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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-1461
LIBERTY LIVEWIRE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-1679856
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
520 BROADWAY, SANTA MONICA, CA 90401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 434-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
COMMON STOCK, CLASS A,
$ .01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates at March 25,
2001 was approximately $30,000,000.
The number of shares of common stock outstanding at March 25, 2001 was:
5,384,506 Class A Shares and 31,612,716 Class B Shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
report.
LIBERTY LIVEWIRE CORPORATION
- --------------------------------------------------------------------------------
Annual Report on Form 10-K
December 31, 2000
TABLE OF CONTENTS
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Page
Part I
Item 1 -Business 2
Item 2 -Properties 14
Item 3 -Legal Proceedings 15
Item 4 -Submission of Matters to a Vote of
Security Holders 15
Part II
Item 5 -Market for the Registrant's Common
Stock and Related Stockholder Matters 16
Item 6 -Selected Financial Data 18
Item 7 -Management's Discussion and Analysis
of Financial Condition and
Results of Operations 19
Item 8 -Financial Statements and
Supplementary Data 24
Item 9 -Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 24
Part III
Item 10 - Directors and Executive Officers
of the Registrant 25
Item 11 -Executive Compensation 27
Item 12 -Security Ownership of Certain
Beneficial Owners and Management 27
Item 13 -Certain Relationships and Related
Transactions 27
Part IV
Item 14 -Exhibits, Financial Statement Schedule
and Reports on Form 8-K 28
Signatures 29
Exhibit Index 30
Index to Financial Statements
and Schedule 33
PART I
ITEM 1. BUSINESS
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
CHANGE IN CONTROL
On June 9, 2000, the stockholders of the registrant, then known as "The Todd-AO
Corporation" ("Todd-AO"), approved a series of transactions including:
o a reclassification of the existing common stock of the registrant,
o the merger of the registrant and B-Group Merger Corp., with the
registrant surviving, and related merger proposals (collectively, the
"Todd Merger"),
o certain post-merger business combinations set forth in an Agreement
between the registrant and Liberty Media Corporation, dated as of
February 11, 2000, and
o the change of the registrant's name to Liberty Livewire Corporation
("Livewire" or the "Company").
The Todd Merger and related transactions were provided for in an Agreement and
Plan of Merger dated December 10, 1999, as amended March 6, 2000, among the
registrant, Liberty Media Corporation, B-Group Merger Corp. and AT&T Corp. (the
"Todd Merger Agreement").
Through the Todd Merger and related reclassification, which occurred
simultaneously, each issued and outstanding share of Common Stock of the
registrant ("Old Common Stock") was converted into the right to receive 0.4 of a
share of the Company's new Class A Common Stock ("Class A Common Stock") and 0.5
of a share of AT&T Corp.'s Class A Liberty Media Group tracking stock. As a
result, Liberty Media acquired 60% of the outstanding equity (representing
approximately 94% of the voting power) of Todd-AO.
Liberty Media is an indirect wholly owned subsidiary of AT&T. It's former
parent, Tele-Communications, Inc ("TCI"), was acquired by AT&T by merger in
March 1999. Liberty Media and its subsidiaries constitute substantially all of
the businesses and assets of Liberty Media Group. Liberty Media Group Class A
("LMGA") and Class B ("LMGB") Common Stock are tracking stocks of AT&T that are
intended to reflect the economic performance of the Liberty Media Group.
On August 10, 2000, the Board of Directors of Livewire approved the change of
the Company's fiscal year end from August 31 to December 31.
OVERVIEW AND GENERAL DEVELOPMENT OF BUSINESS
Livewire was incorporated in Delaware in 1952.
Livewire is the world's leading independent provider of technical and creative
services to the entertainment industry. We provide audio and video
post-production, transmission, library services, Internet hosting, and
audio/video distribution services via satellite and fiber for the major
television producers, motion picture studios, cable and broadcast networks,
advertising agencies, and other entertainment content companies. We also provide
interactive television services. Our services integrate and apply a variety of
systems and processes to enhance the creation and distribution of entertainment
content.
Livewire is the result of the combination of certain key companies with long
standing track records and respected brand names offering "cradle-to-grave"
services. Livewire is under the direction of a management team that has
extensive experience in running worldwide operations in both traditional and new
media Content Preparation (post-production sound and visual effects), Content
Management (film, tape, and digital libraries), as well as Content Distribution
(freight, fiber, satellite, and Internet) services.
Equipped with the latest technologies and staffed with talented professionals
and artists, the Company offers film and television producers, directors and
studios, as well as television advertisers effective solutions to their creative
needs. The Company's technology outsourcing solutions offer clients low
operating costs, improved response time
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and reliability, access to new technology and high standards of quality
recognized by the international technical community.
The Company was created through the following transactions:
On April 7, 2000, Liberty Media acquired 100% of Four Media Company's ("4MC")
issued and outstanding common stock.
On June 9, 2000, Liberty Media acquired 60% of the outstanding equity
(representing approximately 94% of the voting power) of the registrant through
the Todd Merger, a stock transaction valued at $109 million. On the same day,
Liberty Media contributed all of the issued and outstanding shares of 4MC to
Livewire in exchange for Livewire Class B Common Stock valued at $279.7 million.
In July 2000, Liberty Media acquired certain assets of SounDelux Entertainment
Group of Delaware, Inc. ("SounDelux") through a single-member limited liability
company for $90 million in cash. Liberty Media then contributed ownership of the
LLC to Livewire in exchange for new Livewire Class B Common Stock valued at $90
million. The registrant's Class B Common Stock and Class A Common Stock are
identical, except that the Class B Common Stock has ten votes per share and is
convertible into Class A Common Stock at any time at the option of the holder.
In July 2000, Livewire acquired privately held Triumph Communications Group
("Triumph") in a combined cash and stock transaction valued at $50.3 million.
In August 2000, Livewire acquired all of the outstanding shares of Soho Group
Limited ("Soho") through a wholly owned subsidiary for approximately $27.2
million in cash and assumed debt.
In October 2000 Livewire acquired all of the outstanding shares of Visiontext
Limited ("Visiontext") for (pound)3.7 million ($5.4 million) in cash.
On July 25, 2000, Liberty, Livewire, AT&T and a wholly owned subsidiary of AT&T
signed a merger agreement with Video Services Corporation ("VSC") to acquire all
of the outstanding capital stock of VSC in a cash and stock transaction valued
at approximately $110 million. On December 22, 2000, in accordance with that
agreement, AT&T acquired and immediately transferred to Liberty, 100% of the
outstanding capital stock of VSC.
On December 22, 2000, pursuant to a Contribution Agreement, Liberty contributed
to Livewire 100% of the outstanding capital stock of VSC. Livewire financed the
contribution and acquisition of VSC with a convertible note in the principal
amount of approximately $93 million issued under a First Amended and Restated
Credit Agreement with Liberty (the "Liberty Subordinated Credit Agreement") and
with funds provided by Livewire's institutional lenders.
On February 1, 2001, Livewire acquired substantially all the assets of the
business unit known as "Group W Network Services" ("GWNS") from Viacom, Inc. and
certain affiliates of Viacom, for $116.5 million in cash and assumed debt,
subject to a post-closing working capital adjustment. Livewire financed the
acquisition of Group W Network Services primarily with a convertible loan under
the Liberty Subordinated Credit Agreement and borrowings from Livewire's
institutional lenders.
Please see part II, item 5, of this report for a description of the convertible
notes issued under the Liberty Subordinated Credit Agreement.
BUSINESS SEGMENTS
Livewire's facilities and operating companies are generally grouped by function
into one of the Company's three principal business segments: Content
Preparation, Content Management, and Content Distribution. This delineation
allows each operation to focus on its particular client base, while maximizing
business synergies, client relationships and cross-selling opportunities.
Please see the financial statements included in this report for certain summary
financial information regarding the Company broken down by business segment and
geographical (U.S./non-U.S.) area.
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CONTENT PREPARATION SEGMENT
The Audio Services, Entertainment Television and Commercial Television Divisions
provide the technical and creative services that are necessary to conform
original film or video principal photography into a final product suitable for
the public, or traditional "post-production" services. These services
principally include creating music and sound effects, and visual effects. The
Company utilizes state-of-the-art facilities and equipment to digitally create
or manipulate sounds and images in high-resolution formats for integration into
feature films and television commercials.
AUDIO SERVICES DIVISION
Livewire is the leading independent provider of sound services to the industry
for theatrical feature films, television series, television specials,
movies-of-the-week, trailers, commercials and new media. Facilities are located
in Los Angeles, New York, Atlanta, London and Spain.
Livewire's services begin with sound design and full-service music supervision:
script breakdown and budgeting, music pre-recording, music acquisition and
clearance, on-camera music supervision, overseas recording, score production and
song placement. Feature film and television producers utilize Livewire's
state-of-the-art studio facilities and highly skilled, award winning sound
engineers for music recording, sound editing and enhancement, mixing of music,
sound effects, and dialogue and narration. A number of ancillary services derive
from these core activities, including sound effects editing, film-to-tape and
tape-to-tape transfers and duplication, automated dialogue replacement, live
recorded sound effects, equipment rental, edit room rental and sale of film and
tape stock.
The major Livewire brand names for Audio Services are Todd-AO and SounDelux.
The Todd-AO Studios brand name has contributed to the artistry and success of
many significant film and television projects. Nineteen films mixed at the
Todd-AO Studios have won Academy Awards-Registered Trademark- and television
projects have won 21 Emmys. Livewire's staff has also been the recipient of
numerous technical awards from both the Motion Picture and Television
Academies.
Todd-AO Studios consists of 23 re-recording stages (many of which accommodate
both film and videotape formats), 11 ADR/Foley recording stages, a full
complement of digital sound editorial suites and a state-of-the-art music
scoring stage. Support services include complete film and tape transfer rooms,
an audio/video layback suite, fiber optic tie lines to transmit and receive
audio and video signals worldwide, music prelay services, editorial rental rooms
and production offices.
The SounDelux Hollywood brand name has been among those at the forefront of the
motion picture sound design and sound editing industry for over 17 years.
Operations include sound mixing and sound editing services, music editing, temp
scoring for feature films and music supervision, studio facilities with 5
feature film dubbing studios, one large scoring studio and various other smaller
mixing stages.
In additional facilities in Burbank and Santa Monica, California, Livewire
edits and creates sound effects, assists in replacing dialog and re-records
all the audio elements for integration with film and video elements. Dialog
replacement is sometimes required to improve quality, replace lost dialog or
eliminate extraneous noise from the original recording. Re-recording combines
sound effects, dialog, music and laughter or applause to complete the final
product. In addition, the re-recording process enhances the listening
experience by adding specialized sound treatments, such as stereo,
Dolby-Registered Trademark- SR-Registered Trademark- and
Surroundsound-Registered Trademark-. Livewire's Burbank facility has four
studios devoted to situation comedies and one-hour dramas. The Burbank
facility also has two theater-sized re-recording stages targeted to the
feature film and made-for-television movie markets. The Santa Monica facility
has eleven studios, which primarily serve the sound needs of commercial
advertising, music videos and certain home video applications.
