<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported) March 10, 1997
FOUR MEDIA COMPANY
(Exact name of the registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
0-21943 95-4599440
(Commission File Number) (I.R.S. Employer Identification No.)
2813 West Alameda Avenue 91505
Burbank, CA (Zip code)
(Address of principal executive offices)
818-840-7000
(Registrant's telephone number including area code)
NOT APPLICABLE
(Former name of former address, if changed since last report)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOUR MEDIA COMPANY
(Registrant)
Date: May 26, 1997 By /s/ John H. Sabin
------------------
John H. Sabin
Senior Vice President,
Chief Financial Officer
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following documents are included as part of this report:
<TABLE>
<CAPTION>
(a) Financial Statements of Business Acquired: Page No.
--------
<S> <C>
Anderson Film Industries Corp. and Anderson Graphics, LLC
Financial Statements for the year ended December 31, 1996
Report of Independent Accountants............................ A-1
Combined Balance Sheet at December 31, 1996.................. A-2
Combined Statement of Operations for the Year Ended
December 31, 1996........................................ A-3
Combined Statement of Equity for the Year Ended
December 31, 1996........................................ A-4
Combined Statement of Cash Flows for the Year Ended
December 31, 1996........................................ A-5
Notes to Combined Financial Statements....................... A-6
(b) Pro forma Financial Information
Pro forma Information........................................ B-1
Pro forma Condensed Combined Balance Sheet as of
August 4, 1996........................................... B-2
Pro forma Condensed Combined Statement of Operations for the
Year Ended August 4, 1996................................ B-3
Pro forma Condensed Combined Statement of Operations for the
Six Months Ended February 2, 1997........................ B-4
Notes to Pro forma Condensed Combined Financial Statements... B-5
(c) Exhibits
Exhibit 23 - Consent of Coopers & Lybrand L.L.P.............. C-1
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Four Media Company
We have audited the accompanying combined balance sheet of Anderson Film
Industries Corp. and Anderson Graphics, LLC (collectively, "Anderson") as of
December 31, 1996 and the related combined statements of operations, equity and
cash flows for the year then ended. These combined financial statements are the
responsibility of Anderson's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As discussed in Note 10 to the combined financial statements, effective March
10, 1997, the assets of Anderson were acquired by Four Media Company.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Anderson Film
Industries Corp. and Anderson Graphics, LLC as of December 31, 1996, and the
combined results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Los Angeles, California
April 30, 1997
A-1
<PAGE>
Combined Balance Sheet
Anderson Film Industries Corp. and Anderson Graphics, LLC
December 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash................................. $ 138
Trade accounts receivable, net of
allowance for doubtful accounts of
$60................................. 2,997
Inventory............................ 106
Prepaid expenses and other current
assets.............................. 200
----------
Total current assets............... 3,441
Property, plant and equipment, net...... 6,930
Other assets............................ 322
----------
Total assets....................... $ 10,693
==========
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt
and capital lease obligations....... $ 6,142
Accounts payable..................... 1,414
Accrued and other liabilities........ 559
----------
Total current liabilities.......... 8,115
Long-term debt and capital lease
obligations............................ 3,202
----------
Total liabilities.................. 11,317
Commitments and contingencies
Equity:
Common stock, no par value;
1,000,000 shares authorized, 74,783
shares issued and outstanding....... 530
Donated capital...................... 44
Deficit.............................. (1,471)
Members' capital..................... 273
----------
Total deficit...................... (624)
Total liabilities and deficit...... $ 10,693
==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
A-2
<PAGE>
Combined Statement of Operations
Anderson Film Industries Corp. and Anderson Graphics, LLC
Year Ended December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
Revenue.............................. $ 15,378
Cost of services:
Personnel........................... 7,984
Material............................ 1,127
Facilities.......................... 1,295
Other............................... 432
---------
Total cost of services............ 10,838
---------
Gross profit..................... 4,540
---------
Operating expenses:
Sales, general and administrative... 2,095
Depreciation and amortization....... 1,758
---------
Total operating expenses.......... 3,853
---------
Income from operations........... 687
Interest expense, net................ (1,247)
---------
Loss before income taxes......... (560)
Income taxes......................... (1)
---------
Net loss.......................... $ (561)
=========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
A-3
<PAGE>
Combined Statement of Equity
