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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/ X / Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996.
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to _______________
COMMISSION FILE NO. 1-11121
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 54-1522360
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2877 GUARDIAN LANE, VIRGINIA BEACH, VIRGINIA 23452
(Address of principal executive offices) (Zip Code)
</TABLE>
(757) 459-6000
(Registrant's telephone number, including area code)
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 / /
As of August 1, 1996, there were outstanding 5,000,000 shares of the
Registrant's Class A Common Stock, par value $.01 per share, convertible (the
"Class A Common Stock"); 32,795,612 shares of the Registrant's Class B Common
Stock, par value $.01 per share (the "Class B Common Stock"); and 7,088,732
shares of the Registrant's Class C Common Stock, par value $.01 per share,
non-voting and convertible (the "Class C Common Stock" and, together with the
Class A Common Stock and Class B Common Stock, the "Common Stock").
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INTERNATIONAL FAMILY ENTERTAINMENT, INC.
INDEX TO FORM 10-Q
For the quarterly period ended June 30, 1996
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<CAPTION>
Page No.
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Part I - Financial Information
- ------------------------------
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations -
For the Three Months Ended June 30, 1996 and 1995 5
Consolidated Statements of Operations -
For the Six Months Ended June 30, 1996 and 1995 6
Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II - Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
</TABLE>
Other items in Part II have been omitted because they are not applicable for
the quarterly period ended June 30, 1996.
2
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Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 8,371,000 $ 32,865,000
Investment in marketable securities 8,678,000 8,290,000
Accounts receivable, net 94,501,000 95,699,000
Film rights, current portion 60,013,000 56,355,000
Prepaid expenses and other 6,308,000 11,511,000
---------------- ----------------
Total current assets 177,871,000 204,720,000
Property and equipment, net 60,220,000 73,028,000
Film rights 108,879,000 105,094,000
Long-term accounts receivable, net 23,310,000 24,754,000
Investment in equity securities - related party 36,026,000 -
Other investments, net 23,385,000 16,575,000
Goodwill, net 53,581,000 54,795,000
Other assets 2,064,000 2,461,000
---------------- ----------------
$ 485,336,000 $ 481,427,000
================ ================
</TABLE>
(continued)
See accompanying notes.
3
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INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Consolidated Balance Sheets, continued
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
---- ----
<S> <C> <C>
Current liabilities
Accounts payable $ 9,292,000 $ 14,598,000
Accrued liabilities 12,037,000 13,121,000
Accrued participations and residuals 7,592,000 11,615,000
Current portion of film rights payable 38,283,000 38,161,000
Current maturities of debt 209,000 181,000
Income taxes payable 5,475,000 -
Current portion of deferred income taxes 2,162,000 611,000
Deferred income 4,743,000 5,891,000
---------------- ----------------
Total current liabilities 79,793,000 84,178,000
Film rights payable 31,161,000 32,714,000
Long-term debt 142,286,000 153,752,000
Accrued interest - related party 300,000 327,000
Convertible Notes - related party 23,000,000 23,000,000
Deferred income taxes 8,649,000 2,676,000
Other liabilities, including participations and residuals 8,890,000 10,347,000
Minority interests 2,720,000 3,130,000
Commitments and contingencies (Note G)
Stockholders' equity
Class A Common Stock, $.01 par value, convertible,
10,000,000 shares authorized, 5,000,000
shares issued and outstanding 143,000 143,000
Class B Common Stock, $.01 par value,
100,000,000 shares authorized, 32,799,656 and
33,039,831 shares issued and outstanding 101,729,000 104,886,000
Class C Common Stock, $.01 par value, convertible,
20,000,000 shares authorized, 7,088,732
shares issued and outstanding 50,717,000 50,717,000
Unearned compensation - Stock Plan (1,010,000) (1,697,000)
Cumulative foreign currency translation adjustment (59,000) 665,000
Unrealized gain (loss) on investments in securities 892,000 (373,000)
Retained earnings 36,125,000 16,962,000
---------------- ----------------
Total stockholders' equity 188,537,000 171,303,000
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$ 485,336,000 $ 481,427,000
================ ================
</TABLE>
See accompanying notes.
4
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INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Consolidated Statements of Operations
(Unaudited)
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<CAPTION>
Three Months
Ended June 30
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1996 1995
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<S> <C> <C>
Operating revenues $ 75,473,000 $ 62,389,000
---------------- ----------------
Operating expenses
Production and programming 35,433,000 31,546,000
Selling and marketing 15,856,000 13,048,000
New business development 603,000 2,020,000
General and administrative 7,218,000 6,225,000
Amortization of goodwill 605,000 719,000
---------------- ----------------
Total operating expenses 59,715,000 53,558,000
---------------- ----------------
Operating income 15,758,000 8,831,000
---------------- ----------------
Other income (expense)
Investment income 1,355,000 202,000
Interest expense - related parties (397,000) (535,000)
Interest expense - other (2,497,000) (2,729,000)
Minority interests in losses 673,000 1,135,000
Gain on disposition of assets - related party 13,685,000 -
Other expense, net (2,904,000) -
---------------- ----------------
Total other income (expense) 9,915,000 (1,927,000)
---------------- ----------------
Income before income taxes 25,673,000 6,904,000
Provision for income taxes (11,198,000) (2,890,000)
---------------- ----------------
Net income 14,475,000 4,014,000
Dividend requirement on Preferred Stock in 1995 - (540,000)
---------------- ----------------
Net income available for Common Stock $ 14,475,000 $ 3,474,000
================ ================
Primary and fully diluted earnings per common share $ 0.31 $ 0.09
================ ================
Primary and fully diluted average common and
common equivalent shares 48,071,254 43,009,962
================ ================
</TABLE>
See accompanying notes.
5
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INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30
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1996 1995
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<S> <C> <C>
Operating revenues $ 149,965,000 $ 124,863,000
---------------- ----------------
Operating expenses
Production and programming 73,097,000 64,690,000
Selling and marketing 31,589,000 27,281,000
New business development 1,091,000 2,955,000
General and administrative 14,806,000 12,146,000
Amortization of goodwill 1,214,000 1,334,000
---------------- ----------------
Total operating expenses 121,797,000 108,406,000
---------------- ----------------
Operating income 28,168,000 16,457,000
---------------- ----------------
Other income (expense)
Investment income 2,246,000 594,000
Interest expense - related parties (934,000) (1,029,000)
Interest expense - other (5,599,000) (5,415,000)
Minority interests in losses 1,701,000 2,108,000
Gain on disposition of assets - related party 13,685,000 -
Other expense, net (5,251,000) (495,000)
---------------- ----------------
Total other income (expense) 5,848,000 (4,237,000)
---------------- ----------------
Income before income taxes 34,016,000 12,220,000
Provision for income taxes (14,853,000) (5,092,000)
---------------- ----------------
Net income 19,163,000 7,128,000
Dividend requirement on Preferred Stock in 1995 - (1,082,000)
---------------- ----------------
Net income available for Common Stock $ 19,163,000 $ 6,046,000
================ ================
Primary and fully diluted earnings per common share $ 0.41 $ 0.15
================ ================
Primary and fully diluted average common and
common equivalent shares 47,990,954 40,662,968
================ ================
</TABLE>
See accompanying notes.
6
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INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30
1996 1995
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<S> <C> <C>
Cash flows from operating activities
Net income $ 19,163,000 $ 7,128,000
---------------- ----------------
Adjustments to reconcile net income to
net cash provided by operating activities
Amortization of film rights 55,526,000 48,616,000
Depreciation and amortization of property and
equipment, goodwill, and other assets 5,629,000 5,118,000
Allowances against investments 4,942,000 -
Minority interests in losses (1,701,000) (2,108,000)
Gain on sale of marketable securities (1,630,000) -
Gain on disposition of assets - related party (13,685,000) -
Compensation - Stock Plan 345,000 891,000
Deferred income tax expense 6,134,000 2,158,000
Changes in assets and liabilities, net of effect
of 1996 disposition and 1995 acquisition (10,868,000) (8,550,000)
---------------- ----------------
Total adjustments 44,692,000 46,125,000
---------------- ----------------
Net cash provided by operating activities 63,855,000 53,253,000
---------------- ----------------
Cash flows from investing activities
Acquisitions of original programming (41,051,000) (25,597,000)
Cash paid for acquisition - (3,060,000)
Other investments (12,102,000) -
Purchases of marketable securities - (536,000)
Sales of marketable securities 4,865,000 618,000
Additions to property and equipment (2,846,000) (4,820,000)
---------------- ----------------
Net cash used in investing activities (51,134,000) (33,395,000)
---------------- ----------------
Cash flows from financing activities
Payments on film rights (25,709,000) (28,741,000)
Proceeds from debt issuances 10,650,000 28,850,000
Principal payments on debt (22,088,000) (15,400,000)
Cash provided by minority partners 3,000,000 3,566,000
Payment of Preferred Stock dividends - (1,109,000)
Repurchases of Class B Common Stock (2,815,000) (14,236,000)
---------------- ----------------
Net cash used in financing activities (36,962,000) (27,070,000)
---------------- ----------------
Effect of foreign currency rate changes (253,000) (309,000)
---------------- ----------------
Decrease in cash and cash equivalents (24,494,000) (7,521,000)
Cash and cash equivalents at beginning of period 32,865,000 38,716,000
---------------- ----------------
Cash and cash equivalents at end of period $ 8,371,000 $ 31,195,000
================ ================
</TABLE>
See accompanying notes.
