<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from SEPTEMBER 1, 1999 to DECEMBER 31, 1999
Commission file number: 0-1461
LIBERTY LIVEWIRE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1679856
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
900 N. SEWARD STREET, HOLLYWOOD, CALIFORNIA 90038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (323) 962-5304
Former name of registrant: THE TODD-AO CORPORATION
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
The number of shares of common stock outstanding at September 20, 2000 was
5,265,137 Class A Shares and 31,636,145 Class B Shares.
<PAGE>
LIBERTY LIVEWIRE CORPORATION
(formerly The Todd-AO Corporation)
TRANSITION REPORT ON FORM 10-Q
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INDEX
----------------------------------------------------------------------------------------------------------
<S> <C>
PART I - FINANCIAL INFORMATION Page
Item 1 - FINANCIAL STATEMENTS
The following financial statements are filed herewith:
Condensed Consolidated Balance Sheets, August 31, 1999 and December 31, 1999
(Unaudited) 3
Condensed Consolidated Statements of Income and Retained Earnings for the
Four Months Ended December 31, 1998 (Restated) and 1999 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Four Months Ended
December 31, 1998 (Restated) and 1999 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements for the Four Months
Ended December 31, 1999 (Unaudited) 8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
---------------------------------------------
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signature 16
</TABLE>
2
<PAGE>
LIBERTY LIVEWIRE CORPORATION
(FORMERLY THE TODD-AO CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
----------- -----------
1999 1999
(UNAUDITED)
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 9,739 $ 10,300
Marketable securities .................................... 1,317 416
Trade receivables
(net of allowance for doubtful accounts of $1,215 at
August 31, 1999 and $1,388 at December 31, 1999) ...... 18,169 23,896
Income tax receivable .................................... 634 675
Inventories (first-in first-out basis) ................... 856 786
Deferred income taxes .................................... 755 573
Prepaid deposits and other ............................... 3,005 2,925
----------- -----------
Total current assets ..................................... 34,475 39,571
----------- -----------
INVESTMENTS .............................................. 892 3,718
----------- -----------
PROPERTY AND EQUIPMENT - Cost:
Land ..................................................... 4,270 4,270
Buildings ................................................ 17,688 17,943
Leasehold improvements ................................... 18,603 18,655
Lease acquisition costs .................................. 2,187 2,187
Equipment ................................................ 79,651 85,746
Equipment under capital leases ........................... 1,151 1,151
Construction in progress ................................. 4,803 2,631
----------- -----------
Total .................................................... 128,353 132,583
Accumulated depreciation and amortization ................ (48,305) (52,575)
----------- -----------
Property and equipment - net ............................. 80,048 80,008
----------- -----------
GOODWILL
(net of accumulated amortization of $2,875 at
August 31, 1999 and $3,354 at December 31, 1999) ...... 33,875 33,396
----------- -----------
OTHER ASSETS ............................................. 3,890 2,958
----------- -----------
TOTAL .................................................... $ 153,180 $ 159,651
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
LIBERTY LIVEWIRE CORPORATION
(FORMERLY THE TODD-AO CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
------------ ------------
1999 1999
(UNAUDITED)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable .............................................. $ 5,465 $ 5,039
Accrued liabilities:
Payroll and related taxes .................................. 3,089 2,649
Interest ................................................... 762 1,177
Equipment lease ............................................ 1,588 976
Other ...................................................... 4,706 4,757
Income taxes payable ....................................... 2,247 1,097
Current maturities of long-term debt .......................... 979 840
Capitalized lease obligations - current ....................... 336 341
Deferred income ............................................... 914 2,419
------------ ------------
Total current liabilities ..................................... 20,086 19,295
------------ ------------
LONG-TERM DEBT ................................................ 65,520 63,016
DEFERRED COMPENSATION AND OTHER ............................... 1,439 1,373
DEFERRED GAIN ON SALE/LEASEBACK TRANSACTIONS .................. 4,046 3,770
DEFERRED INCOME TAXES ......................................... 3,254 3,337
------------ ------------
Total liabilities ............................................. 94,345 90,791
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
Class A; authorized 30,000,000 shares of $0.01 par value;
issued 8,124,333 at August 31, 1999 and 8,951,404 at
