UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2009
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from
to
001-34102
(Commission File Number)
RHI ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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36-4614616
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(State or Other Jurisdiction
of Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1325 Avenue of Americas, 21st Floor
New York, NY 10019
(Address of principal executive offices)
Registrants telephone number: (212) 977-9001
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
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
þ
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
The number of shares of the Registrants common stock, par value $0.01 per share, outstanding
as of August 5, 2009 was 13,505,100.
RHI ENTERTAINMENT, INC.
INDEX
2
Part 1. Financial Information
RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Balance Sheets
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June 30,
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December 31,
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2009
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2008
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(In thousands, except per share data)
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ASSETS
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Cash
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$
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1,856
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$
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22,373
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Accounts receivable, net of allowance for doubtful
accounts and discount to present value of $7,652 and
$11,933, respectively
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139,802
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180,125
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Film production costs, net
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793,903
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780,122
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Property and equipment, net
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340
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370
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Prepaid and other assets, net
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24,908
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28,928
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Intangible assets, net
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1,665
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2,264
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Total assets
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$
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962,474
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$
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1,014,182
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LIABILITIES AND STOCKHOLDERS EQUITY
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Accounts payable and accrued liabilities
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$
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47,005
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$
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51,477
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Accrued film production costs
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169,535
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195,328
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Debt
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583,789
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576,789
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Deferred revenue
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14,418
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13,530
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Total liabilities
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814,747
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837,124
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Stockholders equity
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Common stock, par value $0.01 per share;125,000
shares authorized and 13,505 shares issued and
outstanding
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$
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135
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$
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135
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Additional paid-in capital
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150,140
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149,609
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Accumulated deficit
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(57,517
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)
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(36,195
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)
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Accumulated other comprehensive loss
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(7,521
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)
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(11,387
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)
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Total RHI Inc. stockholders equity
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85,237
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102,162
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Non-controlling interest in consolidated entity
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62,490
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74,896
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Total stockholders equity
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147,727
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177,058
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Total liabilities and stockholders equity
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$
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962,474
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$
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1,014,182
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See accompanying notes to unaudited condensed consolidated financial statements.
3
RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Statements of Operations
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(Successor)
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(Predecessor)
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Three Months
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Six Months
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Period from
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Period from
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Period from
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Ended
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Ended
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June 23, 2008 to
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April 1, 2008 to
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January 1, 2008 to
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June 30, 2009
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June 30, 2009
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June 30, 2008
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June 22, 2008
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June 22, 2008
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(In thousands, except per share data)
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Revenue
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Production revenue
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$
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11,832
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$
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11,832
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$
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932
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$
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1,661
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$
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6,602
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Library revenue
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10,851
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23,854
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1,489
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49,363
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66,643
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Total revenue
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22,683
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35,686
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2,421
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51,024
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73,245
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Cost of sales
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18,487
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31,925
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1,303
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31,818
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49,396
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Gross profit
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4,196
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3,761
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1,118
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19,206
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23,849
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Other costs and expenses:
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Selling, general and
administrative
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6,922
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17,888
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732
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12,913
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25,802
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Amortization of intangible
assets
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285
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599
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36
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314
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671
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Fees paid to related parties:
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Management fees
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137
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287
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Termination fee
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6,000
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(Loss) income from
operations
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(3,011
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)
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(14,726
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)
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(5,650
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)
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5,842
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(2,911
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)
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Other (expense) income:
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Interest expense, net
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(10,435
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)
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(20,067
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)
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(819
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)
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(9,805
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)
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(21,559
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)
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Interest income
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1
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4
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3
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15
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34
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Other income (expense), net
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(953
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)
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(1,647
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)
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67
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(181
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)
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706
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Loss before income taxes
and non-controlling
interest in loss of
consolidated entity
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(14,398
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)
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(36,436
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)
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(6,399
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)
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(4,129
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)
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(23,730
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)
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Income tax (provision) benefit
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(543
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)
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(518
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)
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(83
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)
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2,111
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1,518
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Loss before
non-controlling interest
in loss of consolidated
entity
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(14,941
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)
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(36,954
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)
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(6,482
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)
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(2,018
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)
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(22,212
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)
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Non-controlling interest in
loss of consolidated entity
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6,320
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15,632
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2,742
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Net loss
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$
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(8,621
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)
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$
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(21,322
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)
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$
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(3,740
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)
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$
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(2,018
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)
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$
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(22,212
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)
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Loss per Share:
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|
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Basic
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$
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(0.64
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)
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$
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(1.58
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)
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$
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(0.28
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)
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N/A
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N/A
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Diluted
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$
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(0.64
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)
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$
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(1.58
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)
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$
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(0.28
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)
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N/A
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N/A
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Weighted Average Shares
Outstanding:
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Basic
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13,505
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13,505
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13,500
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N/A
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N/A
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Diluted
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13,505
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13,505
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13,500
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N/A
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N/A
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See accompanying notes to unaudited condensed consolidated financial statements.
4
RHI ENTERTAINMENT, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
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(Successor)
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(Predecessor)
|
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Six Months
|
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Period from
|
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Period from
|
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Ended
|
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|
June 23, 2008 to
|
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January 1, 2008 to
|
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June 30, 2009
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June 30, 2008
|
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June 22, 2008
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(In thousands)
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Cash flows from operating activities
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|
|
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|
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|
|
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Net loss
|
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$
|
(21,322
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)
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$
|
(3,740
|
)
|
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$
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(22,212
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)
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
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Amortization of film production costs
|
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22,008
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|
|
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1,034
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|
|
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43,579
|
|
Non-controlling interest in loss of consolidated entity
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|
|
(15,632
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)
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|
|
(2,742
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)
|
|
|
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(Decrease) increase of accounts receivable reserves
|
|
|
(4,281
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)
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|
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(224
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)
|
|
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4,370
|
|
Amortization of interest rate swap value
|
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|
3,032
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|
|
|
|
|
|
|
|
|
Deferred income taxes
|
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|
1,689
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|
|
|
99
|
|
|
|
(1,558
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)
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Amortization of deferred debt financing cost
|
|
|
1,689
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|
|
|
43
|
|
|
|
549
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Realized loss on interest rate swaps
|
|
|
1,267
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|
|
|
|
|
|
|
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Share-based compensation
|
|
|
921
|
|
|
|
42
|
|
|
|
926
|
|
Amortization of intangible assets
|
|
|
599
|
|
|
|
36
|
|
|
|
671
|
|
Depreciation and amortization of fixed assets
|
|
|
106
|
|
|
|
4
|
|
|
|
93
|
|
Amortization of debt discount
|
|
|
|
|
|
|
|
|
|
|
355
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
44,604
|
|
|
|
2,081
|
|
|
|
(4,694
|
)
|
Decrease (increase) in prepaid and other assets
|
|
|
643
|
|
|
|
2,177
|
|
|
|
(2,457
|
)
|
Additions to film production costs
|
|
|
(35,789
|
)
|
|
|
(2,764
|
)
|
|
|
(54,909
|
)
|
(Decrease) increase in accounts payable and
accrued liabilities
|
|
|
(2,069
|
)
|
|
|
(3,666
|
)
|
|
|
6,327
|
|
Decrease in accrued film production costs
|
|
|
(25,793
|
)
|
|
|
(3,832
|
)
|
|
|
(997
|
)
|
Increase (decrease) in deferred revenue
|
|
|
888
|
|
|
|
(452
|
)
|
|
|
(2,374
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(27,440
|
)
|
|
|
(11,904
|
)
|
|
|
(32,331
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(77
|
)
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(77
|
)
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
|
|
|
|
|
|
|
189,000
|
|
|
|
|
|
Payment of offering costs and fees
|
|
|
|
|
|
|
(15,016
|
)
|
|
|
|
|
Borrowings from credit facilities
|
|
|
8,000
|
|
|
|
112,179
|
|
|
|
80,093
|
|
Repayments of credit facilities
|
|
|
(1,000
|
)
|
|
|
(260,000
|
)
|
|
|
(44,708
|
)
|
Deferred debt financing costs
|
|
|
|
|
|
|
(4,207
|
)
|
|
|
|
|
Second lien pre-payment penalty
|
|
|
|
|
|
|
(2,600
|
)
|
|
|
|
|
Member capital contributions
|
|
|
|
|
|
|
|
|
|
|
29,135
|
|
Distribution to KRH
|
|
|
|
|
|
|
(35,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
7,000
|
|
|
|
(16,344
|
)
|
|
|
64,520
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
(20,517
|
)
|
|
|
(28,248
|
)
|
|
|
32,108
|
|
Cash, beginning of period
|
|
|
22,373
|
|
|
|
33,515
|
|
|
|
1,407
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
1,856
|
|
|
$
|
5,267
|
|
|
$
|
33,515
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
24,085
|
|
|
$
|
2,795
|
|
|
$
|
23,845
|
|
Cash paid for income taxes
|
|
|
747
|
|
|
|
42
|
|
|
|
1,968
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
RHI ENTERTAINMENT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(1) Business and Organization
On January 12, 2006, Hallmark Entertainment Holdings, LLC (Hallmark) sold its 100% interest in
Hallmark Entertainment, LLC (Hallmark Entertainment or the Initial Predecessor Company) to HEI
Acquisition, LLC. HEI Acquisition, LLC was immediately merged with and into Hallmark Entertainment
and its name was changed to RHI Entertainment, LLC (RHI LLC or the Predecessor Company). Subsequent
to the transaction, RHI LLCs sole member was RHI Entertainment Holdings, LLC (Holdings), a limited
liability company controlled by affiliates of Kelso & Company L.P. (Kelso). RHI LLC is engaged in
the development, production and distribution of made-for-television movies, mini-series and other
television programming.
