taxes payable, net .............. 1,739 | (1,033) (1,191) 1,900 254
Other liabilities ...................... 738 | (1,695) (66) (809) (1,337)
Deferred income ........................ -- | -- 1,505 17 (603)
------------ | ------------ ------------ ------------ ------------
Net cash provided by (used in) operating |
activities ................................... 18,995 | 4,453 (1,409) 13,085 16,964
------------ | ------------ ------------ ------------ ------------
Cash flows from investing activities: |
Purchase of marketable securities and |
investments ............................... (5,093) | 1,951 (539) (283) (431)
Proceeds from sale of marketable securities |
and investments ........................... -- | -- 1,381 294 1,146
Proceeds from disposition of fixed assets .... -- | -- 23 426 416
Capital expenditures, net .................... (76,700) | (4,038) (4,316) (23,176) (24,348)
Purchase of 50% interest - 103 Estudio, S.L .. -- | -- (2,084) -- --
Cash paid for Sound One ...................... -- | -- -- (12,315) --
Cash paid for Tele-Cine Cell Group plc ....... -- | -- -- -- (15,741)
Net cash acquired in 4MC contribution ........ 14,066 | -- -- -- --
Cash paid for Triumph ........................ (8,488) | -- -- -- --
Cash paid for Soho ........................... (26,969) | -- -- -- --
Cash paid for Visiontext ..................... (2,912) | -- -- -- --
Net cash acquired in VSC acquisition ......... 696 | -- -- -- --
Other assets ................................. -- | (1,669) 932 1,791 319
------------ | ------------ ------------ ------------ ------------
Net cash flows used in investing activities .... $ (105,400) | $ (3,756) $ (4,603) $ (33,263) $ (38,639)
------------ | ------------ ------------ ------------ ------------
See notes to consolidated financial statements.
41
LIBERTY LIVEWIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(CONTINUED)
LIVEWIRE TODD-AO
------------ | -----------------------------------------------------------
SEVEN MONTHS | FIVE MONTHS FOUR MONTHS YEAR YEAR
ENDED | ENDED ENDED ENDED ENDED
DECEMBER 31, | MAY 31, DECEMBER 31, AUGUST 31, AUGUST 31,
------------ | ------------ ------------ ------------ ------------
2000 | 2000 1999 1999 1998
------------ | ------------ ------------ ------------ ------------
|
Cash flows from financing activities: |
Borrowings of long-term debt ..................... $ 476,926 | $ 400 $ 5,748 $ 34,202 $ 28,101
Payments on long-term debt and capital leases .... (385,485)| (2,669) (787) (14,423) (13,976)
Borrowings from parent, net ...................... (7,246)| -- -- -- --
Proceeds from sale/leaseback transaction ......... -- | -- -- 8,809 8,500
Cash payments for SARs exercised ................. (269)| -- -- -- --
Proceeds from exercise of stock options .......... 5,366 | 776 -- -- --
Proceeds from issuance of common stock ........... 7,053 | -- 1,612 1,098 342
Capital contribution ............................. 292 | -- -- -- --
Treasury stock purchases ......................... -- | -- -- (3,288) (1,857)
Dividends paid ................................... -- | -- -- (419) (592)
------------ | ------------ ------------ ------------ ------------
Net cash flows provided by (used in) financing |
activities: ...................................... 96,637 | (1,493) 6,573 25,979 20,518
Effect of exchange rate changes on cash .......... (203)| (67) -- (59) 27
------------ | ------------ ------------ ------------ ------------
Net increase (decrease) in cash and |
cash equivalents ................................... 10,029 | (863) 561 5,742 (1,130)
|
Cash and cash equivalents at beginning of year ..... 9,437 | 10,300 9,739 3,997 5,127
------------ | ------------ ------------ ------------ ------------
Cash and cash equivalents at end of year ........... $ 19,466 | $ 9,437 $ 10,300 $ 9,739 $ 3,997
============ | ============ ============ ============ ============
Supplemental disclosure of cash flow information: |
Cash paid during the year for: |
Interest ......................................... $ 18,583 | $ 2,689 $ 1,264 $ 3,130 $ 1,696
============ | ============ ============ ============ ============
Income taxes .................................... $ 2,406 | $ 0 $ 0 $ 753 $ 860
============ | ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:
LIVEWIRE
2000:
In June 2000 the Company acquired all of the outstanding shares of Four Media
Company from Liberty Media. In connection with the acquisition the Company
issued 16,614,952 shares of Class B Common Stock to Liberty Media.
Assets acquired:
Cash ...................................................... $ 14,066
Property, plant and equipment-net ......................... 195,680
Trade and other receivables - net ......................... 46,723
Deferred income taxes ..................................... 40,533
Inventory ................................................. 1,821
Prepaid deposits and other ................................ 4,121
Other assets - net ....................................... 7,685
Identifiable intangible assets ............................ 19,820
Goodwill - net ............................................ 270,744
Liabilities assumed:
Accounts payable and accrued liabilities - net ............ (73,194)
Long-Term debt and capital lease obligations .............. (231,922)
Deferred income taxes ........................................... (19,029)
Accumulated Foreign exchange loss ............................... 2,614
Common stock issued to Liberty Media ............................ (279,662)
------------
Cash paid in acquisition ........................................ $ 0
============
See notes to consolidated financial statements.
42
LIBERTY LIVEWIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(CONTINUED)
In July 2000, the Company acquired the post-production content and sound
editorial assets and certain of the liabilities of SounDelux Entertainment Group
of Delaware, Inc. from Liberty Media. In connection with this acquisition the
Company issued 8,181,818 shares of Class B Common Stock to Liberty Media.
Assets acquired:
Property, plant and equipment ............................. $ 6,872
Trade and other receivables - net ......................... 4,154
Inventory ................................................. 1,588
Goodwill .................................................. 70,093
Identifiable intangible assets ............................ 10,730
Other assets .............................................. 298
Liabilities assumed:
Accounts payable and accrued expenses ..................... (3,735)
Common stock issued to Liberty Media ............................ (90,000)
------------
Cash paid in acquisition ........................................ $ 0
============
In July 2000 the Company acquired substantially all of the outstanding shares of
Triumph Communications Group. In connection with the acquisition the Company
paid cash and issued 705,554 shares of Class A Common Stock.
Assets acquired:
Property, plant and equipment - net ....................... $ 2,539
Trade and other receivables - net ......................... 218
Inventory ................................................. 230
Prepaid deposits and other ................................ 439
Deferred income taxes ..................................... 40
Identifiable intangible assets ............................ 3,190
Goodwill .................................................. 53,543
Liabilities assumed:
Accounts payable and accrued liabilities - net ............ (6,809)
Long-term debt and capital lease obligations .............. (332)
Common stock issued to Triumph .................................. (44,570)
------------
Cash paid in acquisition, net of cash received .................. $ 8,488
============
In August 2000 the Company acquired substantially all of the outstanding shares
of Soho Group Limited. In connection with the acquisition the Company paid cash
as follows:
Assets acquired:
Property, plant and equipment - net ....................... $ 16,316
Trade and other receivables - net ......................... 4,470
Prepaid deposits and other ................................ 223
Goodwill .................................................. 9,391
Liabilities assumed:
Accounts payable and accrued expenses ..................... (2,583)
Long-term debt and capital lease obligations .............. (848)
------------
Cash paid in acquisition, net of cash received .................. $ 26,969
============
See notes to consolidated financial statements.
43
In October 2000 the Company acquired all of the outstanding shares of Visiontext
Limited. In connection with the acquisition the Company paid cash as follows:
Assets acquired:
Property, plant and equipment - net ....................... $ 656
Trade and other receivables - net ......................... 620
Other assets .............................................. 15
Goodwill .................................................. 4,314
Liabilities assumed:
Accounts payable and accrued liabilities - net ............ (757)
Notes issued to sellers ................................... (1,936)
------------
Cash paid in acquisition, net of cash received .................. $ 2,912
============
On December 22, 2000, the Company acquired all of the outstanding shares of
Video Services Corporation from Liberty Media in connection with the acquisition
Liberty Media contributed capital to the Company and the Company paid cash as
follows:
Assets acquired:
Property, plant and equipment - net ....................... $ 35,208
Trade and other receivables - net ......................... 21,389
Inventory ................................................. 662
Prepaid deposits and other ................................ 4,372
Deferred income taxes ..................................... 6,911
Other assets - net ........................................ 826
Identifiable intangible assets ............................ 6,090
Goodwill - net ............................................ 79,693
Liabilities assumed:
Accounts payable and accrued liabilities - net ............ (27,456)
Current maturities of long-term debt ...................... (2,435)
Long-term debt and capital lease obligations .............. (4,648)
Other Liabilities ......................................... (1,645)
Contribution to capital by Liberty Media .................. (17,626)
------------
Debt issued in acquisition, net of cash received ................ $ 101,342
============
On June 9, 2000 approximately 60% of the Company's outstanding common stock was
acquired by Liberty Media Corporation. In connection with this acquisition the
Company made the following purchase accounting adjustments:
Property, plant and equipment - net ............................. $ (11,002)
Marketable securities ........................................... (54)
Trade and other receivables - net ............................... 98
Goodwill ........................................................ 75,417
Identifiable intangible assets .................................. 14,140
Other assets- net ............................................... (23)
Accounts payable and accrued expenses ........................... (1,568)
Deferred income tax payable ..................................... (12,119)
Additional paid in capital ...................................... (91,474)
Unearned compensation ........................................... 2,858
Treasury stock .................................................. (28)
Unearned gain /loss on marketable securities .................... 4,448
Foreign exchange adjustment ..................................... (899)
Retained earnings ............................................... 20,206
------------
------------
Net ............................................................. $ 0
============
See notes to consolidated financial statements.
