Attached files
Exhibit 99.4
TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
As of June 30, 2010 and December 31, 2009
and for Each of the Six Months in the Periods Ended
June 30, 2010 and June 30, 2009
TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2010 and December 31, 2009
(Amounts in thousands)
(Unaudited)
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 27,763 | 26,647 | |||||
Accounts receivable, less allowance for doubtful accounts of $2,904 and $2,871 as of June 30, 2010 and |
||||||||
December 31, 2009, respectively |
44,379 | 60,539 | ||||||
Prepaid expense and other current assets |
17,084 | 14,861 | ||||||
Deferred taxes |
4,536 | 2,359 | ||||||
Total current assets |
93,762 | 104,406 | ||||||
Property and equipment, net |
27,308 | 26,609 | ||||||
Goodwill |
64,480 | 64,479 | ||||||
Intangibles, net |
737 | 1,458 | ||||||
Other assets |
12,057 | 9,870 | ||||||
Total assets |
$ | 198,344 | 206,822 | |||||
Liabilities and Members Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 2,297 | 2,556 | |||||
Accrued liabilities |
32,863 | 37,647 | ||||||
Due to members |
12,225 | 11,342 | ||||||
Deferred revenue |
4,961 | 8,672 | ||||||
Total current liabilities |
52,346 | 60,217 | ||||||
Deferred taxes |
13,320 | 11,613 | ||||||
Other noncurrent liabilities |
2,441 | 4,059 | ||||||
Total liabilities |
68,107 | 75,889 | ||||||
Commitments and contingencies |
||||||||
Members equity |
130,237 | 130,933 | ||||||
Total liabilities and members equity |
$ | 198,344 | 206,822 | |||||
See accompanying notes to condensed consolidated financial statements.
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TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Six months ended June 30, 2010 and 2009
(Amounts in thousands)
(Unaudited)
2010 | 2009 | |||||||
Revenue |
$ | 79,106 | 63,094 | |||||
Operating expenses: |
||||||||
Cost of revenue |
51,092 | 45,030 | ||||||
Selling and marketing costs |
13,641 | 14,061 | ||||||
Administrative costs |
9,213 | 8,595 | ||||||
Depreciation and amortization |
6,335 | 6,394 | ||||||
Operating loss |
(1,175 | ) | (10,986 | ) | ||||
Interest income, net |
27 | 97 | ||||||
Other income, net |
86 | 256 | ||||||
Loss before provision for income taxes |
(1,062 | ) | (10,633 | ) | ||||
Income tax benefit |
364 | 4,797 | ||||||
Net loss |
$ | (698 | ) | (5,836 | ) | |||
See accompanying notes to condensed consolidated financial statements.
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TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2010 and 2009
(Amounts in thousands)
(Unaudited)
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (698 | ) | (5,836 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
6,335 | 6,394 | ||||||
Gains on disposals of property and equipment |
| (6 | ) | |||||
Provision for bad debt, net of write-offs |
33 | 112 | ||||||
Deferred income tax |
(470 | ) | (4,895 | ) | ||||
Asset retirement obligation accretion cost |
69 | 65 | ||||||
Changes in operating assets and liabilities, net of acquisitions: |
||||||||
Accounts receivable |
16,128 | 26,847 | ||||||
Prepaid expense and other current assets |
(4,412 | ) | (4,263 | ) | ||||
Accounts payable and accrued expenses |
(5,127 | ) | (3,522 | ) | ||||
Due to Members |
304 | (6,096 | ) | |||||
Deferred revenue |
(3,711 | ) | (1,593 | ) | ||||
Other noncurrent assets and liabilities |
(1,618 | ) | (3,032 | ) | ||||
Net cash provided by operating activities |
6,833 | 4,175 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(5,717 | ) | (5,127 | ) | ||||
Proceeds from sales of property and equipment |
| 228 | ||||||
Net cash used in investing activities |
(5,717 | ) | (4,899 | ) | ||||
Increase (decrease) in cash and cash equivalents |
1,116 | (724 | ) | |||||
Cash and cash equivalents at beginning of period |
26,647 | 27,401 | ||||||
Cash and cash equivalents at June 30 |
$ | 27,763 | 26,677 | |||||
Supplemental cash flow information: |
||||||||
Cash paid for income taxes |
$ | 2,951 | 1,459 |
See accompanying notes to condensed consolidated financial statements.