On June 23, 2008, RHI Entertainment, Inc. (RHI Inc. or the Successor Company) completed its
initial public offering (the IPO). RHI Inc. was incorporated for the sole purpose of becoming the
managing member of RHI Entertainment Holdings II, LLC and had no operations prior to the IPO.
Immediately preceding the IPO, Holdings changed its name to KRH Investments LLC (KRH). KRH then
contributed its 100% ownership interest in RHI LLC to a newly formed limited liability company
named RHI Entertainment Holdings II, LLC (Holdings II) in consideration for 42.3% of the common
membership units in Holdings II and Holdings IIs assumption of all of KRHs obligations under its
financial advisory agreement with Kelso. Upon completion of the IPO, the net proceeds received were
contributed by RHI Inc. to Holdings II in exchange for 57.7% (13,500,100) of the common membership
units in Holdings II. Upon completion of the IPO, RHI Inc. became the sole managing member of
Holdings II and holds a majority of the economic interests. KRH is the non-managing member of
Holdings II and holds a minority of the economic interests. To the extent that distributions are
made, they will be in accordance with the relative economic interests of RHI Inc. and KRH in
Holdings II. RHI Inc. holds a number of common membership units in Holdings II equal to the number
of outstanding shares of RHI Inc. common stock.
The Company has incurred net losses and has had negative cash flows from operations in each of
the past three years and for the three and six months ended June 30, 2009 and, at June 30, 2009,
has an accumulated deficit of $57.5 million. The ability to meet debt and other obligations and to
reduce the Companys total debt depends on its future operating performance and on economic,
financial, competitive and other factors. Management is continually reviewing its operations for
opportunities to adjust the timing of expenditures to ensure that sufficient resources are
maintained. It has the ability to manage the timing and related expenditures of certain of these
productions. The timing surrounding the commencement of production of movies and mini-series and
the related financings are the most significant items that can be altered in terms of managing our
resources. For example, the Companys production partners have financed a significant portion of
the cost of most new productions without interim financial support from the Company. As a result, a
portion of the funding for the 2009 slate has been paid and, consistent with past periods, a
portion has been deferred to future periods to better match the cash inflows related to sales of
these productions. As such, our net production funding requirements for the balance of 2009 are
not significant relative to the remaining film deliveries. To the extent funding for a production
has been delayed, an accrual for the remaining funding is recorded as Accrued film production
costs.
If one of the Companys production partners cannot finance a substantial portion of a films
cost through the use of new or existing credit facilities of their own, the Company may not develop
or produce that film. As a result, the number of films the Company produces may be reduced, which
could have an adverse impact on our production revenue. Management believes that cash on hand, available
borrowings under our revolving credit facility and projected cash flows from operations will be
sufficient to satisfy the Companys financial obligations through at least the next twelve months.
(2) Basis of Presentation
The financial information presented herein has been prepared according to U.S. generally
accepted accounting principles. In managements opinion, the information presented herein reflects
all adjustments necessary to fairly present the financial position and results of operations of the
Predecessor Company and Successor Company (collectively, the Company).
The consolidated financial statements of the Predecessor Company include the accounts of RHI
LLC and its consolidated subsidiaries. The consolidated financial statements of the Successor
Company include the accounts of RHI Inc. and its consolidated subsidiary, Holdings II (which
consolidates RHI LLC). All intercompany accounts and transactions have been eliminated.
The unaudited financial statements as of June 30, 2009 (Successor) and for the three and six
months ended June 30, 2009 (Successor), the period from June 23, 2008 to June 30, 2008 (Successor),
the period from April 1, 2008 to June 22, 2008 (Predecessor) and the period from January 1, 2008 to
June 22, 2008 (Predecessor) include, in the opinion of management, all adjustments consisting
6
only of normal recurring adjustments, which the company considers necessary for a fair presentation
of the financial position and results of operations of the company for these periods. Results for
the aforementioned periods are not necessarily indicative of the results to be expected for the
full year.
(3) Summary of Significant Accounting Policies
For a complete discussion of the Companys accounting policies, refer to the consolidated
financial statements and related notes included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2008, which was filed with the SEC on March 5, 2009.
(a) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires the Company to make estimates and assumptions that affect the reported amounts
in the financial statements and footnotes thereto. Actual results could differ from those
estimates.
(b) Comprehensive (Loss) Income
Comprehensive (loss) income consists of net loss and other gains/losses (comprised of
unrealized gains/losses associated with interest rate swaps with respect to the Company) affecting
stockholders equity that, under U.S. generally accepted accounting principles are excluded from
net loss. Comprehensive (loss) income for the three months ended June 30, 2009 (Successor), the
period from June 23, 2008 to June 30, 2008 (Successor), the period from April 1, 2008 to June 22,
2008 (Predecessor), the six months ended June 30, 2009 (Successor), and the period from January 1,
2008 to June 22, 2008 (Predecessor) were $(7.9) million, $(4.6) million, $10.0 million, $(19.2) million, and $(21.0) million, respectively.
(c) Segment Information
The Company operates in a single segment: the development, production and distribution of
made-for-television movies, mini-series and other television programming. Long-lived assets located
in foreign countries are not material. Revenue earned from foreign licensees represented
approximately 27%, 54%, 18%, 29% and 24% of total revenue for the three months ended June 30, 2009
(Successor), the period from June 23, 2008 to June 30, 2008 (Successor), the period from April 1,
2008 to June 22, 2008 (Predecessor), the six months ended June 30, 2009 (Successor), and the period
from January 1, 2008 to June 22, 2008 (Predecessor), respectively. These revenues, generally
denominated in U.S. dollars, were primarily from sales to customers in Europe.
(d) New Accounting Pronouncements Adopted
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157. SFAS
157 defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. Under SFAS 157, fair
value refers to the price that would be received from the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants in the market in which the
reporting entity does business. It also clarifies the principle that fair value should be based on
the assumptions market participants would use when pricing the asset or liability. SFAS 157 applies
under other accounting pronouncements that require or permit fair value measurements. Accordingly,
this Statement does not require any new fair value measurements. However, for some entities, the
application of SFAS 157 could change current practices. SFAS 157 was effective for financial
statements issued with fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years, however, the effective date for SFAS 157 was deferred until fiscal years
beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities. The
company adopted SFAS 157 effective January 1, 2009 for nonfinancial assets and nonfinancial
liabilities, which did not have an impact on its consolidated financial statements.
