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 June 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 August 5, 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 -
June 30, 1996 and December 31, 1995 . . . . . . . . . 3
Consolidated Statements of Operations -
Six Months Ended June 30, 1996 and June 30, 1995 . . 4
Consolidated Statement of Stockholders' Equity -
Six Months Ended June 30, 1996 . . . . . . . . . . . 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and June 30, 1995 . . 6
Notes to Consolidated Financial Statements . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 14
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Balance Sheets
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(Unaudited)
(In thousands, except
per share amounts)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 30,592 $ 17,448
Accounts receivable 23,861 35,664
U.S. Government securities 260 102,579
Inventories, net (Note 3) 107,350 178,532
Fixed assets, net 19,310 19,938
Broadcast licenses and other intangibles, net 256,937 260,785
Deferred charges, net 5,083 11,551
Other assets 4,760 3,757
Total assets $ 448,153 $ 630,254
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 30,342 $ 41,687
Deferred revenue 13,053 23,362
Deferred taxes 45 653
Note payable - related parties 12,500 12,500
Long-term debt - other 39,031 39,120
Corporate Facility -- 95,000
Broadcast Facility 131,500 134,000
Total liabilities 226,471 346,322
Minority interest (Note 1) 71,320 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 (6,821) (7,531)
Unrealized gains on U.S., Government securities -- 58
Deficit (210,069) (144,810)
Total stockholders' equity 150,362 214,969
Total liabilities and stockholders' equity $ 448,153 $ 630,254
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1996<F1> 1995 1996<F1> 1995
----------- -------- ---------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Filmed entertainment $ 27,087 $ 22,371 $ 43,937 $ 31,310
Broadcasting, net 12,300 1,816 23,024 1,816
39,387 24,187 66,961 33,126
Filmed entertainment costs:
Costs related to revenue 63,792 23,530 90,066 37,459
Selling, general, and administrative 3,619 3,195 7,722 6,626
67,411 26,725 97,788 44,085
Broadcasting costs:
Selling, general, and administrative 2,742 380 5,440 380
Operating expenses 4,907 484 9,982 484
Amortization of broadcast rights 974 60 1,952 60
Depreciation and amortization 2,253 166 4,483 166
Corporate overhead 495 384 1,151 384
11,371 1,474 23,008 1,474
Operating income (loss):
Filmed entertainment (40,324) (4,354) (53,851) (12,775)
Broadcasting 929 342 16 342
(39,395) (4,012) (53,835) (12,433)
Interest income 416 2,114 1,667 4,613
Interest expense 3,760 64 9,333 259
(3,344) 2,050 (7,666) 4,354
Loss before income taxes, minority interest
and extraordinary charge (42,739) (1,962) (61,501) (8,079)
Income tax expense (benefit) (187) 1 (580) 7
Minority interest in SF Broadcasting (407) 40 (1,189) 40
Loss before extraordinary charge (42,145) (2,003) (59,732) (8,126)
Extraordinary charge, reduction in
Corporate Facility (Note 4) -- -- (5,527) --
Net loss $(42,145) $ (2,003) $(65,259) $ (8,126)
Loss per share:
Loss before extraordinary charge $ (1.42) $ (.07) $ (2.02) $ (.28)
Extraordinary charge -- -- $ (.18) --
Net loss $ (1.42) $ (.07) $ (2.20) $ (.28)
Average shares outstanding 29,657 29,561 29,633 29,535
<FN>
<F1> 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 six
months ended June 30, 1996 generally do not have comparable results in
1995. For information with respect to Fox Television Stations' option to
increase its ownership in WVUE-TV, WALA-TV, and KHON-TV up to an
additional 25%, see Note 2.