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TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands except shares)
(Unaudited)
(1) | Organization and Basis of Presentation |
Technicolor Cinema Advertising, LLC and subsidiaries (TCA or the Company), which do business as Screenvision, provide advertising services to certain third-party theatre circuits in the United States through agreements expiring at various dates through January 2021 (with extension options through January 2026). The Company operates in one business segment.
TCA was formed on July 28, 2001 as a joint venture between Carlton Communications plc (Carlton) and two wholly owned subsidiaries of Thomson SA (Thomson) (Thomson and Carlton collectively referred to as the Members). Carlton, now known as Carlton Communications Limited, was subsequently acquired by ITV plc (ITV) in February 2004.
TCA has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. This information reflects all adjustments which in the opinion of management are necessary for a fair presentation of the statement of financial position as of June 30, 2010, and the results of operations for the six month periods ended June 30, 2010 and 2009 and cash flows for the six month periods ended June 30, 2010 and 2009. The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2010. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted. The Company believes that the disclosures are adequate to make the information presented not misleading.
These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys audited financial statements for the fiscal year ended December 31, 2009. That report includes a summary of the Companys critical accounting policies. There have been no material changes in the Companys accounting policies during the first six months of 2010.
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TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands except shares)
(Unaudited)
(2) | Property and Equipment |
Property and equipment, which includes assets under capital leases, as of June 30, 2010 and December 31, 2009 was comprised as follows:
2010 | 2009 | |||||||
Theatre equipment |
$ | 55,601 | 50,339 | |||||
Furniture and equipment |
7,624 | 7,391 | ||||||
Computer hardware and software |
3,375 | 2,679 | ||||||
Leasehold improvement |
2,761 | 2,754 | ||||||
69,361 | 63,163 | |||||||
Accumulated depreciation |
(42,053 | ) | (36,554 | ) | ||||
$ | 27,308 | 26,609 | ||||||
The total depreciation expense for the six months ended June 30, 2010 and 2009 was $5,614 and $5,652, respectively. Gains on disposal of property and equipment were $0 and $43 for the six months ended June 30, 2010 and 2009, respectively.
In certain of its theatre circuit agreements, the Company has an asset retirement obligation whereby it must deinstall and remove theatre equipment at the end of the term. Amounts accrued at contract inception, which represent the present value of the related obligation, result in a corresponding increase to property and equipment which are depreciated over the useful life as a component of the related property and equipment. The asset retirement obligation was $3,173 and $2,931 as of June 30, 2010 and December 31, 2009, respectively.
(3) | Goodwill and Intangible Assets |
Intangible assets as of June 30, 2010 and December 31, 2009 were comprised as follows:
2010 | ||||||||||||
Gross carrying amount |
Amortization period |
Accumulated amortization |
||||||||||
Amortizing intangible assets: |
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Theatre circuit agreements |
$ | 8,453 | 2 to 5 years | $ | 7,716 | |||||||
Other |
355 | 0.02 to 2 years | 355 | |||||||||
Total |
$ | 8,808 | $ | 8,071 | ||||||||
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TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands except shares)
(Unaudited)
2009 | ||||||||||||
Gross carrying amount |
Amortization period |
Accumulated amortization |
||||||||||
Amortizing intangible assets: |
||||||||||||
Theatre circuit agreements |
$ | 8,453 | 2 to 5 years | $ | 6,995 | |||||||
Other |
355 | 0.02 to 2 years | 355 | |||||||||
Total |
$ | 8,808 | $ | 7,350 | ||||||||
Other intangibles include covenants not to compete and customer lists. Amortization expense for the six months ended June 30, 2010 and 2009 was $721 and $742, respectively.