In November 2007, the EITF reached a consensus on Issue No. 07-1, Accounting for
Collaboration Arrangements Related to the Development and Commercialization of Intellectual
Property, or EITF 07-1. EITF 07-1 provides guidance on how the parties to a collaborative
agreement should account for costs incurred and revenue generated on sales to third parties, how
sharing payments pursuant to a collaboration agreement should be presented in the income statement
and certain related disclosure questions. EITF 07-1 was adopted by the company as of January 1,
2009. The adoption of EITF 07-1 by the Company had no impact on its consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, or
SFAS 141R. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at
their fair values as of that date. SFAS 141R is effective for the company for business combinations
for
7
which the acquisition date is on or after January 1, 2009. SFAS 141R was adopted by the Company as
of January 1, 2009. The adoption of SFAS 141R by the Company had no impact on its consolidated
financial statements.
In December 2007, the FASB issued SFAS 160 that changed the current accounting and financial
reporting for non-controlling (minority) interests. SFAS 160 was effective for fiscal years
beginning after December 15, 2008. SFAS 160 was applied prospectively; however, certain disclosure
requirements of SFAS 160 require retrospective treatment. SFAS 160 was adopted by the Company on
January 1, 2009. As a result of the adoption, the companys non-controlling interest is now
classified as a separate component of equity, not as a liability as it was previously presented.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161), which amends SFAS No. 133. SFAS 161 requires companies with
derivative instruments to disclose information that should enable financial statement users to
understand how and why a company uses derivative instruments, how derivative instruments and
related hedged items are accounted for under SFAS 133 and related Interpretations, and how
derivative instruments and related hedged items affect a companys financial position, financial
performance, and cash flows. Entities shall select the format and the specifics of disclosures
relating to their volume of derivative activity that are most relevant and practicable for their
individual facts and circumstances. SFAS 161 expands the current disclosure framework in SFAS 133
and is effective prospectively for all periods beginning on or after November 15, 2008. SFAS 161
was adopted by the Company as of January 1, 2009. SFAS 161 did not have a significant impact on the
Companys consolidated financial statements. See Note 7 for the required disclosures.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165), which establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. This statement sets
forth: the period after the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements and the disclosures
that an entity should make about events or transactions that occurred after the balance sheet date.
This statement also requires companies to disclose the date through which subsequent events have
been evaluated and whether that date is the date the financial statements were issued or the date
the financial statements were available to be issued. SFAS 165 is effective for interim and
annual financial periods ending after June 15, 2009 and is to be applied prospectively. The
Company adopted SFAS 165 as of April 1, 2009. Subsequent events have been evaluated through August
5, 2009, the date the financial statements were issued.
(4) Loss Per Share, Basic and Diluted
Basic loss per share is computed on the basis of the weighted average number of common shares
outstanding. Diluted loss per share is computed on the basis of the weighted average number of
common shares outstanding plus the effect of potentially dilutive common stock options and
restricted stock using the treasury stock method. Since the Company has a net loss for the period,
outstanding common stock options and restricted stock units are anti-dilutive. As of June 30, 2009,
the Company has no potentially dilutive securities outstanding. The weighted average basic and
diluted shares outstanding for the three and six months ended June 30, 2009 (Successor) was
13,505,100.
(5) Non-Controlling Interest
As discussed in Note 2, Basis of Presentation, RHI Inc. consolidates the financial results of
Holdings II and its wholly-owned subsidiary, RHI LLC. The 42.3% minority interest of Holdings II
(9,900,000 membership units) held by KRH is recorded as non-controlling interest in the
consolidated entity, which results in an associated reduction in additional paid-in capital of RHI
Inc. The non-controlling interest in the consolidated entity on the consolidated balance sheet was
established in accordance with Emerging Issues Task Force (EITF) 94-2, Treatment of Minority
Interests in Certain Real Estate Investment Trusts by multiplying the net equity of Holdings II
(after reflecting the contributions of KRH and RHI Inc. and costs related to the offering and
reorganization) by KRHs percentage ownership in Holdings II. The non-controlling interest in loss
of consolidated entity on the consolidated statement of operations represents the portion of
Holdings IIs net loss attributable to KRH.
8
The non-controlling interest associated with the initial investment by RHI Inc. in Holdings II
and subsequent transactions are calculated as follows (in thousands):
|
|
|
|
|
Total Holdings II members equity as of June 22, 2008
|
|
$
|
108,766
|
|
RHI Inc. investment in Holdings II
|
|
|
173,984
|
|
Non-controlling interest associated with distribution to KRH
|
|
|
(34,972
|
)
|
|
|
|
|
Total post-IPO Holdings II members equity
|
|
|
247,778
|
|
Non-controlling interest of KRH
|
|
|
42.3
|
%
|
|
|
|
|
Initial allocation of non-controlling interest in consolidated entity
|
|
|
104,810
|
|
Non-controlling interest in share-based compensation
|
|
|
473
|
|
Non-controlling interest in unrealized loss on interest rate swaps
|
|
|
(3,853
|
)
|
|
|
|
|
Non-controlling interest allocation for the period from June 23, 2008 to December 31, 2008
|
|
|
(3,380
|
)
|
Non-controlling interest in loss of consolidated entity for the period from June 23, 2008 to December 31, 2008
|
|
|
(26,534
|
)
|
|
|
|
|
Non-controlling interest in consolidated entity as of December 31, 2008
|
|
$
|
74,896
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest in share-based compensation
|
|
|
390
|
|
Non-controlling interest in unrealized gain on interest rate swaps
|
|
|
1,553
|
|
Non-controlling interest in amortization of the fair market value of interest rate swaps de-designated as hedges
|
|
|
1,283
|
|
|
|
|
|
Non-controlling interest allocation for the six months ended June 30, 2009
|
|
|
3,226
|
|
Non-controlling interest in loss of consolidated entity for the six months ended June 30, 2009
|
|
|
(15,632
|
)
|
|
|
|
|
Non-controlling interest in consolidated entity as of June 30, 2009
|
|
$
|
62,490
|
|
|
|
|
|
(6) Film Production Costs, Net
Film production costs are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Completed films
|
|
$
|
1,018,881
|
|
|
$
|
984,805
|
|
Crown Film Library
|
|
|
145,357
|
|
|
|
145,290
|
|
Films in process and development
|
|
|
18,190
|
|
|
|
18,012
|
|
|
|
|
|
|
|
|
|
|
|
1,182,428
|
|
|
|
1,148,107
|
|
Accumulated amortization
|
|
|
(388,525
|
)
|
|
|
(367,985
|
)
|
|
|
|
|
|
|
|
|
|
$
|
793,903
|
|
|
$
|
780,122
|
|
|
|
|
|
|
|
|
The following table illustrates the amount of overhead and interest costs capitalized to film
production costs as well as amortization expense associated with completed films and the Crown Film
Library (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
Predecessor
|
|
|
Three Months
|
|
Six Months
|
|
Period from
|
|
Period from
|
|
Period from
|
|
|
Ended
|
|
Ended
|
|
June 23, 2008 to
|
|
April 1, 2008 to
|
|
January 1, 2008 to
|
|
|
June 30, 2009
|
|
June 30, 2009
|
|
June 30, 2008
|
|
June 22, 2008
|
|
June 22, 2008
|
|
|
(In thousands)
|
Overhead costs
capitalized
|
|
$
|
2,432
|
|
|
$
|
4,785
|
|
|
$
|
280
|
|
|
$
|
3,181
|
|
|
$
|
6,775
|
|
Interest capitalized
|
|
|
161
|
|
|
|
256
|
|
|
|
26
|
|
|
|
172
|
|
|
|
313
|
|
Amortization of
completed films
|
|
|
12,270
|
|
|
|
19,930
|
|
|
|
943
|
|
|
|
29,029
|
|
|
|
40,595
|
|
Amortization of
Crown Film Library
|
|
|
281
|
|
|
|
611
|
|
|
|
92
|
|
|
|
1,333
|
|
|
|
2,608
|
|
Approximately 37% of completed film production costs have been amortized through June 30,
2009. The Company further anticipates that approximately 7% of completed film production costs will
be amortized through June 30, 2010. The Company anticipates that approximately 34% of completed
film production costs as of June 30, 2009 will be amortized over the next three years and that
approximately 80% of film production costs will be amortized within five years. The Crown Film
Library has a remaining amortization period of 17 years and 6 months as of June 30, 2009.
