SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1995
Commission File No. 0-17342
LIVE ENTERTAINMENT INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-4178252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15400 Sherman Way, Van Nuys, California 91406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 988-5060
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 whether the Registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
As of October 31, 1995, there were 2,418,448 shares of the
Registrant's Common Stock, 4,197,302 shares of the Registrant's Series
B Cumulative Convertible Preferred Stock and 15,000 shares of the
Registrant's Series C Convertible Preferred Stock outstanding.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Balance Sheets at
December 31, 1994 and September 30, 1995 . . . . . . . 1
Condensed Consolidated Statements of
Operations for the three and nine months ended
September 30, 1994 and 1995. . . . . . . . . . . . . . 2
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 30, 1994 and 1995. . . . . . . . . . . . . . 3
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . 4-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . 9-13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 14-15
ITEM 3(b).DEFAULTS UPON SENIOR SECURITIES - DIVIDEND
ARREARAGE ON PREFERRED STOCK . . . . . . . . . . . . . 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . 16-17
<PAGE>
PART I - FINANCIAL INFORMATION
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands)
December 31, September 30,
1994 1995
ASSETS
Cash and cash equivalents, including restricted
cash of $4,663 and $2,388 . . . . . . . . . . . . . $ 24,264 $ 44,460
Accounts receivable, less allowances of $19,469
in 1994 and $20,496 in 1995 . . . . . . . . . . . . 1,950 7,149
Inventories. . . . . . . . . . . . . . . . . . . . . 7,842 7,960
Receivable related to assets held for sale . . . . . 17,916 4,344
Property and Equipment, net. . . . . . . . . . . . . 1,400 1,267
Film Rights, net of accumulated amortization
of $466,260 and $505,568. . . . . . . . . . . . . . 71,108 50,061
Other Assets . . . . . . . . . . . . . . . . . . . . 2,443 2,095
Goodwill, net of accumulated amortization of
$36,118 and $39,061 . . . . . . . . . . . . . . . . 29,871 26,928
$ 156,794 $ 144,264
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . $ 7,305 $ 8,077
Accrued expenses and deferred revenue. . . . . . . . 11,483 13,076
Notes payable. . . . . . . . . . . . . . . . . . . . 3,333 9,167
Increasing Rate Senior Subordinated Notes due
1999, including capitalized interest of
$16,871 and $13,188 . . . . . . . . . . . . . . . . 56,871 53,188
Film rights obligations. . . . . . . . . . . . . . . 19,776 16,853
Liabilities related to assets held for sale. . . . . 13,542 --
Dividends payable. . . . . . . . . . . . . . . . . . 2,131 2,077
Income taxes payable and deferred income taxes . . . 6,636 6,284
Total liabilities . . . . . . . . . . . . . . . . . 121,077 108,722
Stockholders' Equity:
Series B Cumulative Convertible Preferred Stock--
authorized 9,000,000 shares; $1.00 par value;
$56,000,000 (1994) and $41,973,000 (1995)
liquidation preference; 5,600,000 (1994)
and 4,197,302 (1995) shares outstanding . . . . . . 5,600 4,197
Series C Convertible Preferred Stock--15,000 shares
authorized and outstanding; $1.00 par value;
$16,787,154 liquidation preference. . . . . . . . . 15 15
Common Stock--authorized 24,000,000 shares; $0.01
par value; 2,418,720 (1994) and 2,418,448 (1995)
shares outstanding. . . . . . . . . . . . . . . . . 24 24
Additional paid-in capital . . . . . . . . . . . . . 136,753 130,424
Retained deficit . . . . . . . . . . . . . . . . . . (106,675) (99,118)
35,717 35,542
$ 156,794 $ 144,264
See notes to condensed consolidated financial statements.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1995 1994 1995
Net Sales . . . . . . . . . . . . . . . . .$33,845 $ 40,060 $81,261 $107,021
Cost of goods sold . . . . . . . . . . . . . 32,481 36,814 71,248 88,749
GROSS PROFIT. . . . . . . . . . . . . . . 1,364 3,246 10,013 18,272
Operating Expenses:
Selling, general and administrative
expenses. . . . . . . . . . . . . . . . . 5,647 3,778 13,813 10,546
Amortization of goodwill. . . . . . . . . . 981 981 2,943 2,943
6,628 4,759 16,756 13,489
(5,264) (1,513) (6,743) 4,783
Disposal of VCL/Carolco Communications GmbH:
Net Sales . . . . . . . . . . . . . . . . . 3,761 5,261 14,643 16,143
Costs and Expenses. . . . . . . . . . . . . 3,761 5,261 14,643 16,143
-- -- -- --
Gain on disposal of VCL . . . . . . . . . . -- 2,913 -- 2,913
-- 2,913 -- 2,913
OPERATING (LOSS) PROFIT . . . . . . . . . (5,264) 1,400 (6,743) 7,696
