SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 8-K
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 25, 1998
IWERKS ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-22558 95-4439361
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
4540 West Valerio Street
Burbank, California 91505-1045
(Address of Principal Executive Offices)
(818) 841-7766
(Registrant's Telephone Number)
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ITEM 5. OTHER EVENTS
Reference is made to the press release of Registrant, issued
on March 25, 1998, which contains information meeting the
requirements of this Item 5, and which is incorporated herein by
this reference. A copy of this press release is attached to this
Form 8-K as Exhibit 99.1.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
March 25, 1998 IWERKS ENTERTAINMENT, INC.
By: /s/ Bruce Hinckley
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Bruce Hinckley
Chief Financial Officer
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EXHIBIT INDEX
EXHIBITS PAGE NUMBER
99.1 Press Release dated March 25, 1998.
BURBANK, Calif.--(ENTERTAINMENT WIRE)--March 25, 1998-- Iwerks
Entertainment Inc. (Nasdaq NM:IWRK - news) announced that
Institutional Shareholder Services (ISS), a leading provider of
proxy voting and corporate governance services, issued a Proxy
Analysis on March 24, 1998, that concludes that Iwerks' proposed
merger with Showscan Entertainment Inc. (Nasdaq NM:SHOW - news)
is "beneficial to both Iwerks and its shareholders" and that the
merger "warrants shareholder support."
ISS prepared the report after meeting with Iwerks management and
financial advisers on March 23, 1998 and after speaking with
representatives of Providence Capital regarding their concerns.
In its report, ISS states that it does not agree with
Providence's argument that Iwerks has not provided sufficient
information regarding the merger.
ISS said: "In our opinion, the information contained in the proxy
statement and the recent press releases is adequate."
ISS states that it agrees with Iwerks' basic contentions
regarding the benefits of the merger, including that "the merger
will generate positive cash flows and be accretive to earnings
per share in fiscal year 1999 and fiscal year 2000"; that "the
steady flow of cash resulting from the merger will be used...to
accelerate the growth of (Iwerks') sales in the giant screen
theater industry"; and that there is a well-defined integration
plan in place."
Charles Goldwater, Iwerks' president and chief executive officer,
said: "ISS was very thorough in their analysis of our proposal.
Their agreement with our assertions supports our confidence that
this merger is beneficial to Iwerks and its shareholders, and will
position the company to significantly and immediately begin to
advance our strategic growth initiatives."
In an effort to continue its dialogue with and be responsive to
shareholders regarding the proposed merger, Iwerks Thursday also
provided supplemental information that serves to clarify certain
of the financial benefits of the proposed merger.
Iwerks had previously stated that the cash position of the
combined company for the fiscal year ending June 30, 1999, is
estimated to be $8.0 million, as compared with $5.5 million
estimated for Iwerks alone. In September 1999, $5.69 million of
debt assumed from Showscan will mature.
Bruce Hinckley, executive vice president and chief financial
officer of
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Iwerks, said: "Based on current conditions in the financial
markets, and the current and financial condition of the company,
we believe that this debt can be refinanced when it matures in
1999."
"The company, on Dec. 31, 1997, had long-term debt consisting of
lease obligations of $1,511,000 and no other long-term
liabilities. The combined companies will have sufficient assets
to secure a loan of this size."
Iwerks also expanded upon its assertion that its recurring
revenues would increase significantly as a result of a merger
with Showscan. Iwerks said that a principal reason for
consummating the merger is to increase recurring revenues,
primarily from increased film license revenues expected to be
realized from a larger installed base of theaters and a larger
film library.
Film license and other recurring revenues have historically been
a more stable source of revenues for Iwerks with less volatility
from period to period compared with Iwerks' other revenue
sources.
As discussed in the company's proxy statement, revenues from
hardware sales can fluctuate substantially from quarter to
quarter as a result of the timing of theater system deliveries,
contract signings, the rate of completion of contracts and other
factors.