December 31, 1999 .......................................... 82 91
Class B; authorized 6,000,000 shares of $0.01 par value;
issued and outstanding 1,747,178 ........................... 17 17
Additional capital ............................................ 37,887 47,089
Treasury stock (6000 shares at cost) .......................... (47) (47)
Retained earnings ............................................. 21,432 21,881
Accumulated other comprehensive income (loss) ................. (536) (171)
------------ ------------
Total stockholders' equity .................................... 58,835 68,860
------------ ------------
TOTAL ......................................................... $ 153,180 $ 159,651
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
LIBERTY LIVEWIRE CORPORATION
(FORMERLY THE TODD-AO CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1998 (RESTATED) AND 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
REVENUES ................................................ $ 43,362 $ 43,261
--------------- ---------------
COSTS AND EXPENSES:
Operating costs and other expenses ...................... 33,885 34,787
Depreciation and amortization ........................... 4,519 4,816
Interest ................................................ 1,174 1,713
Equipment lease expense - net ........................... 72 1,231
Other (income) expense - net ............................ 6 130
--------------- ---------------
Total costs and expenses ................................ 39,656 42,677
--------------- ---------------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CHANGE IN ACCOUNTING PRINCIPLE ................... 3,706 584
PROVISION FOR INCOME TAXES .............................. 1,245 135
--------------- ---------------
INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE ............ 2,461 449
CHANGE IN ACCOUNTING PRINCIPLE,
NET OF INCOME TAXES OF $150 .......................... 293 --
--------------- ---------------
NET INCOME .............................................. 2,168 449
RETAINED EARNINGS BEGINNING OF PERIOD ................... 20,510 21,432
LESS: DIVIDENDS PAID ................................... (140) --
--------------- ---------------
RETAINED EARNINGS END OF PERIOD ......................... $ 22,538 $ 21,881
=============== ===============
NET INCOME PER COMMON SHARE:
Net income available to common stockholders (basic) ..... $ 2,168 $ 449
Effect of dilutive securities:
5% convertible debentures ............................ 82 --
--------------- ---------------
Net income available to common stockholders
plus assumed conversions (diluted) ................... $ 2,250 $ 531
--------------- ---------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC .................................. 9,476,263 9,927,077
Effect of dilutive securities:
Stock options ........................................ 313,186 729,263
5% convertible debentures ............................ 643,341 --
--------------- ---------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED ................................ 10,432,790 10,656,340
--------------- ---------------
NET INCOME PER COMMOM SHARE:
Income before change in accounting principle - Basic . $ 0.26 $ 0.05
Change in accounting principle ....................... (0.03) --
--------------- ---------------
Net income - Basic ................................... $ 0.23 $ 0.05
=============== ===============
Income before change in accounting principle - Diluted $ 0.24 $ 0.04
Change in accounting principle ....................... (0.02) --
--------------- ---------------
Net income - Diluted ................................. $ 0.22 $ 0.04
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
LIBERTY LIVEWIRE CORPORATION
(FORMERLY THE TODD-AO CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1998 (RESTATED) AND 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 2,168 $ 449
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization ...................................... 4,519 4,816
Deferred income taxes .............................................. 1 265
Deferred compensation and other .................................... (121) (40)
Foreign currency exchange rate loss ................................ 715 73
Amortization of deferred gain on
sale/leaseback transaction ..................................... (820) (276)
Gain on sale of marketable securities
and investments ................................................ -- (391)
Gain on disposition of fixed assets ................................ (135) (4)
Changes in assets and liabilities (net of acquisitions):
Trade receivables, net .......................................... (5,197) (5,727)
Inventories and other current assets ............................ 164 150
Accounts payable and accrued liabilities ........................ (240) (400)
Accrued equipment lease ......................................... (138) (612)
Income taxes payable, net ....................................... 495 (1,191)
Provision for liabilities and other ............................. (445) (26)
Deferred income ................................................. 1,414 1,505
-------- --------
Net cash provided by (used in) operating activities: .................... 2,380 (1,409)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities and investments ..................... 161 (539)
