SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 2, 2001
METRO-GOLDWYN-MAYER INC.
(Exact name of registrant as specified in its charter)
Delaware 1-13481 95-4605850
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
2500 Broadway Street, Santa Monica, CA 90404
(Address of principal executive offices) (Zip Code)
(310) 449-3000
(Registrant's telephone number, including area code)
None
(Former name or former address, if changed since last report.)
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Enclosed herein as Exhibits EXA and EXB are the audited Combined Financial
Statements of the Cable Channels for the years ended December 31, 2000 and 1999,
and the unaudited Condensed Combined Financial Statements of the Cable Channels
for the three months ended March 31, 2001.
(b) Pro Forma Financial Information.
Metro-Goldwyn-Mayer Inc.
Pro Forma Condensed Combining Financial Statements
The following unaudited pro forma condensed combining statement of operations
for the year ended December 31, 2000 gives effect to (i) the investment in the
Cable Channels (as defined below), (ii) the consummation of the equity offerings
and the application of the net proceeds therefrom, and (iii) the additional bank
borrowings utilized to finance the investment in the Cable Channels, as if they
had occurred on January 1, 2000. The unaudited pro forma condensed combining
statement of operations for the quarter ended March 31, 2001 gives effect to
such transactions, as if they had occurred on January 1, 2001. The unaudited pro
forma condensed consolidated balance sheet at March 31, 2001 gives effect to
such transactions, as if they had occurred on March 31, 2001.
On April 2, 2001, Metro-Goldwyn-Mayer Inc. ("MGM", or "the Company") invested
$825,000,000 in cash for a 20 percent interest in two general partnerships which
own and operate the American Movie Channel, Bravo, the Independent Film Channel
and WE: Women's Entertainment (formerly Romance Classics), collectively referred
to as the "Cable Channels". These partnerships were wholly-owned by Rainbow
Media Holdings, Inc., a 74 percent subsidiary of Cablevision Systems
Corporation. The proceeds of the $825,000,000 investment were used as follows:
(i) $365,000,000 was used to repay bank debt of the partnerships; (ii)
$295,500,000 was used to repay intercompany loans from Cablevision and its
affiliates; and (iii) $164,500,000 was added to the working capital of the
partnerships. The Company financed the investment through the sale of equity
securities, which provided aggregate net proceeds of approximately $635,600,000,
and borrowings under our credit facilities. The Company is accounting for its
investment in the Cable Channels under the equity method of accounting.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that management of the Company believes are reasonable.
The adjustments included in the unaudited pro forma condensed combining
financial statements represent the Company's preliminary determination of these
adjustments based upon available information. There can be no assurance that the
actual adjustments will not differ significantly from the pro forma adjustments
reflected in the pro forma financial information.
The unaudited pro forma condensed combining financial statements are based on
the historical financial statements of each of the Company and the Cable
Channels and the assumptions and adjustments described in the accompanying
notes. The Company believes that the assumptions on which the unaudited pro
forma condensed financial statements are based are reasonable. The unaudited pro
forma condensed consolidated financial statements are provided for informational
purposes only and do not purport to represent what the Company's financial
position or results of operations actually would have been if the foregoing
transactions occurred as of the dates indicated or what such results will be for
any future periods. The unaudited pro forma condensed combining financial
statements should be read in conjunction with the Consolidated Financial
Statements and the related notes thereto for the Cable Channels included
elsewhere in this filing.
1
Metro-Goldwyn-Mayer Inc.
Pro Forma Condensed Combining Statement of Operations
Year Ended December 31, 2000
(in thousands, except share data)
MGM
MGM Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- --------
Revenues $ 1,237,447 $ - $ 1,237,447
Expenses:
Film and television production and distribution 1,019,897 - 1,019,897
General and administrative expenses 89,419 - 89,419
Severance and related costs (3,715) - (3,715)
Depreciation and non-film amortization 28,648 - 28,648
-------------------------------------------------
Total expenses 1,134,249 - 1,134,249
-------------------------------------------------
Operating income 103,198 - 103,198
Other income (expense):
Equity in net earnings (losses) of Cable Channels - 10,320 (1) (21,724)
(812) (2)
(37,297) (3)
6,065 (4)
Interest expense, net of capitalized interest (51,425) (14,986) (5) (66,411)
Interest and other income, net 12,706 - 12,706
-------------------------------------------------
Total other expense (38,719) (36,710) (75,429)
-------------------------------------------------
Income from operations before provision for income taxes 64,479 (36,710) 27,769
Income tax provision (13,480) - (6) (13,480)
-------------------------------------------------
Net income $ 50,999 $ (36,710) $ 14,289
=================================================
Income per share:
Basic $ 0.25 $ 0.06
Diluted $ 0.24 $ 0.06
Weighted average number of common shares outstanding:
Basic 204,797,589 236,593,846(7)
Diluted 210,313,274 242,109,531(7)
2
Pro Forma Footnotes (in thousands, except share data)
-----------------------------------------------------
(1) To record MGM share of Cable Channels' reported net income for the year
ended December 31, 2000, computed as follows:
Cable Channels' net income $51,599
MGM equity % 20%
-------
MGM share of Cable Channels' net income $10,320
=======
(2) Represents MGM 20% share of amortization of Cable Channels' identifiable
intangible assets of $40,577 over ten years.
(3) Represents amortization of Cable Channels' excess purchase price of $745,942
over a 20 year period.