(4) | Income Taxes |
For the six months ended June 30, 2010 and 2009, our income tax benefits were $364 and $4,797, respectively, based on effective income tax rates of 34.27% and 45.11%, respectively.
The Company is preparing its 2007 through 2009 state tax returns and has made timely estimated tax payments for 2010.
Included in prepaid expenses are federal and state prepaid taxes of approximately $15,236 and $13,262 at June 30, 2010 and December 31, 2009, respectively.
The Company adopted the guidance relating to accounting for uncertainty in income taxes, in accordance with ASC 740, Income Taxes, on January 1, 2009. Upon adoption, the Company recorded a cumulative effect of a change in accounting principle by recording an increase in the liability for gross unrecognized tax benefits of $1,990 ($1,274, net of federal benefit) which was accounted for as a reduction to the January 1, 2009 balance of retained earnings.
During the six month periods ended June 30, 2010 and 2009, no additional amounts were recognized to this liability as there were no changes in judgment or interpretation to this tax position during these periods.
The Company recognized an additional $398 ($259, net of federal benefit) to this liability in December 2009 as a result of known information at that time. The total liability for uncertain tax positions as of June 30, 2010 and December 31, 2009 was $2,359 ($1,533, net of federal benefit).
The Company expects approximately $2,263 of unrecognized tax benefits to reverse within 12 months of the reporting date, June 30, 2010.
The Company recognizes interest and penalties for income tax matters in income tax expense. Interest and penalty expense recognized related to uncertain tax positions amounted to respectively $106 and $0 for the six months ended June 30, 2010 and respectively $98 and $0 for the six months ended June 30, 2009. The Company recognized an additional $74 in penalties in December 2009. Total accrued interest and penalties as of June 30, 2010 and December 31, 2009 were $1,227 ($984, net of federal benefit) and $1,121 ($915, net of federal benefit), respectively.
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TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands except shares)
(Unaudited)
The Company is currently under examination by the Internal Revenue Service for the tax year ended December 31, 2006.
(5) | Related-Party Transactions |
The Company and an operating subsidiary of Thomson are party to an agreement dated March 3, 2005 whereby the operating subsidiary provides digital equipment and software reseller, integration and installation services, access to its content distribution system, network management system and other related operating systems, related maintenance and support services, and content preparation services. The agreement expires on March 3, 2011. In addition, the Company and another operating subsidiary of Thomson were party to an agreement dated June 15, 2006 whereby the operating subsidiary provided film print production, distribution, and content preparation services. This agreement expires on December 31, 2010. For the six months ended June 30, 2010 and 2009, the Company purchased from Thomsons operating subsidiaries $2,801 and $836, respectively, of equipment and installation services which have been capitalized as theatre equipment. For the six months ended June 30, 2010 and 2009, the Company incurred $7,604 and $6,848, respectively, for all other services.
The Company participates in the Thomson corporate insurance program for property, casualty, and workers compensation insurance. The Company incurred expense of $64 and $67 for the six months ended June 30, 2010 and 2009, respectively.
ITV provides certain tax accounting services to the Company. The Company incurred expense of $1 and $29 for the six months ended June 30, 2010 and 2009, respectively.
The Company had a payable due to the Thomson and ITV operating subsidiaries of $5,226 and $4,342 as of June 30, 2010 and December 31, 2009, respectively.
On April 23, 2002, the Company signed a Term Facility agreement (the Term Agreement) with the Members under which the Company could borrow up to $24,000. Interest was payable quarterly at 150 basis points over LIBOR. Borrowings under the Term Agreement were funded by the Members pro rata to their ownership of the Company. On December 22, 2009, the Company borrowed $7,000 under the Term Agreement. Borrowings under the Term Agreement were funded by the Members pro rata to their ownership of the Company and are repayable upon the joint demand of the Members. The Company repaid the outstanding balance of $7,000 in August 2010. Interest expense incurred by the Company for the six months ended June 30, 2010 was $62.