7
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INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1996
(Unaudited)
NOTE A - PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of International
Family Entertainment, Inc. (together with its consolidated subsidiaries "IFE"
or the "Company") have been prepared by the Company pursuant to the
instructions for Form 10-Q and, accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
where permitted by regulation. In management's opinion, the accompanying
unaudited consolidated financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the
consolidated results of operations for the interim periods presented. The
consolidated results of operations for such interim periods are not necessarily
indicative of the results that may be expected for future interim periods or
for the year ended December 31, 1996. These interim consolidated financial
statements and notes should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Certain amounts have been reclassified for comparability with the 1996
financial statement presentation.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
NOTE B - EARNINGS PER SHARE
The 6% Convertible Secured Notes due 2004 (the "Convertible Notes") are
considered to be common stock equivalents and, accordingly, the computations of
primary and fully diluted earnings per share assume conversion of the
Convertible Notes if the effect of such conversion is dilutive. Stock options
are also included in the computations of primary and fully diluted earnings per
share if their effect is dilutive.
For the three and six months ended June 30, 1996 and the three months ended
June 30, 1995, primary and fully diluted earnings per common share were
computed by increasing net income available for Common Stock by the interest on
the Convertible Notes, net of related tax effect, and dividing the result by
the average number of common and common equivalent shares outstanding during
such periods.
For the six months ended June 30, 1995, primary and fully diluted earnings per
common share were computed by dividing net income available for Common Stock by
the average number of common shares outstanding during such period.
NOTE C - MINORITY INTERESTS
The Family Channel (UK)
Prior to April 22, 1996, minority interests were primarily attributable to a
minority partner's 39% interest in The Family Channel (UK) which was operated
as a joint venture. IFE and Flextech plc, the holder of the minority 39%
interest, funded the operations of The Family Channel (UK) through capital
investments and loans.
On April 22, 1996, the Company consummated the sale of its 61% interest in The
Family Channel (UK) to Flextech, as described in Note F.
8
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INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements, continued
NOTE C - MINORITY INTERESTS, CONTINUED
The minority partner's share of the net loss resulting from the operations of
The Family Channel (UK), through the date of sale, amounted to $393,000 and
$1,419,000 for the three and six month periods ended June 30, 1996,
respectively, as compared to $1,135,000 and $2,108,000 for the corresponding
periods of the prior year.
FiT TV
On April 30, 1996, the Company, an affiliate of Liberty Media Corporation
("Liberty Media"), and an affiliate of Reebok International Limited ("Reebok")
entered into a definitive partnership agreement (the "FiT TV Partnership
Agreement") forming a partnership (the "FiT TV Partnership"), effective January
1, 1996, to own and operate the FiT TV cable network. FiT TV had previously
been owned and operated by Cable Health TV, Inc. ("CHTV"), a 90%-owned
subsidiary of IFE. Another affiliate of Liberty Media is the holder of the
Convertible Notes and all of the Company's outstanding Class C Common Stock.
Liberty Media is an affiliate of Tele-Communications, Inc. ("TCI"), one of the
largest cable television system operators in the United States and, as such, a
major provider of carriage for FiT TV. Reebok is a major advertiser on FiT TV.
In accordance with the terms of the FiT TV Partnership Agreement, CHTV
contributed all of the assets and liabilities of FiT TV to the FiT TV
Partnership in exchange for an 80% partnership interest and functions as the
FiT TV Partnership's managing partner. Reebok contributed cash of $2,000,000
and other consideration agreed upon by the parties in exchange for a 10%
partnership interest. Liberty Media contributed cash of $1,000,000 and other
consideration agreed upon by the parties in exchange for a 10% partnership
interest.
In conjunction with this transaction, CHTV and Liberty Media entered into an
agreement whereby Liberty Media was granted a five-year option to purchase an
additional 10% partnership interest from CHTV. The exercise price for this
option varies (up to a maximum of $5,000,000) depending on the number of
domestic subscribers receiving FiT TV from delivery systems owned or managed by
Liberty Media or an affiliate of Liberty Media (including TCI) at the time of
exercise.
The minority partners' combined 20% share of the net loss resulting from the
operations of the FiT TV Partnership, since its formation on April 30, 1996, is
reflected in the accompanying Consolidated Statements of Operations. The
minority partners' combined 20% share of the net loss of FiT TV amounted to
$280,000 for the three and six month periods ended June 30, 1996.
NOTE D - CAPITAL STOCK
On December 15, 1995, the Company and the holder of the 10% Convertible
Cumulative Preferred Stock (the "Preferred Stock") entered into an exchange
agreement (the "Exchange Agreement") whereby the holder of the Preferred Stock
(which is also the holder of the Convertible Notes) agreed to (i) exchange its
holdings of all of the Preferred Stock for shares of Class B Common Stock, (ii)
exchange all of its holdings of Class B Common Stock (including the shares of
Class B Common Stock received in exchange for the Preferred Stock) for an equal
number of shares of non-voting Class C Common Stock, (iii) amend the terms of
the Convertible Notes to provide, among other things, for conversion of such
notes into shares of non-voting Class C Common Stock in lieu of shares of Class
B Common Stock and for the elimination of provisions which required the Company
to issue Class C Common Stock in the event of the occurrence of certain payment
defaults, and (iv) amend the terms of certain other agreements, including the
shareholder agreement among the Company and certain of its principal
shareholders. Prior to the consummation of the Exchange Agreement, the
Preferred Stock was entitled to a dividend at an annual rate of 10% of the
$22,000,000 original liquidation preference, payable semiannually in January
and July.
9
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INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements, continued
NOTE D - CAPITAL STOCK, CONTINUED
On November 16, 1995, the Company's Board of Directors approved a five-for-four
stock split of the Common Stock which was effected in the form of a 25% stock
dividend and payable on January 5, 1996 to the shareholders of record at the
close of business on December 15, 1995. Accordingly, all share and per share
amounts presented for prior periods have been restated to retroactively reflect
the stock split.
NOTE E - SUPPLEMENTAL CASH FLOW INFORMATION
Total interest costs paid were approximately $4,666,000 and $5,998,000 during
the six months ended June 30, 1996 and 1995, respectively. Income taxes paid
during the six months ended June 30, 1996 and 1995 were approximately
$2,915,000 and $5,780,000, respectively.
Non-cash investing and financing activities included the acquisition of film
rights under license agreements which aggregated approximately $26,937,000 and
$11,839,000 for the six months ended June 30, 1996 and 1995, respectively.
Non-cash investing and financing activities also included approximately
$7,140,000 of liabilities assumed in the acquisition of the Ice Capades in
1995.
As described in Note F, on April 22, 1996, the Company consummated the sale of
its television production studio in Maidstone, England and its 61% interest in
The Family Channel (UK) to a related party. This sale was primarily a non-cash
transaction in which the Company received equity securities. Cash received in
the transaction amounting to approximately $4,600,000 was offset by the cash
balances of the businesses sold (which were transferred to the buyer) and cash
outlays for expenses of the sale.
NOTE F - GAIN ON DISPOSITION OF ASSETS - RELATED PARTY
On April 22, 1996, the Company consummated the sale of its television
production studio in Maidstone, England and its 61% interest in The Family
Channel (UK) to Flextech pursuant to agreements dated as of March 20, 1996.
Flextech previously owned a 39% interest in The Family Channel (UK).
Flextech's majority owner is Tele-Communications International, Inc. ("TCI
International"), a majority-owned subsidiary of TCI. Another affiliate of TCI
is the holder of the Convertible Notes and all of the Company's outstanding
Class C Common Stock.
As consideration for this transaction, the Company received pound sterling
3,000,000 (approximately $4,600,000) in cash and 5,792,008 shares of Flextech's
convertible, redeemable, non-voting common stock. This common stock is
convertible, under certain circumstances, beginning in June 1997 at the
Company's option, into Flextech's voting ordinary shares which are listed on
the London Stock Exchange. The underlying market value of the voting ordinary
shares as of the date of the agreement was $46,100,000. The shares were
recorded, for financial statement purposes, at approximately pound sterling
23,000,000 ($35,457,000 based on the exchange rate on the date of closing),
which amount reflects a discount determined by an independent valuation to
allow for the lack of marketability during the required holding period.
The Company received the right, beginning in June 1997 (if the shares do not
first become convertible), to "put" its holdings of Flextech's non-voting stock
to TCI International. Upon exercise of the put, TCI International has the
option of redeeming the stock for cash at the then-market value of Flextech's
voting ordinary shares. If the shares are not redeemed for cash, the Company
has the option of either (i) converting 50% of the shares on a share-for-share
basis into Flextech's voting ordinary shares and 50% of the shares into common
stock of the same value of TCI International, or (ii) converting 100% of the
shares into common stock of the same value of TCI International.