(4) Represents elimination of MGM 20% share of Cable Channels' interest costs on
bank debt repaid with investment proceeds.
(5) Represents interest costs on MGM bank borrowings of $164,500 to finance
remaining portion of investment in the Cable Channels after utilitization of
equity proceeds, at MGM's effective borrowing rate.
(6) Assumes no provision for income taxes due to MGM's tax loss carryforward
position.
(7) Assumes issuances of equity securities and conversion of Series B
Preferred Stock of MGM as of beginning of the period, computed as follows;
Basic Diluted
----- -------
Historical weighted average shares 204,797,589 210,313,274
Common stock issuances 16,080,590 16,080,590
Conversion of preferred stock 15,715,667 15,715,667
-------------------------------
Pro forma weighted average shares 236,593,846 242,109,531
===============================
3
Metro-Goldwyn-Mayer Inc.
Pro Forma Condensed Combining Statement of Operations
Quarter Ended March 31, 2001
(in thousands, except share data)
MGM
MGM Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- ---------
Revenues $ 343,896 $ - $ 343,896
Expenses:
Operating 140,289 - 140,289
Selling, general and administrative expenses 205,095 - 205,095
Depreciation and non-film amortization 7,945 - 7,945
-------------------------------------------------
Total expenses 353,329 - 353,329
-------------------------------------------------
Operating loss (9,433) - (9,433)
Other income (expense):
Equity in net earnings (losses) of Cable Channels - 3,783 (1) (4,294)
(203) (2)
(9,324) (3)
1,450 (4)
Interest expense, net of capitalized interest (9,453) (3,427) (5) (12,880)
Interest and other income, net 5,777 - 5,777
-------------------------------------------------
Total other expense (3,676) (7,721) (11,397)
-------------------------------------------------
Loss from operations before provision for income taxes (13,109) (7,721) (20,830)
Income tax provision (4,412) - (6) (4,412)
------------------------------------------------
Net loss before cumulative effect of accounting change (17,521) (7,721) (25,242)
Cumulative effect of accounting change (382,318) - (382,318)
------------------------------------------------
Net loss $ (399,839) $ (7,721) $ (407,560)
================================================
Loss per share:
Basic and diluted
Net loss before cumulative effect of accounting change $ (0.08) $ (0.10)
Cumulative effect of accounting change (1.78) (1.60)
---------------- --------------
Net loss $ (1.86) $ (1.70)
================ ==============
Weighted average number of common shares outstanding:
Basic and diluted 214,935,765 239,251,668(7)
================ =============
4
Pro Forma Footnotes (in thousands, except share data)
-----------------------------------------------------
(1) To record MGM share of Cable Channels' reported net income for the quarter
ended March 31, 2001, computed as follows:
Cable Channels' net income $18,915
MGM equity % 20%
-------
MGM share of Cable Channels' net income $ 3,783
=======
(2) Represents MGM 20% share of amortization of Cable Channels' identifiable
intangible assets of $40,577 over ten years.
(3) Represents amortization of Cable Channels' excess purchase price of $745,942
over a 20 year period.
(4) Represents elimination of MGM 20% share of Cable Channels' interest costs on
bank debt repaid with investment proceeds.
(5) Represents interest costs on MGM bank borrowings of $164,500 to finance
remaining portion of investment in the Cable Channels after utilitization of
equity proceeds, at MGM's effective borrowing rate.
(6) Assumes no provision for income taxes due to MGM's tax loss carryforward
position.
(7) Assumes issuances of equity securities and conversion of Series B Preferred
Stock of MGM as of beginning of the period, computed as follows:
Basic and Diluted
-----------------
Historical weighted average shares 214,935,765
Common stock issuances 8,600,236
Conversion of preferred stock 15,715,667
------------
Pro forma weighted average shares 239,251,668
============
5
Metro-Goldwyn-Mayer Inc.
Pro Forma Condensed Combining Balance Sheet
March 31, 2001
(in thousands, except share data)
MGM
MGM Pro Forma Pro Forma
ASSETS Historical Adjustments Combined
------ ---------- ----------- --------
Cash and cash equivalents $ 687,051 $ 164,500 (1) $ 26,551
(825,000) (2)
Accounts and contracts receivable, net 431,113 - 431,113
Film and television costs, net 2,074,041 - 2,074,041
Investments and advances to affiliates 12,966 825,000 (2) 837,966
Property and equipment, net 44,349 - 44,349
Excess of cost over net assets of acquired businesses, net 527,756 - 527,756
Other assets 35,069 - 35,069
----------------------------------------------
$ 3,812,345 $ 164,500 $ 3,976,845
==============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Bank and other debt $ 709,368 $ 164,500 (1) 873,868
Accounts payable and accrued liabilities 183,076 - 183,076
Accrued participants' share 236,145 - 236,145
Income taxes payable 32,522 - 32,522
Advances and deferred revenues 86,576 - 86,576
Other liabilities 27,320 - 27,320
----------------------------------------------
Total liabilities 1,275,007 164,500 1,439,507
----------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value, 25,000,000 shares authorized,
15,715,667 shares issued and outstanding, none issued and
outstanding, as adjusted 157 (157) (3) -
Common stock, $.01 par value, 500,000,000 shares authorized,
223,595,529 shares issued and outstanding, 239,311,196 shares
issued and outstanding, as adjusted 2,236 157 (3) 2,393
Additional paid- in capital 3,712,482 - 3,712,482
Deficit (1,165,346) - (1,165,346)
Accumulated other comprehensive income (12,191) - (12,191)
----------------------------------------------
Total stockholders' equity 2,537,338 - 2,537,338
----------------------------------------------
$ 3,812,345 $ 164,500 $ 3,976,845
==============================================
6
Pro Forma Footnotes (in thousands, except share data)
-----------------------------------------------------
(1) To record MGM bank borrowings of $164,500 to partially finance remaining
purchase price of Cable Channels.