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Statement of Stockholders' Equity
(Unaudited)
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 -- -- 710 -- -- 710
Change in unrealized gains
(losses) -- -- -- (58) -- (58)
Net loss -- -- -- -- (65,259) (65,259)
Balance at June 30, 1996 $ 300 $ 366,952 $ (6,821) $ -- $(210,069) $150,362
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (65,259) $ (8,126)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,428 1,056
Amortization of premium on U.S. Government securities 433 1,620
Amortization of restricted stock 710 711
Inventory amortization 85,771 37,072
Gain on sale of U.S. Government securities (158) --
Benefit for deferred income taxes (608) --
Minority interest in SF Broadcasting (1,189) 39
Extraordinary charge 5,527 --
Changes in operating assets and liabilities:
Accounts receivable 11,803 (3,345)
Inventories (14,588) (100,753)
Other assets (1,579) (8,456)
Accounts payable and accrued expenses (11,345) 10,715
Deferred revenue (10,309) (6,048)
Net cash provided by (used in) operating activities 5,637 (75,515)
INVESTING ACTIVITIES
Purchases of U.S. Government securities (23,719) (74,453)
Maturities of U.S. Government securities 28,498 122,473
Sales of U.S. Government securities 96,165 25,975
Decrease in interest receivable 1,041 2,121
Purchases of fixed assets (385) (735)
Exercise of Exchange Option (Note 2) 3,242 --
Purchase of SF Stations, net of cash acquired -- (28,202)
Net cash provided by investing activities 104,842 47,179
FINANCING ACTIVITIES
Borrowings (repayments) of Corporate Facility (95,000) 5,000
Repayments of Broadcast Facility (2,500) --
Increase in deferred charges (139) (8,201)
Capital contributions from minority shareholder 304 --
Other -- 5,844
Net cash provided by (used in) financing activities (97,335) 2,643
Net increase (decrease) in cash and cash equivalents 13,144 (25,693)
Cash and cash equivalents at beginning of period 17,448 27,052
Cash and cash equivalents at end of period $ 30,592 $ 1,359
See accompanying notes.
</TABLE>
<PAGE>
SAVOY PICTURES ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
June 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 currently 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 most of 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 (the "Merger Agreement"), pursuant to, and
subject to the terms and conditions of which, Silver King has agreed to
acquire the Company (the "Merger"). Upon consummation of the Merger, Sub
will be merged into the Company and, 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. There
can be no assurances as to whether, or when, such conditions will be
satisfied or whether any 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 that Company desires to take.
On August 13, 1996, the Company entered into an Amendment to the Merger
Agreement. See Item 5 in this Form 10-Q for additional information
concerning the terms and the status of the Merger.
<PAGE>
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly and majority-owned 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 six month period ended June 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 six months ended June 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 currently owns 75% of the common equity of SF
Multistations, Inc. ("SF Multistations"), 50% of the common equity of SF
Broadcasting of Wisconsin, Inc. ("SF Wisconsin"), and 100% of the voting
stock of both SF Multistations and 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.
On June 13, 1996, Fox Television Stations acquired, through the exercise
of an option, an additional 25% non-voting interest in SF Wisconsin
thereby increasing its total non-voting interest to 50%. Until August 22,
1996, Fox may give notice of the exercise of an option, subject to all
necessary regulatory approvals, to acquire up to an additional 25% non-
voting interest in SF Multistations. Collectively, such options are
referred to herein as the "Exchange Options."
<PAGE>
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 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 are
they 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
Six Months
Ended
June 30, 1995
------------------------
(In thousands,
except per share amount)
<S> <C>
Revenues $ 60,742
Net loss (10,177)
Net loss per share (.34)
</TABLE>
<TABLE>
Note 3 - Inventories
Inventories are comprised of the following (in thousands):
<CAPTION>
June 30, 1996 December 31,1995
------------- ----------------
<S> <C> <C>
Unamortized film costs:
Released $ 61,441 $ 58,836
In process 44,095 116,313
$105,536 $175,149
Television broadcast rights 1,814 3,383
$107,350 $178,532
</TABLE>
Future payments relating to commitments for television broadcast rights
not yet available for broadcast as of June 30, 1996 were $7.3 million.
The liabilities and assets related to these commitments have not been
recognized in the accompanying consolidated financial statements.