10
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INTERNATIONAL FAMILY ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements, continued
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company has commitments under program contracts for film rights related to
the production, exhibition, or distribution of programming which was not
available as of June 30, 1996. The unpaid balance under program contracts for
film rights (and the aggregate future estimated payments of accrued
participations and residuals) related to the production, exhibition, or
distribution of programming that was available as of June 30, 1996 is reflected
as a liability in the accompanying consolidated financial statements.
The Company leases office facilities, a satellite transponder, and certain
other property and equipment under non-cancellable operating leases.
In addition, the Company has contingent liabilities related to legal
proceedings and other matters arising from the normal course of operations.
Management does not expect that amounts, if any, which may be required to
satisfy such contingencies will be material in relation to the accompanying
consolidated financial statements.
11
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PART I - FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
discussed herein.
MATERIAL CHANGES IN FINANCIAL CONDITION
Film Rights
The Company produces, acquires, and distributes a variety of programs,
including original series, specials, and movies, as well as syndicated programs
originally broadcast by others, to be aired on the Company's cable networks, or
to be licensed to others. During the year ended December 31, 1995, the Company
spent $59,931,000 for originally-produced programming and $46,167,000 for
various rights to programs produced by others. The Company anticipates that
the total amount spent on programming in 1996 will exceed the total amount for
1995.
Common Stock Repurchases
During the six months ended June 30, 1996, the Company repurchased 217,175
shares of Class B Common Stock for $2,815,000 (for an average price of $12.96
per share). These repurchases were funded from available cash and cash
equivalents. It is expected that any further repurchases of Class B Common
Stock will also be funded from available cash and cash equivalents or from bank
borrowings.
Investment in Equity Securities - Related Party
As described in Note F of Notes to Consolidated Financial Statements, on April
22, 1996, the Company consummated the sale of the television production studio
in Maidstone, England and its 61% interest in The Family Channel (UK) to
Flextech. This sale was primarily a non-cash transaction in which the Company
received 5,792,008 shares of Flextech's convertible, redeemable, non-voting
common stock. These shares were recorded, for financial statement purposes, at
a discount determined by an independent valuation to allow for the lack of
marketability during the required holding period.
The Company received the right, beginning in June 1997, under certain
circumstances, to "put" its holdings of Flextech's non-voting stock to TCI
International. Upon exercise of the put, TCI International has the option of
redeeming the stock for cash at the then-market value of Flextech's voting
ordinary shares. If the shares are not redeemed for cash, the Company has the
option of either (i) converting 50% of the shares on a share-for-share basis
into Flextech's voting ordinary shares and 50% of the shares into common stock
of the same value of TCI International, or (ii) converting 100% of the shares
into common stock of the same value of TCI International.
Liquidity
As of June 30, 1996, the Company had cash and cash equivalents of $8,371,000,
and borrowings available from banks of $129,500,000. The Company believes that
funds from operations, borrowings available from banks, and existing cash
balances and investments will provide adequate sources of short-term and
long-term liquidity for its current operations, including the operations of FiT
TV and the international networks, as well as its contractual payments for film
rights. However, the Company may pursue additional capital-raising activities
if it believes that market conditions or acquisition opportunities warrant such
activities.
12
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Future Opportunities
The Company has explored and continues to explore opportunities to develop
international versions of The Family Channel's or FiT TV's programming concepts
through the acquisition or development of cable networks and other distribution
outlets in foreign countries. The Company is also exploring the possibility of
launching additional domestic cable networks or pay-per-view services, and,
from time to time, considers the acquisition of other television programming
distribution and production companies, entertainment companies, and film
libraries.
Family Channel Pictures, Inc., a subsidiary of the Company, has co-produced a
theatrical motion picture, which is expected to be released in 1996, and is
currently exploring the possibility of producing additional theatrical motion
pictures. Family Channel Pictures plans to produce and release, in conjunction
with a joint venture partner, one or two motion pictures annually with an
expected production budget ranging from $8,000,000 to $16,000,000 for each
picture.
The Company cannot estimate with any degree of certainty the amount of other
expenditures it may make in the future in connection with such investments and
acquisitions; although, if many of the Company's plans in this regard
materialize, such expenditures could be substantial. The Company anticipates
funding all such other investments and acquisitions from internally generated
cash flow, additional borrowings, or additional issuances of Class B Common
Stock.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
General
The Company operates in three business segments: the operation of
advertiser-supported cable networks ("Cable Networks"), the production and
distribution of entertainment programming ("Production & Distribution"), and
the production of live musical variety shows ("Live Entertainment").
Within the Cable Networks business segment, the Company operated four
advertiser-supported, satellite-delivered cable television networks: The
Family Channel, which provides family-oriented entertainment and informational
programming; FiT TV, which provides healthy lifestyle and fitness programming;
The Family Channel (UK), which provided family-oriented entertainment to the
United Kingdom, until sold on April 22, 1996; and The Family Channel De Las
Americas, launched on July 1, 1995, which provides Spanish-language
family-oriented and fitness programming to Mexico, Central America, and
portions of South America.
Within the Production & Distribution business segment, the Company produces and
distributes programming in the United States and throughout many other parts of
the world ("MTM Operations"), co-produces theatrical motion pictures through
Family Channel Pictures, and operated a television production studio in
Maidstone, England (the "UK Studio") until sold on April 22, 1996.
Within the Live Entertainment business segment, the Company produces live
musical variety shows and, in 1995, operated the Ice Capades, a touring ice
show business.
13
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GENERAL, CONTINUED
The following table sets forth comparative information regarding operating
revenues, operating income or loss, and depreciation and amortization by
business segment.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Cable Networks
The Family Channel $ 60,537,000 $ 47,863,000 $ 117,701,000 $ 93,087,000
FiT TV 1,074,000 677,000 2,304,000 1,418,000
International Networks 1,281,000 3,098,000 5,045,000 6,042,000
Intrasegment Eliminations (230,000) (111,000) (472,000) (211,000)
-------------- -------------- -------------- ---------------
62,662,000 51,527,000 124,578,000 100,336,000
Production & Distribution 13,677,000 9,226,000 27,948,000 23,242,000
Live Entertainment 1,953,000 2,123,000 2,996,000 3,230,000
Intersegment Eliminations (2,819,000) (487,000) (5,557,000) (1,945,000)
-------------- -------------- -------------- ---------------
$ 75,473,000 $ 62,389,000 $ 149,965,000 $ 124,863,000
============== ============== ============== ===============
Operating Income (Loss)
Cable Networks
The Family Channel $ 24,145,000 $ 17,853,000 $ 46,134,000 $ 32,095,000
FiT TV (1,499,000) (1,448,000) (2,754,000) (2,414,000)
International Networks (1,792,000) (3,047,000) (5,413,000) (5,417,000)
Intrasegment Eliminations - - - 1,000
-------------- -------------- -------------- ---------------
20,854,000 13,358,000 37,967,000 24,265,000
Production & Distribution (4,800,000) (4,055,000) (8,380,000) (6,234,000)
Live Entertainment (761,000) (1,048,000) (2,292,000) (2,161,000)
Intersegment Eliminations 465,000 576,000 873,000 587,000
-------------- -------------- -------------- ---------------
$ 15,758,000 $ 8,831,000 $ 28,168,000 $ 16,457,000
============== ============== ============== ===============
Depreciation and Amortization
Cable Networks
The Family Channel $ 18,754,000 $ 15,900,000 $ 37,577,000 $ 31,559,000
FiT TV 501,000 317,000 762,000 622,000
International Networks 807,000 1,239,000 3,228,000 2,671,000
Intrasegment Eliminations - (111,000) - (212,000)
-------------- -------------- -------------- ---------------
20,062,000 17,345,000 41,567,000 34,640,000
Production & Distribution 13,482,000 8,462,000 24,571,000 19,793,000
Live Entertainment 351,000 497,000 732,000 767,000
Intersegment Eliminations (3,036,000) (576,000) (5,715,000) (1,466,000)
-------------- -------------- -------------- ---------------
$ 30,859,000 $ 25,728,000 $ 61,155,000 $ 53,734,000
============== ============== ============== ===============
</TABLE>
14
<PAGE> 15
Cable Networks Segment Information
THE FAMILY CHANNEL
The following table sets forth comparative information relating to the
operations of The Family Channel.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues
Advertising revenue $ 34,597,000 $ 27,895,000 $ 67,319,000 $ 53,329,000
Subscriber fees 25,825,000 19,809,000 50,121,000 39,514,000
Other revenue 115,000 159,000 261,000 244,000
-------------- -------------- -------------- -------------
Total revenues 60,537,000 47,863,000 117,701,000 93,087,000
-------------- -------------- -------------- -------------
Operating expenses*
Production and programming 20,598,000 17,511,000 41,333,000 34,046,000
Selling and marketing 11,758,000 8,796,000 22,803,000 19,129,000
New business development - 465,000 - 1,173,000
General and administrative 4,036,000 3,238,000 7,431,000 6,644,000
-------------- -------------- -------------- -------------
Total operating expenses 36,392,000 30,010,000 71,567,000 60,992,000
-------------- -------------- -------------- -------------
Operating income $ 24,145,000 $ 17,853,000 $ 46,134,000 $ 32,095,000
============== ============== ============== =============
</TABLE>
- --------------
*Includes depreciation and amortization:
<TABLE>
<S> <C> <C> <C> <C>
Amortization of film rights
Original programming $ 8,419,000 $ 6,813,000 $ 15,587,000 $ 14,587,000
License agreements 8,584,000 7,587,000 18,527,000 13,991,000
-------------- -------------- -------------- -------------
17,003,000 14,400,000 34,114,000 28,578,000
Depreciation and amortization
of property and equipment
and other assets 1,751,000 1,500,000 3,463,000 2,981,000
-------------- -------------- -------------- -------------
$ 18,754,000 $ 15,900,000 $ 37,577,000 $ 31,559,000
============== ============== ============== =============
</TABLE>
Operating Revenues
Advertising revenue increased $6,702,000 (or 24.0%) for the second quarter of
1996 as compared to the second quarter of 1995. Advertising revenue increased
$13,990,000 (or 26.2%) for the six months ended June 30, 1996 over the six
months ended June 30, 1995. These increases in advertising revenue are
attributable to increases in advertising rates, households reached, and ratings
in 1996 as compared to 1995.