ENTERTAINMENT TELEVISION & COMMERCIAL TELEVISION DIVISIONS
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Livewire provides producers of original television programming and television
commercials with technical and creative services that are necessary to conform
original film or video principal photography into a final product suitable for
airing on television. These services include developing negatives, creating
music and sound effects; and creating visual effects. The Company's film and
animation unit provides creators of special visual effects with services
required to digitally create or manipulate images in high-resolution formats for
integration in feature films and television commercials. Principal video
services include film-to-video transfer ("telecine"), mastering and duplication
of professional videotape formats, film processing, videotape editing, audio
post production, visual effects and graphics, broadcast standards conversion,
closed caption/subtitling, product evaluation-quality assurance and
vaulting/storage.
The Entertainment Television Division includes the major brand names of Encore,
Hollywood Digital, RIOT (a hybrid facility serving special commercial projects
and select feature films) and Digital Symphony (which will continue as
Livewire's editorial equipment rental business) and is located in Hollywood,
Burbank and Santa Monica.
Major Livewire brand names in the Commercial Television Division include Co3,
FilmCore, Method, 525, Manhattan Transfer, and Hollywood Digital West with
locations in Santa Monica, New York City and San Francisco.
DESCRIPTION OF SERVICES
NEGATIVE DEVELOPING: Because of the creative freedom, high-resolution image
quality and flexibility attained by working with film, the majority of prime
time network and first run syndicated television programming originates on film.
The camera original negative shot during each production day, called "dailies,"
for a one-hour drama, situation comedy or movie-of-the-week are delivered to
Livewire's film laboratory for overnight development. Livewire's film laboratory
specializes in negative developing for television applications.
TRANSFER AND DIGITAL FORMATTING SERVICES: Livewire accepts developed negatives
from a laboratory and transfers the film to videotape. The transfer process
enables the customer to view a videotape of the previous day's work and begin
the creative process of editing. The transfer process is technically
challenging, and is used to integrate various forms of audio and encode with
feet and frame numbers from the original film. The Company also converts film
into various digital formats suitable for distribution through multiple mediums
including Digital Versatile Disk (DVD). Livewire believes its state-of-the-art
technology and highly skilled talent allows the Company to produce the highest
quality results attainable in the industry today.
OFF-LINE EDITING: Livewire delivers low-resolution digital images to the
customer for processing by various non-linear editing workstations. Using the
Company's systems, the customer determines a program's content and creates an
edit decision list, which will eventually be used to assemble the source
material into a final product suitable for broadcast. Livewire provides and
fully supports such editing with personnel and equipment that customers can use
either within the Company's facilities or at a designated location. In addition,
Livewire is currently enlarging the Company's communications infrastructure to
provide digital images directly from the film-to-tape transfer process to a
workstation via dedicated data lines.
VISUAL EFFECTS: Visual effects are used to enhance the viewing audience's
entertainment experience by supplementing images obtained in principal
photography with computer-generated imagery. Visual effects are typically used
to create images that cannot be created by any other cost effective means.
Livewire unit Riot, located in Santa Monica, specializes in creating visual
effects for television. Livewire generates bends, warps, morphs and 3D shapes as
well as other visual effects for customers. The Company also offers an array of
graphics and animation workstations using a variety of software to accomplish
unique effects, including 3D animation. Livewire is a leader in providing visual
effects for the television industry as evidenced by the Company's involvement in
numerous award winning series.
ASSEMBLY, FORMATTING AND DUPLICATION: Livewire implements clients' creative
decisions, including decisions regarding the integration of sound and visual
effects, to assemble the source material into its final form. Livewire's
assembly systems are among the most technologically advanced in the industry. In
addition, the Company uses sophisticated computer graphics equipment to generate
titles and character imagery and to format a given program to meet specific
network requirements, including time compression and commercial breaks. Finally,
the Company
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creates multiple master videotapes for delivery to the network for broadcast,
archival and other purposes designated by the customer.
FEATURE FILM SPECIAL VISUAL EFFECTS AND ANIMATION SERVICES: Livewire's film and
animation department offers a broad range of facilities and technical and
creative services to creators of special visual effects and animation sequences
for feature films. Livewire bundles film and animation services to lower the
effective cost of certain visual effects, improve response time and consistency
of results, and to provide customers access to new technology. Clients include
most of the major studios as well as independent visual effects supervisors
contracted by producers of feature films. The Company provides services
necessary to digitally create or manipulate images in high-resolution formats
for integration into feature films. These services include Pre-Production and
Principal Photography Consulting, Effect Design and Creation, Film Scanning and
Recording, and Color Correction, Negative Developing and Printing.
PRE-PRODUCTION AND PRINCIPAL PHOTOGRAPHY CONSULTING: Using a script provided by
the production company, Livewire provides a written outline for implementing the
effects, a time frame and a preliminary effects budget. The Company makes
recommendations on how best to realize each visual effect, taking into
consideration the complexity of the desired effect, the production schedule and
budget. Even projects that would not normally be considered a special effects
feature will make use of digital techniques to create sets, backgrounds,
lighting, crowds and similar imagery. Livewire creates a storyboard as a basis
for understanding which elements will be shot and by whom prior to principal
photography. The Company also provides visual effects supervisors to assist in
principal photography that will later be incorporated in a digital effect.
Livewire will also assemble a film crew to shoot elements that are necessary to
properly integrate a visual effect into a particular scene.
EFFECT DESIGN AND CREATION: In order to reduce costs and meet shorter release
schedules, studios are limiting the amount of time available for the effect
creation process from twelve to four months. This acceleration is often at
odds with the responsibility of the visual effects supervisor to evaluate
different alternatives before making a final selection. In order to minimize
costs, Livewire first designs effects in low (i.e., video) resolution. Once
the design is approved, the Company creates visual effects in high (i.e.,
film) resolution using powerful computers, provided by Quantel and
SGI-Registered Trademark-. Quantel products are used for high-speed digital
image creation, animation, compositing, retouching, rotoscoping, and motion
and color correction. SGI-Registered Trademark- computers use a variety of
software packages to create elaborate digital effects.
FILM SCANNING AND RECORDING: Scanning is the process of digitally formatting
principal photography so that images can be created or manipulated in a digital
workstation. Livewire digitally formats film on a film scanner and transfers the
digital information to a central file server where it can be accessed by any of
the Company's workstations. Once the effect is completed and approved by the
visual effects supervisor, a technician downloads the digital information to a
digital film recorder, which records the digital information on film. The
completed conversion can then be assembled with the film negative.
COLOR CORRECTION, NEGATIVE DEVELOPING AND PRINTING: Livewire's film laboratory
is utilized to process and print the visual effect segments for viewing in film
resolution. In preparing the final cut, it is often difficult to integrate the
effect seamlessly with the principal photography on a timely or cost efficient
basis. The Company's film laboratory offers a proprietary color correction
process designed to give the visual effects supervisor more control over the
integration of the digitally created images with the principal photography.
Livewire believes that the Company has the only visual effects operation
incorporating this film laboratory quality control feature.
CONTENT MANAGEMENT SEGMENT
The Library Services Division provides the formatting, archiving, storage and
maintenance of master copies of original film and videotape in state-of-the-art
facilities. These facilities offer a high level of security, as well as a
climate-controlled environment, in order to preserve the value and integrity of
original elements and working masters. In addition, this segment restores
damaged content, transfers / converts film to video (and vice versa), provides
audio layback and standards conversion, and professional duplication. Finally,
the segment facilitates the worldwide distribution of the content in formats
ranging from HDTV to streaming media.
Livewire's facilities for restoring and preserving damaged content, archiving,
and film laboratories are located in Burbank and London. The Company's primary
DVD mastering operations are in Santa Monica, Hollywood, Paris and London.
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DESCRIPTION OF SERVICES
STORAGE OF ORIGINAL ELEMENTS AND WORKING MASTERS: The storage and handling of
videotape and film elements requires specialized security and environmental
control procedures. Throughout the entertainment industry, it is believed that
content representing millions of dollars of future revenue is stored in
physically small units that are subject to the risk of loss resulting from
physical deterioration, natural disaster, unauthorized duplication or theft.
Livewire's archive is designed to store approximately 500,000 master videotapes
and film elements in an environment protected from temperature and humidity
variation, seismic disturbance, fire, theft and other external events. In
addition to the physical security of the archive, content owners require
frequent and regular access to their libraries. Speed and accuracy of access is
a critical value added factor. Livewire is the leading independent archive
provider and believes it is the most advanced with respect to security,
environmental control and access features.
RESTORATION OF DAMAGED CONTENT: Substantially all film elements originating
prior to 1983 have faded, degraded or have been damaged. Damaged film negative
must be restored because sub-masters produced from damaged film will generally
not meet the minimum quality standards required in domestic and foreign
broadcast markets. Livewire's technicians restore damaged film negative to
original and sometimes enhanced quality through the use of proprietary optical
and electronic equipment and techniques. Livewire is well recognized for the
ability to complete technically challenging restoration assignments.
PRESERVATION OF EXISTING FILM: In order to protect film assets from degradation,
older film is frequently converted to new archival film stock. Modern film stock
is the preferred archival medium because it has the highest image resolution of
any image storage medium and a shelf life that exceeds 100 years. Using a
proprietary process, Livewire takes the original or restored film negative and
creates a new negative. Due to technical and operational advances in the
Company's proprietary preservation process, Livewire is a leader in the
preservation of existing film content.
TRANSFERRING FILM TO VIDEO: Substantially all film content ultimately is
distributed to the home video, broadcast, cable or pay-per-view television
markets. This requires film images to be transferred to a video format. Each
frame must be color corrected and adapted to the size and aspect ratio of a
television screen in order to ensure the highest level of conformity to the
original film version. Because certain film formats require transfers with
special characteristics, it is not unusual for a motion picture to be mastered
in many different versions. Technological developments, such as the domestic
introduction of television sets with a 16 x 9 aspect ratio and the
implementation of advanced and high definition digital television systems for
terrestrial and satellite broadcasting, should contribute to the growth of the
Company's film transfer business.
CONVERTING VIDEOTAPE TO FILM: Production companies may choose to originate
their work on videotape even though the ultimate market is a theatrical
release on film. Livewire has developed a process called Transform-Registered
Trademark- which converts videotape to film. Transform-Registered Trademark-
uses advanced electronic systems to transform video pictures from all current
broadcast standards to 16mm or 35mm film. The Transform-Registered Trademark-
process is used for theatrical advertising commercials, studio promotions and
trailers, as well as theatrical length presentations including feature films,
concerts and special events.
AUDIO LAYBACK AND STANDARDS CONVERSION: Audio layback is the process of creating
duplicate videotape masters with sound tracks that are different from the
original recorded master sound track. Content owners selling their assets in
foreign markets require the replacement of dialog with voices speaking local
languages. In some cases, all of the audio elements, including dialog, sound
effects, music and laughs, must be recreated, remixed and synchronized with the
original videotape. Audio sources are premixed foreign language tracks or tracks
that contain music and effects only. The latter is used to make a final
videotape product that will be sent to a foreign country to permit addition of a
foreign dialogue track to the existing music and effects track. Livewire
attracts audio layback business by offering optimum sound quality and
synchronization of audio to picture. Standards conversion is the process of
changing the frame rate of a video signal from one video standard, such as the
United States standard (NTSC), to another, such as a European standard (PAL or
SECAM). Livewire uses advanced technologies to provide the highest quality
conversion services available.