(6) | Commitments and Contingencies |
The Company leases office facilities for its headquarters in New York, New York, and also in various other cities for its sales and marketing personnel as sales offices.
8 | (Continued) |
TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands except shares)
(Unaudited)
Future minimum lease payments under noncancelable operating leases are as follows:
2010 |
$ | 1,020 | ||
2011 |
1,562 | |||
2012 |
180 | |||
2013 |
153 | |||
Total |
$ | 2,915 | ||
Total rent expense for the six months ended June 30, 2010 and 2009 was $1,000 and $1,054, respectively.
The following is a schedule of minimum future lease payments required as of June 30, 2010, under capital leases for computer hardware:
Principal | Interest | Total | ||||||||||
2010 |
$ | 17 | 2 | 19 | ||||||||
2011 |
34 | 2 | 36 | |||||||||
2012 |
30 | 1 | 31 | |||||||||
Total |
$ | 81 | 5 | 86 | ||||||||
Future minimum payments due under theatre circuit agreements are as follows:
2010 |
$ | 6,070 | ||
2011 |
5,850 | |||
Total |
$ | 11,920 | ||
Total theatre circuit share expense included in cost of revenue for the six months ended June 30, 2010 and 2009 was $36,121 and $31,996, respectively. Accrued theatre circuit liability as of June 30, 2010 and December 31, 2009 was $19,542 and $25,819, respectively, and is included in accrued liabilities.
During 2010, the Company has renegotiated several theatre circuits to extend cinema advertising. In connection with these amended agreements, the Company paid $2,750 before June 30, 2010 as signing bonuses.
As of June 30, 2010, the Company was committed to install digital advertising systems at seventeen theatre circuits, representing an approximate cost of $1,986.
The Company renewed an agreement with a supplier of theatre kiosks requiring payments amounting to $755 and $1,293 during 2010 and 2011, respectively.
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TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands except shares)
(Unaudited)
The Company has employment agreements with certain key employees. The agreements provide terms for severance in the event of termination for other than cause as well as confidentiality and noncompetition clauses. The maximum contingent liability under such agreement as of June 30, 2010 is approximately $1,700.
Two former executives have left the Company in the period ended June 30, 2010. The Company has accrued a severance amount for one executive. The Company denies any liability and intends to vigorously defend itself against the claims of the second executive. Any settlement by the Company has been indemnified by the Members in connection with the change in ownership in October 2010 (see note 7).
The Company is currently evaluating potential sales and use tax exposures in various jurisdictions.
The Company is subject to claims and legal actions in the ordinary course of business. The Company believes such claims will not have a material adverse effect on its financial position or results of operations.
(7) | Subsequent Events |
The Company has evaluated subsequent events from the balance sheet date through December 21, 2010, the date at which the financial statements were available to be issued, and determined that, except for those noted below, there are no other items to disclose.
(a) | Change in Ownership |
On October 14, 2010, through a series of transactions, TCA became a wholly owned subsidiary of SV Holdco, LLC a Delaware limited liability company (Newco) and TCA changed its name to Screenvision, LLC (Screenvision).
The series of transactions are as follows:
| Carlton redeemed 100% of its 61,000 Series B shares of TCA for $80,000 |
| Thomson redeemed 45,750 (75%) of its Series A shares of TCA for $60,000 |
| Thomson exchanged its remaining 15,250 Series A shares of TCA for 715,294 Class A Common Units of Newco |
| Shamrock Capital Growth Fund II, L.P. (SCGF) contributed $40,000 to Newco in exchange for 1,430,588 Class A Common Units of Newco |
| Shamrock Screenvision Co-Invest I, LLC (SSCI) contributed $25,000 to Newco in exchange for 894,118 Class A Common Units of Newco SCGF and SSCI are affiliated entities. |
In addition, on October 14, 2010, TCA amended its Theatre Agreement dated September 20, 2006 with Carmike Cinemas, Inc. (Carmike) whereby the term of the Agreement was extended for an additional 30 years through July 1, 2042. Other than the extension of the term, the operational provisions of the Agreement are not significantly changed, including the ongoing monthly
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TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands except shares)
(Unaudited)
attendance-based payments from TCA. In connection with this amendment, TCA will pay Carmike $30,000 in January 2011 and Carmike has received 760,000 Class C Common Units of Newco. Carmike may also receive additional units, all of which may be subject to forfeiture, or may forfeit some of its issued units, based upon changes in Carmikes future theatre and screen count.
