SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21234
SAVOY PICTURES ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3649014
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Carnegie Hall Tower, 152 West 57th Street
New York, NY 10019
(Address of principal executive offices)
(Zip Code)
(212) 247-5810
(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 November 6, 1996, there were 30,041,932 shares of Common Stock
outstanding.
<PAGE>
SAVOY PICTURES ENTERTAINMENT, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 . . . . . . . . . . 3
Consolidated Statements of Operations -
Nine Months Ended September 30, 1996 and September 30, 1995 . 4
Consolidated Statement of Stockholders' Equity - Nine Months
Ended September 30, 1996 . . . . . . . . . . . . . . .. . . . . 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and September 30, 1995 . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . .11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .18
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . .18
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . . .18
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .18
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . .18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .18
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, September 30,
1996 1996
------------- -------------
(Unaudited)
(In thousands, except
per share amounts)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 51,796 $ 17,448
Accounts receivable 25,441 35,664
U.S. Government securities 325 102,579
Inventories, net (Note 3) 80,494 178,532
Fixed assets, net 18,818 19,938
Broadcast licenses and other intangibles, net 255,294 260,785
Deferred charges, net 4,187 11,551
Other assets 4,986 3,757
----------------------- --------------------------
Total assets $ 441,341 $ 630,254
======================= ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 29,823 $ 41,687
Deferred revenue 2,059 23,362
Deferred taxes 45 653
Note payable - related parties 12,500 12,500
Long-term debt - other 38,986 39,120
Corporate Facility -- 95,000
Broadcast Facility 131,500 134,000
----------------- -------------------------
Total liabilities 214,913 346,322
Minority interest (Note 1) 95,171 68,963
Commitments (Note 3)
Stockholders' equity:
Preferred stock, $.01 par value:
authorized shares - 10,000,000; issued and
outstanding shares--none -- --
Common stock, $.01 par value:
authorized shares - 100,000,000; issued and
outstanding shares - 30,041,932 in 1996 and 1995 300 300
Additional paid-in capital 366,952 366,952
Unamortized value of restricted stock (6,465) (7,531)
Unrealized gains on U.S. Government securities -- 58
Deficit (229,530) (144,810)
Total stockholders' equity 131,257 214,969
------------------------ --------------------
Total liabilities and stockholders' equity $ 441,341 $ 630,254
See accompanying notes.
</TABLE>
<PAGE>
SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------- --------------------------------------
1996(a) 1995 1996(a) 1995
-------------------- ----------------------- ------------------------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Filmed entertainment $ 19,537 $ 15,605 $ 63,474 $ 46,915
12,350 6,901 35,374 8,717
Broadcasting, net -------------------- ------------------------ ------------------------- -----------
31,887 22,506 98,848 55,632
Filmed entertainment costs:
Costs related to revenues 33,072 43,896 123,138 81,355
2,567 3,758 10,289 10,384
Selling, general, and administrative --------------------- ------------------------ ------------------------- ------------
35,639 47,654 133,427 91,739
Broadcasting costs:
Selling, general, and administrative 2,730 1,308 8,070 1,688
Operating expenses 5,298 2,348 15,380 2,832
Amortization of broadcast rights 1,048 311 3,000 371
Depreciation and amortization 2,234 950 6,717 1,116
798 426 1,949 810
Corporate overhead --------------------- ------------------------ ------------------------- ------------
12,108 5,343 35,116 6,817
Operating income (loss):
Filmed entertainment (16,102) (32,049) (69,953) (44,824)
242 1,558 258 1,900
Broadcasting --------------------- ------------------------ ------------------------- ------------
(15,860) (30,491) (69,695) (42,924)
Interest income 386 1,686 2,053 6,299
3,993 2,689 13,326 2,948
Interest expense --------------------- ------------------------ ------------------------- ------------
(3,607) (1,003) (11,273) 3,351
Loss before income taxes, minority --------------------- ------------------------ ------------------------- ------------
interest and extraordinary charge (19,467) (31,494) (80,968) (39,573)
Income tax expense (benefit) -- 170 (580) 177
(850) (4) (2,039) 36
Minority interest in SF Broadcasting --------------------- ------------------------ ------------------------- ------------
<PAGE>
Loss before extraordinary charge (18,617) (31,660) (78,349) (39,786)
Extraordinary charge, reduction in (844) -- (6,371) --
Corporate Facility (Note 4) --------------------- ------------------------ ------------------------- ------------
$ (19,461) $(31,660) $(84,720) $(39,786)
Net loss ===================== ======================== ========================= ============
Loss per share:
Loss before extraordinary charge $ (.63) $ (1.07) $ (2.64) $ (1.35)
(.03) -- (.22) --
Extraordinary charge --------------------- ------------------------ ------------------------- ------------
$ (.66) $ (1.07) $ (2.86) $ (1.35)
Net loss ===================== ======================== ========================= ============
29,680 29,585 29,645 29,548
Average shares outstanding ===================== ======================== ========================= ============
</TABLE>
See accompanying notes.
[FN]
<F1> (a) The SF Broadcasting Companies acquired WVUE-TV, WALA-TV, and KHON-TV
on August 22, 1995 and WLUK-TV on April 28, 1995. Accordingly,
broadcasting results of operations for the three months ended and nine
months ended September 30, 1996 generally do not have comparable results
in 1995.
