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 March 31, 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 May 13, 1996, there were 30,041,932 shares of Common Stock
outstanding.<PAGE>
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SAVOY PICTURES ENTERTAINMENT, INC.
INDEX
PART I. FINANCIAL INFORMATION
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Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 . . . . 4
Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and
March 31, 1995 . . . . . . . . . . . . . . . 5
Consolidated Statement of Stockholders'
Equity - Three Months Ended March 31, 1996 . 6
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and
March 31, 1995 . . . . . . . . . . . . . . 7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . 12
PART II. OTHER INFORMATION
Item 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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Balance Sheets
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March 31, 1996 December 31, 1995
(Unaudited)
ASSETS (In thousands, except share amounts)
Cash and cash equivalents . . . . . $25,185 $17,448
Accounts receivable . . . . . . . . 24,380 35,664
U.S. Government securities . . . . . 28,777 102,579
Inventories, net (Note 3) . . . . . 158,816 178,532
Fixed assets, net . . . . . . . . . 20,005 19,938
Broadcast licenses and other
intangibles . . . . . . . . 258,578 260,785
Deferred charges, net . . . . . . . 5,970 11,551
Other assets . . . . . . . . . . . . 3,612 3,757
Total assets . . . . . . . . . .$525,323 $630,254
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses . . . . . . . . . . . . . $29,511 $41,687
Deferred revenue . . . . . . . . . . 28,480 23,362
Deferred taxes . . . . . . . . . . . 253 653
Note payable - related parties . . . 12,500 12,500
Long-term debt - other . . . . . . . 39,076 39,120
Corporate Facility . . . . . . . . . 23,500 95,000
Broadcast Facility . . . . . . . . . 131,500 134,000
Total liabilities . . . . . . . 264,820 346,322
Minority interest (Note 1) . . . . . 68,346 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 . . . . . 66,952 366,952
Unamortized value of
restricted stock . . . . . . . . (7,176) (7,531)
Unrealized losses on U.S.
Government securities . . . . . 5 58
Deficit . . . . . . . . . . . . (167,924) (144,810)
Total stockholders' equity . . . 192,157 214,969
Total liabilities and
stockholders' equity . . . . $525,323 $630,254
See accompanying notes./TABLE
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SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Statements of Operations
(Unaudited)
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Three Months Three Months
Ended Ended
March 31, 1996(a) March 31, 1995
(In thousands, except per share amounts)
Revenues:
Filmed entertainment . . . . . . $16,850 $8,939
Broadcasting, net . . . . . . . 10,724 --
27,574 8,939
Filmed entertainment costs:
Costs related to revenue . . . . 26,274 13,929
Selling, general, and administrative . 4,103 3,431
30,377 17,360
Broadcasting costs:
Selling, general, and administrative . 2,818
Operating expenses . . . . . . . . . . 4,955
Amortization of broadcast rights
and other . . . . . . . . . . . . . . 978
Depreciation and amortization . . . . . 2,230
Corporate overhead . . . . . . . . . . 656
11,637 --
Operating loss:
Filmed entertainment . . . . . . . . (13,527) (8,421)
Broadcasting . . . . . . . . . . . . (913) --
(14,440) (8,421)
Interest income . . . . . . . . . . . . . 1,251 2,499
Interest expense . . . . . . . . . . . . 5,573 195
(4,322) 2,304
Loss before income taxes, minority
interest and extraordinary charge . . . (18,762) (6,117)
Income tax expense (benefit) . . . . . . . (393) 60
Minority Interest in SF Broadcasting . . . (782) --
Loss before extraordinary charge . . . . .(17,587) (6,123)
Extraordinary charge, reduction in
Corporate Facility (Note 4) . . . . . . . (5,527) --
Net loss . . . . . . . . . . . . . . . . .$23,114) ($6,123)
Loss per share:
Loss before extraordinary charge . . . . ($.59) ($.21)
Extraordinary charge . . . . . . . . . . (.19) --
Net income . . . . . . . . . . . . . . . ($.78) ($.21)
Average shares outstanding . . . . . . . . 29,633 29,537
(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 March 31, 1996 have no
comparable results in 1995.
See accompanying notes./TABLE
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SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Statement of Stockholders' Equity
(Unaudited)
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Unrealized
Gains
Unamortized (Losses)
Additional Value of on U.S.