44
LIBERTY LIVEWIRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(CONTINUED)
TODD-AO
1999:
In June 1999 the Company acquired substantially all of the outstanding shares of
Sound One Corporation. In connection with the acquisition the Company paid cash
as follows:
Assets acquired:
Property, plant and equipment -net ........................ $ 4,069
Trade and other receivables - net ......................... 1,304
Inventory ................................................. 108
Deferred income taxes ..................................... 1,000
Other assets .............................................. 1,811
Goodwill .................................................. 7,137
Liabilities assumed:
Accounts payable and accrued liabilities - net ............ 270
Long-term debt and capital lease obligations .............. (833)
Deferred income taxes ..................................... (569)
Common stock issued as compensation ............................. (1,182)
Non-compete agreements payable to sellers ....................... (800)
------------
Cash paid in acquisition ........................................ $ 12,315
============
1998:
On May 8, 1998 the Company acquired substantially all of the outstanding shares
of Tele-Cine Cell Group plc. In connection with the acquisition the Company paid
cash as follows:
Assets acquired:
Property and equipment ...................................... $ 8,378
Trade and other receivables - net ........................... 7,755
Investments ................................................. 119
Inventory ................................................... 200
Goodwill .................................................... 10,699
Liabilities assumed:
Accounts payable and accrued liabilities - net .............. (2,888)
Bank loan ................................................... (2,638)
Equipment leases ............................................ (438)
Provision for liabilities and charges ....................... (3,239)
Long-term debt issued to sellers ................................ (2,207)
------------
Cash paid in acquisition ........................................ $ 15,741
============
See notes to consolidated financial statements.
45
LIBERTY LIVEWIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND OPTION DATA)
1. CHANGE IN CONTROL AND BASIS OF PRESENTATION
CHANGE IN CONTROL - On June 9, 2000 The Todd-AO Corporation ("Todd-AO")
stockholders approved the acquisition by Liberty Media Corporation ("Liberty
Media") of a controlling interest in Todd-AO and related merger proposals
(collectively, the "Todd Merger"), voted in favor of certain post-merger
business combinations as set forth in an Agreement between Todd-AO and Liberty
Media, dated as of February 11, 2000, and approved the change of Todd-AO's name
to Liberty Livewire Corporation ("Livewire" or the "Company"). In the Todd
Merger, 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 Livewire Common Stock and
0.5 of a share of AT&T Corp. ("AT&T") Class A Liberty Media Group tracking
stock. Liberty Media's aggregate ownership interest in the Company as of
December 31, 2000 consists of Class B Common Stock of Livewire representing
approximately 85.5% of the Company's outstanding equity, which consists of
Livewire's Class A and Class B Common Stock. All of Livewire's outstanding Class
B Common Stock is currently held by Liberty Media. This ownership gives Liberty
Media 98.3% voting control of the Company.
The consideration paid by Liberty Media in the Todd Merger, consisting of
5,501,256 shares of Liberty Media Group Class A (LMGA) stock valued at $101.5
million and conversion of vested options valued at $7.5 million, was allocated
based on the preliminary fair values of the assets and liabilities acquired with
the excess consideration of $75.4 million recorded as goodwill and $14.1 million
as identifiable intangible assets. Liberty Media is an indirect wholly owned
subsidiary of AT&T. It's former parent, Tele-Communications, Inc ("TCI"), was
acquired by AT&T by merger in March 1999. Liberty Media and its subsidiaries
constitute substantially all of the businesses and assets of Liberty Media
Group. Liberty Media Group Class A ("LMGA") and Class B ("LMGB") Common Stock
are tracking stocks of AT&T that are intended to reflect the economic
performance of the Liberty Media Group.
BASIS OF PRESENTATION - Due to the level of ownership of the Company
obtained by Liberty Media as a result of the merger as discussed above and the
contribution of Four Media Company ("4MC") as discussed in note 2, Liberty Media
has applied "push down" accounting and transferred to the Company the
preliminary fair value adjustments relating to the assets of Todd-AO at June 9,
2000. The assets and liabilities of 4MC have been recorded at Liberty Media's
historical value including preliminary fair value adjustments resulting from the
acquisition of 4MC by Liberty Media.
On August 10, 2000, the Board of Directors of Livewire approved the change
of the Company's fiscal year end from August 31 to December 31. A transition
report on Form 10-Q covering the transition period from September 1, 1999
through December 31, 1999 was filed with the Securities and Exchange Commission
on September 22, 2000.
The consolidated financial statements include the Company and its wholly
owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. The consolidated balance sheet as of December
31, 1999 and the financial statements for the five months ended May 31, 2000,
the four months ended December 31, 1999 and the years ended August 31, 1999 and
1998 represent the consolidated financial condition and results of operations of
Todd-AO before the acquisition by Liberty Media. The consolidated financial
statements for the seven months ended December 31, 2000 represent the
consolidated financial condition and results of operations of the Company after
giving effect to the Liberty Media merger. For financial statement purposes, the
acquisition by Liberty Media is deemed to have occurred on June 1, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - The Company considers investments with original
purchased maturities of three months or less to be cash equivalents.
46
MARKETABLE SECURITIES AND INVESTMENTS - Marketable securities consist
primarily of corporate preferred stocks and bonds. Management has classified all
investment securities as available-for-sale. As a result, securities are
reported at fair value with net unrealized holding gains and losses excluded
from earnings and reported in stockholders' equity. Fair value is based upon
quoted market prices using the specific identification method. Investments
include stock and other investments which management intends to hold for more
than one year.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed at straight-line rates based upon the estimated useful lives of the
various classes of assets. The principal rates are as follows: buildings, 3-5%
per annum; equipment, 10-20% per annum; leaseholds, leasehold improvements, and
lease acquisition costs over the term of the lease.
GOODWILL - Goodwill represents the excess purchase price paid over the
value of net assets acquired, and is being amortized on a straight-line basis
over useful lives of 20 years.
INTANGIBLES - Intangible assets consist of the following:
- ----------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------
(In thousands) 2000
- ----------------------------------------------------------------------------------------------
Assembled workforce $29,580
Employment agreements 10,850
Covenants not to compete 10,930
Tradenames 2,610
--------------------
53,970
Accumulated amortization (4,945)
--------------------
Intangible assets, net $ 49,025
- --------------------------------------------------------------------------====================
Intangible assets of the Company are amortized on a straight-line basis over
their estimated useful lives as follows:
Assembled workforce 5 years
Employment agreements 5 years
Covenants not to compete 3 to 5 years
Tradenames 20 years
LONG-LIVED Assets - Management continuously monitors and evaluates the
realizability of its long-lived assets, to determine whether their carrying
values have been impaired. In evaluating the value and future benefits of
long-term assets, their carrying value is compared to management's best estimate
of undiscounted future cash flows over the remaining amortization period.
Management also considers events or changes in circumstances, which indicate
that an asset may not be recoverable. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying value of the assets exceeds the estimated fair value of the assets.
As a result of the Company's recent investment in advanced digital
technologies and the acceleration in demand by the marketplace for these
advanced technologies, certain older composite digital and analogue-based
technologies have experienced a significant reduction in demand. In fiscal year
1998 the Company recorded an impairment loss based on an appraisal of this older
equipment in the amount of $2,414. In addition, a lease impairment cost of $353
was also recognized in 1998 due to the loss of a beneficial option in the
renegotiation of a building lease.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, SFAS 109 generally considers all
expected future events other than proposed changes in the tax law or rates.