(2) To record purchase of Cable Channels for $825,000 in cash.
(3) To record the conversion of 15,715,667 shares of Series B Preferred Stock of
MGM into common stock on a share-for-share basis.
7
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
METRO-GOLDWYN-MAYER INC.
/s/ Jay Rakow
Dated: June 18, 2001 By: __________________________
Jay Rakow
Senior Executive Vice President
and General Counsel
8
[LOGO]
AMERICAN MOVIE CLASSICS COMPANY
AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Combined Financial Statements
Years ended December 31, 2000 and 1999
(With Independent Auditors' Report Thereon)
[LOGO]
1305 Walt Whitman Road
Suite 200
Melville, NY 11747-4302
Independent Auditors' Report
The Partners
American Movie Classics Company and Bravo Company:
We have audited the accompanying combined balance sheets of American Movie
Classics Company (a general partnership) and subsidiaries and Bravo Company (a
general partnership) and subsidiaries (collectively, the "Company"), a
wholly-owned operation of Rainbow Media Holdings, Inc. as described in note 1,
as of December 31, 2000 and 1999, and the related combined statements of
operations, partners' deficiency and cash flows for each of the years in the
three-year period ended December 31, 2000. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As more fully described in note 1, these combined financial statements exclude
the financial position and results of operations of certain developmental
subsidiaries of Bravo Company (the "Omitted Bravo Subsidiaries") which, in our
opinion, should be consolidated with those of the Company. If these
subsidiaries were consolidated, total assets would be approximately $531.6
million and $520.7 million, and partners' deficiency would be approximately
$179.4 million and $161.4 million, as of December 31, 2000 and 1999,
respectively. Additionally, net income (loss) would be approximately $43.2
million, $14.0 million, and $(2.6) million for the years ended December 31,
2000, 1999 and 1998, respectively.
In our opinion, except for the effects of not consolidating the Omitted Bravo
Subsidiaries as described in the preceding paragraph, the combined financial
statements referred to above present fairly, in all material respects, the
combined financial position of the Company, a wholly-owned operation of Rainbow
Media Holdings, Inc., at December 31, 2000 and 1999, and the combined results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
March 29, 2001
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Combined Balance Sheets
December 31, 2000 and 1999
(in thousands)
Assets 2000 1999
----------- ----------
Current assets:
Cash $ 28 $ 82
Trade accounts receivable (less allowance for doubtful
accounts of $3,227 and $7,986) 56,106 40,734
Trade accounts receivable-affiliates, net 17,420 12,608
Other receivables-affiliates, net 20,884 4,686
Note receivable 4,000 --
Prepaid expenses and other current assets 4,558 1,766
Current feature film inventory, net 61,017 50,068
----------- ----------
Total current assets 164,013 109,944
Long-term feature film inventory, net 278,502 284,707
Plant and equipment, net 28,407 35,392
Deferred carriage fees, net 17,342 19,756
Deferred costs, net of accumulated amortization of $2,095 and $1,419 2,629 3,296
Intangible assets, net of accumulated amortization
of $131,227 and $113,282 54,205 72,150
----------- ----------
$ 545,098 $ 525,245
=========== ==========
Liabilities and Partners' Deficiency
Current liabilities:
Accounts payable $ 36,232 $ 34,076
Accrued payroll and related costs 8,020 7,227
Other accrued expenses 12,264 10,694
Accounts payable-affliates, net 15,193 17,653
Feature film rights payable, current 50,946 60,310
Deferred carriage fees payable 7,081 3,387
Bank debt, current 31,322 1,456
Capital lease obligations, current 3,961 4,133
----------- ----------
Total current liabilities 165,019 138,936
Bank debt, long-term 328,000 308,000
Feature film rights payable, long-term 197,021 205,734
Capital lease obligations, long-term 17,008 24,793
----------- ----------
Total liabilities 707,048 677,463
----------- ----------
Commitments and contingencies
Partners' deficiency (161,950) (152,218)
----------- ----------
$ 545,098 $ 525,245
=========== ==========
See accompanying notes to combined financial statements.
2
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Combined Statements of Operations
Years ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
--------- --------- ---------
Revenues, net (including affiliate amounts
of $68,708, $62,570, and $43,171) $ 359,664 $ 295,525 $ 226,612
--------- --------- ---------
Operating expenses:
Technical and operating (including affiliate 112,346 102,702 83,531
amounts of $12,106, $11,773, and $10,946)
Selling, general and administrative (including 145,677 122,991 98,435
affiliate amounts of $38,283, $31,299, and $23,021)
Depreciation and amortization 25,228 27,686 27,351
--------- --------- ---------
283,251 253,379 209,317
--------- --------- ---------
Operating income 76,413 42,146 17,295
--------- --------- ---------
Other income (expense):
Interest expense, net (30,324) (21,352) (17,745)
Gain on sale of programming division 5,716 -- --
Miscellaneous, net (206) (210) (71)
Write-off of deferred financing costs -- (1,413) --
--------- --------- ---------
(24,814) (22,975) (17,816)
--------- --------- ---------
Net income (loss) $ 51,599 $ 19,171 $ (521)
========= ========= =========
See accompanying notes to combined financial statements.