Proceeds from sale of marketable securities
and investments .................................................... -- 1,381
Proceeds from disposition of fixed assets ............................. 101 23
Capital expenditures .................................................. (5,437) (4,316)
Purchase of 50% investment in 103 Estudio, S.L ........................ -- (2,084)
Other assets .......................................................... (21) 932
-------- --------
Net cash flows used in investing activities: ............................ $ (5,196) $ (4,603)
-------- --------
</TABLE>
6
<PAGE>
LIBERTY LIVEWIRE CORPORATION
(FORMERLY THE TODD-AO CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1998 (RESTATED) AND 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt ............................. $ 8,060 $ 5,748
Payments on long-term debt ............................... (8,405) (792)
Borrowings under capital lease obligations ............... -- 5
Payments on capital lease obligations .................... (24) --
Proceeds from sale/leaseback transaction ................. 8,809 --
Proceeds from issuance of common stock ................... -- 1,612
Treasury stock purchases ................................. (2,896) --
Dividends paid ........................................... (141) --
---------- ----------
Net cash flows provided by financing activities: ........... 5,403 6,573
---------- ----------
Effect of exchange rate changes on cash .................... -- --
---------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS ........................................ 2,587 561
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ..................................... 3,997 9,739
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ........................................... $ 6,584 $ 10,300
========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................. $ 1,055 $ 1,264
========== ==========
Income taxes ............................................. $ -- $ --
========== ==========
SUPPLEMENTAL DISCLOSURES OF
NON CASH FINANCING ACTIVITIES:
Conversion of 5% convertible subordinated notes to Class A
common stock ............................................. $ -- $ 7,599
========== ==========
Unrealized gain on marketable securities ................... $ 55 $ 292
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
LIBERTY LIVEWIRE CORPORATION
(FORMERLY THE TODD-AO CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED) (DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
The financial information provided in this Form 10-Q for the transition period
from September 1, 1999 to December 31, 1999 will be audited and included in the
December 31, 2000 Form 10-K pursuant to the transition rules.
If complete notes were to accompany these statements they would be substantially
in the same form as those to the Company's Financial Statements for the Year
Ended August 31, 1999. In addition the following notes are applicable:
1. In the opinion of management of the Company, all adjustments (which
comprise only normal recurring accruals) necessary for a fair presentation
of the results of operations have been included.
2. The consolidated financial statements include the Company and its wholly
owned subsidiaries.
3. During fiscal year 1999, the Company adopted the Statements of Position
(SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities". The effect
of the adoption was to record an expense, net of tax, of $293 in 1999. The
prior year four month period ended December 31, 1998 has been restated to
reflect this change. The restatement had no impact on previously reported
income before change in accounting principle.
4. Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. When
dilutive, stock options or other contracts are included as share
equivalents in computing diluted earnings per share using the treasury
stock method. In the period covered by this report, the Hollywood Digital
convertible subordinated notes are not included in the calculation of
diluted earnings per share as they are anti-dilutive.
5. In June 1999 all of the issued and outstanding shares of Sound One
Corporation ("Sound One"), a New York corporation, were acquired by the
Company through a Merger Agreement signed June 8, 1999. Todd-AO East, Inc.,
an indirect wholly owned subsidiary of the Company, was merged into Sound
One extinguishing all of the issued and outstanding shares of common stock
of Sound One in exchange for a cash consideration of $11.50 per share. In
consideration of the purchase, the Company paid $11,962 in cash for the
common stock and an additional $353 in cash for costs incurred in
connection with the acquisition. In addition, $800 is represented by
non-compete agreements.
The acquisition was accounted for under the purchase method of accounting.
The following unaudited pro forma consolidated financial information for
the four months ended December 31, 1998 is presented as if the acquisition
had occurred on September 1, 1998. Pro forma adjustments for Sound One are
primarily for amortization of goodwill and non-compete agreements, changes
in executive compensation, depreciation adjustments, interest expense on
borrowings in connection with the acquisition, and income taxes.