Interest and other income . . . . . . . . . 265 723 1,636 1,816
Interest expense. . . . . . . . . . . . . . (1,627) (528) (5,427) (1,355)
(LOSS) INCOME BEFORE INCOME TAXES . . . . (6,626) 1,595 (10,534) 8,157
Income tax expense. . . . . . . . . . . . . -- -- 300 600
NET (LOSS) INCOME . . . . . . . . . . . .$(6,626) $ 1,595 $(10,834) $7,557
Net (loss) income per common share:
Primary . . . . . . . . . . . . . . . . . $(3.87) $ (0.15)$ (7.38) $ 0.49
Fully diluted . . . . . . . . . . . . . . $(3.87) $ (0.15)$ (7.38) $ 0.49
Weighted average number of shares outstanding:
Primary . . . . . . . . . . . . . . . . . 2,419 2,419 2,419 2,435
Fully diluted . . . . . . . . . . . . . . 2,419 2,419 2,419 2,435
See notes to condensed consolidated financial statements.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Nine Months Ended
September 30,
1994 1995
OPERATING ACTIVITIES:
Net (loss) income . . . . . . . . . . . . . . . . . $(10,834) $ 7,557
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization of property
and equipment. . . . . . . . . . . . . . . . . . . 458 532
Amortization of goodwill. . . . . . . . . . . . . . 2,943 2,943
Amortization of film rights . . . . . . . . . . . . 34,491 48,098
Income taxes payable and deferred income taxes. . . 300 (352)
(Increase) decrease in operating assets:
Accounts receivable . . . . . . . . . . . . . . . (4,740) (5,199)
Inventories . . . . . . . . . . . . . . . . . . . (479) (118)
Receivable related to assets held for sale. . . . 76,113 13,572
Receivable from stockholder . . . . . . . . . . . 8,047 --
Other assets. . . . . . . . . . . . . . . . . . . 133 348
Increase (decrease) in operating liabilities:
Accounts payable, accrued expenses
and deferred revenue . . . . . . . . . . . . . . 2,706 2,366
Liabilities related to assets held for sale . . . (41,022) (13,542)
Acquisition of and adjustment to film rights. . . (35,899) (27,051)
Film rights obligations incurred. . . . . . . . . 35,899 29,480
Payments on film rights obligations . . . . . . . (39,853) (32,404)
Cash provided by operating activities . . . . . 28,263 26,230
INVESTING ACTIVITIES:
Acquisition of property and equipment . . . . . . . (309) (399)
Cash used for investing activities. . . . . . . (309) (399)
FINANCING ACTIVITIES:
Issuance of long-term obligations . . . . . . . . . -- 10,000
Payments on long-term obligations . . . . . . . . . (14,516) (7,850)
Repurchase of Series B Cumulative
Preferred Stock . . . . . . . . . . . . . . . . . -- (5,460)
Dividends paid on Series B Cumulative
Preferred Stock . . . . . . . . . . . . . . . . . (2,250) (2,325)
Cash (used for) financing activities. . . . . . (16,766) (5,635)
Increase in cash and cash equivalents . . . . . 11,188 20,196
Cash and cash equivalents at beginning
of period. . . . . . . . . . . . . . . . . . . 42,358 24,264
Cash and cash equivalents at end of period. . . $ 53,546 $ 44,460
See notes to condensed consolidated financial statements.
<PAGE>
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1995
Note 1 - Summary of Significant Accounting Policies
Background and Operations: LIVE Entertainment Inc. ("LIVE" or
the "Company") was formed in 1988 and its largest ongoing
businesses are LIVE Home Video ("LHV") and LIVE International
("LI"), which acquire rights to theatrical motion pictures,
children's films and special interest programs (including CD-ROM)
which they market and distribute in all media to wholesalers,
retailers and consumers in the United States and Canada (LHV) and
internationally (LI). As part of its international activities, the
Company also owned an 81% interest in VCL/Carolco Communications
GmbH ("VCL"), a home video distribution and marketing company
headquartered in Munich, Germany. VCL's year-end is November 30.
In February 1995 the Company executed a preliminary agreement
providing for the disposal of its interest in VCL. In November
1995, LIVE completed this sale transaction (See Note 5).
The Company's continuing operations are principally in a single
business segment, the production, distribution and wholesale sale
of a broad variety of entertainment software products.
Basis of Presentation: The accompanying consolidated financial
statements and footnotes are unaudited and are condensed, as
contemplated by the Securities and Exchange Commission under Rule
10-01 of Regulation S-X. Accordingly, they do not contain all
disclosures required by generally accepted accounting principles,
but in the opinion of management of LIVE include all adjustments
(consisting only of normal recurring accruals) necessary to fairly
state the financial position and results of operations of LIVE.