Anderson Film Industries Corp. and Anderson Graphics, LLC
(In thousands, except share data)
<TABLE>
<CAPTION>
Anderson Film Anderson Graphics
-------------------------------------------------------------- ------------------
Donated Members' Total
Common Stock Capital Deficit Capital Equity(deficit)
---------------------------- ------------------ -------------- ------------------- ------------------
Shares Amount
------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995... 50,000 $ 10 $ (697) $ (687)
Conversion of subordinated
debt (including accrued
interest) to common stock... 19,566 400 400
Cancellation of interest on
shareholder notes........... $ 44 44
Issuance of common stock..... 5,217 120 120
Contribution of members
capital..................... $ 60 60
Net income (loss)............ (774) 213 (561)
------------ -------------- ------------------ -------------- ------------------- ------------------
Balance, December 31, 1996... 74,783 $ 530 $ 44 $ (1,471) $ 273 $ (624)
========== ============== ================== ============== =================== ===================
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
A-4
<PAGE>
Combined Statement of Cash Flows
Anderson Film Industries Corp. and Anderson Graphics, LLC
Year Ended December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss................................ $ (561)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization.......... 1,758
Provision for doubtful accounts........ 42
Changes in operating assets and
liabilities:
(Increase) in trade receivables....... (326)
(Increase) in inventory............... (31)
(Increase) in prepaids and other
current assets....................... (127)
Decrease in other assets.............. 54
Increase in accounts payable.......... 629
Increase in accrued and other
liabilities.......................... 243
---------
Net cash provided by operating
activities........................ 1,681
Cash flows from investing activities:
Purchases of property, plant and
equipment............................. (377)
Organization costs for Graphics........ (5)
---------
Net cash used in investing
activities........................ (382)
Cash flows from financing activities:
Proceeds from increase in subordinated
debt.................................. 68
Proceeds from issuance of common stock. 120
Contribution of members capital........ 60
Repayment of revolving credit facility. (123)
Repayment of term loan................. (419)
Repayment of unsecured promissory note. (18)
Repayment of capital leases............ (854)
---------
Net cash used in financing
activities........................ (1,166)
Net increase in cash.................... 133
Cash at beginning of year............... 5
---------
Cash at end of year..................... $ 138
=========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest.............................. $ 1,230
Non cash investing and financing
activities:
Capital lease obligations incurred.... $ 1,627
Conversion of subordinated debt
(including accrued interest) to
common stock....................... $ 400
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
A-5
<PAGE>
Anderson Film Industries Corp. and Anderson Graphics LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION
Anderson Film Industries Corp. ("Film") and Anderson Graphics LLC
("Graphics"), (collectively "Anderson"), are providers of technical and creative
services to owners, producers and distributors of television programming,
feature films and other entertainment content. Anderson's services integrate
and apply a variety of systems and processes to enhance the creation and
distribution of entertainment content.
Film and Graphics are under common control and therefore have been combined in
these financial statements and accounted for in a manner similar to a pooling of
interest. The effects of all intercompany transactions between Film and
Graphics have been eliminated. On March 10, 1997, the assets of Anderson were
acquired, and one equipment lease assumed by a wholly owned subsidiary of Four
Media Company.
Film was incorporated in July 1987. Graphics was incorporated in May 1996.
The results of operations include the 12 months ended December 1996 for Film and
the 8 month period from inception, May 1996 through December 1996, for Graphics.
Anderson is located in Universal City, California.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition. Revenues are recognized when a product is shipped or a
service is provided.
Cash and Cash Equivalents. The Statement of Cash Flows classifies changes in
cash (short-term, highly liquid investments readily convertible into cash with
an original maturity of three months or less at the date of purchase) according
to operating, investing or financing activities. At times, cash balances may be
in excess of Federal Deposit Insurance Corporation insurance limits.
Inventory. Inventories are stated at the lower of cost (first-in, first-out)
or market, and are comprised of raw materials and supplies.
Property, Plant and Equipment. Additions to property, plant and equipment are
recorded at cost.
Depreciation and Amortization. Depreciation of property, plant and equipment
is computed by use of the straight-line and accelerated methods based on the
estimated useful lives of 5 to 7 years of the respective assets, except for
leasehold improvements, which are amortized using the straight-line method over
the life of the improvement or the length of the lease, whichever is shorter.