As a result of these transactions, the ownership structure of Newco is as follows:
Units | Percentage of class |
Percentage of total |
||||||||||
Class A Common Units: |
||||||||||||
Thomson |
715,294 | 23.5 | % | 18.8 | % | |||||||
SCGF |
1,430,588 | 47.1 | 37.7 | |||||||||
SSCI |
894,118 | 29.4 | 23.5 | |||||||||
Total Class A |
||||||||||||
Common Units |
3,040,000 | 100.0 | % | 80.0 | ||||||||
Class C Common Units: |
||||||||||||
Carmike Cinemas Inc. |
760,000 | 100.0 | % | 20.0 | ||||||||
Total Class |
||||||||||||
C Common Units |
760,000 | 100.0 | % | 20.0 | ||||||||
Total Units Outstanding |
3,800,000 | 100.0 | % | |||||||||
(b) | Related-Party Transaction |
Newco has entered into a Management Services Agreement dated October 14, 2010 with Shamrock Capital Advisors, Inc., an affiliate of SCGF and SSCI (SCA) whereby SCA will provide management and consulting services to Newco for an annual fee of $400.
11 | (Continued) |
TECHNICOLOR CINEMA ADVERTISING, LLC
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in thousands except shares)
(Unaudited)
(c) | Debt |
To facilitate the redemption of Carlton shares, Newco entered into a Loan and Security Agreement dated October 14, 2010 (Agreement) whereby Screenvision borrowed $80,000 in a term loan and has available up to $10,000 in revolving loans.
The $80,000 term loan has an interest rate of LIBOR plus a margin of 3.25%. Screenvision is currently required to make 19 consecutive principal repayments of the term loan in the amount of $2,000 on the last day of each calendar quarter starting with December 31, 2010, with a balance of $42,000 due at final maturity on October 14, 2015.
The $10,000 revolving credit facility has an interest rate of LIBOR plus a margin of 3.25%, or base rate plus a margin 2.25%, as Screenvision may elect. In addition, Screenvision is required to pay commitment fees quarterly on the unused portion of the new revolving credit facility. The commitment fee rate is 0.50% per annum. The final maturity date of the new revolving credit facility is October 14, 2015. There was no outstanding balance on the revolving credit facility at November 8, 2010.
The Agreement requires that mandatory prepayments be made from (1) 100% of the net cash proceeds from certain asset sales in excess of $500, (2) 100% of the net cash proceeds from issuance of certain debt obligations, (3) 50% of the net cash proceeds from the issuance of certain equity securities, and (4) either 0% or 50% (depending on our consolidated leverage ratio) of excess cash flow as defined in the Agreement.
The term loan and revolving credit facilities are guaranteed by Newco and its subsidiaries and secured by a perfected first priority security interest in substantially all of Newcos present and future assets.
The Agreement contains covenants which, among other things, restrict Newcos ability, and that of its subsidiaries, to (1) incur additional indebtedness; (2) create liens on their assets; (3) consolidate, merge or otherwise transfer all or any substantial part of their assets; (4) sell or otherwise dispose of their assets; and (5) engage in businesses other than those in which Newco is currently engaged or those reasonably related thereto. The Agreement contains financial covenants that require Newco to maintain a ratio of funded debt to adjusted EBITDA of no more than 3.00, and a ratio of adjusted EBITDA to interest expense/debt payments of no less than 1.25. Beginning with the three month period ending March 31, 2011, the financial covenants contain normal and customary periodic changes in the required ratios over the life of the Agreement.
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