8
<PAGE>
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Revenues ..................................... $ 47,604
========
Income before change in accounting principle . $ 2,684
========
Net income ................................... $ 2,391
========
Income per common share - before change in
accounting principle - Basic .............. $ 0.28
========
Net income per common share - Basic .......... $ 0.25
========
Net income per common share - before change
in accounting principle - Diluted ......... $ 0.27
========
Net income per common share - Diluted ........ $ 0.24
========
</TABLE>
6. In December 1998, November 1997 and December 1994 the Company signed
agreements with its bank for the sale/leaseback of certain equipment. The
agreements, as amended, terminate on December 30, 2005, December 1, 2002
and June 30, 2000, respectively, and are being treated as operating leases
for financial statement purposes. On December 30, 1998, November 3, 1997
and December 30, 1994 an aggregate of $8,809, $8,500 and $11,218,
respectively, of sound studio and video equipment was sold and leased back.
The total deferred gain on the transactions to be amortized over five to
seven years is $12,525. The annual lease cost currently is approximately
$3,350.
The net equipment lease expense is as follows for the four months ended
December 31:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Equipment lease costs........................................... $ 892 $ 1,507
Amortization of deferred gain on sale of equipment.............. (820) (276)
--------- ---------
Equipment lease expense, net.................................... $ 72 $ 1,231
========= =========
</TABLE>
In June 2000, one of the Company's sale/leaseback agreements is maturing.
In fiscal year 1999, the Company exercised its option to purchase for
$5,699 the equipment currently being leased under this agreement. The
purchase price exceeds the equipment's estimated fair value, as determined
by an independent valuation, by approximately $788. The Company recorded a
pre-tax loss on equipment lease commitments in this amount during the
fiscal year ended August 31, 1999.
7. The Company had a stock repurchase program under which 2,300,000 shares
could be purchased from time to time in the open market or in private
transactions. As of December 31, 1999, 1,621,756 shares had been
repurchased. 1,555,303 of these shares have been cancelled and returned to
authorized but unissued status. 60,453 of the shares were transferred to
the Company's 401k plan. In April 1999, the stock repurchase program was
suspended.
In connection with the acquisition of Hollywood Digital, the Company issued
convertible subordinated notes. In November 1999, the Company exercised its
right to convert the existing Hollywood Digital notes (totaling $7,599) and
in December 1999 converted the notes to 643,327 shares of Class A common
stock.
8. In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." The Company adopted SFAS No. 130
beginning in the first quarter of fiscal 1999. Comprehensive income is
defined as all changes in shareholders' equity, except those resulting from
investments by or distributions to shareholders. The Company's
comprehensive income is as follows for the four months ended:
9
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1998 1999
------------ ------------
<S> <C> <C>
Net income .................................. $ 2,168 $ 449
Unrealized gain on marketable
securities and long-term investments .... 55 292
Less: Classification adjustment for gains
included in net income .................. -- (224)
Foreign currency translation adjustments .... 715 73
Tax effect on other comprehensive income .... (81) 30
------------ ------------
Comprehensive income ........................ $ 2,857 $ 620
============ ============
</TABLE>
9. The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," for its fiscal year ended August 31,
1999, which changed the way the Company reports information about its
operating segments. The Company's business units have been aggregated into
two reportable operating segments: sound and video services. The Other
column includes corporate related items and income and expenses not
allocated to reportable segments. The Company's reportable operating
segments have been determined in accordance with the Company's internal
management structure, which is organized based on operating activities. The
Company evaluates performance based upon several factors, including segment
income (loss) before income taxes, interest, depreciation and amortization
of intangibles.