FOREIGN CURRENCY TRANSLATION - The Company's foreign subsidiary's
functional currency is its local currency. Assets and liabilities of foreign
operations are translated into U.S. dollars using current exchange rates, and
revenues and expenses are translated into U.S. dollars using average exchange
rates. The effects of the foreign currency translation adjustments are deferred
and are included in stockholders' equity as a component of comprehensive income
(loss).
47
NET INCOME PER COMMON SHARE - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS"), during the
year ending August 31, 1998. Under SFAS No. 128, "Basic" EPS 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.
During a loss period the assumed exercise of in-the-money stock options has
an antidilutive effect. As a result of the loss for the five months ended May
31, 2000 and the loss for the seven months ended December 31, 2000, stock
options representing 719,739 and 332,920 shares of potential common stock,
respectively, were excluded from the calculation. Additionally, out-of-the money
options to purchase approximately 543,000 and 365,000 shares of common stock
were outstanding during fiscal years ended August 31, 1998 and 1999,
respectively. They were excluded from the computation of diluted income per
share as they would have been antidilutive. For the year ended August 31, 1999,
debentures convertible into 643,341 shares of common stock were excluded from
the computation of diluted income per share as they were antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value
because of the short-term maturity of these instruments. Notes payable are
carried at amounts approximating fair values based on current rates offered to
the Company for debt with similar collateral and maturities.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks.
Effective December 28, 2000 the Company entered into a one-year interest
rate swap agreement with Bank of America, N.A. for a notional amount of $365
million to hedge the impact of fluctuations in interest rates on its floating
rate credit facility. Under the agreement, the Company is obligated to pay 6.03%
in exchange for receiving three-month LIBOR on the notional amount. Settlements
are quarterly and the contract expires December 28, 2001.
The Company intends for this instrument to partially hedge the exposure to
variability in future cash flows by exchanging variable rate debt for fixed rate
debt, which under SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" qualifies for consideration as a cash flow hedge. Hedge
effectiveness must be measured by comparing changes in the intrinsic value of
the derivative instrument to the changes in the expected future cash flows on
the debt in order to apply hedge accounting under SFAS No. 133. To maintain
effectiveness, the cumulative change between the hedged item and the derivative
instrument must be within 80 to 125% using the cumulative dollar offset method.
The Company will evaluate the hedge effectiveness on an ongoing basis.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS - The Company's
accounts receivable are related primarily to the entertainment industry and are
unsecured.
On a consolidated basis, the Company's ten largest customers account for
approximately 25% of revenues for the seven months ended December 31, 2000. No
single customer accounted for more than 4% of revenues. The Walt Disney Company
and its affiliated companies and MGM accounted for approximately 21% and 12%,
respectively, of the total revenue for the Content Management segment of the
Company for the seven months ended December 31, 2000. DirecTV, MTV, and TVN
accounted for approximately 22%, 19%, and 18%, respectively, of the total
revenue for the Content Distribution segment of the Company for the same period.
No single customer accounted for more than 10% of the total revenue in any other
segment of the Company.
Prior to the acquisition of Todd-AO, the Walt Disney Company and its
affiliated companies was the only customer to account for more than 10% of
revenues. They accounted for approximately 16% and 15% revenues for the years
ended August 31, 1999 and 1998, respectively.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of certain assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
48
STOCK-BASED COMPENSATION - In fiscal 1998, the Company adopted the
disclosure only provision of SFAS No. 123, "Accounting for Stock-Based
Compensation". The Company continues to account for its stock compensation
arrangements using the intrinsic value method in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" including related interpretations.
CHANGE IN ACCOUNTING PRINCIPLE - The Company adopted the Statements of
Position (SOP) No. 98-5 "Reporting on the Costs of Start-Up Activities" during
fiscal year 1999. The effect of the adoption was to record an expense, net of
tax, of $293 in fiscal year 1999.
COMPREHENSIVE INCOME - In fiscal year 1999, the Company adopted Statement
of SFAS No. 130, "Reporting Comprehensive Income." This statement establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior
years' consolidated financial statements to conform with the current year's
presentation.
RECENT ISSUED ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". In
July 1999 the FASB issued SFAS No. 137, "Deferral of the Effective Date of FASB
Statement No. 133" which deferred the effective date of SFAS No. 133 to no later
than January 1, 2001 for the Company's financial statements. SFAS No. 133
requires companies to record derivatives on the balance sheet at fair value.
Changes in the fair values of those derivatives would be reported in the
earnings or other comprehensive income depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value of assets or liabilities or cash
flows from forecasted transactions. In June 2000, the FASB issued SFAS No. 138,
"Accounting For Certain Derivative Instruments and Certain Hedging Activities",
an amendment of SFAS No. 133. The Company does not believe the adoption of SFAS
No. 133 will have any effect on the Company's financial position or results of
operations.
3. ACQUISITIONS
On May 8, 1998, Todd Europe, a wholly owned United Kingdom subsidiary of
the Company, purchased substantially all of the outstanding shares of Tele-Cine
Cell Group plc. ("TeleCine"), a U.K. corporation. The purchase price of the
shares was $17,948 ((pound)11,011); $15,741 was paid in cash and $2,207 was
represented by unsecured notes bearing interest at a fixed rate of interest of
4.5% payable annually in arrears. The purchase price includes $495 paid by Todd
Europe for costs incurred in connection with the acquisition. TeleCine is a
London based facility that specializes in video post-production and special
effects providing services to the film and television industries.
TeleCine recorded against acquisition reserves equipment abandonment
charges of $1,229, severance and related payments of $205 and other charges of
$561 from the date of acquisition to August 31, 1998 and severance and related
payments of $249, lease payments for unused equipment of $481 and other charges
of $217 for the year ended August 31, 1999. During the fiscal year ended August
31, 1999, $851 of acquisition reserves no longer required was credited to
goodwill.
In June 1999, all 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.
On April 7, 2000, Liberty Media acquired 4MC for $123.3 million in cash
plus 3,182,300 shares of LMGA stock valued at $137.7 million, converted 4MC
vested options into stock appreciation rights valued at $52.9 million, and
issued a warrant valued at $7.8 million. The total consideration was allocated
based on the preliminary fair values of the assets and liabilities acquired with
the excess consideration of $270.7 million recorded as goodwill and $19.8
million as identifiable intangible assets. On May 31, 2000, 4MC acquired six
entities from the Virgin Media
49
Group Limited ("Virgin") for $39.5 million in cash. The consideration was
allocated based on the preliminary fair values of the assets and liabilities
acquired with the excess consideration of $21.1 million recorded as goodwill.
On June 9, 2000 Liberty Media contributed all of the issued and outstanding
shares of 4MC to the Company in exchange for 16,614,952 shares of the Livewire's
Class B Common Stock, valued at $279.7 million pursuant to a Contribution
Agreement between Liberty Media and the Company. The assets and liabilities of
4MC (including Virgin) were recorded based on Liberty Media's historical values
which includes the effect of Liberty Media's acquisitions of 4MC and Virgin. 4MC
provides technical and creative services to producers and distributors of
television programming, television commercials, feature films and other
entertainment content, as well as to owners of film and television libraries.
4MC's California facilities are located in Los Angeles, Culver City, Burbank and
Santa Monica. It has international facilities in Mexico City, London and
Singapore.
In July 2000 a wholly owned subsidiary of Liberty Media ("Liberty Sub"),
acquired the post-production content and sound editorial businesses of SounDelux
Entertainment Group of Delaware, Inc. ("SounDelux") for $90.0 million in cash.
Immediately following the closing of this asset purchase, Liberty Media
contributed 100% of its ownership interests in Liberty Sub to the Company in
exchange for 8,181,818 shares of Livewire's Class B Common Stock pursuant to a
previously negotiated contribution agreement between Liberty Media and Livewire.
The contribution was allocated based on the preliminary fair values of the
assets and liabilities acquired with the excess consideration of $70.1 million
recorded as goodwill and $10.7 million as identifiable intangible assets.
SounDelux provides services to the motion picture sound design and sound editing
industry and has an audio post-production business encompassing a range of sound
and music services for feature films, television, cable, advertising and new
media. Services provided include sound supervision, design and editorial, music
supervision, editorial and temporary scores and mixing, re-recording, scoring,
ADR and Foley. SounDelux's content, technology development and distribution
segment commercializes and markets its proprietary entertainment content and
technologies that include audio books, sound effects and SounDelux Microphones.
SounDelux is located in Los Angeles and San Francisco, California.