Note 4 - Extraordinary Charge
The Company entered into an amendment, dated as of March 11, 1996, to its
Credit Agreement, dated as of June 1, 1995 (the "Corporate Facility"),
which provided, among other things, that the Commitment (as defined) of
the Lenders would, effectively, be reduced to $20 million until the
earlier of December 31, 1996, and the termination of the Merger Agreement.
However, the Company's ability to borrow under the Corporate Facility is
substantially restricted. The extraordinary charge of $5.5 million for
the six months ended June 30, 1996, represents a charge taken in the first
quarter of 1996 with respect to the effect of the reduction of the
Commitment on the deferred Corporate Facility costs.
<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 currently 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 most of 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). See Item 5 in
this Form 10-Q for additional information concerning the terms and the
status of the Merger.
Liquidity and Capital Resources
During the six months ended June 30, 1996, the Company's operating
activities provided $5.6 million of cash. During the same period, sales
of U.S. Government Securities provided $96.2 million of cash which was
used primarily to repay outstanding borrowings under the Corporate
Facility (as described below).
In light of the recent performance of the SF Stations (as described
below), the Company and Fox Television Stations will be required to
contribute additional capital to the SF Broadcasting Companies during the
third and fourth quarters to reduce the outstanding loans under the
Broadcast Facility. If Fox Television Stations exercises its Exchange
Option with respect to SF Multistations, the Company will be required to
make a capital contribution in excess of $16 million for the third
quarter. If Fox Television Stations does not exercise that Exchange
Option, the Company will be required to make a capital contribution in
excess of $23 million for the third quarter. Amounts contributed must be
used to repay indebtedness under the Broadcast Facility.
Whether or not Fox Television Stations exercises its Exchange Option with
respect to SF Multistations, 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 seek to
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, 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.
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. 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). At June 30, 1996, $131.5 million was outstanding and
the SF Broadcasting Companies had $10 million of revolving, working
capital loans available (subject to compliance with certain financial
covenants) under the Broadcast Facility. The Broadcast Facility will
mature in 2002.
Under certain circumstances, until June 30, 1997, the Company and
Fox may be required to contribute additional capital to the SF
Broadcasting Companies (including as described above) if certain financial
covenants are not met. The Broadcast Facility contains a requirement that
the Company and Mr. Victor Kaufman and Mr. Lewis Korman maintain effective
control of the SF Broadcasting Companies.
Corporate Facility. Under the Company's Corporate Facility, as amended,
the maximum Commitment (as defined) of the Lenders is effectively $20
million until the earlier of December 31, 1996, or the termination of the
Merger Agreement. However, the Company's ability to borrow under the
Corporate Facility is substantially restricted. At June 30, 1996, no
amounts were outstanding under the Corporate Facility.
<PAGE>
Results of Operations
Three Months Ended June 30, 1996 in Comparison to the Three Months Ended
June 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 $4.7 million to $27.1 million in the three months ended
June 30, 1996 from $22.4 million in the three months ended June 30, 1995,
primarily due to the timing of theatrical releases and the availability of
product in secondary markets. Revenues for the three months ended June
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 the Rysher Entertainment release Three Wishes, the pay
television availability of Tales From the Hood, the network television
availability of Shadowlands, and the sale of certain development projects.
Revenues for the three months ended June 30, 1995 included the theatrical
release of Circle of Friends and Tales From the Hood, the video
availability of Exit to Eden, and the pay television availability of No
Escape.
Costs related to revenues increased $40.3 million to $63.8 million in the
three months ended June 30, 1996 from $23.5 million in the three months
ended June 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 increased $0.4 million to
$3.6 million in the three months ended June 30, 1996 from $3.2 million in
the three months ended June 30, 1995, primarily due to the Company, in
connection with its decision to suspend its marketing and distribution
activities, not capitalizing overhead to the acquisition or production of
film projects.
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 six months ended June 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, Fox Television
Stations acquired, through the exercise of an option, an additional 25%
non-voting interest in SF Wisconsin which owns WLUK (see Note 2). For a
discussion of the recent performance of the SF Stations, see "Results of
Operations--Six Months Ended June 30, 1996 in Comparison to Six Months
Ended June 30, 1995--Broadcasting."