Summarized financial information concerning the Company's reportable
segments is shown in the following tables:
<TABLE>
<CAPTION>
SOUND VIDEO
SERVICES SERVICES OTHER TOTAL
---------- ----------- ---------- -----------
FOUR MONTHS ENDED
DECEMBER 31, 1998:
<S> <C> <C> <C> <C>
Revenues............................. $15,886 $ 27,476 $ 0 $ 43,362
Income (loss) before income taxes,
interest, depreciation and
amortization of intangibles....... 2,868 7,015 (484) 9,399
Identifiable assets.................. 30,772 73,162 2,481 106,415
Intangible assets, net............... -- 28,784 -- 28,784
Capital expenditures................. 440 4,997 -- 5,437
Depreciation expense................. 829 3,282 -- 4,111
FOUR MONTHS ENDED
DECEMBER 31, 1999:
Revenues............................. $15,630 $ 27,631 0 $ 43,261
Income (loss) before income taxes,
interest, depreciation and
amortization of intangibles....... (234) 7,516 (169) 7,113
Identifiable assets.................. 40,252 83,118 2,885 126,255
Intangible assets, net............... 7,047 26,349 -- 33,396
Capital expenditures................. 1,072 3,244 -- 4,316
Depreciation expense................. 900 3,437 -- 4,337
</TABLE>
10
<PAGE>
The following table reconciles segment income (loss) before income taxes,
interest, depreciation and amortization of intangibles to the Company's
consolidated net income:
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
DECEMBER 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Income before income taxes, interest,
depreciation and amortization of intangibles............... $ 9,399 $ 7,113
Amortization of intangibles................................... 408 479
Interest expense.............................................. 1,174 1,713
Depreciation.................................................. 4,111 4,337
Provision for income taxes.................................... 1,245 135
---------- -----------
Income before change in accounting principle.................. 2,461 449
Change in accounting principle, net........................... 293
---------- -----------
Net income.................................................... $ 2,168 $ 449
========== ===========
</TABLE>
10. In June 1998, the FASB issued Statement No. 133 ("FAS 133"), "Accounting
For Derivative Instruments and Hedging Activities". In July 1999 the FASB
issued Statement No. 137, "Deferral of the Effective Date of FASB Statement
No. 133" which deferred the effective date of FAS 133 to no later than
January 1, 2001 for the Company's financial statements. FAS 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 Statement
No. 138, "Accounting For Certain Derivative Instruments and Certain Hedging
Activities", an amendment of FAS 133. The Company does not expect to
implement FAS 133 before January 1, 2001 and is in the process of assessing
the impact of the implementation on the financial statements.
11
<PAGE>
11. On June 9, 2000, the Company's stockholders approved the acquisition by
Liberty Media Group of a controlling interest in Todd-AO (and related
merger proposals), voted in favor of certain post-merger business
combinations as set forth in an Agreement between the Company and Liberty
Media, dated as of February 11, 2000, and approved the change of Todd-AO's
name to Liberty Livewire Corporation. In the transaction, each issued and
outstanding share of Todd-AO Common Stock was converted into the right to
receive 0.4 of a share of Class A Liberty Livewire Common Stock and 0.5 of
a share of Class A Liberty Media Group Stock. Subsequent to the stockholder
meeting, the merger and change in name became effective immediately upon
the filing of an Amended Certificate of Incorporation and Certificate of
Merger. The post-merger business combination with Four Media Company was
completed on June 9, 2000, and provided for the acquisition by the Company
from Liberty Media Group of 100% of the capital stock of Four Media Company
in exchange for 16,614,952 shares of the Company's Class B common stock.
On June 9, 2000 and in connection with Liberty Media's acquisition of a
controlling interest in the Company, the Company amended its bank credit
facility and certain sale/leaseback agreements to allow Robert Naify,
Marshal Naify, and Salah M. Hassanein to reduce their aggregate ownership
interest and voting power in the Company below the minimums formerly
required under such credit agreements. In connection with the Company's
post-merger acquisition of Four Media Company ("4MC"), the Company also
obtained a written waiver which allowed the exclusion of 4MC's existing
indebtedness from certain covenants and restrictions under the credit
agreement and confirmed the existing indebtedness of 4MC as non-recourse to
the Company and its subsidiaries.
On July 19, 2000, Liberty SEG Acquisition Sub LLC ("Liberty Sub"), of which
Liberty Media was the sole member, acquired the post-production content and
sound editorial businesses of SounDelux Entertainment Group of Delaware,
Inc. ("SounDelux"), for $90 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 the Company's Class B common stock pursuant to a previously
negotiated contribution agreement between Liberty Media and the Company.