9
(7) Debt
Debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
First Lien Term Loan
|
|
$
|
175,000
|
|
|
$
|
175,000
|
|
Revolver
|
|
|
333,789
|
|
|
|
326,789
|
|
Second Lien Term Loan
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
$
|
583,789
|
|
|
$
|
576,789
|
|
|
|
|
|
|
|
|
The Company has two credit agreements. The Companys first lien credit agreement, as amended
(the First Lien Credit Agreement), is comprised of two facilities: (i) a $175.0 million term loan
(First Lien Term Loan) and (ii) a $350.0 million revolving credit facility, including a letter of
credit sub-facility (Revolver). The Companys second lien credit agreement, as amended (Second Lien
Credit Agreement), is comprised of a seven-year $75.0 million term loan (Second Lien Term Loan).
The First Lien Term Loan amortizes in three installments of 10%, 20% and 70% on April 13,
2011, 2012 and 2013, respectively and bears interest at the Alternate Base Rate (ABR) or LIBOR plus
an applicable margin of 1.00% or 2.00% per annum, respectively. The maturity date of the Revolver
is April 13, 2013 and the Revolver bears interest at either the ABR or LIBOR plus an applicable
margin of 1.00% or 2.00% per annum, respectively. The Second Lien Term Loan matures on June 23,
2015 and bears interest at ABR or LIBOR plus an applicable margin of 6.50% or 7.50% per annum,
respectively.
Interest payments for all loans are due, at the Companys election, according to interest
periods of one, two or three months. The Revolver also requires an annual commitment fee of 0.375%
on the unused portion of the commitment. At June 30, 2009, the interest rates associated with the
First Lien Term Loan, Revolver and New Second Lien Term Loan were 2.31%, 2.44%, and 8.24%,
respectively. At June 30, 2009, the Company had availability of $12.8 million under its revolver,
net of $3.4 million of stand-by letters of credit outstanding.
The First Lien Credit Agreement and Second Lien Credit Agreement, as amended, include
customary affirmative and negative covenants, including among others: (i) limitations on
indebtedness, (ii) limitations on liens, (iii) limitations on investments, (iv) limitations on
guarantees and other contingent obligations, (v) limitations on restricted junior payments and
certain other payment restrictions, (vi) limitations on consolidation, merger, recapitalization or
sale of assets, (vii) limitations on transactions with affiliates, (viii) limitations on the sale
or discount of receivables, (ix) limitations on lines of business, (x) limitations on production
and acquisition of product and (xi) certain reporting requirements. Additionally, the First Lien
Credit Agreement includes a Minimum Consolidated Tangible Net Worth covenant (as defined therein)
and both the First Lien Credit Agreement and the Second Lien Credit Agreement contain a Coverage
Ratio covenant (as defined therein). The First Lien Credit Agreement and Second Lien Credit
Agreement also include customary events of default, including among others, a change of control
(including the disposition of capital stock of subsidiaries that guarantee the credit agreement).
On March 2, 2009, the Company further amended its First Lien Credit Agreement to revise a
consolidated net worth covenant. The amended covenant excludes the Companys intangible assets and
interest rate swaps and any impact they may have on the Companys balance sheet and statement of
operations in the annual determination of Consolidated Tangible Net Worth (as defined in the First
Lien Credit Agreement). The amendment was effective as of December 31, 2008.
The Company was in compliance with all financial covenants as of June 30, 2009.
Interest Rate Swaps
The Company utilizes derivative financial instruments to reduce interest rate risk. The
Company does not hold or issue derivative financial instruments for trading purposes. In accordance
with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which was
amended by SFAS No.149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, the interest rate swaps held by the Company initially were designated as cash flow
hedges and qualified for hedge accounting in accordance with method 1 of SFAS No. 133
Implementation Issue No. G7. The critical terms of the interest rate swaps and hedged variable-rate
debt coincided and cash flows due to the hedge exactly offset cash flows resulting from
fluctuations in the variable rates.
Under hedge accounting, changes in the fair value of the interest rate swaps are reported as a
component of accumulated other comprehensive loss in the Companys consolidated balance sheet. The
fair value of the swap contracts and any amounts payable to or receivable from counterparties are
reflected as assets or liabilities in the Companys consolidated balance sheet.
10
As of December 31, 2008, the Company had two identical interest rate swap agreements to manage
its exposure to interest rate movements associated with $435.0 million of its credit facilities by
effectively converting its variable rate to a fixed rate. These interest rate swaps provided for
the exchange of variable rate payments for fixed rate payments. The variable rate was based on
three month LIBOR and the fixed rate was 4.98%. The interest rate swaps were scheduled to terminate
on April 27, 2010. The aggregate fair market value of the interest rate swaps was approximately
$(19.7) million as of December 31, 2008.
On April 21, 2009,
the Company amended its existing interest rate swap agreements and
de-designated them as cash flow hedges. As a result of the de-designation, the fair market value of
the swaps immediately preceding the amendments will be amortized as interest expense in the
consolidated statement of operations during the period from April 21, 2009 through April 27, 2010,
the maturity date of the original swaps. As of April 21, 2009, the fair value of the interest rate
swaps recorded in accumulated other comprehensive loss was $(16.1) million and $3.0 million was
amortized as interest expense during the three and six months ended June 30, 2009. The difference
in fair value of $(4.0) million between the original swaps and the amended swaps was immediately
recognized as Other income (expense), net in the consolidated statement of operations during the
three and six months ended June 30, 2009.
The amended interest rate swap agreements are with three counterparties and continue to cover
$435.0 million of the Companys credit facilities and provide for the exchange of variable rate
payments for fixed rate payments. The variable rates are based on one month LIBOR and the weighted
average fixed rate is 3.81%. The amended interest rate swaps terminate on April 27, 2010 ($90.3
million), June 27, 2011 ($39.6 million) and April 27, 2012 ($305.1 million). The amended interest
rate swaps have not been designated as cash flow hedges and, therefore, changes to their fair value
are recorded as Other income (expense), net in the consolidated statement of operations. For the
three and six months ended June 30, 2009, the change in fair value of the amended interest rate
swaps recorded to Other income (expense), net was $2.7 million. As of June 30, 2009, the fair
market value of the interest rate swaps was approximately $(17.3) million, which is recorded in
Accounts payable and accrued liabilities.
The Company is exposed to credit loss in the event of non-performance by the counterparties to
the interest rate swap agreements. However, the Company does not anticipate non-performance by the
counterparties.
(8) Related Party Transactions
In 2006, the Company agreed to pay Kelso an annual management fee of $600,000 in connection
with planning, strategy, oversight and support to management (financial advisory agreement). This
management fee was paid on a quarterly basis. A total of $137,000 and $287,000 of this management
fee was recorded as management fees paid to related parties in the unaudited consolidated
statements of operations for the period from April 1, 2008 to June 22, 2008 (Predecessor) and the
period from January 1, 2008 to June 22, 2008 (Predecessor), respectively. Concurrent with the
closing of the IPO, the Company paid Kelso $6.0 million in exchange for the termination of its fee
obligations under the existing financial advisory agreement.
In August 2008, certain affiliates of Kelso guaranteed $20.0 million of the Second Lien Term
Loans held by JPMorgan Chase Bank, N.A. (JPM) (but not any subsequent assignee) and also agreed to
purchase the loans from JPM on December 7, 2008 if JPM had not sold such loans to third parties or
if the loans had not otherwise been repaid by that date. In September 2008, $5.0 million of these
loans were syndicated to California Bank and Trust, a member of the Companys first lien credit
syndicate. The remaining $15.0 million in loans continued to be guaranteed by affiliates of Kelso,
as the requirement to purchase had been extended until May 6, 2009, at which time affiliates of
Kelso purchased the loans from JPM.