Subscriber fees increased $6,016,000 (or 30.4%) for the second quarter of 1996
over the second quarter of 1995. Subscriber fees increased $10,607,000 (or
26.8%) for the six months ended June 30, 1996 as compared to the six months
ended June 30, 1995. These increases are primarily due to subscriber fee rate
increases resulting from renewals of affiliation agreements (including the
renewal of a long-term contract with a major cable operator at the beginning of
1996) and rate increases in existing contracts, and to a lesser extent to the
continuing growth of total subscribers. During the first six months of 1996,
the average number of U.S. households reached by The Family Channel increased
6.2% to 64.7 million from 60.9 million for the first six months of 1995. The
average number of billed subscribers, including home television receive-only
satellite dish subscribers, increased 6.2% to 61.6 million for the first six
months of 1996 from 58.0 million for the first six months of 1995. The
difference between total households reached and billed subscribers is
attributable to a variety of factors, including cable service theft and
sampling error inherent in projecting estimates.
15
<PAGE> 16
THE FAMILY CHANNEL, CONTINUED
Operating Revenues, continued
The Family Channel currently reaches approximately 68% of all television
households in the United States. The Company expects that cable television
system penetration will continue to grow as cable operators construct new
systems and extend existing cable television distribution facilities to new
service areas, as well as the continued development of direct broadcast
satellite and other alternative delivery services. These options may afford
the Company additional opportunities to increase carriage of The Family Channel
on cable systems or otherwise to increase the number of subscribers to The
Family Channel, and thus have an impact on advertising and subscriber revenues.
There can be no assurance, however, that these technological advances will be
effected or that, if effected, they will have the anticipated beneficial impact
on future results of operations. In addition, certain of these trends also
have the potential to benefit competitors of the Company. Industry regulation
may also have an impact on such trends.
Production and Programming Expense
Production and programming expense includes costs incurred in connection with
acquisition of programming, production of original programming by the Company
for The Family Channel, the use of satellite transponders, and engineering and
technical support services. Production and programming expense increased
$3,087,000 (or 17.6%) for the second quarter of 1996 as compared to the second
quarter of 1995. Production and programming expense increased $7,287,000 (or
21.4%) for the six months ended June 30, 1996 over the six months ended June
30, 1995. These increases are primarily due to an increase in amortization of
film rights. As a percentage of The Family Channel's total revenues,
production and programming expense amounted to 34.0% and 35.1% for the three
and six month periods ended June 30, 1996, respectively, as compared with 36.6%
for both of the corresponding periods of the prior year.
Selling and Marketing Expense
Selling and marketing expense includes costs associated with the sale of
advertising time, the marketing of The Family Channel to cable operators, and
advertising and promotion. Selling and marketing expense increased $2,962,000
(or 33.7%) for the second quarter of 1996 as compared to the second quarter of
1995. For the six months ended June 30, 1996, selling and marketing expense
increased $3,674,000 (or 19.2%) over the six months ended June 30, 1995. These
increases are primarily due to increases in advertising and personnel costs in
1996. As a percentage of The Family Channel's total revenues, selling and
marketing expense amounted to 19.4% for both of the three and six month periods
ended June 30, 1996, respectively, as compared with 18.4% and 20.5% for the
corresponding periods of the prior year.
New Business Development Expense
New business development expense in 1995 was due to costs associated with the
development of a program block centered around interactive game shows, which
has since been discontinued.
General and Administrative Expense
General and administrative expense includes costs associated with the
corporate, legal, finance, information services, and human resources divisions.
General and administrative expense increased $798,000 (or 24.6%) for the second
quarter of 1996 as compared to the second quarter of 1995. General and
administrative expense increased $787,000 (or 11.8%) for the six months ended
June 30, 1996 over the six months ended June 30, 1995. As a percentage of The
Family Channel's total revenues, general and administrative expense amounted to
6.7% and 6.3% for the three and six month periods ended June 30, 1996,
respectively, as compared with 6.8% and 7.1% for the corresponding periods of
the prior year.
16
<PAGE> 17
THE FAMILY CHANNEL, CONTINUED
Operating Income
Operating income increased $6,292,000 (or 35.2%) for the second quarter of 1996
as compared to the second quarter of 1995. Operating income increased
$14,039,000 (or 43.7%) for the six months ended June 30, 1996 over the six
months ended June 30, 1995. As a percentage of The Family Channel's total
revenues, operating income increased to 39.9% and 39.2% for the three and six
month periods ended June 30, 1996, respectively, as compared with 37.3% and
34.5% for the corresponding periods of the prior year.
Operating income before depreciation and amortization of property and equipment
and other assets increased $6,543,000 (or 33.8%) for the second quarter of 1996
as compared to the second quarter of 1995. During the six months ended June
30, 1996, operating income before depreciation and amortization of property and
equipment and other assets increased $14,521,000 (or 41.4%) over the six months
ended June 30, 1995. As a percentage of The Family Channel's total revenues,
operating income before depreciation and amortization of property and equipment
and other assets for the three and six month periods ended June 30, 1996 was
42.8% and 42.1%, respectively, as compared to 40.4% and 37.7% for the
corresponding periods in 1995.
FiT TV
The following table sets forth comparative information relating to the
operations of the FiT TV cable network.
<TABLE>
<CAPTION>
Three Month Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues
Advertising revenue $ 638,000 $ 320,000 $ 1,255,000 $ 559,000
Merchandise revenue 436,000 357,000 1,049,000 859,000
--------------- -------------- ---------------- --------------
Total revenues 1,074,000 677,000 2,304,000 1,418,000
--------------- -------------- ---------------- --------------
Operating expenses*
Production and programming 591,000 403,000 950,000 795,000
Selling and marketing 1,020,000 879,000 2,108,000 1,404,000
New business development 40,000 8,000 108,000 19,000
General and administrative 922,000 835,000 1,892,000 1,614,000
--------------- -------------- ---------------- --------------
Total operating expenses 2,573,000 2,125,000 5,058,000 3,832,000
--------------- -------------- ---------------- --------------
Operating loss $ (1,499,000) $ (1,448,000) $ (2,754,000) $ (2,414,000)
=============== ============== ================ ==============
</TABLE>
*Includes depreciation and amortization:
<TABLE>
<S> <C> <C> <C> <C>
Amortization of film rights
Original programming $ 491,000 $ 314,000 $ 747,000 $ 618,000
License agreements - - - -
--------------- -------------- ---------------- --------------
491,000 314,000 747,000 618,000
--------------- -------------- ---------------- --------------
Depreciation and amortization
of property and equipment
and other assets 10,000 3,000 15,000 4,000
--------------- -------------- ---------------- --------------
$ 501,000 $ 317,000 $ 762,000 $ 622,000
=============== ============== ================ ==============
</TABLE>
Note--Beginning April 30, 1996, the Company records a minority interest
representing the minority partners' combined 20% share of the net loss of
FiT TV. See "Other Income and Expense Information".
17
<PAGE> 18
FiT TV, CONTINUED
The FiT TV cable network was launched in October 1993. The operations of FiT
TV have generated operating losses and, as a start-up operation, could generate
operating losses for a significant period of time.
As of June 30, 1996, FiT TV was available, on a full-time or part-time basis,
via local cable systems and home television receive-only satellite dishes, to
approximately 11.1 million households as compared to approximately 8.8 million
households as of June 30, 1995. The Company intends to broaden the carriage of
FiT TV through, among other things, increased marketing and promotional
activities. However, in light of the number of new cable programming services
and the existence of limited channel capacity, there can be no assurance that
these activities will be successful, that current subscriber levels can be
maintained, or that FiT TV will become profitable in the future.