<PAGE>
SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gains
Unamortized (Losses)
Additional Value of on U.S.
Common Paid-In Restricted Government
Stock Capital Stock Securities Deficit Total
----------- ------------------- ------------------- ----------------- ------------------ ---------------
(in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995 $ 300 $366,952 $ (7,531) $ 58 $ (144,810) $214,969
Amortization of
deferred
compensation
under 1994
Restricted Stock
Plan -- -- 1,066 -- -- 1,066
Change in
unrealized gains
(losses) -- -- -- (58) -- (58)
-- -- -- -- (84,720) (84,720)
Net loss ----------- ------------------- ------------------- ----------------- ------------------ ---------------
Balance at
September 30, $ 300 $366,952 $ (6,465) $ -- $ (229,530) $131,257
1996 =========== =================== =================== ================= ================== ===============
</TABLE>
See accompanying notes.
<PAGE>
SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1995
------------------------ ------------------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(84,720) $(39,786)
Adjustment to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 9,385 3,039
Amortization of premium on U.S. Government Securities 434 2,362
Amortization of restricted stock 1,066 1,066
Inventory amortization 118,852 80,126
Gain on sale of U.S. Government securities (158) --
Benefit for deferred income taxes (608) --
Minority interest in SF Broadcasting (2,039) 36
Extraordinary charge 6,371 --
Changes in operating assets and liabilities:
Accounts receivable 10,223 (9,869)
Inventories (20,814) (165,454)
Other assets (2,069) 1,826
Accounts payable and accrued expenses (11,863) 33,075
Deferred revenue (21,303) (4,800)
------------------------ ------------------------
Net cash provided by (used in) operating activities 2,757 (98,379)
INVESTING ACTIVITIES
Purchase of U.S. Government securities (23,719) (74,452)
Maturities of U.S. Government securities 28,498 122,593
Sales of U.S. Government securities 96,165 28,570
Decrease in interest receivable 978 102
Purchases of fixed assets (694) (1,227)
Exercise of Exchange Option (Note 2) 27,631 --
Purchase of SF Stations, net of cash acquired -- (212,556)
------------------------ ------------------------
Net cash provided by (used in) investing activities 128,859 (136,970)
FINANCING ACTIVITIES
Borrowings (repayments) of Corporate Facility (95,000) 86,000
Borrowings (repayments) of Broadcast Facility (2,500) 134,000
Increase in deferred charges (382) (9,889)
Capital contributions from minority shareholder 614 --
Other -- --
------------------------ ------------------------
Net cash provided by (used in) financing activities (97,268) 210,111
------------------------- ------------------------
Net increase (decrease) in cash and cash equivalents 34,348 (25,238)
Cash and cash equivalents at beginning of period 17,448 27,052
------------------------ ------------------------
$ 51,796 $ 1,814
Cash and cash equivalents at end of period ======================== ========================
See accompanying notes.
</TABLE>
<PAGE>
SAVOY PICTURES ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
Note 1 - Basis of Presentation
Description of Business
Savoy Pictures Entertainment, Inc. (the "Company") operates in the television
broadcasting and motion picture businesses. Through its subsidiaries, the
Company owns a controlling interest in four VHF television stations located in
the 41st through 71st largest markets in the United States (see Note 2). In
the past, the Company developed, financed, produced, marketed and distributed
motion pictures. As previously announced, the Company has suspended its
marketing and distribution activities and has significantly reduced its other
activities in the motion picture business.
On November 27, 1995, the Company, Silver King Communications, Inc. ("Silver
King") and Thames Acquisition Corp. ("Sub") entered into an Agreement and Plan
of Merger which was subsequently amended on August 13, 1996 (as so amended, the
"Merger Agreement"). Pursuant to, and subject to the terms and conditions of
the Merger Agreement, Silver King has agreed to acquire the Company (the
"Merger"). Upon consummation of the Merger, Sub will be merged into the
Company and each issued and outstanding share of common stock of the Company
will be converted into the right to receive 0.14 of a fully paid nonassessable
share of common stock of Silver King. As a result, the Company will become a
wholly-owned indirect subsidiary of Silver King.
Silver King's, and the Company's, obligation to consummate the Merger is
subject to certain conditions, including, among others, (i) receipt of all
necessary regulatory approvals; (ii) the approval by a requisite vote of Silver
King's stockholders of the issuance of Silver King stock in connection with the
Merger and (iii) the approval by a requisite vote of the Company's stockholders
of the Merger Agreement and the Merger. On August 16, 1996, the Company and
Silver King received the approval of the Federal Communications Commission to
consummate the Merger, which approval became final on October 2, 1996. There
can be no assurances as to whether, or when, such conditions will be satisfied
or whether any necessary regulatory approvals may have certain conditions. In
the Merger Agreement, the Company has covenanted as to itself and its
subsidiaries that, until the consummation of the Merger or the termination of
the Merger Agreement, among other things, it will not, without the consent of
Silver King, take certain actions outside the ordinary course of business or
engage in certain specified transactions, whether or not in the ordinary course
of business. Accordingly, the Company must seek, and has sought, the consent
of Silver King prior to making many business decisions and there can be no
assurance that Silver King will grant its consent with respect to actions which
the Company desires to take.