(9) Share-based Compensation
On February 9, 2009, the Company granted stock options and RSUs to its chief executive officer
and its newly appointed Chairman of the Board of Directors (Chairman). The Companys chief
executive officer was granted 550,000 non-qualified stock options and 150,000 restricted stock
units (RSUs). The Companys Chairman was granted 350,000 non-qualified stock options and 350,000
RSUs. All stock options granted to both the Chairman and chief executive officer have an exercise
price equal to $4.04 per share, the closing price per share of the Companys common stock on
February 9, 2009 (the date of grant) and expire 10 years from the date of grant. Subject to each
recipients continued service with the Company, as of each applicable vesting date, 33
1
/
3
% of the stock options and RSUs will generally vest on each
of the first three anniversaries of the date of grant. With respect to each of the stock options
and restricted stock units, (i) 1/3 of the shares that become vested on each anniversary date will
become exercisable (with respect to shares subject to stock options) or transferable (with respect
to shares subject to RSUs) immediately upon vesting, (ii) 1/3 of the shares that become vested on
each anniversary will become exercisable or transferable, as applicable, upon the attainment of a
$9.00 stock price performance hurdle and (iii) 1/3 of the shares that become vested on each
anniversary will become exercisable or transferable, as applicable, upon the attainment of a $14.00
stock price performance hurdle. The stock options and RSUs provide for accelerated vesting if there
is a change in control (as defined in the RSU and stock option agreements). The RSUs were valued at
$4.04 per share
11
based on the closing price of the Companys stock on the date of grant. The stock options granted
were valued using a Monte Carlo simulation model and have a grant date fair values associated with
each vesting tranche ranging from $2.05 $2.45 per share.
Additionally, on February 9, 2009, the Companys Chairman and chief executive officer were
provided with certain distribution rights under the Second Amended and Restated Limited Liability
Company Agreement of KRH. The Companys chief executive officer forfeited 500 Value Units (profit
interest in KRH) and certain distribution rights in exchange for his new distribution rights. These
Value Unit and distribution right adjustments only impact the return to, and only dilute the
interests of, the owners of KRH, and will not impact the return to, or dilute the interest of, the
direct holders of the Companys common stock.
On June 12, 2009, the Company granted stock options and RSUs to Jeffrey C. Bloomberg, its
newly appointed member of the board of directors, and other newly hired employees. A total of
31,000 non-qualified stock options and 31,000 RSUs were granted. All stock options granted have an
exercise price of $3.16, the closing price per share of the Companys common stock on June 12, 2009
(the date of grant) and expire 10 years from the date of grant. The stock options and RSUs
granted to Mr. Bloomberg vest on the first anniversary of the grant date while the stock options
and RSUs granted to the employees vest in one-third increments on the anniversary of the grant
date in each of the three years following the grant. The stock options and RSUs provide for
accelerated vesting if there is a change in control (as defined in the RSU and stock option
agreements). The RSUs were valued at $3.16 per share based on the closing price of the Companys
stock on the date of grant. The stock options granted were valued using a Black-Scholes option
pricing model and have a grant date fair value of $1.37 per share.
(10) Commitments and Contingencies
The Company is involved in various legal proceedings and claims incidental to the normal
conduct of its business. Although it is impossible to predict the outcome of any outstanding legal
proceedings, the Company believes that such outstanding legal proceedings and claims, individually
and in the aggregate, are not likely to have a material effect on its financial position or results
of operations.
(11) Subsequent Event
On July 15, 2009, RHI Entertainment Distribution, LLC (a wholly owned subsidiary of the
Company) entered into a settlement agreement (the Settlement Agreement) to resolve a dispute with
one of the Companys distribution partners, ION Media Networks, Inc. (ION), which filed for Chapter
11 bankruptcy in June 2009. If approved by the United States Bankruptcy Court for the Southern
District of New York (the Court), which is currently presiding over IONs Chapter 11
restructuring, the Settlement Agreement would end the existing relationship between the Company and
ION and result in the termination of the license agreement dated December 1, 2007 between the
parties (the License Agreement). The License Agreement provided that ION would broadcast the
Companys programming during certain weekend time periods in exchange for payments by the Company
and a share of the advertising sales revenue for those periods.
On June 8, 2009, ION filed a lawsuit against RHI Entertainment Distribution, LLC alleging that
it breached the License Agreement by failing to make certain payments to ION. The Company denied
and continues to deny the allegations and intends to assert affirmative defenses and counterclaims
against ION if the Settlement Agreement is not approved by the Court.
The Settlement Agreement provides that, in pertinent part: (i) the Company will make a
one-time payment of $2.5 million to ION no later than two days after approval by the Court (the
Effective Date); (ii) the License Agreement will terminate on the Effective Date and neither party
will have any further obligations to the other; (iii) ION will have no further rights to broadcast
or otherwise exploit the Companys programming after the Effective Date; (iv) the parties will
release each other from any claims under the License Agreement; and (v) ION will dismiss its
lawsuit against Entertainment Distribution, LLC within five days of the Effective Date.
The $2.5 million payment by the Company represents the net amounts owed to ION by the Company
associated with the Companys final $3.5 million minimum guarantee payment and $3.3 million of
minimum advertising spending commitments net of $4.3 million owed to the Company related to the
Companys June 30, 2009 accounts receivable balance associated with advertising sales of the
Companys programming on ION. Management anticipates a net gain of approximately $1.1 million to be
recorded resulting from the settlement of any assets and liabilities recorded as of June 30, 2009
related to the License Agreement.
12
|
|
|
Item 2.
|
|
Managements Discussion and analysis of Financial Condition and Results of Operations
|
This discussion may contain forward-looking statements that reflect RHI Entertainment Inc.s
(RHI Inc) current views with respect to, among other things, future events and financial
performance. RHI Inc. generally identifies forward-looking statements by terminology such as
outlook, believes, expects, potential, continues, may, will, could, should,
seeks, approximately, predicts, intends, plans, estimates, anticipates or the
negative version of those words or other comparable words. Any forward-looking statements contained
in this discussion are based upon the historical performance of us and our subsidiaries and on our
current plans, estimates and expectations. The inclusion of this forward-looking information should
not be regarded as a representation by us, or any other person that the future plans, estimates or
expectations contemplated by us will be achieved. Such forward-looking statements are subject to
various risks and uncertainties and assumptions relating to our operations, financial results,
financial condition, business prospects, growth strategy and liquidity. If one or more of these or
other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect,
our actual results may vary materially from those indicated in these statements. These factors
should not be construed as exhaustive and should be read in conjunction with the other cautionary
statements that are included in this Form 10-Q. Unless required by law, RHI Inc. does not undertake
any obligation to publicly update or review any forward-looking statement, whether as a result of
new information, future developments or otherwise.
The historical consolidated financial data discussed below reflect the historical results of
operations of RHI Entertainment, LLC (RHI LLC) and its subsidiaries as RHI Inc. did not have any
historical operations prior to June 23, 2008. See Notes to RHI Inc.s Condensed Consolidated
Financial Statements included elsewhere in this Form 10-Q.
In this discussion, unless the context otherwise requires, the terms RHI Inc., the
Company, we, us and our refer to RHI Entertainment, Inc. and its subsidiaries including RHI
Entertainment Holdings II, LLC and RHI Entertainment, LLC.
Overview
We develop, produce and distribute new made-for-television (MFT) movies, mini-series and other
television programming worldwide. We also selectively produce new episodic series programming for
television. In addition to our development, production and distribution of new content, we own an
extensive library of existing long-form television content, which we license primarily to broadcast
and cable networks worldwide.
Our revenue and operating results are seasonal in nature. A significant portion of the films
that we develop, produce and distribute are delivered to the broadcast and cable networks in the
second half of each year. Typically, programming for a particular year is developed either late in
the preceding year or in the early portion of the current year. Generally, planning and production
take place during the spring and summer and completed film projects are delivered in the third and
fourth quarters of each year. As a result, our first, second and third quarters of our fiscal year
typically have less revenue than the fourth quarter of such fiscal year. Additionally, the timing
of the film deliveries from year-to-year may vary significantly. Importantly, the results of one
quarter are not necessarily indicative of results for the next or any future quarter.
Each year, we develop and distribute a new list, or slate, of film content, consisting
primarily of MFT movies and mini-series. The investment required to develop and distribute each new
slate of films is our largest operating cash expenditure. A portion of this investment in film each
year is financed through the collection of license fees during the production process. Each new
slate of films is added to our library in the year subsequent to its initial year of delivery. Cash
expenditures associated with the distribution of the library film content are not significant.