Common Paid-In Restricted Government
Stock Capital Stock Securities Deficit Total
(In thousands)
Balance at
December 31, 1995 . . $300 $366,952 ($7,531) $58 ($144,810) $214,969
Amortization of deferred
compensation on
Restricted Stock . . . . . . -- -- 355 -- -- 355
Change in unrealized gains
(losses) . . . . . . . . . . -- -- -- (53) -- (53)
Net loss . . . . . . . . . . . . -- - -- -- (23,114) (23,114)
-
Balance at March 31, 1996 . . . . $300 $366,952 ($7,176) $5 ($167,924) $192,157
See accompanying notes./TABLE
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SAVOY PICTURES ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
(In thousands)
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Operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . ($23,114) ($6,123)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . 3,447 337
Amortization of premium on U.S. Government
securities . . . . . . . . . . . . . . . . . . . . 431 866
Amortization of restricted stock . . . . . . . . . . . 355 354
Inventory amortization . . . . . . . . . . . . . . . . 26,826 13,929
Gain on sale of U.S. Government securities . . . . . . (158) --
Benefit for deferred income taxes . . . . . . . . . . . (400) --
Minority interest in SF Broadcasting . . . . . . . . . (782) --
Extraordinary charge . . . . . . . . . . . . . . . . . 5,527 --
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . 11,284 (1,087)
Inventories . . . . . . . . . . . . . . . . . . . . . . (7,110) (38,588)
Other assets . . . . . . . . . . . . . . . . . . . . . (139) (625)
Accounts payable and accrued expenses . . . . . . . . . (12,176) 12,999
Deferred revenue . . . . . . . . . . . . . . . . . . . 5,118 8
Net cash provided by (used in) operating activities . . 9,109 (17,930)
Investing activities
Purchases of U.S. Government securities . . . . . . . . . . (23,498) (74,451)
Maturities of U.S. Government securities . . . . . . . . . -- 71,788
Sales of U.S. Government securities . . . . . . . . . . . . 96,165 --
Decrease (increase) in interest receivable . . . . . . . . 809 (1,011)
Purchases of fixed assets . . . . . . . . . . . . . . . . . (303) (283)
Net cash provided by (used in) investing activities . . 73,173 (3,957)
Financing activities
Repayments of Corporate Facility . . . . . . . . . . . . . (71,500) --
Repayments of Broadcast Facility . . . . . . . . . . . . . (2,500) --
Increase in deferred charges . . . . . . . . . . . . . . . (710) (520)
Capital contribution from minority shareholder . . . . . . 165
Net cash used in financing activities . . . . . . . . (74,545) (520)
Net increase (decrease) in cash and cash equivalents . . . 7,737 (22,407)
Cash and cash equivalents at beginning of period . . . . . 17,448 27,052
Cash and cash equivalents at end of period . . . . . . . . $25,185 $4,645
See accompanying notes.
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SAVOY PICTURES ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
March 31, 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 75% interest in four VHF television stations located
in the 41st through 70th largest markets in the United States; however, its
interest in WLUK-TV will be reduced to 50% in the near term (see Note 2). In
the past, the Company developed, financed, produced, marketed and distributed
motion pictures. Since the fourth quarter of 1995, the Company has been taking
actions to suspend, by mid-1996, 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 each issued and outstanding share of common stock of the Company,
par value $0.1 per share (the "Common Stock"), will be converted into the right
to receive 0.20 of a fully paid and nonassessable share of common stock, $.01
par value per share, 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. 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 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.<PAGE>
The Company, Sub and
Silver King have entered into Amendment No. 1, dated as of May 8, 1996, to the
Merger Agreement ("Amendment No.1") extending certain dates
in the Merger Agreement. Amendment No. 1 extends the termination date for the
Merger Agreement from May 30, 1996 to July 30, 1996, except that, if the Merger
has not been consummated due to the failure to obtain approval by the Federal
Communications Commission, then such date may, under certain circumstances, be
extended to October 30, 1996.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. Minority interest represents
the interest of a subsidiary of Fox Television Stations, Inc. 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 three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. The SF Broadcasting Companies 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 three
months ended March 31, 1996 have no comparable results in 1995. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K. 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 and 100% of
the voting stock of SF Broadcasting of Wisconsin, Inc. and SF Multistations,
Inc. (together with their subsidiaries the "SF Broadcasting Companies") and a
subsidiary of Fox Television Stations, Inc. ("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.<PAGE>
On April 24, 1996, Fox Television Stations gave the
Company written notice of the exercise of its option to acquire an additional
25% non-voting interest in SF Broadcasting of Wisconsin, Inc. which owns WLUK.
The closing of such option must occur within 60 days of the notice of exercise
unless postponed by Fox Television Stations and the Company. 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, Inc. 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.