Amortization of assets recorded under capital leases is based on the term of the
lease. When properties are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and the
resulting gain or loss is credited or charged to operations. The policy of
Anderson is to charge amounts expended for maintenance and repairs to current
year expense and to capitalize expenditures for major replacements and
betterments.
Other Assets. Other assets include costs incurred by Graphics prior to the
commencement of operations. These assets are amortized on the straight-line
method over five years. Other assets also include software development costs.
The Company capitalizes internal software development costs when technological
feasibility has been established. Capitalization ends when the software is put
into service. Amortization of software development costs is computed by use of
the straight-line method over three years.
A-6
<PAGE>
Anderson Film Industries Corp. and Anderson Graphics LLC
NOTES TO COMBINED FINANCIAL STATEMENTS, continued
Use of Estimates. The preparation of financial statements is in accordance
with generally accepted accounting principles and requires management to make
estimates and assumptions for the reporting period and as of the financial
statement date. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported amounts of revenues and expenses. Actual results could differ from
those estimates.
Recently Issued Accounting Standards. In March 1995, the Financial Accounting
Standards Board (''FASB'') issued Statement of Financial Accounting Standards
(''SFAS'') No. 121, ''Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of'' (''SFAS No. 121''). SFAS No. 121
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles to
be disposed of. Anderson adopted the provisions of SFAS No. 121 for 1996, with
no impact to Anderson's financial position or results of operations.
Fair Values of Financial Instruments. SFAS No. 107 ''Disclosure About Fair
Value of Financial Instruments'' (''SFAS No. 107''), requires disclosure of fair
value information about most financial instruments both on and off the balance
sheet, if it is practicable to estimate. SFAS No. 107 excludes certain
financial instruments such as certain insurance contracts and all non-financial
instruments from its disclosure requirements. A financial instrument is defined
as a contractual obligation that ultimately ends with the delivery of cash or an
ownership interest in an entity. Disclosures regarding the fair value of
financial instruments are derived using external market sources, estimates using
present value or other valuation techniques. Cash, accounts receivable,
accounts payable, accrued and other liabilities and short-term revolving credit
agreements and variable rate long-term debt instruments approximate their fair
value.
Advertising. Advertising costs are expensed as incurred and included in
sales, general and administrative expenses. Advertising expenses amounted to
approximately $4,000.
3. BUSINESS AND CREDIT CONCENTRATIONS
Anderson grants credit to its customers, substantially all of whom are
participants in the entertainment industry. Anderson reviews a customer's
credit history before extending credit. Anderson establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends, and other information. For 1996 one customer
accounted for 10% of the Anderson's sales and 12% of net accounts receivable.
A-7
<PAGE>
Anderson Film Industries Corp. and Anderson Graphics LLC
NOTES TO COMBINED FINANCIAL STATEMENTS, continued
4. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements ............... $ 1,480
Machinery and equipment .............. 14,281
----------
15,761
Less, accumulated depreciation and
amortization ........................ 8,831
----------
Property, plant and equipment, net.... $ 6,930
==========
Included above is property and
equipment under capital leases of:
Machinery and equipment ............. 4,401
Less, accumulated amortization ...... 882
----------
Property and equipment under capital
leases, net ........................ $ 3,519
==========
</TABLE>
During 1996 Anderson expensed maintenance, repairs and spare parts of
$471,000.
5. INCOME TAXES
Deferred income taxes are determined in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each year-end based on enacted tax laws and statutory rates applicable to the
periods in which the differences are expected to affect taxable income.
Film elected to be taxed as an S Corporation. Accordingly the shareholders,
instead of Film are liable for any federal income tax. Graphics is a California
Limited Liability Company, and in a similar manner, its members, not Graphics
are liable for any federal income tax. Both companies are taxed by the state at
insignificant rates. Both companies paid the minimum state taxes of an S
Corporation or LLC required by California.