We refer to the revenue generated from the licensing of rights in the fiscal year in which a
film is first delivered to a customer as production revenue. Any revenue generated from the
licensing of rights to films in years subsequent to the films initial year of delivery is referred
to as library revenue. The growth and interaction of these two revenue streams is an important
metric we monitor as it indicates the current market demand for both our new content (production
revenue) and the content in our film library (library revenue). We also monitor our gross profit,
which allows us to determine the overall profitability of our film content. We focus on the
profitability of our new film slates rather than volume. As such, we strive to manage the scale of
our individual production budgets to meet market demand and enhance profitability.
13
Discussion of consolidated financial information
Revenue
We derive our revenue from the distribution of our film content. Historically, most of our
revenue has been generated from the licensing of rights to our film content to broadcast and cable
networks for specified terms, in specified media and territories.
The timing of film deliveries during the year can have a significant impact on revenue. Each
year, we develop and distribute a new slate of film content, consisting primarily of MFT movies and
mini-series. We refer to the revenue generated from the licensing of rights in the fiscal year in
which a film is first delivered to a customer as production revenue. Any revenue generated from
the licensing of rights to films in years subsequent to the films initial year of delivery is
referred to as library revenue.
Cost of sales
We capitalize costs incurred for the acquisition and development of story rights, film
production costs, film production-related interest and overhead, residuals and participations.
Residuals and participations represent contingent compensation payable to parties associated with
the film including producers, writers, directors or actors. Residuals represent amounts payable to
members of unions or guilds such as the Screen Actors Guild, Directors Guild of America and
Writers Guild of America based on the performance of the film in certain media and/or the guild
members salary level.
Cost of sales includes the amortization of capitalized film costs, as well as exploitation
costs associated with bringing a film to market.
Selling, general and administrative expense
Selling, general and administrative expense includes salaries, rent and other expenses net of
amounts included in capitalized overhead. We expect increases in general and administrative expense
as we incur additional expenses in connection with operating as a publicly traded company.
Interest expense, net
Interest expense, net represents interest incurred on the Companys credit facilities
(inclusive of amortization of: i) deferred debt issuance costs, ii) fair market value of interest
rate swaps de-designated as hedges and iii) original issue discount). Interest expense is reflected
net of interest capitalized to film production costs.
Income taxes
Our operations are conducted through our indirect subsidiary, RHI LLC. Holdings II and RHI LLC are
organized as limited liability companies. For U.S. federal income tax purposes, Holdings II is
treated as a partnership and RHI LLC is disregarded as a separate entity from Holdings II.
Partnerships are generally not subject to income tax, as the income or loss is included in the tax
returns of the individual partners.
The consolidated financial statements of RHI Inc. include a provision for corporate income
taxes associated with RHI Inc.s membership interest in Holdings II as well as an income tax
provision related to RHI International Distribution, Inc., a wholly-owned subsidiary of RHI LLC,
which is a taxable U.S. corporation.
Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to the differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using enacted tax rates that we expect to apply to
taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. We record a valuation allowance to reduce
our deferred tax assets to the amount that is more likely than not to be realized. In evaluating
our ability to recover our deferred tax assets, we consider all available positive and negative
facts and circumstances and allowances, if any, are adjusted during each reporting period.
KRH is entitled to exchange its common membership units in Holdings II for, at our option,
cash or shares of RHI Inc. common stock on a one-for-one basis (as adjusted to account for stock
splits, recapitalizations or similar events) or a combination of both stock and cash. These
exchanges may result in increases in the tax basis of the assets of Holdings II that otherwise
would not have been available. These increases in our proportionate share of tax basis may increase
depreciation and amortization deductions for tax
14
purposes and therefore reduce the amount of tax that RHI Inc. would otherwise be required to
pay in the future, although the IRS may challenge all or part of that tax basis increase, and a
court could sustain such a challenge.
Results of operations
Three months ended June 30, 2009 compared to the three months ended June 30, 2008
The results of operations for the three months ended June 30, 2009 and 2008 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(a) + (b)
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Combined (1)
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
|
|
June 23, 2008
|
|
|
April 1, 2008
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
to June 30,
|
|
|
to June 22,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Increase/
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue
|
|
$
|
932
|
|
|
$
|
1,661
|
|
|
$
|
2,593
|
|
|
$
|
11,832
|
|
|
$
|
9,239
|
|
Library revenue
|
|
|
1,489
|
|
|
|
49,363
|
|
|
|
50,852
|
|
|
|
10,851
|
|
|
|
(40,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
2,421
|
|
|
|
51,024
|
|
|
|
53,445
|
|
|
|
22,683
|
|
|
|
(30,762
|
)
|
Cost of sales
|
|
|
1,303
|
|
|
|
31,818
|
|
|
|
33,121
|
|
|
|
18,487
|
|
|
|
(14,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,118
|
|
|
|
19,206
|
|
|
|
20,324
|
|
|
|
4,196
|
|
|
|
(16,128
|
)
|
Other costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
732
|
|
|
|
12,913
|
|
|
|
13,645
|
|
|
|
6,922
|
|
|
|
(6,723
|
)
|
Amortization of intangible assets
|
|
|
36
|
|
|
|
314
|
|
|
|
350
|
|
|
|
285
|
|
|
|
(65
|
)
|
Fees paid to related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
|
|
|
|
137
|
|
|
|
137
|
|
|
|
|
|
|
|
(137
|
)
|
Termination fee
|
|
|
6,000
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(5,650
|
)
|
|
|
5,842
|
|
|
|
192
|
|
|
|
(3,011
|
)
|
|
|
(3,203
|
)
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(819
|
)
|
|
|
(9,805
|
)
|
|
|
(10,624
|
)
|
|
|
(10,435
|
)
|
|
|
189
|
|
Interest income
|
|
|
3
|
|
|
|
15
|
|
|
|
18
|
|
|
|
1
|
|
|
|
(17
|
)
|
Other income (expense), net
|
|
|
67
|
|
|
|
(181
|
)
|
|
|
(114
|
)
|
|
|
(953
|
)
|
|
|
(839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and non-controlling
interest in loss of consolidated entity
|
|
|
(6,399
|
)
|
|
|
(4,129
|
)
|
|
|
(10,528
|
)
|
|
|
(14,398
|
)
|
|
|
(3,870
|
)
|
Income tax (provision) benefit
|
|
|
(83
|
)
|
|
|
2,111
|
|
|
|
2,028
|
|
|
|
(543
|
)
|
|
|
(2,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before non-controlling interest in loss of
consolidated entity
|
|
|
(6,482
|
)
|
|
|
(2,018
|
)
|
|
|
(8,500
|
)
|
|
|
(14,941
|
)
|
|
|
(6,441
|
)
|
Non-controlling interest in loss of consolidated entity
|
|
|
2,742
|
|
|
|
|
|
|
|
2,742
|
|
|
|
6,320
|
|
|
|
3,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,740
|
)
|
|
$
|
(2,018
|
)
|
|
$
|
(5,758
|
)
|
|
$
|
(8,621
|
)
|
|
$
|
(2,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share.
|
|
$
|
(0.28
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
(0.64
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents the combined results for the Predecessor and Successor period presented. The
combined results are non-GAAP financial measures and should not be used in isolation or
substitution of Predecessor and Successor results. We believe the combined results help to
provide a presentation of our results for comparability purposes to prior periods. These
combined results form the basis for the ensuing discussion of the results of our operations.
|
15
Revenue, cost of sales and gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
Amount
|
|
|
of Revenue
|
|
|
Amount
|
|
|
of Revenue
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Production revenue
|
|
$
|
11,832
|
|
|
|
52
|
%
|
|
$
|
2,593
|
|
|
|
5
|
%
|
|
$
|
9,239
|
|
|
|
356
|
%
|
Library revenue
|
|
|
10,851
|
|
|
|
48
|
%
|
|
|
50,852
|
|
|
|
95
|
%
|
|
|
(40,001
|
)
|
|
|
(79
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
22,683
|
|
|
|
100
|
%
|
|
|
53,445
|
|
|
|
100
|
%
|
|
|
(30,762
|
)
|
|
|
(58
|
)%
|
Cost of sales
|
|
|
18,487
|
|
|
|
82
|
%
|
|
|
33,121
|
|
|
|
62
|
%
|
|
|
(14,634
|
)
|
|
|
(44
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
4,196
|
|
|
|
18
|
%
|
|
$
|
20,324
|
|
|
|
38
|
%
|
|
$
|
(16,128
|
)
|
|
|
(79
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue decreased $30.8 million, or 58%, to $22.7 million during the three months ended
June 30, 2009 from $53.4 million during the same period in 2008.