The financial statements include the accounts of LIVE and its
subsidiaries - LHV, LI and VCL. The financial statements reflect
LIVE's interests in VCL as "Assets Held For Sale" and "Liabilities
Related To Assets Held For Sale" and have been restated to account
for VCL as a disposal of a portion of a line of business. All
significant intercompany balances and transactions have been
eliminated.
LIVE suggests that these condensed consolidated financial
statements be read in conjunction with its consolidated financial
statements for the year ended December 31, 1994 and related notes
thereto included on Form 10-K filed with the Securities and
Exchange Commission.
Certain reclassifications of 1994 amounts have been made in
order to conform with the 1995 financial statement presentation.
Net (Loss) Income Per Common Share:
Primary:
Per share information has been determined on the basis of
2,418,722 weighted average number of shares outstanding for the
three and nine months ended September 30, 1994 and 2,418,473 and
2,435,054 weighted average shares outstanding for the three and
nine months ended September 30, 1995, respectively. The net (loss)
income per common share for the three and nine months ended
September 30, 1994 and 1995 gives effect to the accretion of the
redemption value of the Series B Cumulative Convertible Preferred
Stock ("Series B Preferred Stock") of $1,800,000 and $4,200,000,
and $1,259,000 and $4,089,000 respectively. The net (loss) income
for the three and nine months ended September 30, 1994 and 1995
also gives effect to dividends of $942,000 and $2,819,000 and
$696,000 and $2,271,000, respectively, on both the Series B
Preferred Stock and the Series C Convertible Preferred Stock
("Series C Preferred Stock").
Fully Diluted:
Conversion of the Series B Preferred Stock and the Series C
Preferred Stock was not assumed for the three and nine months ended
September 30, 1994 and 1995, because the effect thereof would have
been antidilutive.
Note 2 - Extension Of Distribution Agreement
On May 27, 1995, LHV entered into a three year extension of its
distribution agreement with Warner-Elektra-Atlantic Corporation
("WEA"). Under the terms of the agreement, WEA advanced
$10,000,000 to LHV, recoupable from distribution revenues during
the three year term of the agreement at $277,778 per month,
including interest at LIBOR, plus 0.2%. In order to obtain the
advance, LHV granted WEA a second priority security interest in
substantially all of LHV's assets. As of September 30, 1995, there
was $9,166,667 outstanding. Interest on the advance at September
30, 1995 was 6.26%.
Note 3 - Series B Preferred Stock
Although LIVE has no obligation to redeem any Series B Preferred
Stock, subject to the availability of funds and the prior approval
of its Board of Directors and its lenders, LIVE may acquire shares
of its Series B Preferred Stock from time to time, either through
private purchases or through open market purchases. On March 7,
1995, LIVE acquired, and subsequently retired, 1,400,000 shares of
Series B Preferred Stock at a price of $3.90 per share.
<PAGE>
Note 4 - Litigation
On January 9, 1992, a purported class action lawsuit was filed
in the U.S. District Court, Central District of California, by
alleged stockholders of LIVE against LIVE, Carolco Pictures Inc.
("Carolco") and certain of LIVE's past and present directors and
executive officers. The complaint alleges, among other things,
that the defendants violated Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder (a) by concealing the true value of certain
of LIVE's assets, and overstating goodwill, stockholders' equity,
operating profits and net income in LIVE's Form 10-K for the year
ended December 31, 1990, in its 1990 Annual Report and in its Forms
10-Q for the quarters ended March 31, 1991 and June 30, 1991, and
(b) by materially understating the true extent of the write off of
goodwill in connection with the sale of substantially all of the
assets of LIVE's wholly owned subsidiary, Lieberman Enterprises
Incorporated ("Lieberman"), to Handleman Company ("Handleman") in
July 1991. In addition, the complaint alleges that certain of the
defendants are liable as controlling persons under Section 20 of
the Exchange Act and alleges that certain other defendants are
liable for aiding and abetting the primary violations.
Subsequently, two additional lawsuits were filed in the U.S.
District Court, Central District of California, by alleged
stockholders of LIVE against the same persons and entities who were
defendants in the original actions, making substantially the same
allegations as were made in the first lawsuit. On March 30, 1992,
these lawsuits were consolidated. Further, in April 1992, an
amended complaint was filed in the consolidated action, lengthening
the alleged class period and adding as defendants certain
additional officers, directors and affiliates of LIVE and Carolco,
including Pioneer Entertainment (USA) L.P. (formerly Pioneer LDCA,
Inc.) ("PEA"), as well as a lender to LHV and Carolco. On June 17,
1992, the U.S. District Court, Central District of California,
entered an order conditionally certifying the class, subject to
possible decertification after discovery is completed. On January
27, 1993, a second amended complaint was filed in the consolidated
class action making additional and modified allegations against
certain of the defendants claiming they are liable as controlling
persons under Section 20 of the Exchange Act and claiming that
certain other defendants are liable for aiding and abetting the
primary violations. On April 19, 1993, the court issued a ruling
dismissing defendant PEA from this lawsuit.