<PAGE>
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its controlled subsidiaries. Minority interest represents the interest of a
subsidiary of Fox Television Stations, Inc. ("Fox Television Stations") in the
SF Broadcasting Companies, as described in Note 2. Significant intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included.
Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. The SF Broadcasting Companies (as defined below) acquired
WVUE-TV ("WVUE"), WALA-TV ("WALA"), and KHON-TV ("KHON") on August 22, 1995 and
WLUK-TV ("WLUK") on April 28, 1995 (the four stations are collectively referred
to herein as the "SF Stations"). Accordingly, broadcasting results of
operations for the nine months ended September 30, 1996 generally do not have
comparable results in 1995 (see Note 2). For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for its fiscal year ended December 31, 1995. Certain
amounts in 1995 have been reclassified to conform to the 1996 presentation.
Note 2 - Ownership of the SF Stations
A subsidiary of the Company owns 50% of the common equity, and 100% of the
voting stock, of both SF Multistations, Inc. ("SF Multistations") and SF
Broadcasting of Wisconsin, Inc. ("SF Wisconsin") (together with their
subsidiaries, the "SF Broadcasting Companies"). A subsidiary of Fox Television
Stations owns the remainder of the non-voting common stock of the SF
Broadcasting Companies and approximately $39 million of preferred stock. The
FCC orders approving the transfer of the licenses for the SF Stations to the SF
Broadcasting Companies are subject to the final rule making with respect to the
television station attribution rules with respect to Fox Television Stations'
investment in the SF Broadcasting Companies. SF Multistations owns WVUE, WALA,
and KHON; SF Wisconsin owns WLUK.
<PAGE>
On June 13, 1996 and September 11, 1996, Fox Television Stations increased its
non-voting interest in SF Wisconsin and SF Multistations, respectively, to 50%
of the common equity (non-voting), through the exercise of options to acquire
an additional 25% common equity (non-voting) interests in SF Wisconsin and SF
Multistations. Collectively, such options are referred to herein as the
"Exchange Options." In consideration for its exercise of the Exchange Options
relating to SF Wisconsin and SF Multistations, Fox Television Stations paid a
subsidiary of the Company approximately $3.1 million and $23.8 million,
respectively.
Because the Company acquired its controlling interest in the SF Stations in
1995, the following unaudited pro forma consolidated financial information
gives effect to the acquisitions of the SF Stations as if they had occurred at
the beginning of the period presented. These pro forma results include certain
adjustments, primarily increased amortization and interest expense, anticipated
cost savings at the SF Stations, and the elimination of non-recurring expenses
incurred by the seller. The pro forma information is not necessarily
indicative of what the results would have been had the acquisitions occurred at
the beginning of the respective period nor is it necessarily indicative of
future operating results of the combined company. Certain amounts in the
acquired companies' statements of operations have been reclassified to conform
with the SF Broadcasting Companies' presentation.
<TABLE>
<CAPTION>
Pro Forma
Nine Months
Ended
September 30, 1995
------------------
(In thousands,
except per share amount)
<S> <C>
Revenues $90,410
Net loss (41,987)
Net loss per share (1.42)
</TABLE>
<PAGE>
Note 3 - Inventories
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Unamortized film costs:
Released $ 50,878 $ 58,836
In process 24,335 116,313
--------- --------
75,213 175,149
Television broadcast 5,281 3,383
rights --------- --------
$80,494 $178,532
========= ========
</TABLE>
Future payments relating to commitments for television broadcast rights not yet
available for broadcast as of September 30, 1996 were $4.9 million. The
liabilities and assets related to these commitments have not been recognized in
the accompanying consolidated financial statements.
<PAGE>
Note 4 - Extraordinary Charge
The Company terminated, as of September 9, 1996, the Commitments of the Lenders
(as such terms are defined) under the Company's Credit Agreement, dated as of
June 1, 1995 (the "Corporate Facility"). The Company had previously entered
into an amendment, dated as of March 11, 1996, to the Corporate Facility, which
provided, among other things, that the Commitments of the Lenders would,
effectively, be reduced to $20 million. The extraordinary charge of $6.4
million for the nine months ended September 30, 1996 represents charges taken
during the period for the deferred credit facility costs relating to the
reduction in the first quarter, and termination in the third quarter, of the
Commitments under the Corporate Facility.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company operates in the television broadcasting and motion picture
businesses. Through its subsidiaries, the Company owns a controlling interest
in four VHF television stations. In the past, the Company developed, financed,
produced, marketed and distributed motion pictures. As previously announced,
the Company has suspended its marketing and distribution activities and has
significantly reduced its other activities in the motion picture business.
In November 1995, the Company, Silver King and Sub entered into the Merger
Agreement pursuant to, and subject to the terms and conditions of which, Silver
King has agreed to acquire the Company (see Note 1).