PROFESSIONAL DUPLICATION: Professional duplication is the process of creating
sub-masters for distribution to professional end users. Master tapes are used to
make sub-masters in seven domestic and international broadcast
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standards as well as up to 22 different tape formats. In addition, videotape
content is copied for use in intermediate processes, such as editing, on-air
backup and screening, and for final delivery to cable and pay-per-view
programmers, broadcast networks, television stations, airlines, home video
duplicators and foreign distributors. Livewire's duplication facility is
technically advanced and has unique characteristics that significantly increase
equipment capacity utilization while reducing error rates and labor cost.
CONTENT DISTRIBUTION SERVICES SEGMENT
The Broadcast Services Division provides the facilities and services necessary
to assemble and distribute programming content for cable and broadcast networks
via freight, fiber, satellite and the Internet to viewers in North America,
Europe and Asia. These services principally include production, on-air
promotion, language translation, assembly, origination and distribution, fiber
transport, uplink and satellite transponder services, and video equipment
rentals.
Key services include providing production support and facilities for the timely
creation of original programming such as hosted and news segments and live
shows, providing language translation and subtitling, all the way to assembling
programming provided by the customer into a 24 hour "network" format. In
addition, the broadcast and syndication division provides facilities and
services for the delivery of syndicated television programming in the United
States and Canada and also transmits special events, sports or news segments for
insertion in third party networks. Under the Triumph name, the Company has
operations in New York that provide the majority of DirecTV's local station
backhaul service and numerous customers with MPEG2 compressed satellite channels
and fiber connectivity ranging from 1.5 Mbps (T1) to full 45 Mbps (DS3)
circuits.
Livewire has major satellite facilities in Singapore, Los Angeles, Burbank, New
York, New Jersey, Stamford, Connecticut, and London and major Internet hosting
facilities in New York and Redwood City, California, as well as
point-of-presence facilities in the top forty US markets.
DESCRIPTION OF SERVICES
PRODUCTION: Timely broadcast programming, such as live shows and news, requires
immediate and precise coordination of on-camera talent, the script, pre-recorded
videotape and graphics materials, and the broadcast schedule. Livewire operates
a state-of-the-art production studio in Stamford and Singapore with cameras,
production and audio control rooms, videotape playback and record,
multi-language prompter, computerized lighting, and dressing and makeup rooms.
The Company's Singapore facility also offers a small field crew and
live-to-satellite interview and teleconference services.
ON-AIR PROMOTION: On-screen marketing and broadcast continuity depend on on-air
promotional material to support the channel's brand identity and programming.
Livewire works with the client's writers and producers to offer a complete
on-air promotion service, including graphics, editing, voice-over record, sound
effects editing, sound mixing and music composition.
LANGUAGE TRANSLATION: Programming designed for distribution in markets other
than those for which it was originally produced is prepared for export through
language translation and either subtitling or voice dubbing. The Company
provides dubbed language versioning with an audio layback and conform service
that supports various audio and videotape formats to create original
international language-specific master videotape. Livewire's Burbank facility
also creates music and effects tracks from programming shot before an audience
to prepare television sitcoms for dialog record and international distribution.
The Company's Singapore facility supports translation, and a complete on-screen
and closed-caption subtitling facility.
ASSEMBLY: Livewire provides programming to most United States broadcast
television stations through daily satellite feeds and tape shipments. Prior to
broadcast, all material is quality control checked and may be pre-complied into
final broadcast form prior to on-air playback. Pre-compilation is performed in
Livewire's editing facilities, often using proprietary systems and software
which permit the efficient assembly of high production value visual effects. The
Company also prepares syndicated programming for distribution with commercials
and similar elements that it inserts prior to distribution. The Company uses
control procedures to ensure on-air reliability. Livewire maintains a variety of
movie and shows formatting and time compression services, which are used to
prepare programming for distribution. The Company performs commercial,
promotional, billboard, warning, logo and other integration, as well as closed
captioning for the hearing impaired and source identification encoding. The
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Company also provides to programmers the following: traffic support; affiliate
relations and station coordination; library storage of broadcast master tapes;
and a syndication program library and recycled videotape inventory.
ORIGINATION AND DISTRIBUTION: Livewire provides videotape playback and
origination to cable, pay-per-view and direct-to-home networks. The Company
accepts daily program schedules, programs, promos and advertising, and delivers
24 hours of seamless daily programming to cable affiliates and home satellite
subscribers. Livewire uses automated systems for broadcast playback, which
include systems and software. The Company also operates industry-standard
encryption and/or compression systems as needed for customer satellite
distribution. Livewire uses a customized approach to satisfy each customer's
timeliness, flexibility and reliability requirements. The Company also offers
quality control, tape storage and trafficking services. Currently, over fifty
24-hour channels are supported by the Company's facilities in Singapore, London,
Los Angeles, Burbank, New York, New Jersey and Stamford.
FIBER TRANSPORT, UPLINK AND SATELLITE TRANSPONDER SERVICES: Livewire operates
satellite earth station facilities in Singapore, Los Angeles, Burbank, New
York, New Jersey and Stamford. The Company's facilities are generally staffed
24 hours a day and may be used for both downlink and turnaround services.
From its Burbank operations, Livewire currently utilizes a transponder on the
Loral Skynet Telstar 4-Registered Trademark- satellite in support of the
Company's syndication and Canadian distribution businesses. In addition,
Livewire accesses various "satellite neighborhoods," including basic and
premium cable, broadcast syndication and direct-to-home markets. Livewire
resells transponder capacity for ad hoc and other occasional use and bundles
the Company's transponder capacity with other broadcast and syndication
services to provide a complete broadcast package at a fixed price. Teleports
are high-bandwidth communications gateways for satellite, optical fiber and
microwave transmission. Livewire's facilities offer an abundance of satellite
antennas capable of transmitting and receiving domestic feeds in both C-Band
and Ku-Band frequencies. Certain facilities also have international
transmission capabilities to both PanAmSat and Orion. Livewire, through
Waterfront operations, owns and operates two video switching facilities in
New York City with connectivity to and from Washington, D.C. These facilities
are connected via over 450 fiber lines to all major news organizations and
all New York area teleports, including Atlantic Satellite's. These facilities
also provide transportable services, including point-to-point microwave
transmission, transportable up-link and downlink transmission, and broadcast
quality teleconference services.
A.F. ASSOCIATES ("AFA") AND A.F. PRODUCTS: AFA, acquired by Livewire through the
VSC transaction, designs, builds, installs, and services advanced video systems
for the broadcast and cable television industries for professional and corporate
markets. Over 50% of AFA's business is repeat business from clients who seek
AFA's technical and engineering expertise. AFA also serves as the "in house"
engineering department for the distribution business, enabling that segment to
quickly respond to customer needs and new services
AFA's clients include the four major networks; numerous cable channels,
including Turner Entertainment, Cable News Network, Inc., CNBC, Fox News
Channel, Lifetime Television, USA Networks, Inc. and Home and Garden Cable
Network; satellite broadcasters, including DirecTV and SKY Latin America;
corporate television networks, including Merrill Lynch & Co., Inc., Pfizer, AT&T
and Toys R Us; and numerous production and post-production facilities. The
Company believes that increases in cable, direct satellite and independent
broadcasting made possible by emerging compression technologies, as well as the
migration of broadcasting standards from analog to digital, will provide
significant opportunities for AFA to expand the Company's customer base.
Projects recently completed by AFA include: new network operations facilities
for Turner Entertainment; a complete digital TV station for the PBS flagship,
WNET-13; and a major cable head end for Israel's largest cable operator, "Golden
Channels." Current projects include a new all-digital television station for
NBC-owned WTVJ-TV in Miami; a direct-to-home satellite broadcast center in
Argentina; and a major expansion of the Home and Garden cable network.
VIDEO RENTALS, INC. ("VRI"): VRI (acquired by Livewire in the VSC transaction)
rents broadcast and industrial video equipment to the broadcast and professional
video industries and provides support and maintenance for such services. VRI
specializes in network sports production. As the exclusive field shop for Fox
Sports, VRI is responsible for storing, shipping and maintaining equipment owned
by the network and used for their coverage of major sporting events, including
the National Football League and Major League Baseball. VRI also serves as a
rental agent for the rental of this equipment to third parties.
9
OTHER OPERATIONS
In addition to Divisions in the three major segments described above, Livewire
has two Divisions considered important to the Company's long-term growth
strategy.
INTERACTIVE DEVELOPMENT DIVISION
This Division serves as an incubator for Livewire's development of
interactive television. This includes the development of HyperTV-Registered
Trademark-, a joint venture with ACTV, that provides for the integration and
simulcast of television and Internet broadcasts. The product automatically
delivers compelling, interactive Web content, Web-based advertising, and
e-commerce opportunities synchronized to live or pre-recorded TV programming.
The initial target population is the estimated 44 million households in the
U.S. that have co-located personal computers and TV's, which is expected by
DataQuest to grow to 52 million households by the end of 2001.
The Company's work in interactive television is founded on what it believes are
three fundamental premises related to new media:
THE NATURE OF THE WORK:
The Internet side of interactive TV content (authoring, hosting and Internet
distribution) exactly parallels the post-production, library services and
distribution of the traditional picture and sound content services business.
THE NEEDS OF THE CREATIVE COMMUNITY:
The most artistically correct and cost-effective way to produce, archive and
distribute interactive television elements is for the material to be produced,
post-produced, archived and distributed at the same time and under the same
creative control as the traditional elements.
SOUND BUSINESS PRINCIPLES:
Livewire's clients will demand superior creative talent, cutting-edge technology
and world-class quality assurance, coupled with tight cost controls, complete
third party solutions and financial stability. This combination is best provided
by a provider, like Livewire, able to merge new-media assets with traditional
post-production services.
Building on Livewire's existing relationship with ACTV, Inc. and the
availability of internet connectivity via the AT&T IP backbone, Livewire is well
positioned to become a leading force in interactive TV as increased demand for
interactive television occurs. Similar to its core operations, Livewire will be
able to offer "cradle to grave" post-production, library and distribution
services and be able to respond to the needs of producers, programmers, studios
and networks, and advertising agencies in the interactive TV arena.
Livewire's joint venture with ACTV, "HyperTV-Registered Trademark- with
Livewire" ("HTVL") provides turnkey services for the synchronized delivery of
television and Internet content, including application hosting, web authoring
services, data management, e-commerce and other value-added services for
advertisers, television programmers, studios and networks. The venture
combines ACTV's patented convergence technologies with Livewire's worldwide
leadership position in providing creative, post-production, web hosting and
distribution services to the entertainment and advertising industries. HTVL
enables TV networks, programmers and advertisers to automatically deliver
compelling interactive Web content, Web-based advertising, e-commerce, and
community chat features that are synchronized to live or pre-recorded TV
programming. In other words, a viewer can watch video on their standard
television set while viewing synchronized web content on a co-located
computer.