In February 1992, a purported class action lawsuit was filed in
the U.S. District Court, District of Delaware, by an alleged holder
of Carolco's public debt, against LIVE, Carolco and certain
directors and executive officers of Carolco. The Delaware
complaint alleges, among other things, that the defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder by concealing the true value of certain of LIVE's
assets, and overstating goodwill, stockholders' equity, operating
profits and net income in LIVE's Form 10-K for the year ended
December 31, 1990 and in its Forms 10-Q for the quarters ended
March 31, 1991 and June 30, 1991. In April of 1992 this lawsuit
was transferred to the U.S. District Court, Central District of
California. The proceedings are being coordinated with the
consolidated action described in the preceding paragraph. On July
17, 1992, the U.S. District Court, Central District of California,
entered an order conditionally certifying the class, subject to
possible decertification after discovery is completed.
In May 1994, a breach of contract claim was filed against a
subsidiary of the Company, claiming non-payment of royalties from
licensing of films in foreign territories and deprivation of
royalty payments as a result of misallocation of certain values
asserted with licensed film properties. Films subject to the
complaint were contained in the assets of Vestron, Inc. purchased
by the Company in July 1991, and the period covered includes the
license periods both prior to, and subsequent to, the acquisition
date by the Company. The Company filed a reply brief (including a
Motion to Dismiss) on October 5, 1994, and such Motion to Dismiss
was granted on the grounds of forum non conviens. Plaintiff filed
a complaint in New York on March 22, 1995. The Company filed its
answer, affirmative defenses and counterclaim on April 20, 1995.
Plaintiff filed a motion for class certification on September 8,
1995 to which the Company filed its opposition to the motion on
November 6, 1995.
Discovery is currently taking place in the above lawsuits.
Management and counsel to LIVE are unable to predict the
ultimate outcome of the above-described actions at this time.
However, LIVE and the other defendants believe that all these
lawsuits are without merit and intend to defend them vigorously.
Accordingly, no provision for any liability which may result has
been made in LIVE's condensed consolidated financial statements.
In the opinion of management, these actions, when finally concluded
and determined, will not have a material adverse effect upon LIVE's
financial position or results of operations.
Other than as described above, there are no material legal
proceedings to which LIVE or any of its subsidiaries are a party
other than ordinary routine litigation in the ordinary course of
business. In the opinion of management (which is based in part on
the advice of outside counsel), resolution of these matters will
not have a material adverse impact on LIVE's financial position or
results of operations.
<PAGE>
Note 5 - Subsequent Event
As a result of the Board of Directors' decision to dispose of
the Company's interests in VCL, the results of operations for VCL
for the three months ended September 30, 1994 have been restated to
account for the sale of VCL as a disposal of a portion of a line of
business. Accordingly, a provision for losses during the phase-out
period totaling $3,885,000 for VCL had been accrued and accounted
for at December 31, 1993 and was not included in the results of
operations for the three and nine months ended September 30, 1994
and 1995. In November 1995, the Company and certain of its
affiliates, on the one hand, and Datty Ruth, the owner of 19% of
VCL, and Apricot Computer GmbH (Apricot), on the other, consummated
a transaction whereby the Company s 81% interest in VCL, as well as
all receivables owed by VCL to the Company or its affiliates, was
transferred to Ruth and Apricot. The total consideration received
by the Company and its affiliates in connection with such
transaction is approximately $7,444,000, of which approximately
$3,100,000 was received in February 1995. The remaining $4,344,000
was received in November 1995 and was recorded as a receivable
related to assets held for sale as of September 30, 1995. The
Company reflected a gain of approximately $2,913,000 in the quarter
ended September 30, 1995, resulting from the completion of this
transaction.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended September 30, 1995 Compared to Three Months
Ended September 30, 1994
Continuing Operations
Net sales of LIVE increased to $40,060,000 during 1995 compared
to $33,845,000 during 1994. The increase of $6,215,000, or 18.4%,
is primarily attributable to a stronger video rental release
schedule in the third quarter of 1995 compared to the third quarter
of 1994. The Company's home video division released seven rental
titles during both the three months ended September 30, 1994 and
1995. The third quarter of 1995 included the successful sell-
through release of Stargate, for which there was no comparable
title released in the third quarter of 1994.