3
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Combined Statements of Partners' Deficiency
Years ended December 31, 2000, 1999, and 1998
(in thousands)
Balance, December 31, 1997 $ (49,785)
Contributions 9,917
Net loss (521)
Distributions (16,350)
----------
Balance, December 31, 1998 (56,739)
Contributions 10,350
Net income 19,171
Distributions (125,000)
----------
Balance, December 31, 1999 (152,218)
Contributions 12,661
Net income 51,599
Distributions (73,992)
----------
Balance, December 31, 2000 $ (161,950)
==========
See accompanying notes to combined financial statements.
4
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Combined Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(in thousands)
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) $ 51,599 $ 19,171 $ (521)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 25,228 27,686 27,351
CSC stock appreciation rights expense allocation 12,661 10,350 6,417
Amortization of feature film inventory 53,398 42,936 46,102
Amortization of deferred carriage fees 6,849 4,606 -
Amortization and write-off of deferred costs 918 1,922 453
Gain on sale of programming division (5,716) - -
Changes in assets and liabilities, net of effect of disposition:
Trade accounts receivable, net (17,101) (10,839) (7,884)
Trade accounts receivable-affiliates, net (4,812) (1,231) (10,674)
Other receivables-affiliates, net (16,198) (2,562) (1,325)
Prepaid expenses and other current assets (3,410) 3,536 676
Feature film inventory (66,510) (113,050) (158,836)
Deferred carriage fees (4,435) (24,362) -
Accounts payable and accrued expenses 1,003 2,083 10,789
Accounts payable-affiliates, net (2,460) 6,787 3,417
Deferred carriage fees payable 3,694 3,387 -
Feature film rights payable (15,663) 52,173 105,371
--------- --------- ---------
Net cash provided by operating activities 19,045 22,593 21,336
--------- --------- ---------
Cash flows provided by (used in) investing activities:
Capital expenditures (3,651) (5,079) (3,409)
Net proceeds from sale of programming division 8,828 - -
--------- --------- ---------
Net cash provided by (used in) investing activities 5,177 (5,079) (3,409)
--------- --------- ---------
Cash flows used in financing activities:
Proceeds from bank debt 114,225 383,208 43,500
Repayment of bank debt (64,359) (269,292) (48,761)
Contribution from RMH - - 3,500
Distributions to partners (70,000) (125,000) (16,350)
Principal payments on capital lease obligation (4,133) (3,732) (3,333)
Financing costs on bank debt (9) (2,715) -
--------- --------- ---------
Net cash used in financing activities (24,276) (17,531) (21,444)
--------- --------- ---------
Net decrease in cash (54) (17) (3,517)
Cash at beginning of year 82 99 3,616
--------- --------- ---------
Cash at end of year $ 28 $ 82 $ 99
========= ========= =========
See accompanying notes to combined financial statements.
5
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
(1) Summary of Significant Accounting Policies
Description of Business
American Movie Classics Company ("AMCC") and Bravo Company ("Bravo") are
general partnerships organized as of January 1, 1987, and January 1, 1980,
respectively, under the provisions of New York State Partnership Law. The
AMCC partnership will terminate January 1, 2086, unless earlier termination
occurs as provided for in AMCC's partnership agreement, and the Bravo
partnership will terminate on April 20, 2088, unless earlier termination
occurs as provided for in Bravo's partnership agreement, as amended. AMCC
and subsidiaries and Bravo and certain subsidiaries (collectively, the
"Company") are operated as an integral part of Rainbow Media Holdings, Inc.
("RMH"). RMH is a 74% owned indirect subsidiary of Cablevision Systems
Corporation ("CSC").
The Company produces, markets and distributes the American Movie Classics
("AMC"), Romance Classics, Bravo and Independent Film Channel services to
the pay television industry located throughout the United States.
Accordingly, the Company considers itself to be operating in a single
industry segment. On December 6, 2000, the Romance Classics service was
renamed as WE: Women's Entertainment ("WE").
On January 4, 2001, Bravo assigned its interests in certain developmental
subsidiaries, including IFC Productions, LLC, Next Wave Films, LLC, IFC
Theatres, LLC and IFC Films, LLC (collectively, the "Omitted Bravo
Subsidiaries") to RMH. On January 31, 2001, RMH signed a definitive
agreement with Metro-Goldwyn-Mayer, Inc. ("MGM") pursuant to which a
subsidiary of MGM will invest $825,000 to acquire a 20% interest in AMCC
and Bravo as they existed on such date.
Principles of Combination and Basis of Presentation
The accompanying combined financial statements include the accounts of AMCC
and its wholly-owned subsidiaries and the accounts of Bravo and its wholly-
owned subsidiaries, excluding the Omitted Bravo Subsidiaries, to present
the combined financial position and results of operations of the businesses
in which MGM acquired a 20% interest, as described above. All significant
intercompany transactions and balances are eliminated in combination.
Revenue Recognition
The Company recognizes subscriber revenue when programming services are
provided to cable television systems or other pay television operators.