For example, a user watching a rock concert on television can be "pushed" a web
stream on their computer in synch with the video, which is simultaneously
providing relevant content such as lyrics to the current song, bios of featured
band members, interactive trivia questions about the artist, an interactive link
to the band's fan club site, a recent article about the band from a music
magazine, or e-commerce applications such as opportunities to purchase related
merchandise like a CD, DVD or apparel. During a commercial break in the program,
an advertisement for a new car can be enhanced by simultaneously delivering
information from the car company's Web site or the site of a local dealership
where users receive more information that complements the video.
This approach supports analog or digital television from any source, cable, DBS,
over-the-air broadcast or DVD - literally any video that can be displayed on any
TV set. There is no need for the subscriber or network programmer to upgrade
existing infrastructure in order to enjoy the experience today. There is no
additional hardware, chip or
10
platform dependency. The approach operates on any of today's computers, with any
of the major operating systems. The user need only have their PC in reasonable
proximity to their TV set. On first use, the subscriber registers online and
downloads the ACTV software plug-in. Once installed, the subscriber logs on
through their normal ISP, goes to a web site offering the service, and enjoys
their new interactive television experience.
HTVL has been successful in attracting some of the industry's highest profile
companies interested in providing convergence programming. In 2000, The Box
Music Network, an MTV Networks company, began using HyperTV-Registered
Trademark- to power BOX FUSION (http://www.boxfusion.com), the first and only
fully programmed interactive, enhanced TV convergence service available
nationwide 24-hours-a-day. Showtime Online has also used HTVL to enhance
airings of Showtime Networks' original series, STARGATE SG-1. The TBS
Superstation also used HTVL on its Wednesday night lineup including WCW
THUNDER and RIPLEY'S BELIEVE IT OR NOT.
These services are currently in their embryonic stage and this division is
intended to be the incubator for the infrastructure for Livewire's development
of interactive television and HTVL. Subsequently, the activities will be tightly
integrated into the Content Preparation, Content Library Management and Content
Distribution Segments
EUROPEAN/U.K. DIVISION
The Company maintains a separate management structure for its European/United
Kingdom operations because of the size and scope of these activities. However,
the various operations in the U.K. are also grouped according to function and
client base and are tightly linked to the Company's major domestic operating
segments. For example, SVC, Rushes, and Soho 601 serve commercial television
clients almost exclusively, while the other facilities serve producers and
distributors of entertainment television programming.
INDUSTRY OVERVIEW
ENTERTAINMENT SERVICES INDUSTRY
The entertainment services industry has historically been highly fragmented,
with a variety of traditional services performed piecemeal by numerous small
companies, each specializing in a unique aspect of the process, as well as the
more vertically and horizontally integrated motion picture studios. The industry
principally serves the filmed entertainment industry (motion pictures,
television programming and commercials, and interactive multimedia content).
Services provided by the industry facilitate the distribution of that content
through theatrical exhibition, home video, pay and basic cable television,
Internet and other channels.
Livewire's businesses benefit from the volume of content being created and
distributed rather than the success or popularity of individual content. The
following trends in the entertainment industry are expected to continue to
contribute and have a positive impact on Livewire's businesses.
o Increased worldwide demand for original entertainment content o The
development of new business opportunities for existing content
libraries
o Proliferation of new distribution channels (I.E., cable and DBS and
Internet)
o Wider application of digital technologies to content manipulation and
distribution
o Increased outsourcing of technical and creative post-production services o
Increased demand for innovation and creative quality
The wider applications of digital technologies to content enhancement and
distribution have also increased the demand for technical and creative
post-production services for a given volume of content. Changes in broadcast
technology, such as digital programming, have led to the emergence of new format
standards. This is positive for the post-production industry because a program
may require several post-production services such as reediting, remixing sound
and dubbing for international distribution, and in multiple broadcast standards.
For instance, the development of the THX, DTS and SDDS sound standards have
added formats for which separate master elements are required.
Additionally, the vast libraries of the major U.S. film and television companies
are an ongoing source of programming. For use in a digital environment, these
libraries must be re-mastered, augmented, restored, re-colored, converted and
reformatted. In addition, the new digital environment has contributed to the
lack of
11
uniformity in worldwide television standards (PAL and NTSC), thus creating the
need for post production-generated masters in unique formats.
Globally, the demand for entertainment content and products, and thus the need
for the associated technical and creative services offered by Livewire, is
expanding significantly. At the same time, the pace of technological change is
accelerating. As a result, the industry is faced with the challenge of providing
uniform, high quality services in an increasingly complex mix of product
formats, broadcast standards, geographic locations, languages and cultures.
Film and television studios are finding that because post-production, library
management and distribution are not their primary focus, they are better served
by outsourcing these services. Livewire expects that it will continue to benefit
from the trend towards outsourcing, particularly as a result of its increasing
ability to provide customers with an end-to-end technology outsourcing solution.
In addition, Livewire believes that growth in entertainment content shifts even
higher to meet demand, thus driving the need for post-production services;
Livewire is well positioned to experience internal growth across all of the
Company's divisions. Furthermore, Livewire's business expects to continue to
benefit from the trend towards outsourcing, particularly as the Company examines
further acquisition opportunities that reinforce the Company's ability to
provide customers with a beginning-to-end technology outsourcing solution.
MOTION PICTURE PRODUCTION AND DISTRIBUTION INDUSTRY
The domestic motion picture industry encompasses the production, distribution
and exhibition of feature-length motion pictures, including their distribution
in home video, broadcast and cable television and other ancillary businesses.
While the domestic motion picture industry continues to be dominated by the
major studios (Paramount Pictures, Sony Pictures Corporation, Twentieth Century
Fox, Universal Pictures, The Walt Disney Company, and Warner Bros.), independent
production companies also play an important role in the production of motion
pictures for domestic and international feature film markets
TELEVISION PRODUCTION AND DISTRIBUTION INDUSTRY
The North American television production and distribution industry serves the
largest broadcast customer base in the world, with a population of approximately
285 million and more than 102 million television households. In North America,
programming is delivered to television households via conventional broadcast
networks, cable channels, individual television stations and satellite delivery
systems. Broadcast television networks in the United States penetrate over 98.2%
of domestic households and provide access to a broad-based mass audience for
television advertisers. Spending for television advertising drives the
production of new programming and the sale of existing archival content
libraries. While the networks have seen an erosion of their penetration and
reduced advertising revenues, the basic cable networks have increased
penetration, programming and advertising revenues.
The significant increase in international demand for entertainment content has
further driven the need for new and re-purposed content. Over the last decade,
the privatization of broadcasting systems outside the United States, the
proliferation of broadcast licenses, and the introduction of sophisticated
delivery technologies, such as cable and satellite transmission systems, have
led to the explosive growth of broadcasting and cable television markets outside
North America.
European television is the most visible example of the growth in programming
outlets. Germany and France have each added six broadcast networks and the
United Kingdom has added four. The introduction of new television broadcast
systems is just beginning in Asia and Eastern Europe. Most foreign broadcasters
require both local programming to satisfy the local content requirements and
popular international programming, largely produced in the U.S. In fact, recent
growth in international revenue for filmed entertainment produced in the U.S.
has far exceeded growth in North American revenues, with international revenues
now accounting for nearly 50% of total revenue.
12
BROADBAND PRODUCTION AND DISTRIBUTION INDUSTRY
The interactive multimedia industry encompasses video games, "edutainment" and
on-line interactive services, as well as rudimentary interactive offerings over
digital cable systems (usually on a test basis in the U.S.), where operators
have upgraded plants for two-way communications and deployed advanced set-top
boxes. Technological improvements increased availability and less costly
communication bandwidth (including internet, cable modems, and direct satellite
access), the proliferation of channels for the distribution of entertainment
products and services, and the involvement of large entertainment companies,
will provide critical mass to support the growth of broadband distribution of
entertainment content. The Company expects online advertising spending to
reflect anticipated increases in online penetration of worldwide households and
advances in online commerce.
The content currently being created for online access integrates various forms
of media including live action video, animation, graphics and audio. The Company
anticipates that there will ultimately be increased demand for content
specifically formulated for interactive applications both for Internet and
television distribution. Rapid growth of the broadband production and
distribution industry will positively impact the Company, specifically in the
areas of video compression, digitization, 2D and 3D graphics, and authoring,
particularly for server-based content on-demand services.
CUSTOMERS
On a consolidated basis, the ten largest customers accounted for approximately
25% of Livewire's total revenue. No single customer is responsible for more than
4% of the Company's total revenue.
Livewire's customer base for the content preparation segment is composed of the
major domestic film studios and broadcast networks that are engaged in the
production of original programming, as well as a large number of independent
production companies servicing theatrical releases, home video, cable, pay
television, syndication, network, satellite, multimedia and advertising markets.
The ten largest customers in the content preparation segment are responsible for
approximately 23% of its total revenue. No single customer is responsible for
more than 5% of the combined revenue for the segment.
The content management segment's customer base includes the major domestic
studios (and their international divisions) as well as independent owners of
television and film libraries. The ten largest customers in the content
management segment are responsible for approximately 66% of its total revenue.
The Walt Disney Company and its affiliated companies represent approximately 21%
and MGM represents approximately 12% of the total revenue for the segment
The content distribution segment's customer base includes broadcast and cable
television networks, local television channels, broadcast syndicators, satellite
broadcasters and corporate television networks as well as production and
post-production facilities and mobile truck operators. The ten largest customers
in the content distribution segment are responsible for approximately 76% of its
total revenue. DirecTV, MTV, and TVN are responsible for approximately 22%, 19%,
and 18%, respectively, of the total revenue for the segment.
In Europe, the ten largest customers represent approximately 29% of the
division's total revenue. No single customer is responsible for more than 8% of
the total revenue.
COMPETITION
Although the entertainment services industry is highly fragmented, it is highly
competitive in each of Livewire's business segments. Much of the competition is
centered in Los Angeles, the largest and most competitive location, particularly
for domestic television and feature film production, as well as for content
libraries.
Some existing and potential service providers, particularly those who perform
services in-house (such as the major film studios), have substantially greater
financial, technical, creative, marketing and other resources than Livewire.
These companies likewise could devote substantially greater resources to the
development and marketing of new competitive services. Conversely, Livewire also
actively competes with certain industry participants who may be smaller but have
a unique operating niche or specialty business. Livewire expects that overall
competition will increase as a result of industry consolidations and alliances,
as well as the emergence of new competitors.
13
However, the Company believes that it is unique among independent providers in
terms of the breadth of operating divisions and the depth of service offerings
within each business segment. Livewire's recognized and well-respected brand
names, cost efficiencies and economies of scale, and its ability to offer an
end-to-end technology outsourcing solution in each of its principal business
segments will allow the Company's service offerings to be competitive with both
in-house operations and with independent specialty service providers.
REGULATION
The Livewire companies hold FCC licenses, authorizations and registrations
required for the conduct of their business(es), including various classes of
wireless licenses and an authorization to provide certain services pursuant to
Section 214 of the Communications Act. Most of the FCC licenses held by the
Livewire companies are for transmit/receive earth stations, which cannot be
operated without individual licenses. The licenses for these stations are
granted for a period of ten years and generally are renewed routinely. However,
there can be no assurance that the Company's licenses will be renewed at their
expiration dates. No FCC license is required for receiving transmissions from
domestic satellites from points within the United States. Livewire relies on
third party licenses or authorizations when the Company transmits domestic
satellite traffic through earth stations operated by third parties.