Gross profits of LIVE increased $1,882,000, or 138.0%, to
$3,246,000 during 1995 compared to $1,364,000 during 1994. The
increase in gross profit dollars was primarily related to the
increase in sales. As a percentage of sales, gross profit
increased to 8.1% during 1995 from 4.0% during 1994, primarily due
to higher sales and margins generated on 1995 releases.
Selling, general and administrative expenses of LIVE decreased
$1,869,000, or 33.1%, to $3,778,000 during 1995 compared to
$5,647,000 during 1994. As a percentage of sales, the amount
decreased to 9.4% during 1995 from 16.7% during 1994. The dollar
and percentage decrease is primarily a result of LIVE recording a
reserve in 1994 of approximately $1,560,000 against a receivable
owed to LIVE by Carolco Pictures Inc. ("Carolco").
Operating profits of $1,400,000 for the three months ended
September 30, 1995 includes a $2,913,000 gain on the disposal of
VCL.
Interest and other income increased $458,000 or 172.8% to
$723,000 during 1995 compared to $265,000 during 1994, which was
primarily the result of interest earned on increased cash on hand
in 1995.
Interest expense of LIVE decreased $1,099,000, or 67.5%, to
$528,000 during 1995 compared to $1,627,000 during 1994. Interest
expense decreased as a result of the repayment of $37,000,000 of
12% Subordinated Secured Notes due 1994 (the "12% Notes") during
September and October of 1994. The entire balance of the 12% Notes
was outstanding during most of the third quarter of 1994.
Preferred dividends of $696,000 in 1995 and $942,000 in 1994
represents the 5% cash dividend accrued on both the Series B
Preferred Stock and the Series C Preferred Stock, as well as, in
the case of the Series C Preferred Stock, additional 5% dividends
on accrued but unpaid dividends.
Discontinued Operations
As a result of the Board of Directors' decision to dispose of
the Company's interests in VCL, the results of operations for VCL
for the three months ended September 30, 1994 have been restated to
account for the sale of VCL as a disposal of a portion of a line of
business. Accordingly, a provision for losses during the phase-out
period totaling $3,885,000 for VCL had been accrued and accounted
for at December 31, 1993 and was not included in the results of
operations for the three months ended September 30, 1994 and 1995.
In November 1995, the Company and certain of its affiliates, on the
one hand, and Datty Ruth, the owner of 19% of VCL, and Apricot
Computer GmbH (Apricot), on the other, consumated a transaction
whereby the Company s 81% interest in VCL, as well as all
receivables owed by VCL to the Company or its affiliates, was
transferred to Ruth and Apricot. The total consideration received
by the Company and its affiliates in connection with such
transaction is approximately $7,444,000, of which approximately
$3,100,000 was received in February 1995. The remaining $4,344,000
was received in November 1995 and was recorded as a receivable
related to assets held for sale as of September 30, 1995. The
Company reflected a gain of approximately $2,913,000 in the quarter
ended September 30, 1995, resulting from the completion of this
transaction.
Net sales of VCL increased to $5,261,000 during the third
quarter of 1995 compared to $3,761,00 during the third quarter of
1994. The increase of $1,500,000, or 40.0%, was due primarily to
a stronger release schedule in 1995.
Nine Months Ended September 30, 1995 Compared to Nine Months
Ended September 30, 1994
Continuing Operations
Net sales of LIVE increased to $107,021,000 during the first
nine months of 1995 compared to $81,261,000 during the first nine
months of 1994. The increase of $25,760,000, or 31.7%, is
primarily attributable to a stronger release schedule in the first
nine months of 1995 compared to the first nine months of 1994, as
well as an increase in theatrical, television, and international
revenues in 1995. The Company's home video division released
sixteen rental titles during the nine months ended September 30,
1995 compared to fourteen rental titles during the comparable
period in 1994. The first nine months of 1995 included the
successful video rental and sell-through release of Stargate, for
which there was no comparable titles released in the first nine
months of 1994.
Gross profits of LIVE increased $8,259,000, or 82.5%, to
$18,272,000 during the first nine months of 1995 compared to
$10,013,000 during the first nine months of 1994. The increase in
gross profit dollars was primarily related to the increase in
sales. As a percentage of sales, gross profit increased from 12.3%
during 1994 to 17.1% during 1995, primarily due to higher margins
generated on 1995 releases which included the successful release of
Stargate.
Selling, general and administrative expenses of LIVE decreased
$3,267,000, or 23.7%, to $10,546,000 during 1995 compared to
$13,813,000 during 1994. As a percentage of sales, the amount
decreased from 17.0% during 1994 to 9.9% during 1995. The dollar
and percentage decrease is primarily a result of LIVE recording a
reserve in 1994 of approximately $1,560,000 against a receivable
owed to LIVE by Carolco and the Company's continuing efforts to
reduce overhead in 1995.