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Pro Forma
Three Months
Ended
March 31, 1995
(In thousands,
except per share amount)
Revenues $22,270
Net loss (8,212)
Net loss per share (.28)
Note 3 - Inventories
Inventories are comprised of the following (in thousands):
March 31, 1996 December 31,1995
Unamortized film costs:
Released $42,705 $58,836
In process 113,500 116,313
156,205 175,149
Television broadcast rights 2,611 3,383
$158,816 $178,532
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Future payments relating to commitments for television broadcast rights not yet
available for broadcast as of March 31, 1996 were $5.9 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 entered into an amendment to its Corporate Facility,
dated as of March 11, 1996, which provided, among other things, that the
Commitment (as defined) of the Lenders would, effectively, be reduced to
$20 million until December 31, 1996. The extraordinary charge of $5.5 million
for the three months ended March 31, 1996 represents a charge for the deferred
credit facility costs relating to the reduction of the Commitment.
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 75%
interest in four VHF television stations located in the 41st through 70th
largest markets in the United States; however, its interest in WLUK-TV will be
reduced to 50% in the near term (see Note 2). In the past, the Company
developed, financed, produced, marketed and distributed motion pictures. Since
the fourth quarter of 1995, the Company has been taking actions to suspend, by
mid-1996, 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 three months ended March 31, 1996, the Company's operating
activities provided $9.1 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).
On November 18, 1995, the Company entered into an agreement with New Line
Cinema to distribute five motion pictures. Under the agreement, the Company
received advance payments of $9.4 million during the first quarter of 1996 and
$11.3 million during 1995. New Line Cinema released two of the pictures, A
Thin Line Between Love and Hate and Faithful in April 1996 and the three
remaining pictures are expected to be released in 1996.
Financing Arrangements
Corporate Facility. The Company entered into an amendment to its Corporate
Facility, dated as of March 11, 1996, which provided, among other things, that
(i) the Commitment (as defined) of the Lenders would, effectively, be reduced
to $20 million until December 31, 1996, (ii) the Company would not borrow
amounts in excess of certain specified collateral and (iii) the consummation of
the Merger would not constitute certain events of default relating to a change
in control. The Corporate Facility has been used primarily to fund the
Company's investment in the SF Broadcasting Companies in 1995, and for other
corporate purposes. The Corporate Facility will mature in 1999.
If the Merger Agreement is terminated for any reason or if the Company, prior
to December 31, 1996, is not able to renegotiate the Corporate Facility with
its lenders, the Company has agreed that it will not borrow any amounts under
the Corporate Facility after such time and will repay all outstanding loans at
such time. The Company intends to commence negotiations with its lenders with
respect to modifying the terms of the Corporate Facility prior to December 31,
1996, whether or not the Merger is consummated. If the Corporate Facility is
not renegotiated, the Company intends to pursue additional financing
opportunities. There can be no assurances that the Corporate Facility will be
successfully renegotiated or that any such additional financing will be
obtained by the Company. The Company believes it will have sufficient
resources to conduct its business as currently planned for 1996.
During the first quarter of 1996, the Company sold U.S. Government securities
for gross cash proceeds of $96.2 million, repaid $71.5 million of its Corporate
Facility, and placed substantially all of the remaining proceeds in a
collateral account for the benefit of the lenders under the Corporate Facility.
At March 31, 1996, $23.5 million was outstanding, and the Company had $20
million available (subject to compliance with certain financial covenants)
under the Corporate Facility. During April and May 1996, the Company repaid
the remaining $23.5 million outstanding under the Corporate Facility.
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
March 31, 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 limited circumstances, until June 30, 1997, the Company and Fox
may be required to contribute additional capital to the SF Broadcasting
Companies if certain financial covenants are not met. If the decline in
revenue described in "Results of Operations" continues, Fox Television Stations
and the Company may have to contribute additional capital. 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.
Results of Operations
Three Months Ended March 31, 1996 in Comparison to the Three Months Ended March
31, 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.
In connection with the Company's decision to limit its financing of motion
pictures and in contemplation of the pending Merger with Silver King, which may
be developing its own television production operations, the Company has
suspended its movie-of-the-week television production operations, which have
not generated any significant revenues for the Company. In the event the
Merger is not consummated, the Company will reevaluate such operations.
<PAGE>
The Company's reduced activities in filmed entertainment will significantly
reduce its revenues, costs and losses in its motion picture business in
comparison to 1995 and prior years. Its reduced capital commitment to the
motion picture business may improve its liquidity in the short term, as limited
additional investments are made in film projects and the Company's existing
film inventory assets are exploited in ancillary markets and their values
otherwise realized.