On August 10, 2000, the Board of Directors of the Company approved the
change of the Company's fiscal year end from August 31 to December 31.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
1. Material Changes in Financial Condition
Under a new long-term credit agreement dated June 30, 1999 and expiring on
May 31, 2004, the Company may borrow up to $80,000 in revolving loans until
May 31, 2002. On that date and thereafter, the revolving loan commitment
will reduce incrementally to nil by the expiration of the agreement. Prior
to May 31, 2002 the Company may request an automatic extension of the
revolving period of the facility for one year that will also extend the
term period and the expiration date of the agreement. Prior to December 31,
2000 the Company may make a one-time request to increase the credit line by
up to $20,000. Such increase is at the sole discretion of the Banks;
however, the Company has the option to bring a new bank to the syndicate,
thereby avoiding the Banks' discretion. The Company also has the
availability of Standby Letters of Credit up to $20,000 under the facility.
The credit facility provides for borrowings based on the Bank's Reference,
CD, and LIBOR rates. The facility includes commitment fees on the unused
balance of the credit facility. Other material restrictions include: the
Fixed Charge Coverage Ratio may not be less than 1.25:1; Other Indebtedness
(excluding up to $35,000 in Capital or Off Balance Sheet Leases, the
convertible subordinated notes issued in the Hollywood Digital acquisition,
non-recourse debt up to $50,000 of less than 100% owned Joint Ventures,
$5,000 in purchase money mortgage financing and the existing TeleCine
mortgage debt for the Charlotte Street property) may not exceed $10,000;
Leverage Ratio is not to exceed 4:1 through May 31, 2001 (decreasing
thereafter); Net Worth is not to be less than $54,000 plus net proceeds
from issuance of equity plus 50% of consolidated net income subsequent to
May 31, 1998 (excluding the effect of stock repurchases up to $3,000 from
the closing date through the fiscal year ending August 31, 2000). The
Company is in compliance with its covenants.
In January 1998 the Company entered into a three-year interest rate swap
agreement for a notional amount of $10,000 to hedge the impact of
fluctuations in interest rates on its floating rate credit facility. Under
the agreement, the Company is obligated to pay 5.65% in exchange for
receiving three-month LIBOR on the notional amount. Settlements are
quarterly and the contract expires in March 2001.
Through December 31, 1999 the Company has signed three agreements with its
bank to implement the sale/leaseback of certain equipment. An aggregate of
$28,527 of sound studio and video equipment has been sold and leased back.
The agreements, as amended, terminate on June 30, 2000, December 1, 2002
and December 30, 2005. All the agreements provide for interest based on
LIBOR rates.
The credit facilities are available for general corporate purposes, capital
expenditures and acquisitions. Management believes that funds generated
from operations, proceeds from the sale/leaseback agreements and the
borrowings available under the restated credit facility will be sufficient
to meet the needs of the Company at least through the next twelve months.
In June 1997, the Company used $15,760 under its credit facility to acquire
the assets of Hollywood Digital. In May 1998, the Company used $14,000 to
fund a substantial portion of the TeleCine acquisition. In June 1999,
$11,962 was used to fund the Sound One acquisition. In September 1999,
$2,084 was used to acquire a 50% interest in a Barcelona-based sound
facility named 103 Estudio, S.L. As of December 31, 1999, the Company had
$57,074 outstanding under the credit facility, which has been used
principally to fund the acquisitions described and for capital
expenditures.
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The Company has exercised its option to purchase for $5,699 the equipment
currently being leased under the sale/leaseback transaction maturing in
June 2000. The purchase is expected to be funded by borrowings under credit
facilities.
In December 1999, the Company converted subordinated notes totaling $7,599
issued in connection with the Hollywood Digital acquisition into 643,327
shares of Todd-AO Class A common stock.
The Company expects capital expenditures of approximately $14,000 for its
Los Angeles, Santa Monica, New York City, Atlanta and London facilities in
fiscal 2000. These capital expenditures are expected to be financed by
internally generated funds and borrowings under credit facilities.
The Company does not believe that it is currently exposed to any material
foreign exchange rate risk and, at present, does not have a policy for
managing such risk beyond the utilization of local currency borrowings to
fund foreign acquisitions whenever possible.