Operating profit of $7,696,000 for the nine months ended
September 30, 1995 includes a $2,913,000 gain on the disposal of
VCL.
Interest and other income increased $180,000 or 11.0% to
$1,816,000 during 1995 compared to $1,636,000 during 1994, which
was primarily the result of interest earned on increased cash on
hand in 1995.
Interest expense of LIVE decreased $4,072,000, or 75.0%, to
$1,355,000 during 1995 compared to $5,427,000 during 1994.
Interest expense decreased as a result of the repayment of
$37,000,000 of 12% Subordinated Secured Notes due 1994 (the "12%
Notes") during September and October of 1994. The entire balance
of the 12% Notes was outstanding during the majority of the nine
months ended September 30, 1994.
Preferred dividends of $2,271,000 in 1995 and $2,819,000 in 1994
represents the 5% cash dividend accrued on both the LIVE Series B
Preferred Stock and the Series C Preferred Stock, as well as, in
the case of the Series C Preferred Stock, additional 5% dividends
on accrued but unpaid dividends.
<PAGE>
Discontinued Operations
As previously discussed, in November 1995, the Company and
certain of its affiliates, on the one hand, and Datty Ruth and
Apricot, on the other, consumated a transaction whereby the
Company s 81% interest in VCL, as well as all receivables owed by
VCL to the Company or its affiliates, was transferred to Ruth and
Apricot. The Company reflected a gain of approximately $2,913,000
in the quarter ended September 30, 1995, resulting from the
completion of this transaction.
Net sales of VCL increased to $16,143,000 during the nine months
ended September 30, 1995 compared to $14,643,000 during the nine
months ended September 30, 1994. The increase of $1,500,000 or
10.2% was due primarily to a stronger release schedule in 1995.
Liquidity and Capital Resources
Historically, the Company has funded its operations through a
combination of cash generated from operations, bank borrowings,
advances from distributors under distribution agreements and the
proceeds from the issuance of debt instruments. For the nine
months ending September 30, 1995, the Company generated positive
cash flow from continuing operations of $26,230,000.
On May 27, 1995, LHV entered into a three year extension of its
distribution agreement with Warner-Elektra-Atlantic Corporation
("WEA"). Under the terms of the agreement, WEA advanced
$10,000,000 to LHV, recoupable from distribution revenues during
the three year term of the agreement at $277,778 per month, plus
interest at LIBOR, plus 0.2%. In order to obtain the advance, LHV
granted WEA a second priority security interest in substantially
all of LHV's assets. As of September 30, 1995, there was
$9,166,667 outstanding. Interest on the advance at September 30,
1995 was 6.26%.
Investing activities generated a negative cash flow of $399,000,
primarily as a result of the acquisition of property and equipment
at LHV.
LHV and its affiliates are a party to a three-year $30,000,000
revolving credit facility with Foothill Capital Corporation (the
"Foothill Credit Facility"). Borrowings available under the
Foothill Credit Facility are limited to $27,500,000 until
additional participant lenders are added to the Facility, at which
time the borrowings available will be increased to a maximum
$30,000,000. Borrowings under the Foothill Credit Facility are
secured by substantially all of the assets of LHV and its
affiliates. Outstanding borrowings under the Foothill Credit
Facility bear interest at the rate of 2% per annum above the
highest of the Bank of America, Mellon Bank or Citibank prime rate,
payable monthly. In no event will interest under the Foothill
Credit Facility be less than 7% per annum. The Foothill Credit
Facility provided for a closing fee of $500,000, an annual facility
fee of 1/4 of 1% and a commitment fee of 1/4 of 1% on any unused
amount. The Foothill Credit Facility also requires LHV to meet
certain financial ratios, and as of December 31, 1994 and September
30, 1995 LHV was in compliance with all such financial ratios.
There were no amounts outstanding under the Foothill Credit
Facility as of September 30, 1995.
Dividends on the Series C Preferred Stock, at the rate of 5% per
annum on the unreturned $15,000,000 liquidation value of the Series
C Preferred Stock, are due on June 30 and December 31 of each year.
Although the dividends scheduled to be paid on June 30 and December
31, 1993 and 1994, and June 30, 1995, were accrued by LIVE, those
dividends were not paid due to restrictions imposed on LIVE by the
terms of the Series B Preferred Stock, which prohibit the payment
of dividends on the Series C Preferred Stock unless the aggregate
amount of such dividends, together with all cash dividends paid on
the Series B Preferred Stock, does not exceed the net income of
LIVE (adding back specified net worth exclusions) since the March
23, 1993 date of issuance of the Series B Preferred Stock and
Series C Preferred Stock. LIVE has had a cumulative consolidated
net loss for the period subsequent to March 23, 1993. Thus,
pursuant to the terms of the Series B Preferred Stock, LIVE was
prohibited from paying the June 30 and December 31, 1993 and 1994,
and June 30, 1995, cash dividends on the Series C Preferred Stock
which, together with accrued and unpaid dividends thereon, totaled
$1,787,000 as of September 30, 1995.