Production revenue increased $9.2 million to $11.8 million in the three months ended June 30,
2009 compared to $2.6 million during the same period in 2008. In the three months ended June 30,
2009, four original MFT movies and two original mini-series were delivered, while four MFT movies
were delivered during the three months ended June 30, 2008. License fees related to the initial
domestic network or cable broadcast (initial license fees) were recognized on all of the films
delivered during the three months ended June 30, 2009, while no such fees were recognized on any of
the films delivered in the same period of 2008. During 2008, the films premiered on
video-on-demand prior to the initial broadcast term. While the short video-on-demand windows earn
royalty-based revenue, they delay the opening of the domestic initial license window and,
therefore, the recognition of revenue associated with domestic initial license fees occurs later.
Library revenue decreased $40.0 million, or 79%, to $10.9 million in the three months ended
June 30, 2009 from $50.9 million during the comparable period in 2008. Approximately $32.5 million
of the decrease is attributable to one customer, to whom we continue to license product, who had
significant licenses with windows opening during the three months ended June 30, 2008. The decrease
in library revenue resulted from a slow down in sales activity as the result of weak market
conditions in the fourth quarter of 2008 and first quarter of 2009. Library revenue is recognized
based upon when the window for a particular film becomes open and available for a network to air.
Sales made in one quarter often are not recognized as revenue until subsequent quarters due to this
issue. Also contributing to the decrease was a $1.6 million reduction in revenue related to the
distribution of programming on ION during the three months ended June 30, 2009 compared to the same
period in the prior year as a result of a weaker advertising market.
Cost of sales decreased $14.6 million to $18.5 million during the three months ended June 30,
2009 from $33.1 million during the same period of 2008. Cost of sales as a percentage of revenue
increased to 82% during the three months ended June 30, 2009 from 62% during the same period of
2008. Cost of sales is comprised of film cost amortization, certain distribution expenses and
amortization of minimum guarantee payments made to ION. While film cost amortization as a
percentage of revenue was slightly higher in 2009 than in 2008 (see discussion below), the decrease
in gross profit during the three months ended June 30, 2009 was primarily a result of the reduction
in revenue recognized in the three months ended June 30, 2009 and the fact that the distribution
expenses and ION minimum guarantee expense do not directly correlate to the recognized revenue.
Film cost amortization as a percentage of revenue was 61% during the three months ended June
30, 2009 compared to 59% during the same period of 2008. The average amortization rate on the
production revenue was higher in 2009, while the average amortization rate on the library revenue
was lower than in 2008 due to the mix of films for which revenue was recognized in each period.
Amortization is on a film-by-film basis and, on average, the films for which revenue was recognized
during the three months ended June 30, 2009 had higher rates of amortization than those in the same
period of 2008.
Other cost of sales were higher during the three months ended June 30, 2009 as compared to the
same period of 2008 due to approximately $3.4 million credit recorded in the three months ended
June 30, 2008 as a result of the reduction of certain participation accruals. No similar credit
was recorded in the three months ended June 30, 2009. Also contributing to the increase in other
cost of goods sold was an increase in costs associated with our ION agreement, including the
amortization of minimum guarantee payments made to ION. The increase in amortization of the minimum
guarantee payments is due to an increase in required payments during the second year of the
agreement with ION.
16
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
$ Increase/
|
|
|
%Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
6,922
|
|
|
$
|
13,645
|
|
|
$
|
(6,723
|
)
|
|
|
(49
|
)%
|
Amortization of intangible assets
|
|
|
285
|
|
|
|
350
|
|
|
|
(65
|
)
|
|
|
(19
|
)%
|
Fees to related parties
|
|
|
|
|
|
|
6,137
|
|
|
|
(6,137
|
)
|
|
|
(100
|
)%
|
Selling, general and administrative expenses decreased $6.7 million to $6.9 million in the
three months ended June 30, 2009, from $13.6 million in the same period in 2008. The decrease of
49% is primarily due to the collection of approximately $2.8 million of accounts receivable from
Tele-Munchen, which was previously reserved for during the three months ended June 30, 2008.
During the three months ended June 30, 2008, we incurred approximately $1.1 million of costs
associated with an industry tradeshow. During 2009, the same tradeshow occurred in the first
quarter. Although weve begun to see benefits from our fourth quarter 2008 decision to reduce our
overhead costs, we also incurred certain expenses during the three months ended June 30, 2009
related to operating as a public company which were not incurred in the first quarter of 2008.
In 2006, we agreed to pay Kelso an annual management fee of $600,000 in connection with a
financial advisory agreement for the planning, strategy, oversight and support to management. A
total of $137,000 of this management fee was recorded as fees paid to related parties during the
three months ended June 30, 2008. Concurrent with the closing of the IPO, we paid Kelso $6.0
million in exchange for the termination of our fee obligations under the existing financial
advisory agreement. The $6.0 million was recorded as fees paid to related parties during the three
months ended June 30, 2008.
Interest expense, net
Interest expense, net decreased $0.2 million
to $10.4 million for the three months ended June 30, 2009 from $10.6 million during the comparable period in 2008. The decrease in interest expense
is due to lower average interest rates during the three months ended June 30, 2009 as compared to
the comparable period of 2008 resulting from the reductions in the benchmark interest rates (i.e.
LIBOR). The average interest rate during the three months ended June 30, 2009 was 3.4%, compared to
5.6% during the comparable period of 2008. In addition, weighted average debt balances outstanding
during the three months ended June 30, 2009 decreased compared to 2008. During the three months
ended June 30, 2009, we had an average debt balance of $579.1 million compared to $666.2 million
during the comparable period of 2008. Partially offsetting the reduction in interest rates and
weighted average debt outstanding is amortization of the fair market value of the interest rate
swaps de-designated as hedges. As discussed in footnote 7 of our unaudited condensed consolidated
financial statements, on April 21, 2009, the Company amended its existing interest rate swap
agreements and de-designated them as cash flow hedges. As a result of the de-designation, the fair
market value of the swaps immediately preceding the amendments is being amortized as interest
expense for the period of April 21, 2009 through April 27, 2010, which is the maturity date of the
original swaps. For the three months ended June 30, 2009, the amortization of the fair value of
the amended interest rate swaps was $3.0 million.
Other income (expense), net
For the three months ended June 30, 2009, Other income (expense), net represents the change in
fair value of our interest rate swaps subsequent to the amendment and de-designation of our
interest rate swaps as cash flow hedges and realized foreign currency gains resulting from the
settlement of customer accounts denominated in foreign currencies. The change in the fair market
value of our interest rate swaps resulted in a loss of $1.3 million for the three months
ended June 30, 2009. Foreign currency gains for the same period amounted to $0.3 million. Other income
(expense), net for the three months ended June 30, 2008 primarily represents foreign exchange loss
of $0.1 million.
Income
tax (provision) benefit
The income tax provision for the three month period ended June 30, 2009 is primarily related
to foreign taxes related to license fees from customers located outside the United States. The
benefit in the prior year resulted from taxable losses associated with our corporate subsidiary
offset by foreign taxes related to license fees from customers located outside the United States.
No tax benefit has been provided for RHI Inc.s interest in the net loss because insufficient
evidence is available that would support that it is more likely than not that we will generate
sufficient income to utilize the net operating loss generated by RHI Inc.
17
Net loss
The net loss for the three months ended
June 30, 2009 was $(8.6) million, compared to $(5.8) million for the three months ended June 30, 2008. The net loss for the three months ended June 30,
2009 is not comparable to the net loss for three months ended June 30, 2008, as the pre-IPO period
from April 1, 2008 to June 22, 2008 does not include any adjustment for non-controlling interest in
loss of consolidated entity.