In July 2000 the Company acquired Triumph Communications Group ("Triumph")
for $5.7 million in cash and 705,554 shares of Livewire Class A common stock,
which had an aggregate market value at the time of issuance of $44.6 million.
The consideration was allocated based on the preliminary fair values of the
assets and liabilities acquired with the excess consideration of $53.5 million
recorded as goodwill and $3.2 million as identifiable intangible assets.
Triumph, located in New York City, designs, engineers and implements video
transmission services for a range of clients including cable networks,
broadcasters, news, sports, infomercials, and corporate organizations. Services
provided include fiber optic, satellite, compression system, encoding and
encryption, and IRD sales and authorization.
In August 2000 a wholly owned subsidiary of Livewire, acquired all of the
outstanding shares of Soho Group Limited ("Soho") for (pound)17.2 million ($27.2
million), which includes real property in the Soho area of London. The
consideration was allocated based on the preliminary fair values of the assets
and liabilities acquired with excess consideration of $9.4 million recorded as
goodwill. Soho is one of the oldest post-production companies in the U.K.,
providing services primarily to the commercial advertising industry. Services
include commercial editing, film laboratory and negative cutting services using
a proprietary computerized technology.
In October 2000 a wholly owned subsidiary of Livewire, acquired all of the
outstanding shares of Visiontext Limited ("Visiontext") for (pound)3.7 million
($5.4 million). The consideration was allocated based on the preliminary fair
values of the assets and liabilities acquired with excess consideration of $4.3
million recorded as goodwill. Visiontext is located in London, U.K. and provides
sub-titling services to the DVD industry.
In July 2000, Liberty Media entered into an "Agreement and Plan of Merger"
with VSC. Under the Agreement, Liberty Media acquired VSC for $83 million in
cash plus 1,441,212 LMGA stock shares and 119,666 LMGA stock options valued at
$35.2 million. The total consideration was allocated based on the preliminary
fair values of the assets and liabilities acquired with the excess consideration
of $79.7 million recorded as goodwill and $6.1 million as identifiable
intangible assets.
On December 22, 2000, when the VSC acquisition closed, Liberty Media
contributed the equity of VSC to Livewire, in exchange for debt on the Liberty
Media subordinated line of credit in the amount of $92.5 million and an
additional $8.1 million from Livewire's institutional lender to pay down debt of
VSC. Liberty Media contributed capital to Livewire in the amount of $17.6
million for the balance of the total consideration. VSC provides
50
engineering, production and distribution services for the video and broadcast
industries, nationally and internationally. It has locations in New York, New
Jersey, Florida and California.
The acquisitions have been accounted for under the purchase method of
accounting. For all of the above acquisitions, with the exception of Sound One,
the allocation of the purchase price has been recorded based on preliminary
estimates. The Company is currently in the process of obtaining additional
information, including appraisals in order to finalize the purchase price
allocations. The following unaudited pro forma consolidated financial
information for the years ended December 31, 2000 and 1999 is presented as if
the acquisitions had occurred on January 1, 1999. Pro forma adjustments are
primarily for amortization of goodwill and other identifiable intangibles,
depreciation adjustments, interest expense on borrowings in connection with the
acquisitions, and income taxes. No pro forma adjustments have been included for
the pre-acquisition time periods for potential fluctuations in the liability
recorded for the stock appreciation rights granted in the 4MC acquisition,
including effects for market fluctuations or estimates of rights exercised.
2000 1999
----------- ----------
Revenues.......................................................... $ 563,338 $ 561,002
=========== ==========
Net income loss................................................... $ 22,191 $ (17,296)
=========== ==========
Net income (loss) per common share - Basic........................ $ 0.64 $ 0.48
=========== ==========
Net income (loss) per common share - Diluted...................... $ 0.64 $ 0.48
=========== ==========
4. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 2000 and 1999 was as follows:
2000 1999
------------- ----------
>
Revolving credit facility......................................... $ 193,500 $ 57,074
Term loans........................................................ 183,500 --
Liberty Media convertible notes.............................. 92,682 --
Real property mortgage notes...................................... 16,535 5,050
Capital lease obligations......................................... 13,775 6,040
Other............................................................. 1,126 1,732
------------- ----------
Total............................................................. 501,118 69,896
Less: current maturities.......................................... (8,545) (4,030)
------------- ----------
Total long-term debt.............................................. $ 492,573 $ 65,866
============= ==========
Aggregate loan maturities subsequent to December 31, 2000 are as follows:
FISCAL YEARS ENDING TOTALS
------------
2001 .......................................................................... $ 8,545
2002 .......................................................................... 13,443
2003 .......................................................................... 23,830
2004........................................................................... 23,228
2005 .......................................................................... 32,587
Thereafter .................................................................... 399,486
------------
Total ......................................................................... $ 501,119
============
Under a new long-term credit agreement dated December 22, 2000 with several
banks and other financial institutions, including Bank of America, Livewire may
borrow up to $415 million in term and revolving loans. Livewire may add new
lenders to the agreement (with the consent of the current lenders) increasing
the available borrowings up to an additional $135 million for a total commitment
of $550 million. In the discussion that follows, the $135 million that is
subject to additional lenders and consent of current lenders, is referred to as
the "additional commitment". Term loan B has a current commitment of $58.5
million with an additional commitment of $41.5 million available. Term loan B
matures on June 30, 2007. Principal payments begin on June 30, 2001 and are due
semi-annually from that date. Each principal installment is 0.5% of the original
principal amount with the remaining
51
94% due on the maturity date. Term loan A has a current commitment of $125
million with an additional commitment of $25 million available. Term loan B must
be fully extended to its current commitment before the term loan A funds are
received. Term loan A matures on December 22, 2006. Principal payments begin on
September 30, 2002 and are due semi-annually. Principal installments range from
2.5% of the original principal amount in the first year of installments to
21.25% at the maturity date. The revolving credit loans (the "Revolver") have a
current commitment of $231.5 million with an additional commitment of $68.5
million available. The Revolver loans are available from December 28, 2000
through December 21, 2006. The termination date for the Revolver loans is
December 22, 2006. Interest for all the loans is paid quarterly in arrears and
is based on the "Alternate Base Rate" or the "Eurodollar Rate", whichever is
applicable to the loan, plus margins based on the leverage ratio as defined in
the agreement for term A and the Revolver loans and defined margins for term B
loans. The Alternate Base Rate is a daily fluctuating rate per annum equal to
the higher of the Federal Funds Rate plus 0.5% and the Prime Rate. The
Eurodollar Rate is the rate per annum equal to the average British Bankers
Association Interest Settlement Rate for deposits in the relevant currency or an
alternate base, as defined in the agreement, if that rate is unavailable. The
Revolver is also subject to a commitment fee of 0.375% to 0.5% per annum subject
to the leverage ratio and based on the unused portion of the current commitment.
The loans are collateralized by substantially all of the operating assets of the
Company. Material restrictions include: the Interest Coverage Ratio may not be
less than 2.5:1 through December 31, 2003 (increasing thereafter); the Fixed
Charge Coverage Ratio may not be less than 1:1 through December 31, 2003
(increasing thereafter); Other Indebtedness may not exceed $75 million; the
Leverage Ratio is not to exceed 4.25:1 through June 30, 2002 (decreasing
thereafter); Consolidated Operating Cash Flow may not be less than $32 million.
The agreement permits debt under the First Amended and Restated Credit Agreement
with Liberty Media of up to $310 million (See note 11).
In June 2000, the Company, through its indirectly wholly owned subsidiary,
TeleCine, Ltd., financed the purchase of a freehold property at 48 Charlotte
Street, London, U.K. with a 10-year mortgage note in the amount of $3.9 million
bearing interest at 8.02% per annum. The loan is secured by the property.
In April 1999, the Company, through its indirectly wholly owned subsidiary,
TeleCine, Ltd., financed the purchase of the freehold property at 50/54
Charlotte Street, London, U.K. with a 10-year term mortgage loan in the amount
of $5.2 million. The loan is secured by the property. Equal payments of $105,000
(principal and interest) are due quarterly based on a 25-year amortization
period with the balance of the note due after 10 years. Interest is fixed at
6.7251%. The note contains a minimum net worth requirement of at least $9
million plus 50% of earnings subsequent to fiscal year 1998.
The Company exercised its option to purchase for $5,699 equipment leased
under a sale/leaseback transaction that matured in December 1999. The purchase
was funded by borrowings under the credit facilities and is payable as a capital
lease obligation over two years maturing in December 2002 with interest based on
LIBOR.
Livewire and its subsidiaries have entered into various capital leases
related to the purchase of equipment. The capital lease obligations are due at
various times through 2004 and bear interest at rates of 7.74% to 19.4%.