Net broadcasting revenues of $12.3 million for the three months ended June
30, 1996 consist primarily of local and national advertising revenues.
Selling, general, and administrative costs of $2.7 million for the three
months ended June 30, 1996 primarily include sales commissions, sales
overhead, promotion, and general expenses.
Operating expenses of $4.9 million for the three months ended June 30,
1996 primarily include news, commercial production, and operations costs.
Amortization of broadcast rights of $1.0 million for the three months
ended June 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 $2.3 million for the three months
ended June 30, 1996 relates to the amortization of broadcast licenses and
other intangibles and the depreciation of fixed assets.
Corporate overhead of $0.5 million for the three months ended June 30,
1996 primarily consists of executive compensation, rent, utilities and
franchise taxes.
Broadcasting operating income for the three months ended June 30, 1996 was
$0.9 million. $0.7 million of such operating income relates to the
Company's interest in the SF Broadcasting Companies and $0.2 million
relates to Fox Television Stations' minority interest.<PAGE>
Interest Income and Interest Expense. Interest income decreased $1.7
million to $0.4 million in the three months ended June 30, 1996 from $2.1
million in the three months ended June 30, 1995, due to the decrease in
invested capital as the Company repaid the Corporate Facility.
Interest expense increased $3.7 million to $3.8 million in the three
months ended June 30, 1996 from $0.1 million in the three months ended
June 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.
Income Taxes. Income taxes of $0.2 million in the three months ended June
30, 1996 principally represent a tax benefit on the operations of the SF
Broadcasting Companies. For tax purposes, the operations of the SF
Broadcasting Companies are not consolidated with the Company.
Six Months Ended June 30, 1996 in Comparison to the Six Months Ended June
30, 1995
Filmed Entertainment. Film revenues increased $12.6 million to $43.9
million in the six months ended June 30, 1996 from $31.3 million in the
six months ended June 30, 1995 primarily due to the timing of theatrical
releases and availability of product in secondary markets. Revenues for
the six months ended June 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 and the Rysher Entertainment release
Three Wishes, the pay television availability of Circle of Friends and
Tales From the Hood, the network television availability of Shadowlands,
and the sale of certain development projects. Revenues for the six months
ended June 30, 1995 included the theatrical release of The Walking Dead,
Circle of Friends and Tales From the Hood, the video availability of Exit
to Eden, and the pay television availability of Lightning Jack, Serial
Mom, and No Escape.
Costs related to revenues increased $52.6 million to $90.1 million in the
six months ended June 30, 1996 from $37.5 million in the six months ended
June 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 increased $1.1 million to
$7.7 million in the six months ended June 30, 1996 from $6.6 million in
the six months ended June 30, 1995, primarily due to the Company, in
connection with its decision to suspend its marketing and distribution
activities, not capitalizing overhead to the acquisition or production of
film projects.
Broadcasting. Net broadcasting revenues of $23.0 million for the six
months ended June 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 two quarters of 1996, and are
continuing to experience, such effects. For the six months ended June 30,
1996, aggregate revenues for the SF Stations are down approximately 22%
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 $5.4 million for the six
months ended June 30, 1996 primarily include sales commissions, sales
overhead, promotion, and general expenses.
Operating expenses of $10.0 million for the six months ended June 30, 1996
and primarily include news, commercial production, and operations costs.
<PAGE>
Amortization of broadcast rights of $2.0 million for the six months ended
June 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 $4.5 million for the six months
ended June 30, 1996 relates to the amortization of broadcast licenses and
other intangibles and the depreciation of fixed assets.
Corporate overhead of $1.2 million for the six months ended June 30, 1996
primarily consists of executive compensation, rent, utilities and
franchise taxes.
Interest Income and Interest Expense. Interest income decreased $2.9
million to $1.7 million in the six months ended June 30, 1996 from $4.6
million in the six months ended June 30, 1995, due to the decrease in
invested capital as the Company repaid the Corporate Facility.
Interest expense increased $9.1 million to $9.3 million in the six months
ended June 30, 1996 from $0.2 million in the six months ended June 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.