Film revenues increased $7.9 million to $16.8 million in the three months ended
March 31, 1996 from $8.9 million in the three months ended March 31, 1995
primarily due to the timing of the Company's theatrical releases and
availability of product in secondary markets. Revenues for the three months
ended March 31, 1996 included the video availability of Last of the Dogmen and
Steal Big Steal Little and the pay television availability of Circle of
Friends. Revenues for the three months ended March 31, 1995 included the
theatrical release of The Walking Dead and certain other ancillary revenues
from previous releases. Costs related to revenues increased $12.4 million to
$26.3 million in the three months ended March 31, 1996 from $13.9 million in
the three months ended March 31, 1995 primarily due to the amortization of film
costs, including a loss from the release of the film Getting Away With Murder,
for which the Company's costs exceeded its anticipated revenues due to limited
market acceptance.
Selling, general and administrative expenses increased $0.7 million to $4.1
million in the three months ended March 31, 1996 from $3.4 million in the three
months ended March 31, 1995, primarily due to the Company not capitalizing
overhead to the acquisition or production of film projects in connection with
its decision to suspend, by mid-1996, its marketing and distribution
activities.
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 March 31,
1996 but have not been included for the three months ended March 31, 1995. All
broadcasting results described herein are before giving effect to Fox's
minority interest. On April 24, 1996, Fox Television Stations gave the Company
written notice of the exercise of its option to acquire an additional 25% non-
voting interest in SF Broadcasting of Wisconsin, Inc. which owns WLUK (see Note
2).
Net broadcasting revenues of $10.7 million for the three months ended March 31,
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 are experiencing such effects.
For the three months ended March 31, 1996, aggregate revenues for the SF
Stations are down approximately 19% compared to the comparable period of 1995,
which quarter, in 1995, accounted for approximately 22% of the revenues (and
15% of the broadcast cash flow) for the full year. Revenues at WALA, WLUK and
WVUE are, on the average for the three stations, approximately 14% lower, and
at KHON are 27% lower, compared to the comparable period of 1995. Revenues at
<PAGE>
KHON are down to a greater extent than at the other three stations because a
significant number of the advertisers had delayed making purchases of
advertising on KHON until after the first quarter, while awaiting the results
of the February 1996 sweeps. During the February 1996 sweeps, KHON established
that it had retained its strong position as generally the highest rated station
in its market. Management believes that, in light of these ratings,
advertisers should begin to return to KHON over time, although there can be no
assurances of this. While ratings at the other SF Stations have declined since
the switch in affiliation, as have ratings at other stations following their
switch to Fox, WVUE was the third rated station, and WALA was tied with one
other station as the second rated station, in household ratings in their
markets during common prime time for the February 1996 sweeps. With viewers in
the 18-49 and 25-54 age brackets during common prime time, which are viewers
sought after by advertisers, WALA tied for first in ratings in the 18-49 age
bracket and was third in the 25-54 age brackets and WVUE was third in both age
brackets. The ratings at WALA and WVUE for certain other day-parts and
demographics placed the stations below the ranks described above. The ratings
at WALA may have been affected by the local NBC affiliate encountering
transmission difficulties during this period. The ratings at WLUK during
common prime time for the February 1996 sweeps, including with respect to the
age groups discussed above, placed the station in fourth place in household and
in both age brackets in its market. 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 $2.8 million for the three months
ended March 31, 1996 primarily include sales commissions, sales overhead,
promotion, and general expenses. Operating expenses of $5.0 million for the
three months ended March 31, 1996 primarily include news, commercial
production, and operations costs.
Amortization of broadcast rights of $1.0 million for the three months ended
March 31, 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 March 31, 1996 relates to the amortization of broadcast licenses and
other intangibles and the depreciation of fixed assets.
Corporate overhead of $0.7 million for the three months ended March 31, 1996
primarily consists of executive compensation, rent, utilities and franchise
taxes.
Broadcasting operating loss for the three months ended March 31, 1996 was
$913,000. $685,000 of such operating loss relates to the Company's interest in
the SF Broadcasting Companies and $228,000 relates to Fox Television Stations'
minority interest.
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
<PAGE>
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 three months
ended March 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<C>
Three Months
Ended
March 31, 1996
(Unaudited)
<S> <C>
Broadcasting revenues, net . . . . . . . . . . . . $10,724
Broadcasting costs . . . . . . . . . . . . . . . . 11,637
Broadcasting operating loss . . . . . . . . . . . . (913)
Plus:
Corporate overhead . . . . . . . . . . . . . . 656
Depreciation and amortization . . . . . . . . . 2,230
Amortization of broadcast rights . . . . . . . 681
Minus:
Cash payments for broadcast rights . . . . . . (659)
Broadcast Cash Flow (before giving effect
to the minority interest or exercise of the
Exchange Options) . . . . . . . . . . . . . . . $1,995
</TABLE>
Interest Income and Interest Expense
Interest income decreased $1.2 million to $1.3 million in the three months
ended March 31, 1996 from $2.5 million in the three months ended March 31, 1995
due to the decrease in U.S. Government securities which were sold in 1996 to
repay outstanding borrowings under the Corporate Facility.