Advertising revenue is recognized when commercials are telecast.
6 (Continued)
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
Feature Film Inventory
Rights to feature film inventory acquired under license agreements along
with the related obligations are recorded at the contract value. Costs are
amortized on the straight-line basis over the respective license periods
throughout the contract term. Film telecast rights to be amortized within
one year are classified as current assets while contract amounts payable
within one year are classified as current liabilities. License periods
generally range from one to three years. Perpetual television exhibition
rights acquired under certain purchase agreements were recorded at the
present value of the obligations (with the remainder recorded as imputed
interest) and were being amortized over a period of eighteen years. On
December 14, 2000, the perpetual television exhibition rights purchase
agreements were assigned to RMH. The assignment of the net book value of
the assets and the related obligations of $3,992 was recorded as a partner
distribution.
Amounts payable subsequent to December 31, 2000, related to feature film
rights amount to $50,946 in 2001, $43,436 in 2002, $40,874 in 2003, $34,372
in 2004, $17,776 in 2005 and $60,563 thereafter. During 1999, the Company
reduced feature film inventory and rights payable by approximately $27,000
in connection with an amendment to an existing film license agreement (see
note 6).
Plant and Equipment
Plant and equipment are stated at cost. Equipment under capital leases is
stated at the present value of minimum lease payments. Depreciation on
plant and equipment is calculated on the straight-line basis over the
estimated useful lives of the assets or, with respect to equipment under
capital leases and leasehold improvements, amortized over the shorter of
the lease term or the assets' useful lives.
Deferred Carriage Fees
Deferred carriage fees primarily represent payments to multiple systems
operators to guarantee carriage of the services and are amortized over the
period of the related guarantee (3 to 5 years).
Deferred Costs
Deferred costs consist of costs incurred to obtain debt and costs that
represent prepayments to secure transponder space on a satellite. Deferred
financing costs are amortized into interest expense over the life of the
related debt. Deferred transmission costs are amortized to technical
expense over the projected life (12 years) of the satellite.
7
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
Intangible Assets
Intangible assets established in connection with the acquisition of
interests in the Company in 1994 and 1995 consist of affiliation
agreements, feature film intangibles and excess costs over fair value of
net assets acquired. Affiliation agreements represent the value assigned to
agreements with cable systems to carry the AMC service, and are amortized
over a 10-year period on the straight-line basis. Feature film intangibles
represent the value assigned to agreements with film distributors for the
rights to exhibit films on the AMC service, and are amortized over a 6-year
period on the straight-line basis. Feature film intangibles were fully
amortized during 2000. Excess costs over fair value of net assets acquired
are being amortized over a 10-year period on the straight-line basis.
Income Taxes
AMCC and Bravo operate as general partnerships; accordingly, their taxable
income or loss is included in the tax returns of the individual partners,
and the Company makes no provision for income taxes.
Supplemental Cash Flow Information
During the years ended December 31, 2000, 1999 and 1998, the Company paid
cash interest expense of $31,116, $20,785 and $17,811, respectively.
Proceeds from the sale of the Company's Bravo Latin America ("BLA")
division during 2000 included $4,000 in the form of a note receivable (see
note 2).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and 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 these
estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This Statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
8 (Continued)
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
the carrying amount of an asset to undiscounted future net cash flows the
asset is expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Commitments and Contingencies
Liabilities for loss contingencies, arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount of the
assessment can be reasonably estimated.
Accounting Standards Issued But Not Yet Adopted
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), establishes comprehensive standards for the
recognition and measurement of derivatives and hedging activities. SFAS
133, as amended, is effective for fiscal years beginning after June 15,
2000. The Company does not expect that the adoption of SFAS 133 will have a
material effect on the Company's financial position or results of
operations.
(2) Disposition
On October 31, 2000 the Company completed the sale of its BLA division for
gross proceeds of $13,496, of which $4,000 was in the form of a note
receivable. The note receivable, bearing interest at 8.5%, was paid in full
in January 2001. In conjunction with the sale, the Company entered into an
agreement to cancel both its capital and operating leases on transponders
covering this geographic region in 2001. As a result of these
cancellations, the Company recognized a loss of approximately $2,686,
representing lease termination penalties of $2,562 and periodic rental
payments for the period the transponders will not be used. Total payments
due for these leases are $3,182, which are payable in 2001 and are included
in accrued expenses in the accompanying combined balance sheet at December
31, 2000. After adjusting for the cost of the net assets sold and for the
expenses associated with the divestiture, including accrued employee
termination benefits of approximately $700 for eight employees, the Company
realized a gain of approximately $5,716.