The FCC also establishes technical standards for satellite transmission
equipment that change from time to time and requires coordination of earth
stations with land-based microwave systems at certain frequencies to assure
non-interference. Transmission equipment must also be installed and operated in
a manner that avoids exposing humans to harmful levels of radio-frequency
radiation. The placement of earth stations or other antennae is typically
subject to regulation under local zoning ordinances.
EMPLOYEES
Livewire employs approximately 3,500 employees, some on a project-by-project
basis. We have employment agreements with approximately 200 of our key
management, creative and technical personnel. Some of Livewire's creative and
technical personnel are subject to a collective bargaining agreement with the
International Association of Theatrical and Stage Employees. We have never
experienced a work stoppage and we consider our relations with our employees to
be satisfactory.
PRINCIPAL STOCKHOLDER
Approximately 85.5% of the Company's outstanding shares (representing over 98%
of the voting power) are owned by Liberty Media.
ITEM 2. PROPERTIES.
The Company's current operations are conducted in various owned, leased or
licensed premises in California, various locations on the East Coast of the
United States, London, U.K., the Republic of Singapore and Mexico. The Company's
facilities are adequate to support its current and currently anticipated
business.
The Company owns approximately 520,500 square feet ("sq. ft.") of building
and parking space and we lease approximately 1 million sq. ft. of building space
worldwide.
In California, the Company owns approximately 454,000 sq. ft. of building
and parking space. The facilities are located in Los Angeles, Santa Monica and
Burbank and are used primarily for post-production services. Approximately
26,000 sq. ft. is used for parking space. We utilize approximately 558,000 sq.
ft. under lease and license agreements with terms expiring between June 2001 and
December 2010. Some of the leases have extension clauses. The leased properties
are used for post-production facilities, storage, and office space and are
located throughout the state.
On the East Cost of the U.S., the Company owns and occupies approximately
35,000 sq. ft. of building space in New York and New Jersey. The facilities are
used in its operations and for administrative offices. We lease approximately
303,400 sq. ft. in nine facilities, located in New York, New Jersey, Georgia and
Florida, under agreements terminating between December 2001 and December 2010.
Some of the leases have extension clauses.
14
Internationally, we own approximately 31,500 sq. ft. of building space in
London, U.K. that is used for post-production services and offices. We lease
approximately 155,000 sq. ft. in more than 20 locations in London under
agreements terminating between December 2001 and March 2017. One of the London
leases has a termination date of February 2063. Approximately half of the London
leases have extension clauses. The Company leases approximately 21,000 sq. ft.
in the Republic of Singapore for its broadcast and syndication operations. The
Singapore lease expires in September 2002 and has an extension clause. In
Mexico, we lease about 500 sq. ft. in Juarez for our operations. The lease
expires June 2002 and has an extension clause.
The Company also owns two undeveloped parcels of land in Killeen, Texas and
one undeveloped parcel of land in Northvale, New Jersey.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in litigation and similar claims incidental to the
conduct of its business. None of the pending actions is likely to have a
material adverse impact on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.
On June 9, 2000, in connection with the merger of the Company (then known
as "The Todd-AO Corporation") and B-Group Merger Corp. (the "Todd Merger"), the
Company amended and restated in its entirety its Certificate of Incorporation.
Under the prior Certificate of Incorporation, the Company was authorized to
issue 30,000,000 shares of Class A Common Stock ("Old Class A Stock") and
6,000,000 shares of Class B Common Stock ("Old Class B Stock"). Under the
Restated Certificate of Incorporation, the authorized common stock consists of
300,000,000 shares of Class A Common Stock and 100,000,000 shares Class B Common
Stock, as described below. The Restated Certificate of Incorporation also
authorizes up to 5,000,000 shares of preferred stock, issuable in such series as
the Board of Directors from time to time may designate. No shares of preferred
stock are issued and outstanding as of the date of this report and no such
series of preferred stock has been designated. There were approximately 238
record holders of Class A Common Stock, and one record holder of Class B Common
Stock, as of March 28, 2001. The number of holders of Class A Common Stock does
not include an indeterminate number of shareholders whose shares are held by
brokers in "street name."
OLD CLASS A STOCK AND CLASS A COMMON STOCK
The Company's Old Class A Stock was traded on the Nasdaq National Market
System under the symbol "TODDA" until June 9, 2000. Since that date, Livewire's
Class A Common Stock is traded on the Nasdaq National Market System under the
symbol "LWIRA". The following table sets forth, for the periods indicated, the
high and low sales prices for the Old Class A Stock and the current Class A
Common Stock as reported on the Nasdaq National Market.
STOCK PRICE RANGES
OLD CLASS A STOCK: CLOSE
------------------
FISCAL YEAR HIGH LOW
1999 -------- -------
>
First Quarter............................................................................ 9 1/4 5 1/2
Second Quarter........................................................................... 9 5/8 7 5/8
Third Quarter............................................................................ 8 1/2 5 13/16
Fourth Quarter........................................................................... 14 3/4 8 9/16
CALENDAR YEAR
1999
Fourth Quarter........................................................................... 36 1/4 13 1/2
2000
First Quarter............................................................................ 41 11/16 28 3/8
Second Quarter........................................................................... 40 1/8 18 1/4
CURRENT CLASS A COMMON STOCK:
2000
Second Quarter........................................................................... 71 1/2 39
Third Quarter............................................................................ 74 11/16 28
Fourth Quarter........................................................................... 31 2/7 5 3/16
The holders of Old Class A Stock were entitled to cumulative cash dividends
at an annual rate of $.045 per share before any cash dividends could be declared
or paid on the Old Class B Stock. The Company paid cash dividends of $.045 per
Old Class A Stock share for the fiscal year 1999.
The Company's Board of Directors did not declare or pay a cash dividend on
any shares of the Company's stock in the fourth quarter of fiscal year 1999 or
for any quarter thereafter.
The Transfer Agent and Registrar for the Class A Common Stock is
Continental Stock Transfer and Trust Company, 2 Broadway, New York, NY 10004.
16
OLD CLASS B STOCK AND CLASS B COMMON STOCK
A holder of shares of Class B Common Stock has special voting rights (ten
votes per share, as compared to one vote per share for holders of the Class A
Common Stock). In all other respects, the Class A Common Stock and Class B
Common Stock are substantially identical and have equal rights and privileges,
except that shares of Class B Common Stock are convertible into shares of Class
A Common Stock, on a one-to-one basis, at the option of the holder at any time.
Holders of Old Class B Stock were entitled to cash dividends equal to 90%
of the cash dividends paid on the Old Class A Stock. Dividends in the amount of
$.0405 per share of Old Class B Stock were paid for fiscal year 1999.
The Company's Board of Directors did not declare or pay a cash dividend on
any shares of the Company's stock in the fourth quarter of fiscal year 1999 or
for any quarter thereafter.
The Company acted as Transfer Agent for the Old Class B Stock.
As of December 31, 2000, 31,612,716 Class B Common Stock shares were
outstanding and owned by one shareholder, Liberty Media. The Transfer Agent and
Registrar for the Class B Common Stock is Continental Stock Transfer and Trust
Company, 2 Broadway, New York, NY 10004.
UNREGISTERED ISSUANCES OF SECURITIES
Liberty Media owns 31,612,716 shares of the Class B Common Stock, par
value $.01 per share, of the Company and subordinated convertible notes in
the aggregate principal amount of $174.5 million at March 30, 2001. Pursuant
to the amended and restated certificate of incorporation of the Company, the
Class B shares are convertible into shares of Class A Common Stock, par value
$.01 per share, at any time at the option of the holder, at a conversion
ratio of 1-to-1, as the same may be adjusted from time to time as the result
of any stock split, reverse stock split or similar event effecting the Class
A Common Stock. The notes are convertible into shares of Class B Common
Stock, at any time at the option of the holder, at a conversion price of
$10.00 per share. If not earlier converted, the notes will become due and
payable in full on June 30, 2008. Interest accrues on the notes at a rate of
10% per annum, payable quarterly either in cash, shares of Class B Common
Stock of Livewire, or a combination thereof, subject to certain limits. To
the extent interest is paid in shares of Class B Common Stock of Livewire,
such shares will be valued at 95% of the ten day trailing average closing
price per share of the Class A Common Stock of Livewire on the interest
payment date.
Liberty Media acquired these securities through the Todd Merger, including
an Amended and Restated Stock Option Fulfillment Agreement entered into in
connection therewith, and Livewire's acquisitions of 4MC, the post-production
and related businesses of SounDelux, VSC, and GWNS, each of which transactions
are described elsewhere in this report. The issuances of such securities were
not registered under the Securities Act of 1933, as amended, in reliance upon
the exemption from registration afforded by section 4(2) of that Act.
The following describes the terms of the transactions in which the above
securities were issued:
In the Todd Merger, on June 9, 2000, AT&T Corp. issued 5,501,256 shares
of Class A Liberty Media Group Common Stock, par value $1.00 per share
(taking into account a 2-for-1 stock split effected on the Liberty Media
Group tracking stock on June 9, 2000), to acquire 6,519,907 shares of
Livewire's Class B Common Stock. AT&T then contributed such shares of
Livewire Class B Common Stock to Liberty Media Corporation.
Also on June 9, 2000, Liberty Media acquired an additional 16,614,952
shares of Livewire Class B Common Stock in exchange for the contribution by
Liberty Media to Livewire of 100% of the outstanding common stock of 4MC.
On July 19, 2000, Liberty SEG Acquisition Sub, LLC, a limited liability
company of which Liberty was the sole member, acquired the post-production,
content and sound editorial businesses of SounDelux, for $90 million in cash.
Immediately following this closing, Liberty contributed 100% of its ownership
interests in that limited liability company to Livewire in exchange for
8,181,818 shares of Livewire Class B Common Stock.
17
On January 26, 2001, Livewire executed and delivered to Liberty Media a
convertible promissory note, dated December 22, 2000, in the aggregate original
principal amount of $92.5 million. This note was issued in connection with the
acquisition by Livewire of 100% of the capital stock of VSC from Liberty Media,
pursuant to the Liberty Subordinated Credit Agreement and the Contribution
Agreement between Liberty Media and Livewire dated as of December 22, 2000.
On February 1, 2001, Livewire executed and delivered to Liberty Media
Corporation a second convertible promissory note under the Liberty Subordinated
Credit Agreement, in the aggregate original principal amount of $82 million. The
proceeds of such note were used by Livewire as partial payment of the purchase
price for Livewire's acquisition of GWNS from Viacom.
In February 2001, Liberty Media and Livewire entered into an Amended and
Restated Stock Option Fulfillment Agreement dated as of June 10, 2000. Pursuant
to that agreement, Livewire has issued an aggregate of 296,039 shares of Class B
Common Stock to Liberty Media, in consideration of $5.1 million in cash paid by
Liberty Media to Livewire to help fund Livewire's purchase, on the open market,
of shares of Liberty Media Group tracking stock required by Livewire to fulfill
its obligations under certain stock options of Livewire, which became
exercisable in part for shares of Liberty Media Group tracking stock in
connection with the Todd Merger.