The Company expects cable system penetration will continue to grow as cable
operators construct new systems, enhance existing systems to increase channel
capacity and extend existing cable television distribution facilities to new
service areas. Furthermore, certain technological advances that are
anticipated to expand the channel capacity of cable television systems
(including the development of digital compression technology and the deployment
of fiber optic cable) or to provide the potential for reaching new subscribers
(such as direct broadcast satellite and other alternative delivery services)
may afford the Company additional opportunities to increase carriage of FiT TV
on cable systems or otherwise to increase the number of subscribers to FiT TV
and thus have an impact on advertising and merchandise revenues. There can be
no assurance, however, that these technological advances will be effected or
that, if effected, they will have the anticipated beneficial impact on future
results of operations. In addition, certain of these trends also have the
potential to benefit competitors of the Company. Industry regulation may also
have an impact on such trends.
Total revenues increased $397,000 (or 58.6%) for the second quarter of 1996 as
compared to the second quarter of 1995. Total revenues increased $886,000 (or
62.5%) during the six month period ending June 30, 1996 as compared to the
corresponding period of the prior year. These increases are due to higher
advertising rates and merchandise sales.
Production and programming expense increased $188,000 (or 46.7%) for the second
quarter of 1996 as compared to the second quarter of 1995. Production and
programming expense increased $155,000 (or 19.5%) during the six month period
ended June 30, 1996 as compared to the corresponding period of the prior year.
Selling and marketing expense increased $141,000 (or 16.0%) for the second
quarter of 1996 as compared to the second quarter of 1995. Selling and
marketing expense increased $704,000 (or 50.1%) during the six month period
ending June 30, 1996 as compared to the corresponding period of the prior year.
These increases are due primarily to increased advertising and expenses related
to launch incentive fees. The Company expects to increase its expenditures
related to FiT TV's marketing and promotional activities.
General and administrative expense includes, among other things, intercompany
charges for services and support provided to FiT TV, including charges for
transponder usage (at the rate of $1,800,000 per annum). General and
administrative expense increased $87,000 (or 10.4%) for the second quarter of
1996 as compared to the second quarter of 1995. General and administrative
expense increased $278,000 (or 17.2%) during the six month period ending June
30, 1996 as compared to the corresponding period of the prior year. These
increases are primarily due to increases in personnel costs in 1996.
As described in Note C of Notes to Consolidated Financial Statements, on April
30, 1996, the Company, Liberty Media, and Reebok formed the FiT TV Partnership
to own and operate the FiT TV cable network. FiT TV had previously been owned
and operated by CHTV.
In accordance with the terms of the FiT TV Partnership Agreement, CHTV
contributed all of the assets and liabilities of the FiT TV cable network to
the FiT TV Partnership in exchange for an 80% partnership interest
18
<PAGE> 19
FiT TV, CONTINUED
and functions as the Partnership's managing partner. Reebok contributed cash
of $2,000,000 and other consideration agreed upon by the parties in exchange
for a 10% partnership interest. Liberty Media contributed cash of $1,000,000
and other consideration agreed upon by the parties in exchange for a 10%
partnership interest. Reebok and Liberty Media have no further obligations to
make capital contributions to the Partnership.
INTERNATIONAL NETWORKS
The following table sets forth comparative information relating to the
operations of The Family Channel (UK) and The Family Channel De Las Americas,
as well as international new business development costs.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues
Advertising revenue $ 157,000 $ 469,000 $ 700,000 $ 991,000
Subscriber fees 1,106,000 2,606,000 4,247,000 4,988,000
Other revenue 18,000 23,000 98,000 63,000
--------------- -------------- ---------------- -------------
Total revenues 1,281,000 3,098,000 5,045,000 6,042,000
--------------- -------------- ---------------- -------------
Operating expenses*
Production and programming 1,607,000 3,542,000 6,569,000 7,233,000
Selling and marketing 460,000 1,219,000 1,760,000 2,183,000
New business development 572,000 700,000 1,001,000 798,000
General and administrative 434,000 684,000 1,128,000 1,245,000
--------------- -------------- ---------------- -------------
Total operating expenses 3,073,000 6,145,000 10,458,000 11,459,000
--------------- -------------- ---------------- -------------
Operating loss $ (1,792,000) $ (3,047,000) $ (5,413,000) $(5,417,000)
=============== ============== ================ =============
The Family Channel (UK) $ (773,000) $ (2,347,000) $ (2,841,000) $(4,619,000)
The Family Channel De Las Americas (447,000) - (1,571,000) -
New business development (572,000) (700,000) (1,001,000) (798,000)
--------------- -------------- ---------------- -------------
Operating loss $ (1,792,000) $ (3,047,000) $ (5,413,000) $(5,417,000)
=============== ============== ================ =============
</TABLE>
- ---------------
*Includes depreciation and amortization:
<TABLE>
<S> <C> <C> <C> <C>
Amortization of film rights
Original programming $ 50,000 $ 164,000 $ 147,00 $ 443,000
License agreements 748,000 1,057,000 3,054,000 2,190,000
--------------- -------------- ---------------- -------------
798,000 1,221,000 3,201,000 2,633,000
Depreciation and amortization
of property and equipment
and other assets 9,000 18,000 27,000 38,000
--------------- -------------- ---------------- -------------
$ 807,000 $ 1,239,000 $ 3,228,000 $ 2,671,000
=============== ============== ================ =============
</TABLE>
As previously discussed in Note F of Notes to Consolidated Financial
Statements, on April 22, 1996, the Company sold its 61% interest in The Family
Channel (UK).
The Family Channel De Las Americas, which was launched on July 1, 1995, is an
advertiser-supported cable network that provides Spanish-language,
family-oriented, entertainment programming as well as fitness programming in
Mexico, Central America, and portions of South America to, at the current time,
a limited number of subscribers. As a start-up operation, this network could
generate significant losses for an extended period of time, and there can be no
assurance that it will become profitable in the future.
19
<PAGE> 20
INTERNATIONAL NETWORKS, CONTINUED
In June 1995, the Company acquired a 33 1/3% interest in an entity which holds
demand notes that are convertible into an 80% equity interest in China
Entertainment Television Broadcast Limited. The Company's share of losses of
this venture is reflected in the determination of other income and expense.
See "Other Income and Expense Information".
PRODUCTION & DISTRIBUTION SEGMENT INFORMATION
The following table sets forth comparative information relating to the domestic
and international operations of the Company's Production & Distribution
business segment.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues
MTM Operations $ 13,339,000 $ 8,432,000 $ 26,387,000 $ 21,108,000
UK Studio 338,000 794,000 1,561,000 2,134,000
--------------- --------------- -------------- ---------------
Total revenues 13,677,000 9,226,000 27,948,000 23,242,000
--------------- --------------- -------------- ---------------
Operating expenses*
Production and programming 14,322,000 9,681,000 27,563,000 22,272,000
Selling and marketing 2,462,000 2,083,000 4,717,000 4,458,000
General and administrative 1,237,000 1,052,000 3,133,000 1,816,000
Amortization of goodwill 456,000 465,000 915,000 930,000
--------------- --------------- -------------- ---------------
Total operating expenses 18,477,000 13,281,000 36,328,000 29,476,000
--------------- --------------- -------------- ---------------
Operating loss $ (4,800,000) $ (4,055,000) $ (8,380,000) $ (6,234,000)
=============== =============== ============== ===============
MTM Operations $ (4,227,000) $ (3,724,000) $ (7,623,000) $ (5,903,000)
Family Channel Pictures (480,000) - (617,000) -
UK Studio (93,000) (331,000) (140,000) (331,000)
--------------- --------------- -------------- ---------------
Operating loss $ (4,800,000) $ (4,055,000) $ (8,380,000) $ (6,234,000)
=============== =============== ============== ===============
</TABLE>
- ---------
*Includes depreciation and amortization:
<TABLE>
<S> <C> <C> <C> <C>
Amortization of film rights
Original programming $ 10,886,000 $ 6,698,000 $ 14,127,000 $ 15,950,000
License agreements 1,950,000 1,100,000 9,052,000 2,515,000
--------------- --------------- -------------- ---------------
12,836,000 7,798,000 23,179,000 18,465,000
--------------- --------------- -------------- ---------------
Depreciation and amortization
of property and equipment,
goodwill, and other assets
MTM Operations 589,000 499,000 1,160,000 997,000
UK Studio 57,000 165,000 232,000 331,000
--------------- --------------- -------------- ---------------
646,000 664,000 1,392,000 1,328,000
--------------- --------------- -------------- ---------------
$ 13,482,000 $ 8,462,000 $ 24,571,000 $ 19,793,000
=============== =============== ============== ===============
</TABLE>
Operating revenue for MTM Operations increased $4,907,000 (or 58.2%) and
$5,279,000 (or 25.0%) for the three and six month periods of June 30, 1996,
respectively, as compared to the corresponding periods of the prior year.
Operating revenues in 1996 were derived primarily from the syndication of the
television series America's Funniest Home Videos and the production and
licensing of the television series Home & Family, Orleans, and Pretender as
well as the made-for-television movie Night of the Twisters. Operating
revenues in 1995 were derived primarily from the production and licensing of
the television series Christy and the made-for-television movie Face on a Milk
Carton and the syndication of the television series Rescue 911.