6. LONG-TERM DEBT
The following is a summary of long-term debt (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Term loan ........................ $2,727
Revolving credit facility ........ 1,443
Unsecured promissory note ........ 182
Capital lease obligations ........ 3,294
Subordinated promissory notes .... 1,698
---------
9,344
Less, current maturities ......... 6,142
$3,202
=========
</TABLE>
A-8
<PAGE>
Anderson Film Industries Corp. and Anderson Graphics LLC
NOTES TO COMBINED FINANCIAL STATEMENTS, continued
Aggregate loan and capital lease obligation maturities for the next five years
are as follows (in thousands):
<TABLE>
<CAPTION>
Future
Principal Lease
Payments Payments Total
------------ ---------- -------
<S> <C> <C> <C>
Fiscal years ending in
1997 ................ $ 4,725 $ 1,417 $ 6,142
1998 ................ 204 843 1,047
1999 ................ 143 625 768
2000 ................ 155 377 532
2001 ................ 169 32 201
Thereafter .......... 654 -- 654
------------ ---------- -------
Total .............. $ 6,050 $ 3,294 $ 9,344
============ ========== =======
</TABLE>
Anderson has entered into various capital leases related to the purchase of
equipment and collateralized by that equipment. These obligations are due in
various monthly installments through 2001 including interest at rates ranging
from 9.8% to 28.5%.
The term loan and revolving line of credit are the components of a single
borrowing facility from a financial institution. This facility was
collateralized by substantially all the assets of Anderson, except those assets
acquired by the use of the capital leases noted below, and was guaranteed by the
officers of Film. The agreement had restrictions on payments of dividends,
officers compensation and contains other financial covenants. The term loan was
due March 31, 1997, with varying monthly installments at the lender's reference
rate (8.25% at December 31, 1996) plus 2.5%.
At December 31, 1996 Anderson had borrowed $1,443,000 of its $2,000,000 line
of credit. Anderson was charged interest monthly on the outstanding portion at
the lender's reference rate (8.25% at December 31, 1996) plus 2.5%. Anderson
also incurred an unused line fee of .5% computed monthly on the average unused
portion of the revolving line of credit. The line of credit was due August
1999. Anderson was in default on several of the covenants of this loan
agreement, and such amounts have been classified as current.
The unsecured note bearing interest at 10% is due June 1997.
At December 31, 1996 unsecured promissory notes of approximately $1,255,000,
were payable to a company formerly affiliated with Anderson through common
ownership. These notes were subordinated to the term loan and line of credit
and required varying monthly installments, including interest at 8%, through
February 2003.
Unsecured promissory notes of approximately $443,000 at December 31, 1996 were
payable to shareholders and a party related to a shareholder. Interest was
payable at 9%. The notes were due in August 1999 and were subordinate to the
term loan and line of credit.
7. COMMITMENTS AND CONTINGENCIES
Film has employment agreements with certain members of its creative staff to
secure their services for up to two years at amounts approximating their current
levels of compensation. At December 31, 1996, the Film's remaining aggregate
commitment over the two year period under such contracts is approximately
$2,178,000.
A-9
<PAGE>
Anderson Film Industries Corp. and Anderson Graphics LLC
NOTES TO COMBINED FINANCIAL STATEMENTS, continued
Anderson leases its production and office facilities under a noncancelable
operating lease with current terms through 1998. This lease contains two five
year renewal options, requires additional payments for property taxes,
utilities, insurance and maintenance costs and is subject to periodic escalation
charges. Anderson also rents additional office and warehouse space on a month
to month basis. Facilities rent expense amounted to $514,000. The annual
commitment under the facility lease is summarized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fiscal years ending in:
1997..................... $ 455
1998 ................... 347
-------
Total ................. $ 802
=======
</TABLE>
Anderson leases certain operating and office equipment under operating leases
which expire through 2000. Rent expense related to equipment amounted to
$229,000. The annual commitment under various leases is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Fiscal years ending in:
1997 ................... $ 135
1998 ................... 130
1999..................... 129
2000 ................... 65
-------
Total ................. $ 459
=======
</TABLE>
Anderson is involved in litigation matters arising in the normal course of
business. Management believes that the disposition of these lawsuits will not
materially affect the financial position or results of operations of Anderson.
8. EMPLOYEE BENEFIT PLANS
Anderson has a deferred profit sharing plan (the "Plan") for full time
employees who have completed six months of service. Vesting occurs over a six
year period for contributions made by Anderson. Contributions may be made by
Anderson at the discretion of its Board of Directors. No contribution was made
in 1996.