Liquidity and Capital Resources
During the nine months ended September 30, 1996, the Company's operating
activities provided $2.8 million of cash and sales of U.S. Government
Securities provided $96.2 million of cash. These proceeds were used primarily
to repay outstanding borrowings under the Corporate Facility. During this
period, Fox Television Stations' exercise of the Exchange Options (see Note 2)
provided $27.6 million of cash, including $0.7 million relating to the
reimbursement of certain corporate overhead expenses.
In light of the recent performance of the SF Stations (as described below), the
Company and Fox Television Stations contributed $39 million in additional
capital to the SF Broadcasting Companies on November 12, 1996, which
contribution was used to reduce the outstanding loans under the SF
Broadcasting Companies' Credit Agreement, dated as of June 30, 1995 (the
"Broadcast Facility"). The contribution was made pursuant to a preexisting
agreement entered into in connection with the closing of the Broadcast
Facility. The Company's share of the contribution, proportional to its 50%
common equity interest in the SF Stations, was $19.5 million.
The Company will seek to generate sufficient cash to meet its liquidity needs
from cash on hand, ongoing operations and the current assignment and sale of
receivables due over the next 18 months. In addition, the Company may seek
additional financing through the incurrence of additional indebtedness or may
revise the payment terms under the Broadcast Facility. While the Company
believes that, if necessary, to meet anticipated obligations it will be able to
sell its receivables or obtain additional financing or revise payment terms
under the Broadcast Facility, there can be no assurance that such financing or
revisions will be available. If the Company is not able to accomplish any of
the foregoing, there could be a significant adverse impact on the Company.
<PAGE>
Financing Arrangements
Broadcast Facility. The SF Broadcasting Companies financed their purchase of
the SF Stations, in part, through $135 million of acquisition loans under the
Broadcast Facility. The Broadcast Facility will mature in 2002. Such
acquisition loans are payable in 20 consecutive quarterly installments
commencing on September 30, 1997, and are subject to mandatory prepayment out
of the SF Stations' excess cash flow (as defined).
As of September 30, 1996, the SF Broadcasting Companies had an aggregate of
$131.5 million in loans outstanding under the Broadcast Facility. In addition,
the SF Broadcasting Companies had an aggregate of $10 million of revolving
working capital loans available under the Broadcast Facility (subject to
compliance with certain financial covenants). On November 8, 1996, the Company
terminated the availability of working capital loans under the Broadcast
Facility.
In order for the SF Broadcasting Companies to comply with a covenant regarding
broadcast cash flow, a subsidiary of the Company and Fox Television Stations
each contributed $19.5 million (a total of $39 million) to the capital of the
SF Broadcasting Companies in November 1996 pursuant to a preexisting agreement
entered into in connection with the closing of the Broadcast Facility. This
contribution in turn was used by the SF Broadcasting Companies to pay down such
loans to approximately $92.5 million. It is anticipated that another capital
contribution with respect to the four quarters ending December 31, 1996 will
have to be made by a subsidiary of the Company and Fox Television Stations (in
an amount which will be significantly lower than the November contributions) to
the SF Broadcasting Companies in order for the SF Broadcasting Companies to
reduce indebtedness under the Broadcast Facility and be in compliance with such
covenant.
The Company and the Lenders under the Broadcast Facility have agreed in
principle to enter into an amendment to the Broadcast Facility ("Amendment No.
1"). Among other things, Amendment No. 1 provides that Mr. Barry Diller or any
corporation controlled by Barry Diller (in addition to Mr. Victor Kaufman and
Mr. Lewis Korman) constitutes a designated person for purposes of the Broadcast
Facility's requirement that at least one designated person maintain effective
control of the SF Broadcasting Companies. Reference is made to Amendment No. 1
which is attached hereto as Exhibit 10.1. While the Lenders have confirmed
their agreement in principle to Amendment No. 1, the amendment must be executed
by the requisite number of Lenders, as to which there can be no assurance.
Corporate Facility. As described in Note 4, the Company terminated, as of
September 9, 1996, the Commitments of the Lenders under the Corporate Facility.
As a result, no amounts were outstanding under the Corporate Facility as of
September 30, 1996, and the Company has no ability to borrow under the
Corporate Facility.
<PAGE>
Results of Operations
Three Months Ended September 30, 1996 in Comparison to the Three Months Ended
September 30, 1995
Filmed Entertainment. The financial success of motion pictures is dependent
upon a number of factors, the most important of which are public acceptance and
costs. The results of operations in one fiscal period are not necessarily
indicative of those in any other fiscal period. The Company's reduced
activities in filmed entertainment will, in the future, significantly reduce
its revenues, costs and losses in its motion picture business in comparison to
1995 and prior years.
Revenues increased $3.9 million to $19.5 million in the three months ended
September 30, 1996 from $15.6 million in the three months ended September 30,
1995, primarily due to the timing of theatrical releases, and the availability
of product in secondary markets. Revenues for the three months ended September
30, 1996 included non-refundable advances received under an agreement with New
Line Cinema, the video availability of Getting Away With Murder, and the
network television availability of Lightning Jack. Revenues for the three
months ended September 30, 1995 included the theatrical release of Dr. Jekyll
and Ms. Hyde, Last of the Dogmen, and The Show (a Rysher Entertainment
Release), and the video availability of Walking Dead and Circle of Friends.