Other long-term debt consists of notes and obligations acquired in
connection with other acquisitions and bearing interest between 9.4% and the
prime rate plus 1/4%.
5. INCOME TAXES
The Company's effective income tax rate differs from the federal statutory
income tax rate due to the following:
SEVEN | FIVE FOUR YEAR YEAR
MONTHS | MONTHS MONTHS ENDED ENDED
ENDED | ENDED ENDED AUGUST AUGUST
DECEMBER | MAY 31, DECEMBER 31, 31,
31, 2000 | 2000 31, 1999 1999 1998
- -------------------------------------------------------------------------- |-------------------------------------------
|
Federal statutory income tax rate............................ 35.0% | 35.0% 35.0% 35.0% 35.0%
Adjust to actual Company rate................................ 0 | (1.0) (1.0) (1.0) (1.0)
------------ |-------------------------------------------
Adjusted federal statutory income tax rate................... 35.0 | 34.0 34.0 34.0 34.0
State and foreign taxes, net of federal benefit.............. (8.5) | (10.2) (48.6) 0.0 (6.8)
Non-deductible goodwill amortization (86.2) | (1.8) 0 0 0
Other, net................................................... (0.5) | (4.0) (1.1) 1.7 (0.7)
------------ |-------------------------------------------
Total........................................................ (60.2)%| 18.0% (15.7)% 35.7% 26.5%
============ |==========================================
52
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Such deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Components of the income tax provision are as follows:
SEVEN MONTHS | FOUR MONTHS
ENDED | FIVE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, | ENDED MAY 31, DECEMBER 31, AUGUST 31, AUGUST 31,
2000 | 2000 1999 1999 1998
---------------| --------------- -------------- -------------- -------------
|
Current - domestic $ (11,487)| $ 0 $ (411) $ 312 $ (84)
Deferred - domestic (282)| (633) 122 (1,029) 550
---------------| --------------- -------------- -------------- -------------
Domestic (11,769)| (633) (289) (717) 466
|
Current - foreign 2,295 | 646 433 2,114 988
Deferred - foreign 13,153 | (454) 0 (667) (224)
---------------| --------------- -------------- -------------- -------------
Foreign 15,448 | 192 433 1,447 764
---------------| --------------- -------------- -------------- -------------
Total $ 3,679 | $ (441) $ 144 $ 730 $ 1,230
===============| =============== ============== ============== =============
Deferred income tax assets and liabilities consist of the following:
DECEMBER 31, | DECEMBER 31,
2000 | 1999
---------------------|---------------
|
Current assets: |
Accounts receivable reserves $ 2,648 | $ 63
Accrued liabilities 5,240 | 754
Lease obligations 0 | (133)
Other 303 | 71
---------------------|---------------
Total current assets $ 8,191 | $ 755
=====================|===============
|
Long-term assets: |
Deferred compensation $ 1,206 | $ 24
Net operating loss carryovers 17,937 | 3,786
FASB 115 marketable securities 1,455 | 0
State income tax credit carryover 2,268 | 1,743
Other 4,991 | 1,144
---------------------|---------------
|
Total long-term assets 27,857 | 6,697
- ---------------------------------------------------
Valuation allowance (2,726) | 0
---------------------|---------------
Total deferred tax assets, net 33,322 | 7,452
---------------------|---------------
|
Current liabilities: |
Prepaids (895) | (0)
Other (2,555) | (0)
---------------------|---------------
Total current liability (3,450) |
Long-term liability: |
Depreciation (8,603) | (9,441)
Identifiable intangibles (21,121) | (0)
Other (2,364) | (510)
---------------------|---------------
|
Total long-term liability (32,088) | (9,951)
---------------------|---------------
|
Total deferred tax liabilities (35,538) | (9,951)
=====================|===============
Net long-term deferred tax liability $ (2,216) | $ (2,499)
=====================|===============
53
At December 31, 2000, the Company has $43.3 million and $61.1 million in
net operating loss carryforwards for federal and state tax purposes,
respectively. These net operating losses begin to expire in the year 2019 for
federal purposes and 2004 for state purposes. In addition, the Company has $.6
million and $2.5 million of income tax credits for federal and state purposes
with no expiration date.
On the date of acquisition, the Company's net operating loss carryforwards
are subject to the change in control provisions of Internal Revenue Code Section
382. The limitations on the net operating loss carryforwards do not have a
significant impact on the availability and utilization of the losses.
6. STOCKHOLDERS' EQUITY
On June 9, 2000, in connection with the Todd Merger, the Company amended
and restated in its entirety its Certificate of Incorporation. Under the prior
Certificate of Incorporation, the Company was authorized to issue 37,000,000
shares of capital stock, consisting of 30,000,000 shares of Class A Common Stock
("Old Class A Stock"), 6,000,000 shares of Class B Common Stock ("Old Class B
Stock") and 1,000,000 shares of preferred stock. Under the Restated Certificate
of Incorporation, the total number of shares of capital stock authorized to be
issued was increased to 405,000,000. 400,000,000 of the authorized shares are
designated common stock ("Common Stock") and 5,000,000 are designated preferred
stock ("Preferred Stock"). Of the total amount of authorized Common Stock,
300,000,000 shares have been designated as Class A Common Stock and 100,000,000
shares have been designated as Class B Common Stock. All the shares of Common
Stock and Preferred Stock will have a par value of $.01 per share. Class A
Common Stock shareholders are entitled to one vote per share and Class B Common
Stock shareholders are entitled to ten votes per share. In all other respects,
the Class A and B Common Stock are substantially identical and have equal rights
and privileges.
On June 9, 2000, pursuant to the Restated Certificate of Incorporation,
each outstanding share of Old Class A Stock and Old Class B Stock was converted
into or reconstituted as four-tenths (0.40) of a share of Class A Common Stock
and six-tenths (0.60) of a share of Class B Common Stock.
7. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
STOCK OPTIONS
The Company had five stock option plans: The 1986, 1994, 1995, and 1997
Stock Option Plans and the 1998 Stock Incentive Plan. No stock options or shares
were issued from the 1998 Plan. These plans provided for the granting of either
non-qualified or incentive stock options at not less than 85% and 100% of the
market value of the stock on the date of the grant, respectively. Options
generally became exercisable in installments commencing as of the beginning of a
fiscal year near the date of grant.
On December 10, 1998, the Company granted to all option holders a one-time
re-pricing adjustment with respect to all options outstanding with exercise
prices in excess of the $8.00 per share market value determined as of that date.
Option holders electing to reduce the exercise price of their share options
agreed to reduce the number of their affected option shares outstanding by the
same ratio as the price reduction.
Pursuant to the Todd Merger on June 9, 2000, each outstanding Todd-AO stock
option under all plans became fully vested and was converted into a rollover
option to purchase 0.5 of a LMGA share and 0.4 of a Livewire Class A share. All
of such converted options automatically expired six months from the acquisition
date of June 9, 2000.
A Stock Option Fulfillment Agreement ("Agreement") was executed between
Liberty Media and Livewire as of June 10, 2000 to create a mechanism for
Livewire to fulfill its obligations under the rollover options as they pertain
to shares of LMGA.
Pursuant to the Agreement, Livewire purchased LMGA stock on the open market
to fulfill the .5 LMGA share portion of the options exercised. To fund such
purchases, Liberty Media contributed cash to Livewire equal to (i) the number of
LMGA shares delivered pursuant to the rollover option elections TIMES (ii) the
average of the high and low price per LMGA shares during the day the rollover
option was exercised (iii) LESS a pro rata share of proceeds received from the
option holder. In consideration for such capital contributions, Livewire issued
shares of Livewire's Class B Common Stock in an amount equal to (i) the number
of LMGA shares deliverable upon exercise, TIMES (ii) 1.2.
54
During the seven months ended December 31, 2000, 830,871 Todd-AO converted
options were exercised for 332,348 shares of Livewire Class A shares. For the
funding of the LMGA shares to the option holders, 296,038 shares of Livewire
Class B shares have been issued to Liberty Media valued at $5.1 million as
consideration for payments made to Livewire for the purchase of LMGA stock on
the open market. A gain of $836,000 has been included in the statement of income
based on the decrease in LMGA stock price between the date of option exercises
and the date the LMGA shares were purchased by Livewire on the open market.