In addition to the securities issued to Liberty Media described above, in
July 2000, the Company issued 705,554 shares of Livewire Class A Common Stock to
Paul J. Dujardin, as partial consideration for the acquisition of Triumph. These
shares were issued without registration under the Securities Act in reliance
upon the exemption afforded by section 4(2) of that Act.
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT AMOUNTS PER SHARE)
Seven Months | Five Months Four Months
Ended | Ended Ended
December 31,| May 31, December 31, Years Ended August 31
------------ | ------------ ------------- ----------------------------------------------
2000 | 2000 1999 1999 1998 1997 1996
----------- | ------------ ------------ ---------- ---------- ---------- ----------
|
Revenues $ 253,099 | $ 53,243 $ 43,261 $ 118,517 $ 102,614 $ 78,971 $ 62,920
- --------------------------------=========== | ============ ============ ========== ========== ========== ==========
|
Net income (Loss) $ (9,793) | $ (1,675) $ 449 $ 1,313 $ 3,419 $ 6,005 $ 4,844
=========== | ============ ============ ========== ========== ========== ==========
|
Income (loss) per Common Share- |
Basic (1) $ (.28) | $ (.16) $ .05 $ .14 $ .34 $ .63 $ .59
=========== | ============ ============ ========== ========== ========== ==========
|
Income (loss) per Common Share- |
Diluted (2) $ (.28) | $ (.16) $ .04 $ .13 $ .30 $ .59 $ .55
=========== | ============ ============ ========== ========== ========== ==========
|
Total Assets $1,175,845 | $ 159,448 $ 162,004 $ 153,180 $ 135,366 $ 103,451 $ 64,186
=========== | ============ ============ ========== ========== ========== ==========
|
|
Total Long-Term DebtObligations $ 492,573 | $ 61,210 $ 65,866 $ 65,520 $ 44,654 $ 25,430 $ 9,354
=========== | ============ ============ ========== ========== ========== ==========
Cash Dividends: |
Class A Shares $ 0 | $ 0 $ 0 $ .045 $ .06 $ .06 $ .06
=========== | ============ ============ ========== ========== ========== ==========
|
Class B Shares $ 0 | $ 0 $ 0 $ .0405 $ .054 $ .054 $ .054
=========== | ============ ============ ========== ========== ========== ==========
Weighted average share |
outstanding: |
Basic 34,463,373 | 10,768,773 9,927,077 9,570,187 9,987,429 9,539,312 8,191,065
=========== | ============ ============ ========== =========== ========== ==========
Diluted 34,463,373 | 10,768,773 10,656,340 9,832,614 11,218,051 10,207,503 8,845,321
=========== | ============ ============ ========== =========== ========== ==========
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
The following discussion and analysis provides information concerning our
results of operations and financial condition and should be read in conjunction
with the accompanying consolidated financial statements and notes. The following
discussion focuses on material trends, risks and uncertainties affecting our
results of operations and financial condition.
OVERVIEW OF BUSINESS
The Company believes that it is the world's leading independent provider of
technical and creative services to the entertainment industry. We provide audio
and video post-production, transmission, library services, Internet hosting, and
audio/video distribution services via satellite and fiber for the major
television producers, motion picture studios, cable and broadcast networks,
advertising agencies, and other entertainment content companies. We also provide
interactive television services. Our services integrate and apply a variety of
systems and processes to enhance the creation and distribution of entertainment
content.
Livewire is the result of the combination of certain key companies with
long standing track records and respected brand names offering "cradle-to-grave"
services. Key companies acquired include Todd-AO, 4MC, the sound,
post-production and certain related businesses of SounDelux, VSC, Group W
Network Services (in 2001) and other smaller niche players. Livewire is under
the direction of a management team with extensive experience in running
worldwide operations in both traditional and new media Content Preparation
(post-production sound and visual effects), Content Management (film, tape, and
digital libraries), as well as Content Distribution (freight, fiber, satellite,
and Internet) services.
EBITDA
We believe that EBITDA is an important measure of our financial
performance. "EBITDA" is defined as earnings before interest, taxes,
depreciation and amortization, excluding gains and losses on asset sales and
nonrecurring charges. Our investments in new infrastructure, machine capacity,
technology and goodwill arising from our significant acquisition activity have
produced a relatively high depreciation and amortization expense and will remain
a significant non-cash charge to earnings. EBITDA is calculated before
depreciation and amortization charges and, in businesses with significant
non-cash expenses, is widely used as a measure of cash flow available to pay
interest and repay debt, and, to the extent available after debt service and
other required uses, to make acquisitions or invest in capital equipment and new
technologies. As a result, we intend to report EBITDA as a measure of financial
performance. EBITDA does not represent cash generated from operating activities
in accordance with generally accepted accounting principles ("GAAP") and should
not be considered in isolation or as a substitute for other measures of
performance prepared in accordance with GAAP. EBITDA does not reflect that
portion of our capital expenditures that may be required to maintain our market
share, revenues and leadership position in our industry. Moreover, not all
EBITDA will be available to pay interest or repay debt. Our presentation of
EBITDA may not be comparable to similarly titled measures reported by other
companies.
RESULTS OF OPERATIONS
In the following analysis and discussion, Livewire's operations are
compared with reference to the segments as described in note 10 to the
accompanying financial statements as well as to the combination of key companies
acquired through merger and acquisitions.
The operations of Livewire prior to the acquisition and merger in June 2000
are referred to as the operations of Todd-AO (the former name of Livewire prior
to the acquisition) for the purpose of these analysis and discussion and include
only a portion of the Sound Division and a very small proportion of the
Entertainment and Commercial Television Divisions of our Content Preparation
operating segment and a small portion of our Content Management segment. In
addition, Todd-AO operations include a portion of the European operating segment
19
The year ended December 31, 2000 represents the operations of Todd-AO prior
to the acquisition and merger for the five months ended May 31, 2000 and the
combined operations of Livewire for the seven months ended December 31, 2000.
Periods prior to calendar year 2000 represent only the operations of Todd-AO.
For the purpose of the following discussion, the operating results of
Livewire for the seven months ended December 31, 2000 have been combined with
the operating results of Todd-AO for the five months ended May 31, 2000, and the
resulting annual operating results are compared to the operating results of
Todd-AO for the years ended August 31, 1999 and 1998. The operating results are
not comparable between the annual periods as the five months ended May 31, 2000
and the years ended August 31, 1999 and 1998 do not include the effects of
purchase accounting adjustments related to the Todd Merger, and the subsequent
period representing the seven months ended December 31, 2000 does include the
effects of the purchase accounting adjustments related to the Todd Merger.
The following sets forth, for the periods indicated, certain information
relating to the Company's operations expressed as a percentage of the Company's
revenues:
SEVEN MONTHS FIVE MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, MAY 31, AUGUST 31, AUGUST 31,
----------- ---------- ---------- ----------
2000 2000 1999 1998
----------- ---------- ---------- ----------
Revenues................................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating costs and other expenses....................... 86.5 85.9 83.0 81.2
SARs compensation (income) (11.7) --
Depreciation and amortization............................ 20.4 13.0 10.8 10.4
Restructuring and other charges......................... -- -- 0.7 2.7
Interest................................................. 7.6 3.1 3.1 1.8
Other (income) expense, net.............................. (0.3) 2.0 0.3 (0.6)
Total costs and expenses.............................. 102.5 104.0 97.9 95.5
----------- ---------- ---------- ----------
Income (loss) before provision for income taxes......... (2.5) (4.0) 2.1 4.5
Provision for income tax................................ 1.4 (0.8) 0.7 1.2
----------- ---------- ---------- ----------
Net income (loss) before change in
accounting principle................................ (3.9) (3.1) 1.4 3.3
Change in accounting principle, net..................... -- -- (0.3)
----------- ---------- ---------- ----------
Net income (loss)....................................... (3.9)% (3.1)% 1.1% 3.3%
=========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1999.
Revenues increased $187.8 million or 158.5% from $118.5 million to $306.3
million. Increases in Content Preparation ($107.7 million), Content Management
($25.8 million), Content Distribution ($19.8 million) and Europe Operations
($34.5 million) were primarily the result of the acquisitions of 4MC ($150.1
million), SounDelux ($14.1 million), Triumph ($9.5 million), Soho ($7.9 million)
and Visiontext ($2.5 million), which totaled $184.1 million of the increase. In
addition, Sound One, acquired by Todd-AO in June 1999 was responsible for an
increase in revenue of approximately $5 million.
Operating costs and other expenses increased $136.7 million or 139% from
$98.4 million to $235.1 million. Increases in Content Preparation ($87.5
million), Content Management ($19.3 million), Content Distribution ($18.9
million), Europe Operations ($30.4 million) and a decrease in Other Corporate
costs ($17.2 million) were primarily the result of the acquisitions described
above. In connection with the acquisition of 4MC, Liberty Media stock
appreciation rights ("SARs") were recorded by the Company. Due to a net decline
in the underlying stock price of Liberty Media, a credit adjustment of $29.6
million is reflected in Other Corporate costs for the period.
As a result of the above, EBITDA, as defined by the Company, increased
$51.1 million or 253.7% from $20.1 million to $71.2 million for the newly
combined Livewire.
20
Depreciation and amortization increased $45.6 million or 355.8% primarily
due to the equipment, goodwill and other intangibles acquired with respect to
the acquisitions and to the increase in goodwill and other intangibles
(approximately $89.5 million) as a result of the purchase accounting adjustments
made in connection with the Todd Merger.
Interest expense increased $17.2 million or 474.3% primarily due to
financing for the acquisitions and indebtedness assumed and/or refinanced in the
acquisitions.
Other expense decreased $1 million primarily due to a loss on equipment
lease commitments ($788,000) recorded by the Company in August 1999.
As a result of the above, income before taxes and net change in accounting
principles decreased $10.7 million from $2.5 million income to a $8.2 million
net loss.
Provision for income tax increased $2.4 million from $880,000 to $3.2
million. The Company's effective income tax rate for the current year is
approximately 60.2% primarily due to permanent differences of approximately $5
million arising from disallowed tax deductions for goodwill.
Net income before net change in accounting principles decreased $13.1
million from $1.6 million income to a $11.5 million net loss.
In the fiscal year ended August 31, 1999 the Company elected early adoption
of Statements of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" and reported the cumulative effect of a change in accounting
principles, as described in Accounting Principles Board Opinion No. 20, in the
amount of $293,000, net of income tax benefit in the amount of $150,000.
As a result of the election described above, net income after net change in
accounting principles decreased $12.8 million from net income of $1.3 million to
a net loss of $11.5 million.
FISCAL YEAR ENDED AUGUST 31, 1999 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1998
Revenues increased $15.9 million or 15.5% from $102.6 million to $118.5
million primarily due to the acquisitions of TeleCine in May 1998 ($14.7
million) and Sound One in June 1999 ($2.2 million) and to the formation of
Todd-AO DVD ("TAO DVD") in May 1998 to provide DVD product services to the major
Hollywood studios and others ($3.8 million). These increases were offset by
lower utilization and activity in the Company's sound services divisions ($3.9
million) and the Company's other video services divisions ($1 million).