Costs related to revenues decreased $10.8 million to $33.1 million in the three
months ended September 30, 1996 from $43.9 million in the three months ended
September 30, 1995 primarily due to the Company's reduced activities in filmed
entertainment. These costs include the amortization of film costs, including
losses relating to released films, for which the Company's costs exceeded its
anticipated revenues, and certain other writedowns.
Selling, general and administrative expenses decreased $1.2 million to $2.6
million in the three months ended September 30, 1996 from $3.8 million in the
three months ended September 30, 1995, primarily due to the Company's reduced
activities in filmed entertainment.
Broadcasting. As described in Note 2, the SF Broadcasting Companies acquired
WVUE, WALA, and KHON on August 22, 1995 and WLUK on April 28, 1995.
Accordingly, broadcasting results of operations have been included for the
three months ended and nine months ended September 30, 1996 but generally do
not have comparable results of operations in 1995. All broadcasting results
described herein are before giving effect to Fox Television Stations' minority
interest. On June 13, 1996 and September 11, 1996, Fox Television Stations
increased its non-voting interest in SF Wisconsin and SF Multistations,
respectively, to 50% of the common equity (non-voting) of such entity, through
the exercise of the Exchange Options (see Note 2). For a discussion of the
recent performance of the SF Stations, see "Results of Operations--Nine Months
Ended September 30, 1996 in Comparison to Nine Months Ended September 30, 1995-
- -Broadcasting."
Net broadcasting revenues of $12.4 million for the three months ended September
30, 1996 consist primarily of local and national advertising revenues.
Selling, general and administrative costs of $2.7 million for the three months
ended September 30, 1996 primarily include sales commissions, sales overhead,
promotion, and general expenses.
<PAGE>
Operating expenses of $5.3 million for the three months ended September 30,
1996 primarily include news, commercial production, and operations costs.
Amortization of broadcast rights of $1.0 million for the three months ended
September 30, 1996 (including barter expense) has been calculated based on the
respective contract terms or based on the number of runs to be shown.
Depreciation and amortization expense of $2.2 million for the three months
ended September 30, 1996 relates to the amortization of broadcast licenses and
other intangibles and the depreciation of fixed assets.
Corporate overhead of $0.8 million for the three months ended September 30,
1996 primarily consists of executive compensation, rent, utilities and
franchise taxes.
Interest Income and Interest Expense. Interest income decreased $1.3 million
to $0.4 million in the three months ended September 30, 1996 from $1.7 million
in the three months ended September 30, 1995, due to the decrease in invested
capital as the Company repaid the Corporate Facility.
Interest expense increased $1.3 million to $4.0 million in the three months
ended September 30, 1996 from $2.7 million in the three months ended September
30, 1995, due primarily to the borrowings under the Broadcast Facility and a
reduction, in connection with the Company's decision to suspend its motion
picture marketing and distribution activities, in interest capitalized to the
acquisition or production of film projects.
Extraordinary Charge. The extraordinary charge of $0.8 million for the three
months ended September 30, 1996 represents a charge taken for the deferred
credit facility costs relating to the termination of the Corporate Facility
(see Note 4).
<PAGE>
Nine Months Ended September 30, 1996 in Comparison to the Nine Months Ended
September 30, 1995
Filmed Entertainment. Film revenues increased $16.6 million to $63.5 million
in the nine months ended September 30, 1996 from $46.9 million in the nine
months ended September 30, 1995 primarily due to the timing of theatrical
releases and availability of product in secondary markets. Revenues for the
nine months ended September 30, 1996 included non-refundable advances received
under an agreement with New Line Cinema, the sale of foreign rights for
Faithful, the video availability of Dr. Jekyll & Ms. Hyde, Last of the Dogmen,
Steal Big Steal Little, Three Wishes (a Rysher Entertainment release) and
Getting Away With Murder, the pay television availability of Circle of Friends
and Tales From the Hood, the network television availability of Shadowlands and
Lightning Jack, and the sale of certain development projects. Revenues for the
nine months ended September 30, 1995 included the theatrical release of The
Walking Dead, Circle of Friends, Tales From the Hood, Dr. Jekyll and Ms. Hyde,
Last of the Dogmen, and The Show (a Rysher Entertainment release), the video
availability of Exit to Eden, Walking Dead and Circle of Friends, and the pay
television availability of Lightning Jack, Serial Mom, and No Escape.
Costs related to revenues increased $41.7 million to $123.1 million in the nine
months ended September 30, 1996 from $81.4 million in the nine months ended
September 30, 1995 primarily due to the amortization of film costs, including
losses relating to released films, for which the Company's costs exceeded its
anticipated revenues, and certain other writedowns.
Selling, general and administrative expenses decreased $0.1 million to $10.3
million in the nine months ended September 30, 1996 from $10.4 million in the
nine months ended September 30, 1995, primarily due to the Company's reduced
activities in filmed entertainment, partially offset by the Company not
capitalizing overhead to the acquisition or production of film projects.
Broadcasting. Net broadcasting revenues of $35.4 million for the nine months
ended September 30, 1996 consist primarily of local and national advertising
revenues.