The following table presents the number and weighted average exercise price
of the Todd-AO Stock Options and the Livewire and Liberty Media options that
were issued in exchange for the Todd-AO options:
Livewire Weighted-Average
Todd-AO Class A Stock LMGA Stock Exercise Price
Stock Options Options Options
------------------------------------ -------------- --------------- ------------------ ----------------
At August 31, 1997 1,665,591 0 0 $ 7.03
Awarded 96,000 0 0 9.92
Exercised (96,206) 0 0 3.50
Forfeited (31,984) 0 0 9.85
-------------- --------------- ------------------ ----------------
At August 31, 1998 1,633,401 0 0 $ 7.35
Awarded 70,500 0 0 9.34
Exercised (274,080) 0 0 4.00
Forfeited (53,696) 0 0 8.33
Forfeited due to repricing (176,775) 0 0 10.41
-------------- --------------- ------------------ ----------------
At August 31, 1999 1,199,350 0 0 $ 6.57
Awarded 17,000 0 0 14.53
Exercised (183,735) 0 0 7.61
Forfeited (3,970) 0 0 8.18
-------------- --------------- ------------------ ----------------
At December 31, 1999 1,028,645 0 0 $ 6.50
Awarded 15,000 0 0 10.94
Exercised (152,318) 0 0 6.56
Forfeited (41,936) 0 0 6.52
-------------- --------------- ------------------ ----------------
At June 9, 2000 849,391 0 0 $ 6.57
Conversion (849,391) 339,756 424,696 6.57
Exercised 0 (332,348) (415,436) 6.46
Forfeited 0 (7,408) (9,260) 11.40
-------------- --------------- ------------------ ----------------
At December 31, 2000 0 0 0 $ 0
============== =============== ================== ================
Exercisable at December 31, 2000 0 0 0 0
============== =============== ================== ================
FASB 123 ACCOUNTING FOR STOCK BASED COMPENSATION - STOCK OPTIONS
The Company has adopted the disclosure-only provisions of SFAS 123. The
estimated fair value of options granted during the five months ended May 31,
2000, four months ended December 31, 1999, the year ended August 31, 1999, and
the year ended August 31, 1998 pursuant to SFAS 123 was approximately $52,000,
$77,000, $490,000, and $343,000, respectively. There were no options granted
during the seven months ended December 31, 2000. The fair value of each option
grant was estimated using the Black-Scholes option-pricing model with the
following weighted average assumptions: dividend yield of 0.40%-0.75%,
volatility of 25%, a risk free interest rate of 5.65% for May 31, 2000, 5.12%
for the four months ended December 31, 1999, 4.95% for August 31, 1999, and
5.05% for August 31, 1998 and expected option lives of 5 to 9 years. Had the
Company accounted for its stock based compensation pursuant to the fair value
based accounting method in SFAS No. 123, the Company's net income (loss) and net
income (loss) per share would have changed to the pro forma amounts indicated
below:
55
Livewire Todd-AO
------------------------------------------|---------------------------------------------------------------
Seven Months | Four Months
Ended | Five Months Ended Year Ended Year Ended
December 31, | Ended May 31, December 31, August 31, August 31,
2000 | 2000 1999 1999 1998
------------------------------------------|---------------------------------------------------------------
|
Net income (loss) |
As reported (9,793) | (1,675) 449 1,313 3,419
-----------------|---------------------------------------------------------------
Pro forma (9,793) | (1,727) 408 621 2,863
-----------------|---------------------------------------------------------------
Net income (loss) per |
share |
As reported basic (.28) | (.16) .05 .14 .34
-----------------|---------------------------------------------------------------
Pro forma basic (.28) | (.16) .04 .06 .29
------------------------ -----------------|---------------------------------------------------------------
As reported diluted (.28) | (.16) .04 .13 .33
------------------------ -----------------|---------------------------------------------------------------
Pro forma diluted (.28) | (.16) .04 .06 .28
------------------------ -----------------|---------------------------------------------------------------
STOCK APPRECIATION RIGHTS
Pursuant to the acquisition of 4MC by Liberty Media each outstanding
4MC stock option was converted into a stock appreciation right ("SARs") at a
ratio 0.32258 shares of LMGA stock for each 1.0 share of 4MC stock. Upon the
election to exercise, holders of vested SARs have the option of receiving any
net cash appreciation of LMGA stock over the exercise price in cash or shares of
LMGA stock.
The following table presents the number and weighted average exercise
price of SARs to purchase LMGA stock for the seven months ended December 31,
2000.
Weighted-Average
LMGA SARs Exercise Price
-------------------------------------------------------------------------------------------------------
Converted SARs at June 9, 2000 3,856,112 $ 12.50
Exercised 591,839 11.59
---------------------------------------------------
At December 31, 2000 3,264,273 12.66
---------------------------------------------------
Exercisable at December 31, 2000 2,584,009 $ 12.56
============================
Exercise prices for SARs outstanding at December 31, 2000 ranged from $.53
to $15.50 and the weighted average remaining contractual life was 7.6 years.
Summarized information about the outstanding SARs at December 31, 2000 is
as follows:
Number of Weighted- Number Weighted-
Outstanding Weighted-Average Average Exercisable at Average
Range of Exercise at December 31, Remaining Exercise December 31, Exercise
Prices 2000 Contractual Life Price 2000 Price
-------------------- --------------- ----------------- -------------- ---------------- ----------------
$ .53 5,998 5.8 years $ .53 5,998 $ .53
$10.08 to 12.98 2,760,118 7.8 years $12.32 2,301,527 $12.32
$13.37 to 15.50 498,157 7.3 years $14.73 276,484 $14.80
--------------- ----------------- -------------- ---------------- ----------------
$ .53 to 15.50 3,264,273 7.6 years $12.66 2,584,009 $12.56
The accrued expense for SARs recorded by Liberty Media at the acquisition
of 4MC was $52.9 million. The accrued expense at June 9, 2000 assumed under the
Contribution Agreement between Liberty Media and the Company was $30.8 million.
The accrued expense at December 31, 2000 is $979,000. The consolidated statement
of income for the seven months ended December 31, 2000 reflects a credit
adjustment of $29.6 million due to the decline in the stock price underlying the
SARs. Upon delivery of an exercise notice to the Company by a participant in the
option plan, the Company forwards such notice to Liberty Media. Liberty Media
processes the exercise notice. If the participant has elected a cash settlement
for the options, Liberty Media will remit funds equivalent to the difference
between the LMGA share price established by a ten day trailing average as of the
day prior to the
56
exercise and the exercise price for the participant's options multiplied by the
number of shares exercised. If the participant elects to receive LMGA shares
directly, the participant will remit to the Company a payment equivalent to the
exercise price for the participant's options multiplied by the number of shares
exercised. Liberty Media will issue shares directly to the participant
equivalent to the number of shares exercised.
UNEARNED STOCK COMPENSATION
Pursuant to the Todd-AO Merger, the Company entered into a consulting
agreement with an executive of Todd-AO. The consulting agreement provides for
the grant of 150,000 options of LMGA stock that vest 50,000 per year over three
years beginning June 9, 2000. The fair value of the stock options recorded as
unearned stock compensation on the date of the Todd AO Merger was $2,858,000.
The Company recorded $127,000 of stock compensation expense for the seven months
ended December 31, 2000 based on the fluctuation in the stock price underlying
the options and the unearned stock compensation balance was adjusted to $273,000
as of December 31, 2000.
8. COMMITMENTS
OPERATING LEASES - Rent expense for noncancellable operating leases for
real property and equipment was $13,950, $8,242 and $6,524 for the years ended
December 31, 2000, August 31, 1999 and 1998, respectively. Minimum rentals for
operating leases for years ending after December 31, 2000 are as follows: 2001,
$23,281; 2002, $21,520; 2003, $18,055; 2004, $16,158; 2005, $15,569; and
$52,503, thereafter. Some of the leases have options to extend terms and are
subject to escalation clauses.
CAPITAL LEASES - Minimum rentals for capital leases for years ending after
December 31, 2000 are as follows: 2001, $7,385; 2002, $5,966; 2003, $2,265;
2004, $18. Included in the minimum rentals for capital leases is interest in the
amount of $1,859.
EMPLOYMENT AGREEMENTS - At December 31, 2000, the Company is committed to
compensation under long-term employment agreements with certain of its officers
and key employees as follows: 2001, $2,574; 2002, $2,082; 2003, $1,857; 2004
$350; and 2005, $350.
9. CONTINGENCIES
The Company is involved in litigation and similar claims incidental to the
conduct of its business. In management's opinion, none of the pending actions is
likely to have a material adverse impact on the Company's financial position or
results of operations.
10. BUSINESS SEGMENT INFORMATION
Since the change in control of the Company pursuant to the Todd Merger in
June 2000, the Company's business units have been aggregated into four
reportable operating segments: Content Preparation, Content Management, Content
Distribution and Europe. The Audio Services, Entertainment Television and
Commercial Television Divisions, which make up the Content Preparation segment,
provide the technical and creative services necessary to conform original film
or video principal photography into a final product suitable for the public.