Income Taxes. Income taxes of $0.6 million in the six months ended June
30, 1996 principally represent a tax benefit on the operations of the SF
Broadcasting Companies. For tax purposes, the operations of the SF
Broadcasting Companies are not consolidated with the Company.
Extraordinary Charge. The extraordinary charge of $5.5 million for the
six months ended June 30, 1996 represents a charge taken in the first
quarter of 1996 for the deferred credit facility costs relating to the
reduction of the Commitment under the Corporate Facility.
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 or
exercise of the Exchange Options. 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 six
months ended June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1996
-------------
(Unaudited)
<S> <C>
Broadcasting revenues, net $ 23,024
Broadcasting costs 23,008
Broadcasting operating income 16
Plus:
Corporate overhead 1,151
Depreciation and amortization 4,483
Amortization of broadcast rights 1,385
Minus:
Cash payments for broadcast rights (1,331)
Broadcast Cash Flow (before giving
effect to the minority interest
or exercise of the Exchange Options) $ 5,704
</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.
On August 13, 1996, the Company, Silver King and Sub entered into an
Amendment ("Amendment No. 2") to the Merger Agreement.
Pursuant to, and subject to the terms and conditions of, the Merger
Agreement, as amended by Amendment No. 2, each issued and outstanding
share of Common Stock of the Company, other than shares owned by Silver
King, Sub or any other wholly owned subsidiary of Silver King, will be,
upon consummation of the Merger, converted into the right to receive 0.14
of a fully paid and nonassessable share of common stock, $.01 par value
per share, of Silver King ("Silver King Common Stock"). Pursuant to
Amendment No. 2, the Company and Silver King agreed to reduce the exchange
ratio from 0.20 to 0.14 of a share of Silver King Common Stock for each
share of Company Common Stock in light of the recent performance of the SF
Stations. No fractional shares of Silver King Common Stock will be issued
upon consummation of the Merger; in lieu thereof, a cash payment will be
made.
The Boards of Directors of the Company and Silver King each have, by a
unanimous vote of those directors voting, approved Amendment No. 2 and
recommended that the Company's and Silver King's stockholders,
respectively, vote in favor of the Merger Agreement, as amended, and
the transactions contemplated thereby.
In addition, Amendment No. 2 extends until December 31, 1996 (subject
to extension in limited circumstances) the date after which the Merger
Agreement may be terminated by either the Company or Silver King.
The foregoing description of the Merger Agreement, as amended, is
qualified in its entirety by reference to the text of the Merger Agreement
and Amendment No.2. The text of the Merger Agreement (which was filed as
Exhibit 2 to the Company's Form 8-K dated November 27, 1995) and Amendment
No.2 (which is attached hereto as Exhibit 2.2) is incorporated herein by
reference.
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.
Not applicable
<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.
August 14, 1996 By: /s/ Howard K. Bass
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
- -------
2.1 Agreement and Plan of Merger dated as of November 27,
1995, among Savoy Pictures Entertainment, Inc., Silver
King Communications, Inc. and Thames Acquisition Corp
(incorporated by reference to Exhibit 2 to the
Company's Form 8-K dated November 27, 1995).
2.2 Amendment to the Agreement and Plan of Merger, dated
as of August 13, 1996, among Savoy Pictures
Entertainment, Inc., Silver King Communications, Inc.
and Thames Acquisition Corp.
27 Financial Data Schedule
Exhibit 2.2
AMENDMENT
AMENDMENT, dated as of August 13, 1996 (this "Amendment"), to the
Agreement and Plan of Merger, by and among Silver King Communications, Inc.
("Parent"), Thames Acquisition Corp. ("Sub") and Savoy Pictures Entertainment,
Inc. (the "Company"), dated as of November 27, 1995, as heretofore amended (the
"Merger Agreement").
W I T N E S S E T H :
WHEREAS, pursuant to the Merger Agreement, Parent, Sub and the
Company have approved the terms and conditions of the business combination
between Parent and the Company to be effected by the merger (the "Merger") of
Sub with and into the Company; and
WHEREAS, Parent, Sub and the Company have agreed that certain
provisions of the Merger Agreement be amended in the manner provided for in
this Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. Defined Terms. Terms defined in the Merger Agreement and used
herein shall have the meanings given to them in the Merger Agreement.