Interest expense increased $5.4 million to $5.6 million in the three months
ended March 31, 1996 from $0.2 million in the three months ended March 31, 1995
due to borrowings under the credit facilities and a reduction in capitalized
interest to the acquisition or production of film projects in connection with
the Company's decision to suspend, by mid-1996, its marketing and distribution
activities.
Income Taxes
Income taxes of $393,000 in 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.
<PAGE>
Extraordinary Charge
The extraordinary charge of $5.5 million for the three months ended March 31,
1996 represents a charge for the deferred credit facility costs relating to the
reduction of the Commitment under the Corporate Facility.
<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.
The Company, Sub and Silver King have entered into
Amendment No. 1, dated as of May 8, 1996, to the
Merger Agreement ("Amendment No. 1") extending
certain dates in the Merger Agreement.
Amendment No. 1 extends the termination date for
the Merger Agreement from May 30, 1996 to July 30,
1996, except that, if the Merger has not been
consummated due to the failure to obtain approval
by the Federal Communications Commission, then
such date may, under certain circumstances, be
extended to October 30, 1996.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
The exhibit to this report is 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.
May 15, 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 Page
2 Amendment No. 1 to the Agreement and Plan of Merger, 21
dated as of May 8, 1996, by and among Silver King
Communications, Inc., Thames Acquisition Corp. and
Savoy Pictures Entertainment, Inc.
27 Financial Data Schedule 23
AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 TO THE AGREEMENT AND PLAN OF MERGER, dated as of
May 8, 1996 (this "Amendment No. 1"), by and among Silver King Communications,
Inc., a Delaware Corporation ("Parent"), Thames Acquisition Corp., a Delaware
Corporation ("Sub"), and Savoy Pictures Entertainment, Inc., a Delaware
corporation (the "Company").
WHEREAS, Parent, Sub and the Company have entered into an
Agreement and Plan of Merger, dated as of November 27, 1995 (the "Merger
Agreement"); and
WHEREAS, Parent, Sub and the Company desire to amend and modify
the Merger Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Parent, Sub and the Company
hereby agree that the Merger Agreement shall be, and hereby is, amended and
modified as follows:
1. Paragraph (b) of Section 7.1 of the Merger Agreement is
hereby amended and replaced in its entirety to read as follows:
"(b) by either Parent or the Company if the Merger shall not
have been consummated by July 30, 1996 (provided that, if the Merger shall not
have been consummated due to the failure to obtain the FCC Approvals and such
approvals are, in the reasonable opinion of FCC counsel to Parent or FCC
counsel to the Company, likely to be received or made final on or prior to
October 30, 1996, then such date shall be extended to October 30, 1996, and
provided, further, that the right to terminate this Agreement under this
Section 7.1(b) 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);"
2. Except as amended and modified by this Amendment No. 1,
all other terms of the Merger Agreement shall remain unchanged.
3. This Amendment No. 1 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 the laws that might
otherwise govern under applicable principles of conflicts of laws.
4. This Amendment No. 1 may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of Parent, Sub and the Company has
caused this Amendment No. 1 to be executed on its behalf, all as of the day
and year first above written.
SILVER KING COMMUNICATIONS, INC.
By:__________________________
Name:
Title:
THAMES ACQUISITION CORP.
By:__________________________
Name:
Title:
SAVOY PICTURES ENTERTAINMENT, INC.
By:__________________________
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 25,185
<SECURITIES> 28,777
<RECEIVABLES> 24,380
<ALLOWANCES> 0
<INVENTORY> 158,816
<CURRENT-ASSETS> 0
<PP&E> 20,005
<DEPRECIATION> 0
<TOTAL-ASSETS> 525,323
<CURRENT-LIABILITIES> 70,744
<BONDS> 194,076
0
0
<COMMON> 300
<OTHER-SE> 191,857
<TOTAL-LIABILITY-AND-EQUITY> 525,323
<SALES> 0
<TOTAL-REVENUES> 27,574
<CGS> 0
<TOTAL-COSTS> 42,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,573
<INCOME-PRETAX> 18,762
<INCOME-TAX> 782
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 5,527
<CHANGES> 0
<NET-INCOME> 23,114
<EPS-PRIMARY> .78
<EPS-DILUTED> 0
</TABLE>