Operating costs and other expenses increased $13.9 million or 16.7% from
$83 million to $96.9 million. Cost increases are primarily related to the
TeleCine ($11.1 million) and Sound One ($1.9 million) acquisitions and to the
formation of TAO DVD ($1.6 million). Costs in connection with the Company's
other sound and video services divisions decreased as a result of the revenue
decreases described above.
For fiscal year 1999, restructuring and other charges pertain to one of the
Company's sale/leaseback agreements that matured December 1999. As of August 31,
1999 the lease commitment amount exceeded the estimated fair value of the
equipment, as determined by an independent valuation, by approximately $788,000.
The Company recorded a pre-tax loss on equipment lease commitments in this
amount. This amount is less than a pre-tax restructuring charge of $2.8 million
recorded by the Company in the previous year to recognize the impairment of
certain assets.
Depreciation and amortization increased $2.1 million or 20.1% primarily due
to the equipment and goodwill acquired with the TeleCine and Sound One
acquisitions and to current year capital expenditures.
Interest expense increased $1.8 million or 100.2% primarily due to the
TeleCine and Sound One acquisitions financing.
Net equipment lease expense increased $1.2 million primarily as a result of
the sale/leaseback to the Company's financial institution of certain equipment
in December 1998.
21
Net other expense increased $1 million primarily due to employment
severance costs ($612,000) and a provision for post retirement benefits in
connection with Todd-AO Filmatic.
The effective income tax rate increased from 26.5% to 35.7% primarily due
to the termination of a state income tax credit program.
As a result of the above, income before taxes and net change in accounting
principles decreased $2.2 million from $4.6 million to $2.5 million and net
income before net change in accounting principles decreased $1.8 million from
$3.4 million to $1.6 million.
The Company has elected early adoption of Statements of Position No. 98-5,
"Reporting on the Costs of Start-Up Activities" and is reporting the cumulative
effect of a change in accounting principles, as described in Accounting
Principles Board Opinion No. 20, in the amount of $293,000, net of income tax
benefit in the amount of $150,000.
As a result of the election described above, net income after net change in
accounting principles decreased $2.1 million from $3.4 million to $1.3 million.
MATERIAL CHANGES IN CASH FLOWS
For the year ended December 31, 2000, the Company generated $23.4 million
in cash from operating activities compared to $13.1 million in 1999. A net loss
of $11.5 million adjusted for depreciation and amortization of $58.5 million and
for a decrease in SARs compensation provisions of $29.6 million provided cash of
$17.4 million in 2000 compared to $11.7 million in 1999 without SARs
compensation provisions. Trade receivables and other current assets increased
$7.1 million in 2000 compared to a decrease of $1.7 million in 1999. Accounts
payable and accrued expenses decreased $0.6 million in 2000 and increased $2.5
million in 1999. Cash provided by operations was utilized primarily to fund
capital expenditures and trade receivables in 2000 and in 1999.
Borrowings under the Company's credit facilities and the Liberty Media
Agreement of $477.3 million supplemented by cash generated from the exercise of
stock options of $6.1 million, proceeds from the issuance of common stock of
$7.1 million and cash acquired in the 4MC contribution of $14.1 million were
used to refinance existing debt, to pay refinancing fees and costs, to fund the
acquisitions of Triumph, Soho, Visiontext and VSC and to reinvest in capital
assets of the Company in 2000. Net borrowings from the Company's credit facility
of $34.2 million supplemented by cash generated from the exercise of stock
options of $1.1 million and cash acquired through the sale/leaseback of certain
equipment in the amount of $8.8 million were used to pay down debt, to fund the
acquisition of Sound One and to reinvest in capital assets of the Company in
1999.
OTHER BUSINESS INFORMATION
The existing collective bargaining agreement governing contracts and
agreements with members of the Writers Guild of America is due to expire on
April 30, 2001. Additionally, the existing collective bargaining agreement
governing contracts and agreements with members of the Screen Actors Guild is
set to expire on June 30, 2001. In the event that either or both of these
collective bargaining agreements is allowed to expire and a strike or strikes
occur, dependent upon the length of any such strike(s), such strike(s) could
have a materially adverse effect on the operations, cash flows and financial
position of the Company during 2001.
LIQUIDITY AND CAPITAL RESOURCES
Under a new long-term credit agreement dated December 22, 2000 with several
banks and other financial institutions, including Banc of America Securities,
LLC, as agent and a lender, Livewire may borrow up to $415 million in term and
revolving loans, subject to compliance with certain financial covenants and
other borrowing conditions. Livewire may add new lenders to the agreement (with
the consent of the current lenders) increasing the available borrowings up to an
additional $135 million ("additional commitment") for a total commitment of $550
million.
The total commitment provided under the Company's bank credit agreement is
divided into three tranches: Term loan B, term loan A and a revolving credit
facility (the "Revolver"). Term loan B has a current commitment of $58.5 million
with an additional commitment of $41.5 million available. Term loan B matures on
June 30, 2007. Principal payments begin on June 30, 2001 and are due
semi-annually from that date. Each principal installment is 0.5% of the original
principal amount with the remaining 94% due on the maturity date. Term loan A
has a current commitment of $125 million with an additional commitment of $25
million available. Term loan B must be fully
22
extended to its current commitment before the term loan A funds are received.
Term loan A matures on December 22, 2006. Principal payments begin on September
30, 2002 and are due semi-annually from that date. Principal installments range
from 2.5% of the original principal amount in the first year of installments to
21.25% at the maturity date. The Revolver has a current commitment of $231.5
million with an additional commitment of $68.5 million available. Revolver loans
are available from December 28, 2000 through December 21, 2006. The termination
date for Revolver loans is December 22, 2006. Interest for all the loans is paid
quarterly in arrears and is based on the "Alternate Base Rate" or the
"Eurodollar Rate", whichever is applicable to the loan, plus margins based on
the leverage ratio as defined in the agreement for term A and the Revolver loans
and defined margins for term B loans. The Alternate Base Rate is a daily
fluctuating rate per annum equal to the higher of the Federal Funds Rate plus
0.5% and the Prime Rate. The Eurodollar Rate is the rate per annum equal to the
average British Bankers Association Interest Settlement Rate for deposits in the
relevant currency or an alternate base, as defined in the agreement, if that
rate is unavailable. The Revolver is also subject to a commitment fee of 0.375%
to 0.5% per annum subject to the leverage ratio and based on the unused portion
of the current commitment. The loans are collateralized by substantially all of
the operating assets of the Company. Material restrictions include: the Interest
Coverage Ratio may not be less than 2.5:1 through December 31, 2003 (increasing
thereafter); the Fixed Charge Coverage Ratio may not be less than 1:1 beginning
January 1, 2002 through December 31, 2003 (increasing thereafter); Other
Indebtedness may not exceed $75 million; the Leverage Ratio is not to exceed
4.25:1 through June 30, 2002 (decreasing thereafter); Consolidated Operating
Cash Flow may not be less than $32 million. The agreement permits debt under the
First Amended and Restated Credit Agreement with Liberty Media described below
up to $310 million.
The above credit facilities are available to refinance existing debt and
for general corporate purposes, capital expenditures and acquisitions.
Management believes that funds generated from operations, the borrowings
available under the credit facility and other debt instruments will be
sufficient to meet the needs of the Company at least through the end of 2001.
Liberty Media and Livewire are parties to a First Amended and Restated
Credit Agreement dated as of December 22, 2000 (the "Liberty Agreement"),
pursuant to which Liberty Media has agreed to make subordinated convertible
loans to Livewire up to $213.6 million and not less than $145 million subject to
additional commitments under the Bank Agreement described above (the "Senior
Credit Agreement") and to the completion of proposed transactions as defined in
the agreement. Notes issued under the Liberty Agreement are convertible at the
option of the holder, at any time prior to maturity, into shares of Class B
Common Stock of Livewire at a conversion price of $10 per share. If not earlier
converted, notes issued under the Credit Agreement will become due and payable
on June 30, 2008. Interest accrues on the notes at a rate of 10% per annum,
payable quarterly either in cash, shares of Class B Common Stock of Livewire or
a combination thereof, subject to certain limits. To the extent interest is paid
in shares of Class B Common Stock of Livewire, such shares will be valued at 95%
of the ten trailing day average closing price of shares of the Class A Common
Stock of Livewire on the interest payment date.
In December 2000, Livewire used $183.5 million under term loans A and B
(the total current commitment) plus $193.5 million of the Revolver commitment
for a total of $377 million to refinance existing debt, pay off interest accrued
on the existing debt, pay fees and costs incurred in the refinancing and to fund
$9.6 million of the VSC acquisition. Livewire used $92.5 million under the
Liberty Agreement to fund the VSC acquisition.
Through August 31, 1999 Todd-AO signed three agreements with its bank to
implement the sale/leaseback of certain equipment. An aggregate of $28,527 of
sound studio and video equipment was sold and leased back. The Company exercised
its option to purchase for $5,699 the equipment leased under the transaction
that matured in December 1999. The purchase was funded by borrowings under the
credit facilities. This borrowing was not included in the refinancing of
existing debt discussed above and is payable over two years maturing in December
2002 with interest based on LIBOR rates. The equipment for the remaining two
agreements were purchased and the agreements terminated as part of the
refinancing of existing debt for a total of $13 million.
Livewire expects to incur capital expenditures of approximately $91 million
for its facilities in the next twelve months. These capital expenditures will be
financed by internally generated funds and borrowings under credit facilities.
23
FORWARD LOOKING STATEMENTS
When used in this document, the words "believes", expects", anticipates",
"intends", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to a number of known and other risks and
uncertainties. Actual results in the future could differ materially from those
described in the forward-looking statements. Such risks and uncertainties
include, but are not limited to, industry-wide market factors such as the timing
of, and spending on, feature film and television programming production, foreign
and domestic television advertising, and foreign and domestic spending by
broadcasters, cable companies and syndicators on first run and existing content
libraries, and the possibility of an industry-wide strike or other job action by
or affecting the Writers Guild, Screen Actors Guild or other major entertainment
industry union. In addition, the failure of the company to maintain
relationships with key customers and certain key personnel, more rapid than
expected technological obsolescence, and failure to integrate acquired
operations in expected time frames could also cause actual results to differ
materially from those described in forward looking statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISKS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks.
Effective December 28, 2000 the Company entered into a one-year interest
rate swap agreement with Bank of America, N.A. for a notional amount of $365
million to hedge the impact of fluctuations in interest rates on its floating
rate credit facility. Under the agreement, the Company is obligated to pay 6.03%
in exchange for receiving three-month LIBOR on the notional amount. Settlements
are quarterly and the contract expires December 28, 2001.
FOREIGN CURRENCY RISK
We do not, at present, have a policy for managing foreign exchange rate
risk beyond the utilization of local currency borrowings to fund foreign
acquisitions whenever possible.