20
<PAGE> 21
PRODUCTION & DISTRIBUTION SEGMENT INFORMATION, CONTINUED
Revenue is recognized when programming becomes available for telecast by
others. As a result, significant fluctuations in revenue and income may occur
from period to period depending on the availability dates of programs.
Accordingly, year-to-year comparisons of quarterly results may not be
meaningful, and quarterly operating results during the course of a fiscal year
may not be indicative of results that may be expected for the entire fiscal
year.
Production and programming expense increased $4,641,000 (or 47.9%) and
$5,291,000 (or 23.8%) for the three and six month periods ended June 30, 1996,
respectively, as compared to the corresponding periods of the prior year.
These increases are primarily attributable to amortization in 1996 of the
television series America's Funniest Home Videos, Home & Family, Orleans,
Pretender, and Sparks as well as the made-for-television movie Night of the
Twisters as compared to the amortization of the television series Christy and
Rescue 911 as well as the made-for-television movie Face on a Milk Carton in
1995.
The Company's Production & Distribution business has increased its production
of original programming for license to the major broadcast networks,
syndication to local broadcast stations, distribution in the international
marketplace, or license to The Family Channel. The production costs of these
original programs represent a substantial investment. Recoverability of this
investment is dependent upon, among other factors, the ratings success of these
programs.
Selling and marketing expense increased $379,000 (or 18.2%) and $259,000 (or
5.8%) for the three and six month periods ended June 30, 1996, respectively, as
compared to the corresponding periods of the prior year.
General and administrative expense increased $185,000 (or 17.6%) and $1,317,000
(or 72.5%) for the three and six month periods ended June 30, 1996,
respectively, as compared to the corresponding periods of the prior year. This
increase is due to increased personnel and occupancy costs and the creation of
a music publishing division and Family Channel Pictures.
Family Channel Pictures has co-produced a theatrical motion picture which is
expected to be released in 1996. The Company's share of the production costs
of this film amounted to approximately $6,000,000 for which the Company
received the domestic distribution rights. Additional costs for prints and
advertising will be incurred in connection with the release of this film.
Recoverability of the aggregate costs of this theatrical motion picture will be
dependent upon a variety of factors, including the domestic box office results
as well as revenues generated from pay-per-view, home video, and licensing to
The Family Channel as well as others.
Future results of operations of the Company's Production & Distribution
business are primarily dependent upon the Company's ability to distribute
programming (i) obtained in the acquisition of film libraries, (ii) produced
for licensing to the major broadcast networks and others, (iii) produced for
The Family Channel, and (iv) acquired under license agreements or otherwise.
As previously discussed in Note F of Notes to Consolidated Financial
Statements, on April 22, 1996, the Company sold the UK Studio.
21
<PAGE> 22
LIVE ENTERTAINMENT SEGMENT INFORMATION
The following table sets forth comparative information relating to the
operations of the Company's Live Entertainment business segment.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $ 1,953,000 $ 2,123,000 $ 2,996,000 $ 3,230,000
--------------- -------------- --------------- --------------
Operating expenses*
Production and programming 1,955,000 1,713,000 3,817,000 3,327,000
Selling and marketing 354,000 269,000 597,000 503,000
New business development - 723,000 - 723,000
General and administrative 256,000 212,000 575,000 434,000
Amortization of goodwill 149,000 254,000 299,000 404,000
--------------- -------------- --------------- --------------
Total operating expense 2,714,000 3,171,000 5,288,000 5,391,000
--------------- -------------- --------------- --------------
Operating loss $ (761,000) $ (1,048,000) $ (2,292,000) $ (2,161,000)
=============== ============== =============== ==============
</TABLE>
- -----------
*Includes depreciation and amortization:
<TABLE>
<S> <C> <C> <C> <C>
Depreciation and amortization
of property and equipment,
goodwill, and other assets $ 351,000 $ 497,000 $ 732,000 $ 767,000
=============== ============== =============== ==============
</TABLE>
The results of the Company's Live Entertainment business are subject to
seasonal fluctuations. Operating revenues and, accordingly, operating income
are usually higher during the summer and during holiday vacation periods, such
as Christmas.
New business development in 1995 related to expenses associated with the
operation of the Ice Capades. The Company sold its interest in the Ice Capades
on December 31, 1995.
The live musical variety shows, located in Myrtle Beach, South Carolina,
operated within the Company's Live Entertainment business segment have
sustained operating losses since their acquisition in December 1993. In
addition, during 1995, the Company opened a new musical venue, located in
Charleston, South Carolina. As a start-up operation, this new venue could
generate significant losses for an extended period of time.
Future results of operations of the Company's Live Entertainment business are
primarily dependent upon, among other factors, (i) achieving sufficient
attendance, (ii) the ability to raise ticket prices without adversely affecting
attendance, (iii) opportunities to secure talent at a reasonable cost, and (iv)
increased competition in the Myrtle Beach market. There can be no assurance
that the Company's Live Entertainment business will become profitable in the
future.
OTHER INCOME AND EXPENSE INFORMATION
Investment income increased to $1,355,000 for the second quarter of 1996 from
$202,000 for the second quarter of 1995, an increase of $1,153,000. Investment
income increased to $2,246,000 for the six months ended June 30, 1996, from
$594,000 for the six months ended June 30, 1995, an increase of $1,652,000.
These increases are primarily attributable to the profit of $1,090,000 related
to the sale of a portion of the Company's investment in a certain media
enterprise during the second quarter of 1996.
22
<PAGE> 23
OTHER INCOME AND EXPENSE INFORMATION, CONTINUED
Total interest expense decreased to $2,894,000 for the second quarter of 1996
from $3,264,000 for the second quarter of 1995, a decrease of $370,000 (or
11.3%). This decrease was primarily attributable to the effect of lower
interest rates during the second quarter of 1996 as compared to the second
quarter of 1995. Total interest expense increased to $6,533,000 for the first
six months of 1996 from $6,444,000 for the first six months of 1995, an
increase of $89,000 (or 1.4%). This increase was attributable to increased
borrowings, net of the effect of lower interest rates, during the first six
months of 1996 as compared to the first six months of 1995.
Prior to April 22, 1996, minority interests were primarily attributable to a
minority partner's 39% interest in The Family Channel (UK). On April 22, 1996,
the Company consummated the sale of its 61% interest in The Family Channel
(UK). The minority partner's 39% share of the net loss resulting from the
operations of The Family Channel (UK), through the date of sale, amounted to
$393,000 and $1,419,000 for the three and six month periods ended June 30,
1996, respectively, as compared to $1,135,000 and $2,108,000 for the
corresponding periods of the prior year.
As described in Note C of Notes to Consolidated Financial Statements, on April
30, 1996, the Company, Liberty Media, and Reebok formed the FiT TV Partnership
to own and operate the FiT TV cable network. The minority partners' combined
20% share of the net loss resulting from the operations of the FiT TV
Partnership, since its formation on April 30, 1996, amounted to $280,000 for
the three and six month periods ended June 30, 1996.
As previously discussed in Note F of Notes to Consolidated Financial
Statements, on April 22, 1996, the Company consummated the sale of its
television production studio in Maidstone, England and its 61% interest in The
Family Channel (UK) to a related party. This sale resulted in a gain on
disposition of assets amounting to $13,685,000 for the three and six month
periods ended June 30, 1996.
Other investments include investments in and advances to affiliates and others.
Management of the Company periodically reviews the recoverability of these
investments and records allowances against their carrying value, as
appropriate, based on the operations of the entities and other factors. Other
expense of $5,251,000 in 1996 is composed of such adjustments, including an
adjustment of $2,750,000 relating to the Company's investment in China
Entertainment Television Broadcast Limited which, as a start-up operation,
could generate significant losses for an extended period of time, and there can
be no assurance that it will become profitable in the future.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Management periodically reviews and revises its estimates of future airings and
revenues for film rights, as necessary, which may result in revised
amortization rates for film rights and, when applicable, write-downs to net
realizable value. Net income in future periods is affected by the Company's
amortization of its film rights and may be significantly affected by the
periodic adjustments in such amortization.
23
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 annual meeting of IFE's shareholders was held on May 22, 1996. As
described in the Company's Proxy Statement, dated April 19, 1996, three matters
were submitted to the shareholders at the annual meeting:
(i) the election of six directors;
(ii) the ratification of an amendment (the "Stock Plan Amendment")
to the International Family Entertainment, Inc. Stock
Incentive Plan (a) increasing the number of shares of Class B
Common Stock which may be issued thereunder from 4,325,000
shares to 6,200,000 shares, (b) limiting any future awards
related to such increase in shares to grants of stock options
with an exercise price not less than the fair market value of
the underlying stock on the date of the grant, and (c)
limiting to 1,000,000 the aggregate number of shares of Class
B Common Stock underlying options that may be granted to any
individual in any calendar year; and
(iii) the ratification of KPMG Peat Marwick LLP as IFE's independent
auditors for the year 1996.
The number of votes cast for and against each proposal and the number of
abstentions are reported below. Holders of Class A Common Stock are entitled
to ten votes per share and holders of Class B Common Stock are entitled to one
vote per share.