II. Amendments to Merger Agreement.
1. Definitions. As used in the Merger Agreement, (a) the term
"Agreement" shall mean the initial merger agreement among the parties hereto,
dated as of November 27, 1995, and any and all amendments thereto entered into
on or prior to the date hereof, (b) the term "Merger" shall mean the merger of
Sub with and into the Company pursuant to the terms and conditions of the
Agreement (as amended as of the date hereof), (c) the term "Company Voting
Agreement" shall mean the voting agreement among certain stockholders of the
Company listed on Annex A of the Agreement and Parent, as such agreement has
been amended as of the date hereof, (d) the term "Parent Voting Agreement"
shall mean the voting agreement among certain stockholders of Parent listed on
Annex B of the Agreement and the Company, as such agreement has been amended as
of the date hereof and (e) the terms "Company SEC Reports" and "Parent SEC
Reports" shall mean each report, schedule, registration statement and
definitive proxy statement filed by the Company or Parent, as the case may be,
with the SEC on or after March 1, 1993 and prior to August 13, 1996.
2. Amendment to Article 2. The first sentence of Section 2.1(c) of
the Merger Agreement is hereby amended by deleting it in its entirety and
substituting in lieu thereof the following:
"Each share of common stock, $.01 par value per share, of the
Company ("Company Common Stock"), issued and outstanding (including
Company Restricted Stock, pursuant to Section 2.3(b)) immediately
prior to the Effective Time (other than shares of Company Common
Stock to be cancelled pursuant to Section 2.1(b)), shall be converted
<PAGE>
into the right to receive 0.14 of a fully paid and nonassessable
share of common stock, $.01 par value per share, of Parent ("Parent
Common Stock") (subject, in the case of Company Restricted Stock, to
Section 2.3(b)) (the "Exchange Ratio")."
3. Amendment to Article 3. (a) Section 3.8 of the Merger
Agreement is hereby amended by deleting the text thereof in its entirety and
replacing such text with the following:
"Section 3.8. Absence of Certain Changes or Events. Except as
set forth in Section 3.8 of the Company Disclosure Letter,
contemplated by this Agreement, disclosed in the Company SEC Reports
or disclosed to Parent as referred to in Section 3.18 hereto, (a)
since September 30, 1995, the Company and its subsidiaries have
conducted their businesses only in the ordinary course and in a
manner consistent with past practice and have not taken any of the
actions set forth in paragraphs (a) through (j) of Section 5.2, and
(b) there has not been (i) since August 13, 1996 and excluding in
addition the matters set forth in Schedule A or the proximate
consequences thereof, any event or condition (financial or otherwise)
of any character, individually or in the aggregate, significantly
impairing or which could reasonably be expected to significantly
impair the long-term value of the Company (it being understood that
this standard is very substantially in excess of a Material Adverse
Effect), or (ii) since September 30, 1995, any material change by the
Company in its accounting methods, principles or practices except as
required by concurrent changes in GAAP."
(b) Article 3 of the Merger Agreement is further amended by adding
the following text after the conclusion of Section 3.17:
"Section 3.18. Disclosure. On or prior to August 13, 1996, the
Company has fully and accurately in all respects disclosed to Parent
all material information regarding the business, financial and
operating condition of the Company, including any such information
known by the Chairman of the Board and Chief Executive Officer or
Chief Operating Officer of the Company, and Dan W. Lufkin, a director
of the Company. The historical financial information relating to the
Company set forth in Schedule 3.18 hereto is, to the knowledge of the
Company and such individuals as of August 13, 1996, true and complete
in all material respects, and the projected financial information set
forth in Schedule 3.18 reflects the best good faith estimate, as of
such date, of the Company and such individuals. As of August 13,
1996, neither the Company nor any such individuals has knowledge of
any other condition, circumstance or event relating to the Company,
not so disclosed to Parent, that would, individually or in the
aggregate, have a Material Adverse Effect."