Substantially all of our foreign transactions are denominated in foreign
currencies, including the liabilities of our foreign subsidiaries. Although our
foreign transactions are not generally subject to significant foreign exchange
transactions gains or losses, the financial statements of our foreign
subsidiaries are translated into United States dollars as part of our
consolidated financial reporting. Fluctuations in the exchange rate therefore
will affect our consolidated balance sheets and income statements. Until the
current year, the British pound and the Singapore dollar have been stable
relative to the United States dollar. However, during the year ended December
31, 2000, the British pound lost approximately 7.7% and the Singapore dollar
lost approximately 4% of their value relative to the US dollar.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 in Part IV of this 10-K Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On July 13,2000, Livewire replaced Arthur Andersen LLP as its principal
accountants and terminated the relationship following the acquisition of the
Company by Liberty Media on June 9, 2000. The Company appointed Liberty Media's
independent auditor KPMG LLP as of July 13, 2000.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item regarding Section 16(a) Beneficial
Ownership Reporting Compliance is incorporated herein by reference to the
definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2001 Annual Meeting of Stockholders.
On December 31, 2000, the executive officers and directors of the Company are as
follows:
NAME AGE POSITION WITH COMPANY
William R. Fitzgerald (1) (2) 43 Chairman of the Board and Director
David P. Beddow (1) 57 Chief Executive Officer and Director
Robert T. Walston 42 President and Chief Operating Officer and Director
Jeffrey J. Marcketta 46 Executive Vice President and Chief Financial Officer
Marcus O. Evans 51 Executive Vice President, General Counsel and Secretary
Gavin W. Schutz 47 Executive Vice President and Chief Technology Officer
William E. Niles 37 Senior Vice President and Assistant Secretary
M. David Cottrell 44 Vice President and Controller
Silas Cross 61 Vice President, Treasurer and Assistant Secretary
Robert R. Bennett (1) 42 Director
Salah M. Hassanein 79 Director
Gary S. Howard (2) 49 Director
David P. Malm (2) (3) 36 Director
Sydney Pollack (2) (3) 66 Director
Larry E. Romrell 61 Director
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
WILLIAM R. FITZGERALD was elected a Director and appointed Chairman of the Board
in August 2000. He has served as Senior Vice President of Liberty Media Group
since August 2000. Mr. Fitzgerald served as Chief Operating Officer, Operations
Administration, of TCI, from August 1999 to May 2000 and Executive Vice
President and Chief Operating Officer of TCI from March 1999 to August 1999. Mr.
Fitzgerald served as Executive Vice President and Chief Operating Officer of TCI
Communications, Inc. ("TCIC"), the domestic cable subsidiary of TCI, from
November 1998 to March 1999, served as an Executive Vice President of TCIC from
December 1997 to March 1999 and served as a Senior Vice President of TCIC from
March 1996 to December 1997. Mr. Fitzgerald was a Senior Vice President and a
Partner in Daniels & Associates, a brokerage and investment banking company,
from 1988 to 1996.
DAVID P. BEDDOW was appointed Chief Executive Officer of the Company in June
2000. Mr. Beddow most recently served as Vice President of Technology at Liberty
Media Corporation. Mr. Beddow previously served as executive vice president of
AT&T Broadband, and was an executive vice president of TCI Communications, Inc.
and president and chief executive officer of TCI's National Digital Television
Center from August 1998 through April 2000. Prior to Liberty/AT&T, Mr. Beddow
held various positions at TCI, TCI Technology Ventures, Primestar, COMSAT and
Westinghouse Broadcasting and Cable. Mr. Beddow is a director of Universal
Electronics, Inc.
ROBERT T. WALSTON was appointed President & Chief Operating Officer of the
Company in June 2000. Mr. Walton was the founder of Four Media Company and has
served as the Chairman and Chief Executive Officer of the Company since 1993.
Prior to Four Media, Mr. Walston spent ten years as a banker, investment banker
and private equity investor, working on merger and acquisition assignments and
debt and equity offerings.
JEFFREY J. MARCKETTA was appointed Executive Vice President and Chief Financial
Officer of the Company in June 2000. Mr. Marcketta served as Four Media's
President and Chief Operating Officer and has had extensive
25
experience with the entertainment industry, having spent over 10 years on a
combined basis with Panavision Inc. in a variety of senior positions, including
Executive Vice President and Chief Financial Officer of Panavision Inc.
MARCUS O. EVANS was appointed Executive Vice President and General Counsel of
the Company in June 2000. Mr. Evans previously served as Senior Vice President
and General Counsel of direct broadcast satellite (DBS) service provider
Primestar, Inc./Primestar Partners from 1991 through 1999. Previously, Mr. Evans
held a variety of senior positions with Group W Broadcasting & Cable, Inc. or
its affiliates in the cable television, television and radio industries.
GAVIN W. SCHUTZ was appointed Executive Vice President and Chief Technology
Officer of the Company in June 2000. Mr. Schutz has been with Four Media since
1993, prior to which he spent 13 years as Vice President and Director of
Engineering of Image Transform, Inc., a company Four Media acquired in 1993. Mr.
Schutz has been the principal architect of the Company's successful deployment
of digital infrastructure.
WILLIAM E. NILES was appointed Senior Vice President and Assistant Secretary of
the Company in June 2000. Mr. Niles most recently served as General Counsel and
Vice President of Business Affairs for Four Media Company from February 1998 to
April 2000, and was General Counsel and Vice President of Business Affairs for
Visualize (dba POP), a leading provider of post production and visual effects
services, from 1997 to February 1998. From 1991 to 1997, Mr. Niles practiced law
as a partner at Stein & Kahan, A Law Corporation, specializing in corporate,
transactional, and real estate law. Previously, he was an associate in the Los
Angeles office of Baker & McKenzie.
M. DAVID COTTRELL was appointed Vice President and Controller of the Company in
June 2000. Mr. Cottrell most recently served as Vice President of Administration
of Todd-AO Corporation from 1998 to June 2000. Mr. Cottrell previously served as
Executive Vice President and Chief Financial Officer for Todd-AO/Hollywood
Digital from 1993 to 1998. Prior to 1993, Mr. Cottrell served as Vice President
of Finance for The Post Group, Inc.
SILAS CROSS was appointed a Vice President of the Company in 1988. In 1995, he
was appointed Treasurer and Assistant Secretary. Mr. Cross previously served as
Assistant Treasurer of United Artists Communication, Inc ("UACI"), and has
served the Company in various capacities since 1965.
ROBERT R. BENNETT was elected a Director in June 2000. Mr. Bennett has served as
President and Chief Executive Officer of Liberty Media since April 1997 and as a
director since September 1994. Mr. Bennett also served as acting Chief Financial
Officer of Liberty Digital, Inc. from June 1997 to July 1997. Mr. Bennett served
as Executive Vice President of TCI from April 1997 to March 1999. Mr. Bennett
served as Executive Vice President, Secretary and Treasurer of Liberty Media
from June 1995 through March 1997, Chief Financial Officer from May 1996 through
March 1997, and in various executive positions since their inception in 1990.
Mr. Bennett is a director of Gemstar-TV Guide International, Inc., Liberty
Satellite & Technology, Inc., USANi LLC and Telewest Communications plc and
serves as Chairman of the Board of Liberty Digital, Inc.
SALAH M. HASSANEIN was elected a Director in 1962. From 1994 to June 2000, Mr.
Hassanein served as President and Chief Executive Officer of Todd-AO
Corporation. Prior to 1994, he was the Todd-AO Corporation's Senior Executive
Vice President. Mr. Hassanein also served as President of Warner Bros.
International Theatres Co. from 1988 to June 30, 1994. Mr. Hassanein previously
served as Executive Vice President and director of UACI and President of United
Artists Eastern Theatres, Inc. Mr. Hassanein is a principal of SMH
Entertainment, Inc. and a director of Software Technologies Corporation and
Nuesoft Technologies, Inc.
GARY S. HOWARD was elected a Director in June 2000. Mr. Howard has served as
Executive Vice President, Chief Operating Officer and director of Liberty Media
since July 1998. Mr. Howard has also served as Chairman of the Board of Liberty
Satellite & Technology, Inc. since August 2000. Mr. Howard served as Chief
Executive Officer of Liberty Satellite & Technology, Inc. from December 1996 to
April 2000. Mr. Howard also served as Executive Vice President of TCI from
December 1997 to March 1999, as Chief Executive Officer, Chairman of the Board
and a director of TV Guide, Inc. (prior to its merger with Gemstar) from June
1997 to March 1999; and as President and Chief Executive Officer of TCI Ventures
Group, LLC from December 1997 to March 1999. Mr. Howard served as President of
TCIC from October 1994 to December 1996; and as Vice President of TCIC from
December 1991 through October 1994. Mr. Howard is a director of Liberty Digital,
Inc., Liberty Satellite & Technology, Inc., Teligent, Inc. and On Command
26
DAVID P. MALM was elected a Director in 1997. He is currently a partner of
Halpern, Denny & Company, a Boston based private equity investment firm, a
director of Tealuxe, Inc., E-Z Serve/Swifty Mart Convenience Stores, Ecce Panis,
Inc., H.C. Shaw Company, and Chairman of Brown Broadcasting Service, Inc. Prior
to forming Halpern, Denny & Company in 1991, Mr. Malm was affiliated with Bain
Capital, a private equity investment firm, and Bain & Company, a corporate
strategy consulting firm. He also previously worked in the Investment Banking
Group at Morgan Stanley & Company.
SYDNEY POLLACK was elected a director in 1998. A renowned director, Mr.
Pollack's 17 films have received 46 Academy Award(R) nominations, including four
for Best Picture. His film "Out of Africa" won seven Oscars including Best
Picture anD Best Director. In addition to winning the New York Film Critics'
Award for his 1982 film "Tootsie", Mr. Pollack won the Golden Globe for Best
Director twice, the National Society of Film Critics Award, and the NATO
Director of the Year Award. Mr. Pollack formed Mirage Enterprises in 1985, which
produces motion picture feature films. He is a founding member of The Sundance
Institute, The Chairman Emeritus of The American Cinematheque, and serves on the
Board of Directors of the Film Preservation Board and The Motion Picture and
Television Fund Foundation.
LARRY E. ROMRELL was elected a director in June 2000. He has also served as a
consultant to Liberty Media since March 1999. Mr. Romrell served as Executive
Vice President of TCI from January 1994 to March 1999 and since March 1999 has
served as a consultant to AT&T Broadband. Mr. Romrell also served, from December
1997 to March 1999, as Executive Vice President and Chief Executive Officer of
TCI Business Alliance and Technology Co., a subsidiary of TCI prior to the TCI
merger that oversaw and developed TCI's technology activities; from December
1997 to March 1999, as Senior Vice President of TCI Ventures Group, LLC; and,
from September 1994 to October 1997, as President of TCI Technology Ventures,
Inc., a subsidiary of TCI prior to the TCI merger that invested in and developed
companies engaged in advancing telecommunications technology. Mr. Romrell served
as Senior Vice President of TCIC from 1991 to October 1994. Mr. Romrell is a
director of Liberty Media, and General Communication, Inc.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference
to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for our 2001 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by reference
to the definitive Proxy Statement to be filed pursuant to Regulation 14A o