9 (Continued)
AMERICAN MOVIE CLASSICS COMPAKY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
(3) Plant and Equipment
Plant and equipment consist of the following:
December 31 Estimated
---------------------
2000 1999 useful lives
-------- -------- ------------
Program, service and test equipment $ 13,818 $ 11,729 5 to 8 years
Origination equipment 33,950 39,644 8 to 12 years
Furniture and fixtures 6,126 4,560 5 to 8 years
Leasehold improvements 3,134 3,134 Life of lease
-------- --------
57,028 59,067
Less accumulated depreciation
and amortization 28,621 23,675
-------- --------
$ 28,407 $ 35,392
======== ========
(4) Intangible Assets
Intangible assets consist of the following:
December 31,
--------------------
2000 1999
------- -------
Affiliation agreements, net of accumulated
amortization of $93,311 and $78,776 $ 52,135 $ 66,670
Feature film intangibles, net of accumulated
amortization of $35,017 and $32,099 - 2,918
Excess costs over fair value of net assets
acquired, net of accumulated amortization
of $2,899 and $2,407 2,070 2,562
-------- --------
$ 54,205 $ 72,150
======== ========
10 (Continued)
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
(5) Bank Debt
AMCC has a Credit Agreement that matures on March 31, 2006 and consists
of a term loan and a revolving loan. On May 12, 1999 the Credit Agreement
was amended and restated, increasing the term loan from $124,000 to
$225,000 and the revolving loan from $100,000 to $200,000. Borrowings
under the Credit Agreement bear interest at varying rates based upon the
banks' Base Rate or Eurodollar Rate, depending on the ratio of debt to
cash flow, as defined.
On November 8, 1999, AMCC entered into an interest rate swap agreement
with CSC on a notional amount of $105,000, which matures May 13, 2002
whereby AMCC is required to pay a floating rate of interest based on
LIBOR in exchange for fixed rate payments of 7.0% through May 8, 2001 and
7.5% from May 8, 2001 though May 13, 2002. AMCC enters into interest rate
swap agreements to hedge against interest rate risk, as required by its
Credit Agreement, and therefore accounts for these agreements as hedges
of floating rate debt, whereby interest expense is recorded using the
revised rate, with any fees or other payments amortized as yield
adjustments.
At December 31, 2000 and 1999, the weighted-average interest rate on bank
indebtedness approximated 7.9% and 7.6%, respectively. The term loan will
begin amortizing March 31, 2001 and requires quarterly amortization
payments. The revolving loan does not start to reduce until June 30,
2004. On December 31, 2000 and 1999, $225,000 was outstanding under the
term loan, and $130,000 and $83,000 was outstanding under the revolving
loan, respectively. Unrestricted and undrawn funds under the credit
agreement at December 31, 2000 and 1999 amounted to $70,000 and $117,000,
respectively.
Substantially all of the assets of AMCC have been pledged to secure the
borrowings under the Credit Agreement. The Credit Agreement contains
various restrictive covenants with which AMCC was in compliance at
December 31, 2000. AMCC must pay an annual commitment fee of 0.625% on
the aggregate unborrowed balance of the revolver, which was $469 and
$629, at December 31, 2000 and 1999, respectively. Amounts payable under
the Credit Agreement, including $4,322 payable in 2001 for bank
overdrafts, during the five years subsequent to December 31, 2000 are as
follows:
Year ending
December 31,
-----------
2001 $ 31,322
2002 29,250
2003 36,000
2004 61,250
2005 160,750
11 (Continued)
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
(6) Affiliate Transactions
The Company distributes programming to the pay television industry under
contracts called affiliation agreements. Revenues earned under
affiliation agreements with companies owned by or affiliated with CSC for
the years ended December 31, 2000, 1999 and 1998 were approximately
$68,255, $62,570 and $43,171, respectively.
Under contractual agreements, CSC provides certain management services to
AMCC. These agreements provide for payment, in addition to expense
reimbursement, of an aggregate fee of 3.5% of AMCC's gross revenues, as
defined. The agreements are automatically renewable every five years at
the option of CSC. Pursuant to the terms of these agreements, AMCC was
charged management fees of $7,699, $6,832 and $5,710 in 2000, 1999 and
1998, respectively.
CSC also provides the Company with certain administrative, creative and
production services and office facilities. The Company was charged
approximately $7,169, $7,289 and $4,839 in 2000, 1999 and 1998,
respectively, for these services.
Rainbow Network Communications, an affiliate of the Company, provides
certain transmission and production services to the Company. The Company
was charged approximately $12,106, $11,773 and $10,946 in 2000, 1999 and
1998, respectively, for these services.
RMH provides the Company with certain administrative and computer
services, and office facilities. The Company was charged approximately
$10,754, $6,828 and $6,055 in 2000, 1999 and 1998, respectively, for
these services.
During 1999 and 1998, AMCC provided certain administrative, creative and
production services to various affiliates. The affiliates were charged
$1,155 and $913 for the years ended December 31, 1999 and 1998,
respectively, for these services, which was recorded as a reduction to
operating expenses.
During 1999, CSC entered into a new affiliation agreement with a service
provider that resulted in higher rates per subscriber charged to CSC than
those under the previous agreement. As part of the negotiations, the
service provider agreed to amend the existing film license agreement with
the Company with both reduced license fees and a revised list of film
titles licensed. Since the Company received the benefit of CSC's
negotiations in the form of discounted license fees, CSC charged the
Company $10,000, which was treated as a cost to acquire the rights to the
revised list of film titles and classified as feature film inventory.
(Continued)
12
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
RMH pays the Company for advertising revenue earned in connection with
an agreement between RMH and a third party entered into during 2000. Such
revenues were $453 for the year ended December 31, 2000.
CSC charges the Company for its proportionate share of costs related to
CSC Stock Appreciation Rights (SARs) granted to employees of the Company.
For the years ended December 31, 2000, 1999 and 1998, the Company was
charged approximately $12,661, $10,350 and $6,417, respectively, for its
proportionate share of CSC SAR expenses. Such charges are included in
administrative expenses in the accompanying combined statements of
operations. As the costs of all CSC SAR grants are borne solely by CSC,
such amounts are reflected as partner contributions.