4. Amendment to Article 5. Section 5.5 of the Merger Agreement is
hereby amended by adding the following sentence as the last sentence thereof:
"Without limiting the generality of the foregoing, Parent and the
Company agree to re-file the preliminary Proxy Statement with the SEC
and to respond to any comments from the SEC, in each case as promptly
as reasonably practicable."
<PAGE>
5. Amendment to Article 7. Section 7.1 of the Merger Agreement is
hereby amended by deleting subsection (b) thereof in its entirety and replacing
such subsection with the following text:
"(b) by either Parent or the Company, if the Merger shall not have
been consummated by December 31, 1996, provided that such date may be
extended by either party if the definitive Proxy Statement is not
mailed to stockholders of Parent and the Company by November 15, 1996
due to events related to the transaction relating to Home Shopping
Network, Inc. ("HSN") referred to in the Parent Disclosure Letter
(or another transaction involving the capital stock of HSN) (the "HSN
Transaction") to be described in the preliminary Proxy Statement, by
such number of days after November 15, 1996 until the definitive
Proxy Statement is so mailed, and provided further that the right to
terminate this Agreement under this Section 7.1(b) (or to extend the
termination date pursuant to the preceding clause) shall not be
available to any party whose action or failure to act has been the
cause of or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a
breach of this Agreement;".
6. Amendment to Article 6. Section 6.2(a) of the Merger Agreement
is hereby amended by adding the following text after the text "as though made
on and as of the Closing Date":
", provided that the representations and warranties in Section 3.6(a)
shall exclude the matters set forth in Schedule A and the proximate
consequences thereof and, provided further, that the representations
and warranties in Sections 3.7(c) and 3.9 as they relate to the
operations of the Company's business in the ordinary course shall be
read as of the Closing Date without reference to any materiality
standard set forth therein and shall be true and correct except to
the extent their failure to be so true and correct shall not
significantly impair, or could reasonably be expected to
significantly impair, the long-term value of the Company (it being
understood that this standard is very substantially in excess of a
Material Adverse Effect)".
7. Parent Disclosure Letter. References in the Parent Disclosure
Letter to the Exchange Agreement and related transactions shall be deemed to
include any HSN Transaction.
III. General.
1. No Other Amendments. Except as expressly amended, modified and
supplemented hereby, the provisions of the Merger Agreement are and shall
remain in full force and effect.
2. Governing Law; Counterparts. (a) This Amendment shall be
governed by, and construed in accordance with, the laws of the State of
Delaware applicable to contracts made and to be performed therein, without
giving effect to laws that might otherwise govern under applicable principles
of conflicts of law.
(b) This Amendment may be executed by one or more of the parties to
this Agreement on any number of separate counterparts, and all of said
<PAGE>
counterparts taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
SILVER KING COMMUNICATIONS, INC.
By: /s/ Barry Diller
Title: Chief Executive Officer
THAMES ACQUISITION CORP.
By: /s/ Michael Drayer
Title: Vice President
SAVOY PICTURES ENTERTAINMENT, INC.
By: /s/ Lewis J. Korman
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 30,592
<SECURITIES> 260
<RECEIVABLES> 23,861
<ALLOWANCES> 0
<INVENTORY> 107,350
<CURRENT-ASSETS> 0
<PP&E> 19,310
<DEPRECIATION> 0
<TOTAL-ASSETS> 448,153
<CURRENT-LIABILITIES> 55,940
<BONDS> 170,531
0
0
<COMMON> 300
<OTHER-SE> 150,062
<TOTAL-LIABILITY-AND-EQUITY> 448,153
<SALES> 0
<TOTAL-REVENUES> 66,961
<CGS> 0
<TOTAL-COSTS> 120,796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,333
<INCOME-PRETAX> (61,501)
<INCOME-TAX> (580)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (5,527)
<CHANGES> 0
<NET-INCOME> (65,259)
<EPS-PRIMARY> (2.20)
<EPS-DILUTED> 0
</TABLE>