Further, Iwerks' hardware sales in recent periods have been
significantly impacted by the recession in its important
Asia-Pacific market, which is expected to have a continuing
negative impact in the immediate future.
As previously disclosed, as a result of these factors and
merger-related and other non-recurring costs, Iwerks expects to
report a loss in the third quarter. Film license and other
recurring revenues can serve to counteract the cyclical nature of
hardware sales by providing a base of more stable revenue
streams.
The company's estimate of 1999 EBITDA necessarily reflects an
assumed level of non-recurring revenues, which are inherently
more difficult to predict and could be adversely impacted by
continuing economic difficulties in the countries where Iwerks
and Showscan do business. However, Iwerks said that it has a
strong contract backlog, much of which will be recognized in
fiscal 1999.
Iwerks said it is committed to achieving the estimated EBITDA
figure of $7.6 million for the combined company (versus
$1.7 million estimated for Iwerks alone) by aggressively
cutting expenses if revenue targets are
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not being met.
Iwerks further elaborated on its point that the merger with
Showscan is expected to result in a significant reduction of
overhead costs, resulting in incremental overhead costs of
approximately $1 million while increasing revenue by more than $6
million, by saying that its costs projections include Iwerks'
intention to continue to substantially reduce its own overhead as
well as that of Showscan's upon completion of the merger.
Both Iwerks' and Showscan's board of directors have unanimously
approved the merger and recommend that shareholders vote in favor
of it. Iwerks' shareholder meeting to vote on the proposed merger
and other matters will be held at 10 a.m. local time on March 31,
1998, at Iwerks' offices, 4540 West Valerio St., Burbank, Calif.
Iwerks Entertainment is one of the world's leading providers and
distributors of immersive entertainment attractions such as 2-D
and 3-D ride simulation, 2-D and 3-D giant screen theaters,
360-degree video dance clubs and other attractions.
Serving prestigious entertainment, information and marketing
providers, more than 250 Iwerks attractions can be found
worldwide at location based entertainment centers, casinos,
resorts, nightclubs, restaurants, museums, fairs, festivals and
more. Visit Iwerks Entertainment on the Internet at
WWW.IWERKS.COM.
FORWARD-LOOKING STATEMENT DISCLOSURE
With the exception of the historical information, certain matters
discussed herein (including, but not limited to, the anticipated
effect of the Showscan acquisition, the company's strategic and
operating plans, projected operating results and projected cash
position) are forward-looking statements within the meaning of
Section 27A of the Securities Act. Such forward-looking
statements are subject to various risks and uncertainties. Actual
results could differ materially from those currently anticipated
due to a number of factors, including the following: (i) the
company's ability to effectively integrate the combined
companies' operations, achieve anticipated cost savings, maintain
and grow recurring revenues and manage the resulting larger
operations; (ii) the company's performance under its existing
contracts and its ability to achieve future contracts; (iii) the
company's ability to generate future revenues, control the level
of costs of sales, the ability of the company to maintain sales
prices at levels that maintain gross margins, and the level of
selling, general and administrative expenses; (iv) the company's
ability to refinance the Showscan debt,
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which could be adversely affected by a change in conditions in
the financial markets or a deterioration in the company's
business or financial condition; (v) the success of the company's
film licensing, distribution and owned and operated strategies;
(vi) the company's ability to secure additional sponsors for its
Reactors or alternative sources of revenues; (vii) the success of
the company's film software; (viii) general economic conditions
in the United States and the company's international markets, and
(ix) the other factors discussed under the caption, "Risk
Factors," in the Company's Proxy Statement filed with the
Securities and Exchange Commission in connection with the
Showscan merger. The company does not ordinarily make projections
of future operating performance and undertakes no obligation to
publicly release the result of any revisions to the projections
or any other forward-looking information included herein that may
be made to reflect any future events or circumstances. All
stockholders are urged to read the proxy statement in full,
particularly the discussion under the caption, "Risk Factors."
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Contact:
BSMG Worldwide
Joseph Kessler, 310/442-2532
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