Because the SF Stations have only recently switched their network affiliation
to the Fox Broadcasting Network ("Fox"), there can be no assurance that the new
network affiliation will be successful for the Company. Based on the
experience of other companies' stations that have switched their affiliation to
Fox, the period following such a switch is a transitional one, which it is
believed may adversely impact revenues and, to a greater relative extent, net
income and broadcast cash flow. The SF Stations have experienced during the
first three quarters of 1996, and are continuing to experience, such effects.
For the nine months ended September 30, 1996, aggregate revenues for the SF
Stations are down approximately 19% compared to the comparable period of 1995
and broadcast cash flow is down to a significantly greater extent in comparison
to the comparable period of 1995. The longer-term performance of the SF
Stations after the initial transition period (which may last up to 12 to 18
months) will depend upon the management of each station in its local market,
the adaptability of that station and its programming to the local market and
the desire of advertisers to place advertising on each station, as to all of
which there can be no assurance.
Selling, general and administrative costs of $8.1 million for the nine months
ended September 30, 1996 primarily include sales commissions, sales overhead,
promotion, and general expenses.
<PAGE>
Operating expenses of $15.4 million for the nine months ended September 30,
1996 and primarily include news, commercial production, and operations costs.
Amortization of broadcast rights of $3.0 million for the nine months ended
September 30, 1996 (including barter expense) has been calculated based on the
respective contract terms or based on the number of runs to be shown.
Depreciation and amortization expense of $6.7 million for the nine months ended
September 30, 1996 relates to the amortization of broadcast licenses and other
intangibles and the depreciation of fixed assets.
Corporate overhead of $1.9 million for the nine months ended September 30, 1996
primarily consists of executive compensation, rent, utilities and franchise
taxes.
Interest Income and Interest Expense. Interest income decreased $4.2 million
to $2.1 million in the nine months ended September 30, 1996 from $6.3 million
in the nine months ended September 30, 1995, due to the decrease in invested
capital as the Company repaid the Corporate Facility.
Interest expense increased $10.4 million to $13.3 million in the nine months
ended September 30, 1996 from $2.9 million in the nine months ended September
30, 1995, due primarily to the borrowings under the Broadcast Facility and a
reduction, in connection with the Company's decision to suspend its marketing
and distribution activities, in interest capitalized to the acquisition or
production of film projects.
Extraordinary Charge. The extraordinary charge of $6.4 million for the nine
months ended September 30, 1996 represents charges taken during the period for
the deferred credit facility costs relating to the reduction in the first
quarter, and termination in the third quarter, of the Corporate Facility (see
Note 4).
<PAGE>
Broadcast Cash Flow -- SF Stations
Broadcast cash flow is defined as broadcast operating income, plus broadcast
corporate overhead, depreciation and amortization, and amortization of
broadcast rights, minus cash payments for broadcast rights. Cash payments for
broadcast rights represent cash payments made for current program payables
adjusted to reflect fair value. Broadcast cash flow is shown before giving
effect to the minority interest. Broadcast cash flow is presented here not as
a measure of operating results and does not purport to represent cash provided
by operating activities. Broadcast cash flow should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles.
The following is a reconciliation of broadcast cash flow for the nine months
ended September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, 1996
-------------------
(Unaudited)
<S> <C>
Broadcasting revenues, net $35,374
Broadcasting costs 35,116
-------
Broadcasting operating income 258
Plus:
Corporate overhead 1,949
Depreciation and amortization 6,717
Amortization of broadcast rights 2,036
Minus:
Cash payments for broadcast rights (1,998)
-------
Broadcast Cash Flow (before giving effect
to the minority interest)
$ 8,962
=======
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable
Item 2. Changes in Securities.
Not applicable
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
The exhibits to this report are listed on the exhibit index attached
hereto and incorporated by reference herein.
b) Reports on Form 8-K.
The Company filed a current report on Form 8-K of the Company, dated
September 11, 1996, relating to Fox Television Stations' exercise of
the Exchange Options.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAVOY PICTURES ENTERTAINMENT, INC.
November 13, 1996 By:/s/ Howard K. Bass
Senior Vice President,
Chief Financial Officer and
Treasurer, signing both in his
capacity as Senior Vice President
on behalf of the Registrant and
as Chief Financial Officer of
the Registrant
<PAGE>
EXHIBIT INDEX
Exhibit
10.1 Form of Amendment and Waiver to the Credit Agreement, dated
as of June 30, 1995, among SF Broadcasting of New Orleans,
Inc., SF Broadcasting of Mobile, Inc., SF Broadcasting of
Honolulu, Inc. and SF Broadcasting of Green Bay, Inc., as
borrowers, the financial institutions from time to time party
thereto, and The Chase Manhattan Bank (formerly known as
Chemical Bank) (as administrative agent and collateral agent).
10.2 Amendment, dated as of August 13, 1996, to the Agreement and
Plan of Merger among Savoy Pictures Entertainment,
Inc., Silver King Communications, Inc. and Thames
Acquisition Corp. (incorporated by reference to Exhibit 2.2
to the Company's Form 10-Q for the six months ended
June 30, 1996).