9. RELATED PARTIES
A shareholder of Film supplied services of $146,000 to Film which was recorded
in furniture and fixtures. Included in accounts payable at December 31, 1996 is
$95,000 owing to this shareholder.
Also at December 31, 1996 there was an outstanding balance of a capital lease
of approximately $81,000 which was owed to a shareholder. The lease accrued
interest at 9%.
10. SUBSEQUENT EVENTS
As noted in Note 1, the assets of Anderson were acquired by a wholly owned
subsidiary of Four Media Company. In conjunction with that transaction, all the
employment agreements, the facility lease agreement, equipment lease agreements
and debt agreements were terminated in favor of various other arrangements
between the parties and Four Media Company.
A-10
<PAGE>
Four Media Company
Unaudited Pro Forma Condensed Financial Statements
On March 10, 1997, AV Acquisition Corp., a wholly owned subsidiary of Four Media
Company ("4MC") acquired the assets of Anderson Film Industries Corp. and
Anderson Graphics, LLC for a total purchase price of $10,333,000. 4MC assumed a
$933,000 capital lease. The balance of the acquisition transaction was either
paid for in cash, primarily from the proceeds of 4MC's recent public offering,
or accrued as additional anticipated transaction costs.
The acquisition is accounted for using the purchase accounting method and,
accordingly, the purchase price will be allocated to the assets acquired based
on the fair market value of such assets at the date of acquisition. Except for
the capital lease noted above, there were no liabilities assumed. To the extent
the purchase price is less than the fair market value of the assets, the cost of
certain assets will be reduced as indicated by the purchase price. The
unaudited condensed pro forma balance sheet and results of operations are based
on available information and certain assumptions regarding the allocation of
purchase price, which could change significantly based on the realizable value
of certain assets, the potential to incur additional transaction related costs,
and other analyses.
The accompanying condensed pro forma combined financial statements illustrate
the effect of the acquisition on 4MC's financial position at August 4, 1996 and
the results of operations for the year then ended and 4MC's results of
operations for the six months ended February 2, 1997 as if the acquisition had
taken place on August 4, 1996 with respect to the balance sheet and July 31,
1995 with respect to the year ended August 4, 1996 and six months ended February
2, 1997 results of operations. A reorganization involving 4MC and 4MC-Burbank,
Inc. occurred on October 17, 1996, and is further described in the Form S-1
dated February 7, 1997.
Pro Forma condensed combined results of operations may not be indicative of
actual results which would have been obtained if the acquisition had occurred on
July 31, 1995 or August 5, 1996.
B-1
<PAGE>
Four Media Company
Unaudited Pro Forma Combined Balance Sheet
As of August 4, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
4MC AVAC Pro Forma 4MC
ASSETS (Historical) (Historical) Adjustments (Pro Forma)
------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
Current assets:
Cash.................................... $ 5,312 $ 59 $ (59)(1) $ 0
(5,312)(3)
Restricted cash......................... 709 0 709
Trade accounts receivable............... 8,622 2,187 0 10,809
Inventory............................... 867 65 932
Prepaid expenses........................ 2,838 318 (318)(1) 2,838
------------- ------------- ------------ ----------------
Total current assets.................... 18,348 2,629 (5,689) 15,288
Property, plant & equipment, net........ 57,665 7,498 583 (3) 65,746
Deferred taxes.......................... 2,000 0 2,000
Long term receivable.................... 2,008 0 2,008
Other assets............................ 1,806 327 (327)(1) 1,806
------------- ------------- ------------ ----------------
Total assets............................ $ 81,827 $ 10,454 $ (5,433) $ 86,848
============= ============= ============ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations.......... $ 6,153 $ 3,805 $ (3,602)(3) $ 6,356
Accounts payable........................ 5,803 1,453 (1,453)(1) 8,491
2,688 (3)
Accrued and other liabilities........... 4,750 380 (380)(1) 6,150
1,400 (2)
------------- ------------- ------------ ----------------
Total current liabilities............... 16,706 5,638 (1,347) 20,997
Long term debt and capital lease 33,978 5,290 (4,560)(3) 34,708
obligations............................
Subordinated debt, due to stockholder... 9,000 442 (442)(3) 9,000
------------- ------------- ------------ ----------------
Total liabilities....................... 59,684 11,370 (6,349) 64,705
Commitments and contingencies
Stockholders' equity:...................