2. Material Changes in Results of Operations
FOUR MONTHS ENDED DECEMBER 31, 1999 COMPARED TO FOUR MONTHS ENDED DECEMBER
31, 1998
Revenues remained relatively flat, decreasing $101 from $43,362 to $43,261.
Increases in revenue due to the acquisition of Sound One in June 1999
($3,510) were offset by lower utilization and activity in the Company's
other sound services divisions ($3,766) while the Company's video services
divisions remained flat, increasing revenues by $155.
Operating costs and other expenses also remained relatively flat,
increasing $902 from $33,885 to $34,787. Cost increases related to the
acquisition of Sound One ($2,907) were offset by cost decreases in the
Company's other sound and video divisions as a result of the revenue
decreases described above.
Depreciation and amortization increased $297 or 6.6% primarily due to the
equipment and goodwill acquired with the Sound One acquisition.
Interest expense increased $539 or 45.9% primarily due to the Sound One
acquisition financing.
Net equipment lease expense increased $1,159 primarily as a result of the
sale/leaseback to the Company's financial institution of certain equipment
in December 1998.
Net other expense increased $124 primarily due to costs incurred to date in
connection with the Liberty Media Corporation merger ($560) reduced by
gains from the sale of investments ($413) in the current period. The
Company expects to incur additional costs in connection with the Liberty
merger.
As a result of the above, income before taxes and net change in accounting
principle decreased $3,122 from $3,706 to $584 and income before net change
in accounting principle decreased $2,012 from $2,461 to $449.
The Company elected early adoption of Statements of Position No. 98-5,
"Reporting on the Costs of Start-Up Activities" in the prior year and
reported the cumulative effect of a change in accounting principle, as
described in Accounting Principles Board Opinion No. 20, in the amount of
$293, net of income tax benefit in the amount of $150.
As a result of the above, net income after net change in accounting
principle decreased $1,719 from $2,168 to $449.
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MATERIAL CHANGES IN CASH FLOWS
For the four months ended December 31, 1999, the Company used $1,409 in
cash from operating activities compared to cash generated of $2,380 in
1998. Net income of $449 adjusted for depreciation and net amortization of
$4,540 provided cash of $4,989 in 1999 compared to $5,867 in 1998.
Decreases in accounts payable and other liabilities were $724 in 1999
compared to an increase of $1,086 in 1998. Cash provided by operations were
used to pay down accounts payable and other liabilities and to fund trade
receivables in 1999 and cash provided by operations was utilized primarily
to fund trade receivables in 1998.
Borrowings from the Company's credit facility of $5,748 supplemented by net
cash generated from the sale of marketable securities and other assets of
$1,404 were also used to acquire a 50% interest in a Barcelona-based sound
facility named 103 Estudio, S.L. for $2,084 and to reinvest in capital
assets of the Company.
FORWARD LOOKING STATEMENTS
When used in this document, the words "believes", expects", anticipates",
"intends", and similar expressions are intended to identify forward looking
statements. Such statements are subject to a number of known risks and
uncertainties. Actual results in the future could differ materially from
those described in the forward looking statements. Such risks and
uncertainties include, but are not limited to, industry-wide market factors
such as the timing of, and spending on, feature film and television
programming production, foreign and domestic television advertising, and
foreign and domestic spending by broadcasters, cable companies and
syndicators on first run and existing content libraries. In addition, the
failure of the company to maintain relationships with key customers and
certain key personnel, more rapid than expected technological obsolescence,
and failure to integrate acquired operations in expected time frames could
also cause actual results to differ materially from those described in
forward looking statements.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation and similar claims incidental to the
conduct of its business. None of the pending actions is considered
material.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). (1) A report on Form 8-K was filed on December 22, 1999 disclosing an
Agreement and Plan of Merger entered into on December 10, 1999 by
and among AT&T Corp., B-Group Merger Corp., Liberty Media
Corporation and The Todd-AO Corporation.
(2) Exhibit 27 Financial Data Schedule.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LIBERTY LIVEWIRE CORPORATION
(formerly the Todd-AO Corporation)
September 22, 2000 /s/ Jeffery J. Marcketta
------------------ ----------------------------------
Date Jeffery J. Marcketta
Chief Financial Officer
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