Election of Directors. Three nominees stood for election by the holders of the
Class A Common Stock, voting separately as a class, to serve as directors until
the 1997 annual meeting of shareholders. Each nominee was elected. The voting
results for each nominee were as follows:
<TABLE>
<CAPTION>
VOTES
NOMINEE FOR AGAINST ABSTAIN
------- --- ------- -------
<S> <C> <C> <C>
M.G. "Pat" Robertson 50,000,000 0 0
Timothy B. Robertson 50,000,000 0 0
Louis A. Isakoff 50,000,000 0 0
</TABLE>
Three nominees stood for election by the holders of the Class B Common Stock,
voting separately as a class, to serve as directors until the 1997 annual
meeting of shareholders. Each nominee was elected. The voting results for
each nominee were as follows:
<TABLE>
<CAPTION>
VOTES
NOMINEE FOR AGAINST ABSTAIN
------- --- ------- -------
<S> <C> <C> <C>
William A. Armstrong 24,728,747 5,168,629 0
Lowell W. Morse 24,727,122 5,170,254 0
Robert M. Wallace 24,606,372 5,291,004 0
</TABLE>
Ratification of the Stock Plan Amendment. The Stock Plan Amendment was
ratified by the holders of the Class A Common Stock and the Class B Common
Stock voting together as a single class. The votes cast for, against, or
abstaining from ratification of the Stock Plan Amendment were as follows:
67,457,211 for; 10,982,844 against; and 99,743 abstain.
24
<PAGE> 25
PART II - OTHER INFORMATION, CONTINUED
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS, CONTINUED
Ratification of the Appointment of Independent Auditors. The appointment of
KPMG Peat Marwick LLP as IFE's independent auditors for the year 1996 was
ratified by the holders of the Class A Common Stock and the Class B Common
Stock voting together as a single class. The votes cast for, against, or
abstaining from ratification of KPMG Peat Marwick LLP were as follows:
79,884,560 for; 6,769 against; and 6,047 abstain.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Employment Agreement, effective as of March 6, 1995, between the Company
and Anthony D. Thomopoulos, executed on May 15, 1996.
10.2 International Family Entertainment, Inc. Stock Incentive Plan, as amended
(previously filed as Appendix 2 to the Company's definitive Proxy Statement
dated April 19, 1996, and incorporated by reference herein).
10.3 Agreement between International Family Entertainment, Inc. and Flextech plc,
dated as of March 20, 1996, for the sale and purchase of shares in International
Family Entertainment UK (previously filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated April 22, 1996, and incorporated by reference
herein).
10.4 Agreement between International Family Entertainment, Inc. and Flextech plc,
dated as of March 20, 1996, for the sale and purchase of shares in TVS Television
Limited (previously filed as Exhibit 2.2 to the Company's Current Report on
Form 8-K dated April 22, 1996, and incorporated by reference herein).
10.5 Shareholders Agreement in relation to Flextech plc, dated as of March 20, 1996,
between International Family Entertainment, Inc. and Tele-Communications
International, Inc (previously filed as Exhibit 2.3 to the Company's Current
Report on Form 8-K dated April 22, 1996, and incorporated by reference herein).
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K (filed during the second quarter of 1996):
Current Report on Form 8-K which reported an event under Item 2 that
occurred on April 22, 1996, relating to the Company's sale of its
television production studio in Maidstone, England and its 61%
interest in The Family Channel (UK) to Flextech plc, was filed in May
1996.
25
<PAGE> 26
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 thereunto duly authorized.
Dated: August 12, 1996
INTERNATIONAL FAMILY ENTERTAINMENT, INC.
(Registrant)
By: /s/ Larry W. Dantzler
-------------------------------
Larry W. Dantzler,
Senior Vice President
and Chief Financial Officer
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1 Employment Agreement, effective as of March 6, 1995, between
the Company and Anthony D. Thomopoulos, executed May 15, 1996.
10.2 International Family Entertainment, Inc. Stock Incentive Plan, as
amended (previously filed as Appendix 2 to the Company's definitive
Proxy Statement dated April 19, 1996, and incorporated by reference
herein).
10.3 Agreement between International Family Entertainment, Inc. and
Flextech plc, dated as of March 20, 1996, for the sale and purchase of
shares in International Family Entertainment UK (previously filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated
April 22, 1996, and incorporated by reference herein).
10.4 Agreement between International Family Entertainment, Inc. and
Flextech plc, dated as of March 20, 1996, for the sale and purchase of
shares in TVS Television Limited (previously filed as Exhibit 2.2 to the
Company's Current Report on Form 8-K dated April 22, 1996, and
incorporated by reference herein).
10.5 Shareholders Agreement in relation to Flextech plc, dated as of
March 20, 1996, between International Family Entertainment, Inc. and
Tele-Communications International, Inc. (previously filed as Exhibit 2.3
to the Company's Current Report on Form 8-K dated April 22, 1996, and
incorporated by reference herein).
27 Financial Data Schedule (for SEC use only).
</TABLE>
27
<PAGE> 1
As of March 6, 1995
Anthony D. Thomopoulos
1280 Stone Canyon Road
Los Angeles, CA 90067
Dear Tony:
This letter will set forth the terms of the agreement between you and MTM
Entertainment, Inc. ("MTM").
1. Employment
You will serve as Chief Executive Officer of MTM, and as such you will perform
those duties which are normal and customary in the industry for like positions.
You will also be responsible for all domestic and international entertainment
aspects of International Family Entertainment, Inc. ("IFE"), as distinguished
from non-entertainment programming, such as The Cable Health Club. You will be
responsible for such other services as MTM may reasonably require. You will
serve as a member of IFE's management committee and will report directly to the
Chairman of MTM or his designee (which designee shall be subject to your
approval, not to unreasonably be withheld.) You will perform full-time service
on an exclusive basis for MTM and its affiliates. Your principal place of
employment shall be in Los Angeles, California, or elsewhere as MTM shall
determine, subject to your reasonable approval. If MTM is spun out as a
separate public company during the term hereof, then the Board of MTM shall
nominate you for a seat on the Board of Directors for the balance of the term
of this Agreement.
2. Term
Your employment under this Agreement shall commence on March 6, 1995, and
unless terminated pursuant to the terms hereof, shall continue for a period of
five (5) years. At least six (6) months prior to the expiration hereof, the
parties shall enter into good faith negotiations over renewal terms and
conditions.
3. Base Compensation
As compensation for your services hereunder, MTM shall pay you and you
shall accept an annual base salary of $800,000 payable in equal bi-weekly
installments.
1
<PAGE> 2
4. Bonus Structure
a. Annual Bonus You will receive a bonus structure based on
MTM's earnings before interest, taxes, depreciation and
amortization ("EBITDA") as determined according to generally
accepted accounting principles, as
follows.
<TABLE>
<CAPTION>
Contract Year EBITDA Target Bonus
------------- (in millions) -----
-------------
<S> <C> <C>
1995 N/A N/A
1996 $N/A N/A
1997 $7.056 100,000
1998 $8.467 100,000
1999 $10.160 200,000
</TABLE>
In the event that MTM does not meet the EBITDA target in a
given year, but the compound annual growth over that year and
the next subsequent year equals 20%, then such increased
compensation shall be paid at that time on a retroactive
basis. In addition, if an EBITDA target has been reached in
one year so that a bonus is paid, then an equivalent bonus
shall be paid in the subsequent year, even if in the
subsequent year the EBITDA target is not reached.
b. Apportionment For those periods of your employment that do
not coincide with MTM's fiscal year, the amount of the bonus
and salary shall be prorated for the number of months you are
in the employ of MTM, during such fiscal year.
c. Payment Payment of the annual bonus shall be made no later
than December 31 of the year for which the calculation is
made. If the bonus is paid pursuant to an estimate, the bonus
figure shal be adjusted at such time as final fagures have
been verified, but not later than March 31 of the subsequent
year.
d. Further Bonuses MTM may from time to time enter into
supplemental agreements or memorandums in writing with you for
the award and payment to you of additional compensation or
bonuses upon such terms and conditions as MTM shall deem to be
in its business interest. In the event of the execution by
MTM of any such agreements or memorandums, your right to
additional compensation or bonuses shall be determined in
accordance with the applicable provisions thereof,
2
<PAGE> 3
subject, however, to the provisions of this sub-paragraph. In
the absence of any such supplemental agreements or
memorandums, MTM shall not be obligated to pay you any
additional compensation or bonus whatsoever, irrespective of
the payment of additional compensation or bonus in any past or
succeeding year or the payment or additional compensation or
bonus to other executives in any year, but may do so in its
sole discretion.
e. Stock Options.