Preferred stock.........................
Common stock............................ 590 (590)(3) 0
Additional paid in capital.............. 15,010 44 (44)(3) 15,010
Foreign currency translation adjustment. 254 0 254
Retained earnings....................... 6,879 (1,550) 1,550 (3) 6,879
------------- ------------- ------------ ----------------
Total stockholders' equity.............. 22,143 (916) 916 22,143
------------- ------------- ------------ ----------------
Total liabilities and stockholders'..... $ 81,827 $ 10,454 $ (5,433) $ 86,848
============= ============= ============ ================
</TABLE>
B-2
<PAGE>
Four Media Company
Unaudited Condensed Statement of Operations
For the fiscal year ended August 4, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
4MC AVAC Adjustments Combined
------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues................................ $ 70,028 $ 14,628 $ 84,656
Cost of services........................ 43,411 10,405 53,816
--------- --------- -------------
Gross profit........................... 26,617 4,223 30,840
--------- --------- -------------
Operating expenses:
Sales, general and administrative....... 11,116 2,030 13,146
Depreciation and amortization........... 10,165 1,545 (391)(4) 11,319
--------- --------- -------------
Total operating expense................. 21,281 3,575 24,465
Income from operations................. 5,336 648 6,375
Interest expense, net................... 3,906 1,049 (947)(5) 4,008
--------- --------- -------------
Income (loss) before income tax benefit 1,430 (401) 2,367
Income tax benefits..................... 994 0 994
--------- --------- -------------
Net income (loss)....................... $ 2,424 $ (401) $ 3,361
========= ========= =============
Net income (loss) per share............. $ 0.37 $ .052
========= =============
Weighted average number of shares
outstanding............................ 6,475 6,475
========= ============
</TABLE>
B-3
<PAGE>
Four Media Company
Unaudited Condensed Statement of Operations
For the six months ended February 2, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
4MC AVAC Adjustments Combined
--------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Revenues................................ $ 38,025 $ 8,929 $ 46,954
Cost of services........................ 24,141 5,896 30,037
--------- --------- ---------------
Gross profit........................... 13,884 3,033 16,917
--------- --------- ---------------
Operating expenses:
Sales, general and administrative....... 6,126 1,104 7,230
Depreciation and amortization........... 5,617 935 (196)(4) 6,357
--------- --------- ---------------
Total operating expense................ 11,743 2,039 13,587
Income from operations................ 2,141 994 3,331
Interest expense, net................... 2,412 685 (474)(5) 2,624
--------- --------- ---------------
Income (loss) before income tax benefit (271) 309 707
Income tax benefits..................... 0 0 0
--------- --------- ---------------
Net income (loss)...................... $ (271) $ 309 $ 707
--------- --------- ---------------
Net income (loss) per share............. $ (0.04) $ 0.11
--------- ---------------
Weighted average number of shares
outstanding............................ 6,475 6,475
--------- ---------------
</TABLE>
B-4
<PAGE>
Four Media Company
Notes to Unaudited Pro Forma Condensed Balance Sheet and Statements of
Operations
1. There was no cash, prepaid expenses or other assets acquired. There was no
accounts payable or accrued and other liabilities assumed.
2. Adjustments to reflect $1,400,000 of accrued transaction costs.
3. Adjustment to reflect the assumption of a $933,000 capital lease and a cash
investment of $8,000,000, derived from 4MC's cash balance, with the excess
being reflected in accounts payable, which was effectively paid from the
proceeds of 4MC's public offering.
4. Adjustment to depreciation results from a bargain purchase resulting in a
lower cost basis of the property, plant and equipment. Depreciation is
calculated using a seven year estimated useful life.
5. Adjustment to interest expense results from reduced amount of debt.
Interest on the assumed capital lease approximates 11%.
B-5
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EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Form 8-K/A of our report
dated September 25, 1996, except for Note 12, as to which the date is November
18, 1996 on our audit of the consolidated financial statements of 4MC-Burbank,
Inc. as of August 4, 1996, and for the year ended August 4, 1996 appearing in
the registration statement on Form S-1 (SEC File No. 333-13721)
COOPERS & LYBRAND L.L.P.
Los Angeles, California
May 23, 1997
C-1