The unpaid Series C Preferred Stock dividend itself bears a
dividend of 5% per annum, and is due on the next regularly
scheduled dividend payment date for the Series C Preferred Stock.
LIVE intends to pay the June 30 and December 31, 1993 and 1994, and
June 30, 1995, dividends, plus the additional dividends thereon, as
soon as it has sufficient net income to permit such payment to
occur or as soon as the Series B Preferred Stock has been redeemed,
provided that such payment does not impair the capital of LIVE and
is permitted under the Delaware General Corporation Law ("DGCL").
LIVE experienced negative cash flows from financing activities
of $5,635,000 during the nine months ended September 30, 1995
primarily due to the repurchase of 1,400,000 shares of the
Company's Series B Cumulative Preferred Stock, interest and
principal payments on long term obligations and payment of
dividends on the Series B Cumulative Preferred Stock.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 9, 1992, a purported class action lawsuit was filed
in the U.S. District Court, Central District of California, by
alleged stockholders of LIVE against LIVE, Carolco and certain of
LIVE's past and present directors and executive officers. The
complaint alleges, among other things, that the defendants violated
Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Rule 10b-5 promulgated thereunder (a) by concealing the
true value of certain of LIVE's assets, and overstating goodwill,
stockholders' equity, operating profits and net income in LIVE's
Form 10-K for the year ended December 31, 1990, in its 1990 Annual
Report and in its Forms 10-Q for the quarters ended March 31, 1991
and June 30, 1991, and (b) by materially understating the true
extent of the write off of goodwill in connection with the sale of
substantially all of the assets of LIVE's wholly owned subsidiary,
Lieberman Enterprises Incorporated ("Lieberman"), to Handleman
Company ("Handleman") in July 1991. In addition, the complaint
alleges that certain of the defendants are liable as controlling
persons under Section 20 of the Exchange Act and alleges that
certain other defendants are liable for aiding and abetting the
primary violations. Subsequently, two additional lawsuits were
filed in the U.S. District Court, Central District of California,
by alleged stockholders of LIVE against the same persons and
entities who were defendants in the original actions, making
substantially the same allegations as were made in the first
lawsuit. On March 30, 1992, these lawsuits were consolidated.
Further, in April 1992, an amended complaint was filed in the
consolidated action, lengthening the alleged class period and
adding as defendants certain additional officers, directors and
affiliates of LIVE and Carolco, including PEA, as well as a lender
to LHV and Carolco. On June 17, 1992, the U.S. District Court,
Central District of California, entered an order conditionally
certifying the class, subject to possible decertification after
discovery is completed. On January 27, 1993, a second amended
complaint was filed in the consolidated class action making
additional and modified allegations against certain of the
defendants claiming they are liable as controlling persons under
Section 20 of the Exchange Act and claiming that certain other
defendants are liable for aiding and abetting the primary
violations. On April 19, 1993, the court issued a ruling
dismissing defendant PEA from this lawsuit.
In February 1992, a purported class action lawsuit was filed in
the U.S. District Court, District of Delaware, by an alleged holder
of Carolco's public debt, against LIVE, Carolco and certain
directors and executive officers of Carolco. The Delaware
complaint alleges, among other things, that the defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder by concealing the true value of certain of LIVE's
assets, and overstating goodwill, stockholders' equity, operating
profits and net income in LIVE's Form 10-K for the year ended
December 31, 1990 and in its Forms 10-Q for the quarters ended
March 31, 1991 and June 30, 1991. In April of 1992 this lawsuit
was transferred to the U.S. District Court, Central District of
California. The proceedings are being coordinated with the
consolidated action described in the preceding paragraph. On July
17, 1992, the U.S. District Court, Central District of California,
entered an order conditionally certifying the class, subject to
possible decertification after discovery is completed.
In May 1994, a breach of contract claim was filed against a
subsidiary of the Company, claiming non-payment of royalties from
licensing of films in foreign territories and deprivation of
royalty payments as a result of misallocation of certain values
asserted with licensed film properties. Films subject to the
complaint were contained in the assets of Vestron, Inc. purchased
by the Company in July 1991, and the period covered includes the
license periods both prior to, and subsequent to, the acquisition
date by the Company. The Company filed a reply brief (including a
Motion to Dismiss) on October 5, 1994, and such Motion to Dismiss
was granted on the grounds of forum non conviens. Plaintiff filed
a complaint in New York on March 22, 1995. The Company filed its
answer, affirmative defenses and counterclaim on April 20, 1995.