(7) Benefit Plans
CSC sponsors a cash balance pension plan and a 401(k) savings plan in
which the Company and its subsidiaries participate. In connection with
the cash balance plan, CSC charges the Company for credits made into an
account established for each participant. Such credits are based upon a
percentage of eligible base pay and a market-based rate of return. The
Company also makes matching contributions for a portion of employee
voluntary contributions to the 401(k) savings plan. Total expense related
to these plans was approximately $543, $500 and $429 for the years ended
December 31, 2000, 1999 and 1998, respectively. The Company does not
provide post retirement benefits for any of its employees.
(8) Leases
The Company leases transponder space on several satellites and certain
facilities under operating lease agreements that expire at various dates
through 2006. Rent expense for operating leases amounted to approximately
$4,096, $2,994 and $2,923 for the years ended December 31, 2000, 1999 and
1998, respectively. The following is a schedule of future minimum lease
payments for operating leases as of December 31, 2000, excluding the
operating lease cancelled in conjunction with the sale of BLA (see note
2):
(Continued)
13
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31,2000 and 1999
(dollars in thousands)
Year ending
December 31,
------------
2001 $ 2,787
2002 2,044
2003 2,047
2004 2,016
2005 1,848
Thereafter 1,800
--------
Total minimum lease payments $ 12,542
========
The Company leases transponder space on satellites under capital leases that
expire at various dates through 2006. At December 31, 2000 and 1999, the gross
amount of equipment and related accumulated amortization recorded under capital
leases was as follows:
2000 1999
---------- ---------
Origination equipment $ 33,218 $ 38,912
Less accumulated amortization (15,680) (13,483)
---------- ---------
$ 17,538 $ 25,429
========== =========
Future minimum capital lease payments as of December 31, 2000, excluding the
capital lease cancelled in conjunction with the sale of BLA (see note 2), are:
Year ending December 31,
------------------------
2001 $ 5,880
2002 5,880
2003 5,880
2004 5,520
2005 1,560
Thereafter 1,560
--------
Total minimum lease payments 26,280
14
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
Less amount representing interest (10%) $ 5,311
--------
Present value of net minimum
capital lease payments 20,969
Less current installments 3,961
--------
Obligations under capital leases, excluding
current installments $ 17,008
========
(9) Commitments and Contingencies
The Company has entered into various contracts with the Omitted Bravo
Subsidiaries and RMH to license films for pay television programming
beginning in 2001. Maximum future cash payments required under these
contracts as of December 31, 2000 are as follows:
Year ending
December 31,
------------
2001 $ 9,490
2002 9,990
2003 10,240
2004 10,240
2005 10,240
Thereafter 3,430
--------
$ 53,630
========
Broadcast Music, Inc. ("BMI"), an organization which licenses the
performance of the musical compositions of its affiliated composers,
authors and publishers, has alleged that the Company needs a license to
exhibit programs containing musical compositions in BMI's catalog and that
continued use requires a license. In June 1992, the Company and BMI entered
into a written license agreement covering the period January 1, 1990
through June 30, 1993, pursuant to which BMI agreed to an interim fee of
0.3% of net revenues. This agreement was extended several times and is
currently extended on a month-to-month basis, terminable by either party on
thirty days prior written notice.
(Continued)
15
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
BMI agreed to treat as final all payments made by the Company for the period
commencing on the launch date of each service and ending June 30, 1992. However,
commencing with July 1, 1992, the license fees payable by the Company are
subject to retroactive adjustment either at such time as the Federal Rate Court
reaches a final determination or the parties reach final agreement.
On November 4, 1997, the Company requested a license from BMI covering public
performances of music by WE and its affiliated distributors from the date of
launch of WE. BMI, in response, had indicated that WE is licensed as of the date
of that correspondence at an interim fee equaling 0.3% of WE's net revenues.
That interim fee is subject to retroactive adjustment in the same manner as
pertains to the license arrangements with BMI for the AMC service. BMI has
indicated that it is willing to discuss an appropriate retroactive license fee
back to the date of launch. Those discussions have not yet concluded.
The American Society of Composers, Authors and Publishers ("ASCAP"), another
organization which licenses the performance of the musical compositions of its
members, has also alleged that the Company needs a license to exhibit programs
containing musical compositions in its catalog and that continued use requires a
license. The subject of the fees to be paid to ASCAP and the manner in which
they will be paid has been submitted to a Federal Rate Court in New York and is
still pending. By submitting the matter to the Federal Rate Court, the Company
has been licensed by ASCAP for periods subsequent to March 6, 1989, at an
interim fee of 0.3% of net revenues per year. The interim fee is subject to
retroactive adjustment when the Federal Rate Court reaches a final decision. In
addition, ASCAP has sought payments for license fees for part or all of the
period from January 1, 1986 to March 6, 1989.
On November 4, 1997, the Company requested from ASCAP a license covering the use
of public performances of ASCAP music by WE and its affiliated distributors from
the launch date of that service. ASCAP has agreed to license WE on an interim
basis at the rate of 0.3% of WE's net revenues. That interim fee is subject to
retroactive adjustment in the same manner as pertains to the license
arrangements with ASCAP for the AMC service.