These are the more traditional post-production services such as creating music
and sound effects, as well as visual effects. State-of-the-art facilities and
equipment are used to digitally create or manipulate sounds and images in
high-resolution formats for integration into feature films, television shows and
television commercials. The Content Management segment primarily consists of the
Library Services Division, which provides the formatting, archiving, storage and
maintenance of master copies of original film and videotape. In addition, this
segment restores damaged content, transfers and converts film to video (and vice
versa), provides audio layback and standards conversion, and professional
duplication. The segment facilitates the worldwide distribution of content in
formats ranging from HDTV to streaming media. The Content Distribution segment
consists of the Broadcast Services Division which provides the facilities and
services necessary to assemble and distribute programming content for cable and
broadcast networks via freight, fiber, satellite and the Internet to viewers in
North America, Europe and Asia. These services principally include production,
on-air promotion, language translation, assembly, origination and distribution,
fiber transport, uplink and satellite transponder services and video equipment
rentals. The Company maintains a separate segment and management structure for
its European/United Kingdom ("UK") activities because of the size and scope of
these operations. The various operations are grouped according to function and
client base, and are tightly linked to the Company's other major operating
segments. The Other column includes corporate
57
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.
Periods prior to June 2000 have been restated to conform to the current
reportable operating segments.
Summarized financial information concerning the Company's reportable
segments is shown in following tables:
(DOLLARS IN THOUSANDS)
CONTENT CONTENT CONTENT
LIVEWIRE PREPARATION MANAGEMENT DISTRIBUTION EUROPE OTHER TOTAL
- --------------------------------------- --------------- --------------- ------------- -------------- --------------- ----------
SEVEN MONTHS ENDED
DECEMBER 31, 2000:
Revenues............................ $ 140,666 $ 33,326 $ 19,775 $ 59,332 $ -- $ 253,099
Income before income taxes,
interest, depreciation and
amortization .................... 30,084 10,795 1,268 12,929 9,487 64,563
Capital expenditures................ 48,230 983 8,583 11,910 6,994 76,700
Depreciation and amortization
expense.......................... 26,033 4,579 4,690 7,580 8,663 51,545
- ----------------------------------------------------------------------------------------------------------------------------------
TODD-AO
- ----------------------------------------
FIVE MONTHS ENDED
MAY 31, 2000:
Revenues............................ $ 32,595 $ 6,270 $ -- $ 14,378 $ -- $ 53,243
Income (loss) before income taxes,
interest, depreciation and
amortization..................... 3,247 1,389 -- 2,725 (911) 6,450
Capital expenditures................ 2,262 161 -- 1,615 -- 4,038
Depreciation and amortization
Expense.......................... 4,133 557 -- 2,235 -- 6,925
FOUR MONTHS ENDED
DECEMBER 31, 1999:
Revenues............................ $ 25,422 $ 5,034 $ -- $ 12,805 $ -- $ 43,261
Income before income taxes,
interest, depreciation and
amortization..................... 2,427 1,466 -- 3,389 (498) 6,784
Capital expenditures................ 2,105 156 -- 2,055 -- 4,316
Depreciation and amortization --
expense.......................... 2,553 437 1,826 -- 4,816
YEAR ENDED AUGUST 31, 1999:
Revenues............................ $ 65,582 $ 13,748 $ -- $ 39,187 $ -- $ 118,517
Income before income taxes,
interest, depreciation and
amortization..................... 6,696 3,536 -- 9,933 (1,233) 18,932
Capital expenditures................ 10,085 4,131 -- 8,960 -- 23,176
Depreciation and amortization --
expense.......................... 6,356 1,252 -- 5,221 12,829
- ----------------------------------------------------------------------------------------------------------------------------------
58
(DOLLARS IN THOUSANDS)
CONTENT CONTENT CONTENT
TODD-AO PREPARATION MANAGEMENT DISTRIBUTION EUROPE OTHER TOTAL
- --------------------------------------- --------------- --------------- ------------- -------------- --------------- ----------
YEAR ENDED AUGUST 31, 1998:
Revenues............................ $ 69,428 $ 9,715 $ -- $ 23,471 $ -- $ 102,614
Income before income taxes,
interest, depreciation and
amortization..................... 7,918 2,279 -- 6,792 152 17,141
Capital expenditures................ 17,539 1,865 -- 4,944 -- 24,348
Depreciation and amortization
expense.......................... 6,067 1,088 -- 3,530 -- 10,685
LIVEWIRE
- ----------------------------------------
DECEMBER 31, 2000
Identifiable assets................. $ 301,372 $ 6,715 $ 97,820 $ 94,724 $ 44,018 $ 544,649
Intangible assets - net............. 190,413 -- 141,130 58,168 241,485
631,196
- -----------------------------------------------------------------------------------------------------------------------------------
TODD-AO
- ----------------------------------------
DECEMBER 31, 1999
Identifiable assets................. $ 78,694 $ 9,143 $ -- $ 40,681 $ -- $ 128,608
Intangible assets - net............. 22,934 -- -- 10,462 -- 33,396
The following table reconciles segment income before income taxes,
interest, depreciation and amortization to the Company's consolidated net
income:
(DOLLARS IN THOUSANDS)
LIVEWIRE | TODD-AO
------------- | ---------------------------------------------------------
SEVEN MONTHS | FIVE MONTHS FOUR MONTHS YEAR YEAR
ENDED | ENDED ENDED ENDED ENDED
DECEMBER 31, | MAY 31, DECEMBER 31, AUGUST 31, AUGUST 31,
------------- | ------------- ------------- ------------ ------------
2000 | 2000 1999 1999 1998
------------- | ------------- ------------- ------------ ------------
|
Income before income taxes, interest, |
depreciation and amortization................ $ 64,563 | $ 6,450 $ 6,784 $ 18,932 $ 17,141
Depreciation and amortization................... (51,545) | (6,925) (4,816) (12,829) (10,685)
Interest expense................................ (19,132) | (1,641) (1,384) (3,617) (1,807)
Provision for income taxes...................... (3,679) | 441 (135) (880) (1,230)
------------- | ------------- ------------- ------------ ------------
Income (loss) before change in accounting |
principle..................................... (9,793) | (1,675) 449 1,606 3,419
Change in accounting principle.................. -- | -- -- (293) --
------------- | ------------- ------------- ------------ ------------
Net income (loss)............................... $(9,793) | $(1,675) $ 449 $ 1,313 $ 3,419
============= | ============= ============= ============ ============
59
Information as to the Company's operations in different geographic areas is
as follows:
LIVEWIRE | TODD-AO
------------- | ---------------------------------------------------------
SEVEN MONTHS | FIVE MONTHS FOUR MONTHS YEAR YEAR
ENDED | ENDED ENDED ENDED ENDED
DECEMBER 31, | MAY 31, DECEMBER 31, AUGUST 31, AUGUST 31,
------------- | ------------- ------------- ------------ ------------
2000 | 2000 1999 1999 1998
------------- | ------------- ------------- ------------ ------------
|
Revenues: |
United States..................................... $ 185,520 | $ 38,865 $ 30,456 $ 79,330 $ 79,143
United Kingdom ................................... 59,332 | 14,378 12,805 39,187 23,471
Mexico............................................ 2,649 | -- -- -- --
Asia.............................................. 5,598 | -- -- -- --
------------- | ------------- ------------- ------------ ------------
Total............................................. $ 253,099 | $ 53,243 $ 43,261 $ 118,517 $ 102,614
============= | ============= ============= ============ ============
|
Net income (loss) before change in accounting |
principle: |
United States..................................... $ (14,383) | $ (1,823) $ (555) $ (1,169) $ 1,209
United Kingdom ................................... 3,720 | 148 1,004 2,775 2,210
Mexico............................................ 442 | -- -- -- --
|
Asia.............................................. 428 | -- -- -- --
------------- | ------------- ------------- ------------ ------------
Total............................................. $ (9,793) | $ (1,675) $ 449 $ 1,606 $ 3,419
============= | ============= ============= ============ ============
|
Assets: |
United States..................................... $1,001,816 | $111,430 $ 111,116 $ 106,258 $ 91,001
United Kingdom ................................... 152,892 | 48,018 50,888 46,922 44,365
Mexico............................................ 5,232 | -- -- -- --
Asia.............................................. 15,905 | -- -- -- --
------------- | ------------- ------------- ------------ ------------
Total............................................. $1,175,845 | $159,448 $ 162,004 $ 153,180 $ 135,366
============= | ============= ============= ============ ============
11. RELATED PARTY TRANSACTIONS
In connection with the Todd Merger, Livewire and Liberty Media entered into
the Liberty Subordinated Credit Agreement, which was amended and restated on
December 22, 2000. The agreement provides for aggregate credit commitments of at
least $145 million and up to $213.6 million, subject to additional commitments
under the Senior Credit Agreement with its institutional lenders and to the
completion of proposed transactions as defined in the agreement. Funds are
available at Livewire's option in whole or in part at any time during the 4-year
period June 9, 2000 to June 9, 2004. The notes issued under the Liberty
Agreement will be unsecured senior subordinated obligations, ranking junior to
Livewire's Senior Credit Agreement with its institutional lenders. The
convertible notes will bear interest at 10% per annum, payable quarterly in
arrears either in cash, shares of Livewire's Class B common stock or a
combination thereof, subject to certain limits. To the extent interest is paid
in shares of Class B common stock, such shares will be valued at 95% of the
trailing ten day average closing price of the Class A common stock of Livewire
on the interest payment date. The notes are convertible at the option of Liberty
Media into shares of Livewire's Class B Common Stock at a conversion price of
$10.00 per share.