Plaintiff filed a motion for class certification on September 8,
1995 to which the Company filed its opposition to the motion on
November 6, 1995.
Discovery is currently taking place in the above lawsuits.
Management and counsel to LIVE are unable to predict the
ultimate outcome of the above-described actions at this time.
However, LIVE and the other defendants believe that all these
lawsuits are without merit and intend to defend them vigorously.
Accordingly, no provision for any liability which may result has
been made in LIVE's condensed consolidated financial statements.
In the opinion of management, these actions, when finally concluded
and determined, will not have a material adverse effect upon LIVE's
financial position or results of operations.
Other than as described above, there are no material legal
proceedings to which LIVE or any of its subsidiaries are a party
other than ordinary routine litigation in the ordinary course of
business. In the opinion of management (which is based in part on
the advice of outside counsel), resolution of these matters will
not have a material adverse impact on LIVE's financial position or
results of operations.
<PAGE>
ITEM 3(b). DEFAULTS UPON SENIOR SECURITIES - DIVIDEND ARREARAGE
ON PREFERRED STOCK
Dividends on the Series C Preferred Stock, at the rate of 5% per
annum on the unreturned $15,000,000 liquidation value of the Series
C Preferred Stock, are due on June 30 and December 31 of each year.
Although the dividends scheduled to be paid on June 30 and December
31, 1993 and 1994, and June 30, 1995, were accrued by LIVE, those
dividends were not paid due to restrictions imposed on LIVE by the
terms of the Series B Preferred Stock, which prohibit the payment
of dividends on the Series C Preferred Stock unless the aggregate
amount of such dividends, together with all cash dividends paid on
the Series B Preferred Stock, does not exceed the net income of
LIVE (adding back specified net worth exclusions) since the March
23, 1993 date of issuance of the Series B Preferred Stock and
Series C Preferred Stock. LIVE has had a cumulative consolidated
net loss for the period subsequent to March 23, 1993. Thus,
pursuant to the terms of the Series B Preferred Stock, LIVE was
prohibited from paying the June 30 and December 31, 1993 and 1994,
and June 30, 1995, cash dividends on the Series C Preferred Stock
which, together with accrued and unpaid dividends thereon, totaled
$1,787,000 as of September 30, 1995.
The unpaid Series C Preferred Stock dividend itself bears a
dividend of 5% per annum, and is due on the next regularly
scheduled dividend payment date for the Series C Preferred Stock.
LIVE intends to pay the June 30 and December 31, 1993 and 1994, and
June 30, 1995, dividends, plus the additional dividends thereon, as
soon as it has sufficient net income to permit such payment to
occur or as soon as the Series B Preferred Stock has been redeemed,
provided that such payment does not impair the capital of LIVE and
is permitted under the DGCL.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
11 Computation of Income (Loss) Per Common Share (Unaudited).
27 Financial Data Schedule (Electronic Filing Only).
Reports on Form 8-K:. . . . . . . . . . . . . . None.
<PAGE>
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.
LIVE ENTERTAINMENT INC.
Dated: November 14, 1995 By: /s/ RONALD B. CUSHEY
Ronald B. Cushey
Chief Financial Officer
EXHIBIT INDEX
11 Computation of Income (Loss) Per Common Share (Unaudited).
27 Financial Data Schedule (Electronic Filing Only).
EXHIBIT 11
LIVE ENTERTAINMENT INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1995 1994 1995
PRIMARY AND FULLY DILUTED
Earnings:
Net (loss) income . . . . . . . . . . . . $(6,626) $ 1,595 $(10,834) $ 7,557
Less preferred dividends. . . . . . . . . 942 696 2,819 2,271
Less accretion in redemption value of
LIVE Series B Cumulative Convertible
Preferred Stock. . . . . . . . . . . . . 1,800 1,259 4,200 4,089
Net (loss) attributable to common stock . $(9,368) $ (360) $(17,853) $ 1,197
Shares:
Weighted average number of common
shares outstanding. . . . . . . . . . . 2,419 2,419 2,419 2,435
Net (loss) income per common share . . . . $ (3.87) $ (0.15) $ (7.38) $ 0.49
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 44,460
<SECURITIES> 0
<RECEIVABLES> 27,645
<ALLOWANCES> (20,496)
<INVENTORY> 7,960
<CURRENT-ASSETS> 0
<PP&E> 6,974
<DEPRECIATION> (5,707)
<TOTAL-ASSETS> 144,264
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<BONDS> 53,188
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0
4,212
<OTHER-SE> 31,306
<TOTAL-LIABILITY-AND-EQUITY> 144,264
<SALES> 107,021
<TOTAL-REVENUES> 111,750
<CGS> 88,749
<TOTAL-COSTS> 13,489
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,355
<INCOME-PRETAX> 8,157
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