In addition, the Company is a party to various lawsuits arising out of the
ordinary conduct of its business.
Management believes that the settlement of the above matters will not have a
material adverse effect on the financial position of the Company.
16
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
Notes to Combined Financial Statements
December 31, 2000 and 1999
(dollars in thousands)
(10) Concentrations of Credit Risk
During 2000, 1999 and 1998, the Company had three customers that
collectively accounted for approximately 40% of net revenues in each year,
and approximately 42% and 49% of the Company's net trade receivable
balances at December 31, 2000 and 1999, respectively, including those due
from affiliates, which exposes the Company to a concentration of credit
risk.
(11) Disclosures about the Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgement, and therefore cannot be determined with
precision. Changes in assumptions could significantly affect these
estimates.
Cash, Trade Accounts Receivable, Trade Accounts Receivable-Affiliates,
Other Receivables-Affiliates, Accounts Payable, Accrued Expenses, Accounts
Payable-Affiliates
The carrying amount approximates fair value due to the short-term maturity
of these instruments.
Bank Debt
The estimated fair value of the Company's bank debt approximates its
carrying value based on current rates offered to the Company for
instruments of the same remaining maturity.
Interest Rate Cap Agreement
At December 31, 2000 and 1999, the fair value of the outstanding cap
agreement was $840 (net receivable position) and $599 (net receivable
position), respectively. Fair value was obtained from a dealer quote. This
value represents the estimated amount the Company would receive to
terminate the agreement, taking into consideration current interest rates
and the current creditworthiness of the counterparty.
17
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2001
(in thousands)
(unaudited)
ASSETS
Current assets:
Cash $ 12
Trade accounts receivable (less allowance for doubtful
accounts of $4,378) 60,673
Trade accounts receivable-affiliates, net 18,317
Other receivables-affiliates, net 6,687
Prepaid expenses and other current assets 7,947
Current feature film inventory, net 57,134
---------
Total current assets 150,770
Long-term feature film inventory, net 274,267
Plant and equipment, net 26,904
Deferred carriage fees, net 15,739
Deferred costs, net of accumulated amortization of $2,264 2,461
Intangible assets, net of accumulated amortization of $135,468 50,460
---------
$ 520,601
=========
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities:
Accounts payable $ 25,988
Accrued payroll and related costs 6,069
Other accrued expenses 11,177
Accounts payable-affiliates, net 8,934
Feature film rights payable, current 49,563
Deferred carriage fees payable 7,320
Bank debt, current 27,965
Capital lease obligations, current 4,061
---------
Total current liabilities 141,077
Bank debt, long-term 333,687
Feature film rights payable, long-term 180,306
Capital lease obligations, long-term 15,956
---------
Total liabilities 671,026
Commitments and contingencies
Partners' deficiency (150,425)
---------
$ 520,601
=========
See accompanying notes to condensed combined financial statements.
1
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001
(in thousands)
(unaudited)
Revenues, net $ 104,423
---------
Operating expenses:
Technical and operating 33,340
Selling, general and administrative 39,364
Depreciation and amortization 5,569
---------
78,273
---------
Operating income 26,150
---------
Other income (expense):
Interest expense, net (7,250)
Miscellaneous, net 15
---------
(7,235)
---------
Net income $ 18,915
=========
See accompanying notes to condensed combined financial statements.
2
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
CONDENSED COMBINED STATEMENT OF PARTNERS' DEFICIENCY
THREE MONTHS ENDED MARCH 31, 2001
(in thousands)
(unaudited)
Balance, December 31, 2000 $(161,950)
Contributions 10,994
Net income 18,915
Distributions (18,384)
---------
Balance, March 31, 2001 $(150,425)
=========
See accompanying notes to condensed combined financial statements.
3
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
CONDENSED COMBINED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(in thousands)
(unaudited)
Net cash provided by operating activities $ 7,086
---------
Cash flows used in investing activities:
Capital expenditures (321)
---------
Cash flows used in financing activities:
Proceeds from bank debt 425,000
Repayment of bank debt (422,670)
Contributions from partners 9,766
Distributions to partners (17,925)
Principal payments on capital lease obligations (952)
---------
Net cash used in financing activities (6,781)
---------
Net decrease in cash (16)
Cash at beginning of period 28
---------
Cash at end of period $ 12
=========
See accompanying notes to condensed combined financial statements.
4
AMERICAN MOVIE CLASSICS COMPANY AND SUBSIDIARIES
AND
BRAVO COMPANY AND SUBSIDIARIES
(General Partnerships)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands)
(unaudited)
Note 1. Basis of Presentation
---------------------
The accompanying unaudited condensed combined financial statements include
the accounts of American Movie Classics Company and its wholly-owned
subsidiaries and the accounts of Bravo Company and its wholly-owned subsidiaries
(collectively, the "Company") to reflect the combined financial position and
results of operations of the companies in which Metro-Goldwyn-Mayer Inc. ("MGM")
acquired an interest, as described below. All significant intercompany
transactions and balances are eliminated in combination. Interim financial
statements do not include all of the information and footnotes required by
accounting principles generally accepted in the United States for complete year-
end financial statements.
Note 2. Cash Flows
----------
The Company paid cash interest expense of approximately $7,437 for the
three months ended March 31, 2001.
Note 3. Subsequent Events
-----------------
On April 2, 2001, MGM acquired a 20% interest in the Company for $825,000
in cash.
5