1. MTM Stock. You shall be granted the option to
purchase 625,000 shares of the common stock of MTM, as
follows. The exercise price of the options shall be $4.40
per share, being 110% of the fair market value of the options
at the date of grant. The options shall vest at the rate of
125,000 shares on each of the first five (5) anniversary
dates of this Agreement; any options not exercised shall
lapse on the tenth (10th) anniversary of this Agreement. On
the fifth (5th) anniversary date of this Agreement and for
each of the four (4) years thereafter, if the stock of MTM is
not publicly traded, you may tender to MTM and MTM shall
purchase in any one year up to 20% of the MTM shares
purchased hereunder. MTM's obligation to repurchase shall
lapse on the tenth (10th) anniversary of this Agreement, and
MTM shall have no obligation to repurchase shares after that
time. The purchase price for MTM's repurchase shall be based
on a value for MTM at ten times EBITDA, but in no event less
than $4.40 per share. EBITDA shall be determined according
to the audited financial statements of MTM, a copy of which
shall be made available to Employee.
Notwithstandig anything set forth in this paragraph
to the contrary, the options shall become exercisable with
respect to one hundred percent (100%) of the shares of MTM
comon stock subject thereto in the event of a change of
control of MTM. As used herein a "change of control of MTM"
means an event such that subsequent thereto either (i) IFE is
not the holder, directly or indirectly, of a maority of the
outstanding shares of MTM common stock, or (ii) the holders
of the Class A Common Stock of IFE are not entitled to elect
a majority of IFE's directors.
2. IFE Stock. You shall be granted the option
to purchase up to 250,000 shares of the Class B Common Stock
of IFE pursuant to the terms of a separate option agreement
executed contemporaneously herewith.
3. General. Except as expressly set forth in
this Agreement, the terms and conditions of the options shall
be governed by the respective Stock Incentive Plans at MTM and
IFE.
3
<PAGE> 4
5. Reimbursement for Expenses
The parties recognize that in the course of performing your duties hereunder,
you will necessarily incur expenses in connection with your duties for such
items as entertainment, traveling, hotels, gifts, and similar items. You shall
be entitled to reimbursement for all reasonable expenses so incurred by you in
the performance of your duties hereunder, subject to such procedures and rules
established by MTM.
6. Severance - Payment upon Termination
a. Expiration If the original Term of this Agreement expires and
MTM does not offer to renew, then for twelve (12) months
thereafter, you shall be paid additional compensation, equal
to your base salary in effect the month prior to the
termination. Such amounts shall be paid on a bi-weekly basis.
MTM shall notify you no later than six (6) months prior to the
expiration hereof whether it desires to extend the term of
this Agreement. If both MTM and you desire to extend this
term, the parties shall negotiate in good faith the terms and
conditions of such extension. If you elect not to renew this
agreement, than no severance shall be paid.
b. Termination by Company MTM shall have the right to terminate
this Agreement at any time, with or without cause, upon 90
days prior written notice to you. If MTM terminates this
Agreement prior to your having served thirty (30) months under
the terms of this Agreement, and other than for your willful
breach of contract, habitual neglect or other gross
misconduct, (collectively "Cause") it shall nonetheless
continue to pay you the then base salary for twenty-four (24)
months. In the event that MTM terminates your employment
after you have served thirty (30) months, other than for
Cause, it shall then be obligated to pay you your then base
salary for the balance of the term, but not less than one (1)
year's base compensation. If MTM terminates this Agreement
other than for Cause, all MTM and IFE options shall vest on
the date of termination, and any options not exercised shall
lapse on the tenth anniversary of the date of this Agreement.
If MTM terminates this Agreement for Cause, no severance shall
be paid, and all unvested options shall lapse. In event of
termination for any reason, you shall receive all accrued
benefits, except that you agree that MTM may offset from this
or any severance any sums owed by you to MTM. You acknowledge
that MTM is not required to actually utilize your services
hereunder, but this shall not release MTM of its obligation to
pay you the compensation set forth herein, subject to MTM's
right to terminate this Agreement in accordance with the terms
hereof. You acknowledge and agree that MTM has no obligation
to renew this Agreement or to continue your employment after
expiration of the term hereof, subject to making the payments
specified herein, and you
4
<PAGE> 5
expressly acknowledge that no promises or understandings to
the contrary have been made or reached.
c. Cessation of Severance In the event you obtain other
employment, no severance shall be payable.
7. Life Insurance
MTM may in its discretion at any time after the execution of this Agreement
apply for and procure as owner and for its own benefit insurance on the your
life, in such amounts and in such form or forms as MTM may determine. You
shall have no interest whatsoever in any such policy or policies, but you
shall, at the request of MTM, submit to such medical examinations, supply such
information, and execute such documents as may be required by the insurance
company or companies to whom MTM has applied for such insurance. Employee may
have his own physician present at any examination, at his own expense.
8. Other Benefits
a. Vacation You will be entitled to four weeks vacation
per year with pay during the term of this Agreement,
subject to MTM's personnel policies.
b. Health Plans You and your family will be eligible to
participate in the current MTM health and medical
plans, as well as life and disability insurance
plans, as such plans may be modified from time to
time.
c. 401(k) Plan You shall also be entitled to
participate in IFE's 401(k) plan, for which MTM
currently provides a matching contribution up to two
and one half percent (2 1/2%) of your salary, as such
may be modified from time to time.
d. Travel. You shall be entitled to first class air
travel and accommodations. In addition, MTM shall
upon reasonable request cover round trip first class
air travel for your wife and minor children living
with you, giving due consideration to the frequency
and length of your travel. You shall bear all income
tax charges, if any, attributable thereto.
e. Home Office. MTM shall provide you a telephone,
telephone line charge reimbursement, a fax machine
and a photocopier to furnish a home office to be used
for Company business. Upon termination of this
Agreement, all such items shall be returned to MTM.
5
<PAGE> 6
f. Car Allowance. During the term hereof, MTM shall
provide you a car allowance of $1200 per month.
g. Additional Benefits You expressly agree and
acknowledge that after the expiration of the term
hereof, you will be entitled to no benefits or
compensation unless expressly set forth herein, and
except as specifically provided under the benefit
plans referred to herein and those benefit plans in
which you may subsequently become a participant, and
subject in all cases to the terms and conditions of
each such plan.
9. Non-Compete
You agree that if you terminate this Agreement other than due to MTM's breach,
you will not work for a direct competitor of MTM for a period of twelve (12)
months, unless given specific agreement in writing from MTM. Direct
competitors shall include other cable or satellite television networks, or
television production and distribution companies.
10. Remedy For Breach
Both parties recognize that the services to be rendered under this Agreement by
you are special, unique, and of an extraordinary character, and that in the
event of the breach by you of the terms and conditions of this Agreement, then
MTM shall be entitled, if it so elects, to institute and prosecute proceedings
in any court of competent jurisdiction, either in law or in equity, to seek to
obtain the specific performance thereof by you, or to enjoin you from
performing services for any such other person, firm, or corporation, during the
period herein contracted for, but nothing herein contained shall be construed
to prevent such remedy in the courts, in case of any breach of this Agreement
by you, as MTM may elect to invoke.
11. Disputes
Any dispute or controversy arising out of the termination of this Agreement
shall be determined and settled by submission for hearing to an arbitrator in
an expedited arbitration proceeding conducted in Virginia Beach, VA, in
accordance with the rules and procedures of the American Arbitration
Association. Such submission and hearing shall be initiated by any party by
delivery of written notice to the other party demanding a hearing and
specifying the controversy or dispute to be settled. The decision of the
arbitrator shall be binding and conclusive on the parties hereto.
12. Situs
This Agreement shall be governed by and construed according to the laws of the
Commonwealth of Virginia.
6
<PAGE> 7
13. Modification
This Agreement constitutes the full and complete understanding and agreement of
the parties, supersedes all prior understandings and agreements, and cannot be
changed or terminated orally, by only by an explanation in writing signed by
the party against whom enforcement of any waiver, charge, modification or
discharge is sought.
14. Binding Effect
This Agreement shall be binding upon and inure to the benefit of any successor
or successors of MTM and the personal representatives of you.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first written.
EMPLOYEE:
Anthony D. Thomopoulos
/s/ ANTHONY D. THOMOPOULOS DATE: 5-15-96
- ------------------------------- ---------------
EMPLOYER: MTM Entertainment, Inc.
BY: /s/ TIMOTHY ROBERTSON DATE: 5-15-96
---------------------------- ----------------
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
International Family Entertainment, Inc.'s Consolidated Financial Statements as
of and for the three and six months ending June 30, 1996 and is qualified in its
entirety by reference to such Consolidated Financial Statements included in the
Company's Form 10-Q for the quarterly period ended June 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,371
<SECURITIES> 8,678
<RECEIVABLES> 125,788
<ALLOWANCES> 7,977
<INVENTORY> 0
<CURRENT-ASSETS> 177,871
<PP&E> 86,114
<DEPRECIATION> 25,894
<TOTAL-ASSETS> 485,336
<CURRENT-LIABILITIES> 79,793
<BONDS> 142,286
0
0
<COMMON> 152,589
<OTHER-SE> 35,948
<TOTAL-LIABILITY-AND-EQUITY> 485,336
<SALES> 0
<TOTAL-REVENUES> 149,965
<CGS> 0
<TOTAL-COSTS> 121,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 401
<INTEREST-EXPENSE> 6,533
<INCOME-PRETAX> 34,016
<INCOME-TAX> 14,853
<INCOME-CONTINUING> 19,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,163
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