The Company filed its own consolidated federal income tax return up to May
31, 2000. Commencing June 1, 2000, the Company is included in the consolidated
tax return of AT&T and is party to a Tax Liability Allocation and
Indemnification Agreement entered into with its parent, Liberty Media (the "Tax
Sharing Agreement"). The Tax Sharing Agreement is now at the final stage of
documentation but remains subject to approval by the Company's Board of
Directors.
The income tax provision for the Company is calculated based on a
hypothetical tax liability determined as if the Company filed a separate tax
return.
Under the Tax Sharing Agreement, the Company will record a current
intercompany tax benefit from Liberty Media in periods when it generates taxable
losses and such losses are utilized by Liberty Media to reduce its income tax
liability. In periods when the Company generates taxable income, the Company
will record current intercompany tax expense. Liberty Media will pay cash to the
Company if the Company becomes disaffiliated for
60
any reason from the combined group that files the joint return and when one of
the following occurs: a tax refund is received by Liberty Media that is
determined to relate to amounts paid by Livewire, or the Company has a tax
liability under a separate return and had a net cumulative benefit for net
operating losses or credits that were utilized by the Liberty Media Group to the
extent of the separate return liability and which would not have expired at the
time of the filing of the separate return. Additionally, if the Liberty Media
Group does not own 20% of the voting power (loss of control) of Livewire,
Liberty Media will pay Livewire an amount equal to the cumulative net tax
benefit utilized by the Liberty Media Group which would not have expired at the
time of loss of control.
12. SUBSEQUENT EVENTS
On February 1, 2001, Livewire acquired substantially all the assets of the
business unit known as "Group W Network Services" ("GWNS") from Viacom, Inc. and
certain affiliates of Viacom, for $116.5 million in cash and assumed debt,
subject to a post-closing working capital adjustment. Livewire financed the
acquisition of Group W Network Services primarily with a loan under the Liberty
Subordinated Credit Agreement and borrowings from Livewire's institutional
lenders.
GWNS, with operations in Stamford, Connecticut, Minneapolis, Minnesota and
Singapore, is a leading technical service provider in the broadcast industry,
providing a wide array of program channel origination, studio production, post
production, graphics and satellite transmission services to both domestic and
international broadcasters. A recent addition to its product line is a package
of Internet-based services that can be provided terrestrially through the
Internet and/or via satellite, including streaming video, store and forward, and
video-to-desktop multicasting.
On January 5, 2001, Livewire entered into an Ownership Interest Purchase
Agreement with Livewire, ANS Acquisition Sub, Inc. ("ANS"), a direct wholly
owned subsidiary of Livewire, and Ascent Entertainment Group, Inc. ("AEG").
Liberty Media is the sole stockholder of AEG. Pursuant to the purchase
agreement, Ascent Network Services, a division of AEG, contributed all of its
assets to Livewire Network Services, LLC ("LNS"), a direct wholly owned
subsidiary of AEG, ANS purchased a 1% ownership interest in LNS from AEG in
exchange for $300,000 in cash, and ANS and AEG entered into the Operating
Agreement of LNS (the "Operating Agreement").
Under the Operating Agreement, ANS is appointed as manager of LNS. The
Operating Agreement also contains a put-call provision, pursuant to which ANS
may elect to purchase from AEG, or AEG may elect to sell to ANS, at certain
times during the 2001 calendar year, the remaining 99% of the ownership
interests of LNS owned by AEG. The purchase price under the put-call will be
payable in cash and will total $29.7 million plus an additional return on that
amount accrued at the annual rate of 10% from the date of the purchase agreement
to the date of acquisition of the 99% interest.
The existing collective bargaining agreement governing contracts and
agreements with members of the Writers Guild of America is due to expire on
April 30, 2001. Additionally, the existing collective bargaining agreement
governing contracts and agreements with members of the Screen Actors Guild is
set to expire on June 30, 2001. In the event that either or both of these
collective bargaining agreements is allowed to expire and a strike or strikes
occur, dependent upon the length of any such strike(s), such strike(s) could
have a materially adverse effect on the operations, cash flows and financial
position of the Company during 2001.
61
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
BASIC DILUTED
EARNINGS EARNINGS
(LOSS) (LOSS)
PER PER
TODD-AO NET COMMON COMMON
- ------- TOTAL GROSS INCOME SHARE SHARE
FISCAL YEAR 8/31/99 REVENUES PROFIT (LOSS) OUTSTANDING OUTSTANDING
- ------------------------- ------------ ---------- ----------- -------------- ----------------
First Quarter............ $ 33,947 $ 4,784 $ 2,468 $ .26 $ .24
Second Quarter........... 28,388 1,167 897 .10 .09
Third Quarter............ 28,093 784 62 .01 .01
Fourth Quarter........... 28,089 569 (2,114) (.22) (.21)
------------ ---------- ----------- -------------- ----------------
TOTAL.................... $ 118,517 $ 7,304 $ 1,313 $ .14(a) $ .13(a)
============ ========== =========== ============== ================
TRANSITIONAL PERIOD
- -------------------------
4 months ended 12/31/99 $ 43,261 $ 2,098 $ 449 $ .05 $ .04
============ ========== =========== ============== ================
BASIC DILUTED
EARNINGS EARNINGS
(LOSS) (LOSS)
PER PER
NET COMMON COMMON
TOTAL GROSS INCOME SHARE SHARE
2000 REVENUES PROFIT (LOSS) OUTSTANDING OUTSTANDING
- ---- ------------ ---------- ----------- -------------- --------------
5 months ended 5/31/00... $ 53,243 $ 595 $ (1,675) $ (.16) $ (.16)
LIBERTY LIVEWIRE 127,307 (1,361) (8,778) (.27) (.27)
- -------------------------
4 months ended 9/30/00... 125,792 13,507 (1,015) (.03) (.03)
Fourth Quarter........... ---------- ---------- ----------- -------------- --------------
TOTAL.................... $ 306,342 $12,741 $(11,468) $ (.46) $ (.46)
========== ========== =========== ============== ==============
(a) Aggregate per share amounts for each quarter may differ from annual totals
as each is independently calculated.
62
LIBERTY LIVEWIRE CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
COLUMN COLUMN COLUMN COLUMN COLUMN COLUMN
A B C D E F
------------ --------------- ------------- ------------- ------------
ADDITIONS ADDITIONS
CHARGED ACQUIRED OR
BALANCE AT (CREDITED) TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS AND OTHER PERIOD
- --------------------------------------
Allowance for doubtful accounts:
Year ended August 31, 1998........... $ 562 $ (28) $1,220 (a) $ 14 $ 1,768
============ =============== ============= ============= ============
Year ended August 31, 1999........... $1,768 $ (650) $ 94 (b) $ 3 $ 1,215
============ =============== ============= ============= ============
4 months ended 12/31/99.............. $1,215 $ 96 $ 77 $ 1,388
============ =============== ============= ============= ============
5 months ended 5/31/00............... $1,388 $ (149) $ 1,239
============ =============== ============= ============= ============
7 months ended 12/31/00.............. $1,239 $ 493 $3,835(c) $ 5,567
============ =============== ============= ============= ============
(a) Balance acquired in acquisition of TeleCine.
(b) Balance acquired in acquisition of Sound One.
(c) Balances acquired in acquisition of 4MC ($2,907), SounDelux ($240) and Soho
($688) .
63