27 Financial Data Schedule
EXHIBIT 10.1
FORM OF AMENDMENT AND WAIVER
AMENDMENT AND WAIVER dated as of November __, 1996 (this
"Amendment No. 1"), to the CREDIT AGREEMENT (the "Credit Agreement"),
dated as of June 30, 1995, among SF BROADCASTING OF NEW ORLEANS,
INC., a Delaware corporation, SF BROADCASTING OF MOBILE, INC., a
Delaware corporation, SF BROADCASTING OF HONOLULU, INC., a Delaware
corporation, and SF BROADCASTING OF GREEN BAY, INC., a Delaware
corporation (the foregoing corporations being referred to herein
individually as a "Borrower" and collectively as the "Borrowers");
the financial institutions from time to time party thereto, (the
"Lenders"); THE CHASE MANHATTAN BANK, a New York banking corporation,
as administrative agent for the Lenders) in such capacity, the
"Administrative Agent") and as collateral agent for the Lenders (in
such capacity, the "Collateral Agent"); FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, a North Carolina banking corporation, as managing
agent for the Lenders (in such capacity, the "Managing Agent"); and
THE BANK OF NEW YORK, a New York banking corporation, FLEET BANK,
N.A., a national banking association, and BANQUE PARIBAS, a French
banking corporation, as co-agents for the Lenders (in such capacity,
the "Co-Agents").
WHEREAS, the Borrowers and the Lenders have entered into a certain
Waiver dated as of August 29, 1996 (the "August Waiver"), relating to Section
6.01(a) of the Credit Agreement, which waiver shall remain in effect, in
accordance with its terms, after the execution of this Amendment No. 1;
WHEREAS the Borrowers have requested that the Lenders amend, and
provide waivers of, certain provisions of the Credit Agreement as set forth
herein;
WHEREAS the Lenders are willing, on the terms, subject to the
conditions and to the extent set forth below, to provide such amendments and
waivers; and
WHEREAS capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto hereby agree, on
the terms and subject to the conditions set forth herein, as follows:
SECTION 1. Amendments to Credit Agreement. (a) Section 1.01. The
definition of "Designated Person" is hereby amended to read as follows:
"'Designated Person' shall mean (i) Victor A. Kaufman,
Loretta Kaufman, Lewis J. Korman, Sharon Korman and any
corporation that is Controlled by Victor A. Kaufman and Lewis
Korman or (ii) Barry Diller or any corporation that is
Controlled by Barry Diller."
(b) Section 7.01. The proviso in clause (i) of paragraph (d) is
amended and restated as follows:
"; provided, however, any failure by the Borrowers to comply
with Section 6.01(a) on or prior to the second anniversary of
the Effective Date shall not constitute an Event of Default
unless such noncompliance occurs at the end of each of the two
<PAGE>
consecutive fiscal quarters and the capital contributions and
repayments of Loans required to be made pursuant to Section 2 of
the Capital Contribution Agreement in respect of the
Contribution Event (as defined in the Capital Contribution
Agreement) relating to such non-compliance have not been made in
the full amounts at the time required by the Capital
Contribution Agreement)"
(c) Section 7.01. Clause (i) of paragraph (o) is hereby amended and
restated as follows:
(i) All Designated Persons (including, in the event of a
Designated Person's incompetence or death, his or her estate,
heirs, executor, administrator or other legal representative)
shall, except as the result of a Permitted IPO, cease to
"control" (as such term is used on the date hereof, in Rule 405
promulgated under the Securities Act of 1933, as amended),
through Savoy Pictures Entertainment, Inc. and controlled
Affiliates thereof, or Silver King Entertainment, Inc. and
controlled affiliates thereof, any Parent or any Borrower,"
SECTION 2. Waivers. (a) Subject to paragraph (b) of this Section
and to Section 4 hereof, the Lenders hereby waive any Event of Default
resulting from a failure to comply with the provisions of (x) Section 6.01(a)
of the Credit Agreement at the end of the two fiscal quarters ended June 30,
1996 and September 30, 1996 (such failure being herein referred to as the
"September 1996 Noncompliance") and (y) Section 6.01(b) of the Credit Agreement
during the fiscal quarters ended June 30, 1996 and September 30, 1996 and
during the fiscal quarter ending December 31, 1996, provided that, for purposes
of this clause (y), the Interest Coverage Ratio shall be, or shall have been,
at all times at least 1.20 to 1.00.
(b) The Investors (as defined in the Capital Contribution Agreement)
shall make (and by their execution and delivery of this Agreement, the
Investors agree to make) the capital contributions relating to the
September 1996 Noncompliance on or prior to the Contribution Date (as
hereinafter defined) required pursuant to Section 2 of the Capital Contribution
Agreement, and the Borrowers shall immediately apply such contributions in
accordance with Section 2.12(g) of the Credit Agreement. For purposes hereof,
the "Contribution Date" shall mean the earlier of November 14, 1996, and the
date on which financial statements with respect to the fiscal quarter ended
September 30, 1996 are furnished by the Borrowers pursuant to Section 5.04(b)
of the Credit Agreement. Notwithstanding any other provision hereof, the
waiver provided for by Section 2(a)(x) hereof shall not in any event constitute
a waiver of any Event of Default resulting from any failure to comply with the
provisions of Section 6.01(a) of the Credit Agreement at the end of the two
fiscal quarters ending September 30, 1996 and December 31, 1996.
SECTION 3. Representations and Warranties. The Borrowers hereby
represent and warrant to each Lender, on and as of the date hereof, and after
giving effect to this Amendment No. 1, that:
(a) the representations and warranties set forth in
Article III of the Credit Agreement are true and correct in all
material respects on and as of the date hereof, except (i) to
the extent such representations and warranties relate to an
earlier date and (ii) except that, for purposes of this
<PAGE>
representation and warranty, the date set forth in Section 3.06
of the Credit Agreement shall be September 30, 1996; and
(b) no Event of Default or Default has occurred and is
continuing.
SECTION 4. Effectiveness. The amendments to the Credit Agreement
set forth in Section 1 hereof and the waivers set forth in Section 2(a) hereof
shall become effective only upon satisfaction, on or prior to November 14,
1996, of each of the following conditions:
(a) The Administrative Agent shall have received duly
executed counterparts hereof which, when taken together, bear
the authorized signatures of each of the Borrowers, Savoy
Stations, FTS, SF Multistations, SF Wisconsin and the Required
Lenders.
(b) The capital contributions and loan repayments
contemplated by Section 2(b) hereof shall have been made in full
not later than the Contribution Date.
SECTION 5. Governing Law. THIS AMENDMENT NO. 1 SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Amendment No. 1 may be executed in
any number of counterparts, each of which shall be an original but all of
which, when taken together, shall constitute but one instrument. Delivery of
an executed counterpart of a signature page of this Amendment No. 1 by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart of this Amendment No. 1.
SECTION 7. Headings. Section headings used herein are for
convenience of reference only, are not part of this Amendment No. 1 and are not
to affect the construction of, or to be taken into consideration in
interpreting, this Amendment No. 1.
SECTION 8. Effect of Amendment No. 1 Generally. Except as expressly
set forth herein, this Amendment No. 1 shall not by implication or otherwise
limit, impair, constitute a waiver of, or otherwise affect the rights and
remedies of the Lenders under the Credit Agreement or any Loan Document, and
shall not alter, modify, amend or in any way affect any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document, all of which are ratified and affirmed in
all respects and shall continue in full force and effect (other than as set
forth in the August Waiver). Nothing herein shall be deemed to entitle the
Borrowers to a consent to, or a waiver, amendment, modification or other change
of, any of the terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement or any other Loan Document in similar or
different circumstances. This Amendment No. 1 shall apply and be effective
only with respect to the provisions of the Credit Agreement specifically
referred to herein.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to be duly executed by their respective authorized officers as of the
date and year first above written.
<PAGE>
SF BROADCASTING OF NEW ORLEANS, INC.
By:
Name:
Title:
SF BROADCASTING OF MOBILE, INC.
By:
Name:
Title:
SF BROADCASTING OF HONOLULU, INC.
By:
Name:
Title:
SF BROADCASTING OF GREEN BAY, INC.
By:
Name:
Title:
SF BROADCASTING OF MULTISTATIONS, INC.
By:
Name:
Title:
SF BROADCASTING OF WISCONSIN, INC.
By:
Name:
Title:
SAVOY STATIONS, INC. (with respect to Sections 2, 5 and 8 only),
By:
Name:
Title:
FTS INVESTMENTS, INC. (with respect to Sections 2, 5 and 8 only)
<PAGE>
By:
Name:
Title:
THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), individually, as
Issuing Lender and as Administrative Agent and Collateral Agent,
By:
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, individually and as Managing Agent
By:
Name:
Title:
THE BANK OF NEW YORK, individually and as Co-Agent
By:
Name:
Title:
BANQUE PARIBAS, individually and as Co-Agent
By:
Name:
Title:
FLEET BANK, N.A. (formerly known as NatWest Bank N.A.), individually and as Co-
Agent
By:
Name:
Title:
THE FUJI BANK, LIMITED, LOS ANGELES BRANCH
By:
Name:
Title:
MICHIGAN NATIONAL BANK
<PAGE>
By:
Name:
Title:
THE SUMITOMO TRUST & BANKING CO., LTD., NEW YORK BRANCH
By:
Name:
Title:
UNITED JERSEY BANK
By:
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 51,796
<SECURITIES> 325
<RECEIVABLES> 25,441
<ALLOWANCES> 0
<INVENTORY> 80,494
<CURRENT-ASSETS> 0
<PP&E> 18,818
<DEPRECIATION> 0
<TOTAL-ASSETS> 441,341
<CURRENT-LIABILITIES> 44,427
<BONDS> 170,486
0
0
<COMMON> 300
<OTHER-SE> 130,957
<TOTAL-LIABILITY-AND-EQUITY> 441,341
<SALES> 0
<TOTAL-REVENUES> 98,848
<CGS> 0
<TOTAL-COSTS> 168,543
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,326
<INCOME-PRETAX> (80,968)
<INCOME-TAX> (580)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (6,371)
<CHANGES> 0
<NET-INCOME> (84,720)
<EPS-PRIMARY> (2.86)
<EPS-DILUTED> 0
</TABLE>