Six months ended June 30, 2009 compared to the six months ended June 30, 2008
The results of operations for the six months ended June 30, 2009 and 2008 are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(a) + (b)
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Combined (1)
|
|
|
Successor
|
|
|
|
|
|
|
Period from
|
|
|
Period from
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
June 23, 2008 to
|
|
|
January 1, 2008 to
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 22,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Increase/
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production revenue
|
|
$
|
932
|
|
|
$
|
6,602
|
|
|
$
|
7,534
|
|
|
$
|
11,832
|
|
|
$
|
4,298
|
|
Library revenue
|
|
|
1,489
|
|
|
|
66,643
|
|
|
|
68,132
|
|
|
|
23,854
|
|
|
|
(44,278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
2,421
|
|
|
|
73,245
|
|
|
|
75,666
|
|
|
|
35,686
|
|
|
|
(39,980
|
)
|
Cost of sales
|
|
|
1,303
|
|
|
|
49,396
|
|
|
|
50,699
|
|
|
|
31,925
|
|
|
|
(18,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,118
|
|
|
|
23,849
|
|
|
|
24,967
|
|
|
|
3,761
|
|
|
|
(21,206
|
)
|
Other costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
732
|
|
|
|
25,802
|
|
|
|
26,534
|
|
|
|
17,888
|
|
|
|
(8,646
|
)
|
Amortization of intangible assets
|
|
|
36
|
|
|
|
671
|
|
|
|
707
|
|
|
|
599
|
|
|
|
(108
|
)
|
Fees paid to related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
|
|
|
|
287
|
|
|
|
287
|
|
|
|
|
|
|
|
(287
|
)
|
Termination fee
|
|
|
6,000
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(5,650
|
)
|
|
|
(2,911
|
)
|
|
|
(8,561
|
)
|
|
|
(14,726
|
)
|
|
|
(6,165
|
)
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(819
|
)
|
|
|
(21,559
|
)
|
|
|
(22,378
|
)
|
|
|
(20,067
|
)
|
|
|
2,311
|
|
Interest income
|
|
|
3
|
|
|
|
34
|
|
|
|
37
|
|
|
|
4
|
|
|
|
(33
|
)
|
Other income (expense), net
|
|
|
67
|
|
|
|
706
|
|
|
|
773
|
|
|
|
(1,647
|
)
|
|
|
(2,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and non-controlling
interest in loss of consolidated entity
|
|
|
(6,399
|
)
|
|
|
(23,730
|
)
|
|
|
(30,129
|
)
|
|
|
(36,436
|
)
|
|
|
(6,307
|
)
|
Income tax (provision) benefit
|
|
|
(83
|
)
|
|
|
1,518
|
|
|
|
1,435
|
|
|
|
(518
|
)
|
|
|
(1,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before non-controlling interest in loss of
consolidated entity
|
|
|
(6,482
|
)
|
|
|
(22,212
|
)
|
|
|
(28,694
|
)
|
|
|
(36,954
|
)
|
|
|
(8,260
|
)
|
Non-controlling interest in loss of consolidated entity
|
|
|
2,742
|
|
|
|
|
|
|
|
2,742
|
|
|
|
15,632
|
|
|
|
12,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,740
|
)
|
|
$
|
(22,212
|
)
|
|
$
|
(25,952
|
)
|
|
$
|
(21,322
|
)
|
|
$
|
4,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share.
|
|
$
|
(0.28
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
(1.58
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents the combined results for the Predecessor and Successor period presented. The
combined results are non-GAAP financial measures and should not be used in isolation or
substitution of Predecessor and Successor results. We believe the combined results help to
provide a presentation of our results for comparability purposes to prior periods. These
combined results form the basis for the ensuing discussion of the results of our operations.
|
18
Revenue, cost of sales and
gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
|
As a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Percentage
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
Amount
|
|
|
of Revenue
|
|
|
Amount
|
|
|
of Revenue
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Production revenue
|
|
$
|
11,832
|
|
|
|
33
|
%
|
|
$
|
7,534
|
|
|
|
10
|
%
|
|
$
|
4,298
|
|
|
|
57
|
%
|
Library revenue
|
|
|
23,854
|
|
|
|
67
|
%
|
|
|
68,132
|
|
|
|
90
|
%
|
|
|
(44,278
|
)
|
|
|
(65
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
35,686
|
|
|
|
100
|
%
|
|
|
75,666
|
|
|
|
100
|
%
|
|
|
(39,980
|
)
|
|
|
(53
|
)%
|
Cost of sales
|
|
|
31,925
|
|
|
|
89
|
%
|
|
|
50,699
|
|
|
|
67
|
%
|
|
|
(18,774
|
)
|
|
|
(37
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
3,761
|
|
|
|
11
|
%
|
|
$
|
24,967
|
|
|
|
33
|
%
|
|
$
|
(21,206
|
)
|
|
|
(85
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue decreased $40.0 million, or 53%, to $35.7 million during the six months ended
June 30, 2009 from $75.7 million during the same period in 2008.
Production revenue increased $4.3 million to $11.8 million in the six months ended June 30,
2009 compared to $7.5 million during the same period in 2008. In the six months ended June 30,
2009, four original MFT movies and two original mini-series were delivered, while nine MFT movies
delivered during the six months ended June 30, 2008. Initial license fees were only recognized on
three of the nine MFT movies were delivered in the six months ended June 30, 2008, compared to all
four of the MFT movies and both of the mini-series delivered in the six months ended June 30, 2009.
The other six films delivered during the six months ended June 30, 2008 premiered on
video-on-demand prior to the initial broadcast term. While the short video-on-demand windows earn
royalty-based revenue, they delay the opening of the domestic initial license window and,
therefore, the recognition of revenue associated with domestic initial license fees occurs later.
Library revenue decreased $44.3 million, or 65%, to $23.9 million in the six months ended June
30, 2009 from $68.1 million during the comparable period in 2008. Approximately $42.8 million of
the decrease is attributable to five customers who had significant licenses with windows opening
during the six months ended June 30, 2008, with one of those customers accounting for $33.6 million
of the decrease. The decrease in library revenue resulted from a slow down in sales activity as the
result of weak market conditions in the fourth quarter of 2008 and first quarter of 2009. Library
revenue is recognized based upon when the window for a particular film becomes open and available
for a network to air. Sales made in one quarter often are not recognized as revenue until
subsequent quarters due to this issue. Also contributing to the decrease was a $3.0 million
reduction in revenue related to the distribution of programming on ION during the six months ended
June 30, 2009 compared to the same period in the prior year as a result of a weaker advertising
market.
Cost of sales decreased $18.8 million to $31.9 million during the six months ended June 30,
2009 from $50.7 million during the same period of 2008. Cost of sales as a percentage of revenue
increased to 89% during the six months ended June 30, 2009 from 67% during the same period of 2008.
Cost of sales is comprised of film cost amortization, certain distribution expenses and
amortization of minimum guarantee payments made to ION. While film cost amortization was slightly
higher in 2009 than in 2008 (see discussion below), the decrease in gross profit during the six
months ended June 30, 2009 was primarily a result of the reduction in revenue recognized in the six
months ended June 30, 2009 and the fact that the distribution expenses and ION minimum guarantee
expense do not directly correlate to the revenue recognized.
Film cost amortization as a percentage of revenue was 62% during the six months ended June 30,
2009 compared to 59% during the same period of 2008. The average amortization rate on the
production revenue was higher, while the average amortization rate on library revenue was lower
than in 2008 due to the mix of films for which revenue was recognized in each period. Amortization
is on a film-by-film basis and, on average, the films for which revenue was recognized during the
six months ended June 30, 2009 had higher rates of amortization than those in the same period of
2008.
Other cost of sales were higher during the six months ended June 30, 2009 as compared to the
same period of 2008 due to approximately $3.4 million credit recorded in the six months ended June
30, 2008 as a result of the reduction of certain participation accruals. No similar credit was recorded in the
six months ended June 30, 2009. Also contributing to the increase in other cost of goods sold was
an increase in costs associated with our ION agreement, including the amortization of minimum
guarantee payments made to ION. The increase in amortization of the minimum guarantee payments is
due to an increase in required payments during the second year of the agreement with ION.
19
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
(Dollars in thousands)
|
Selling, general and administrative
|
|
$
|
17,888
|
|
|
$
|
26,534
|
|
|
$
|
(8,646
|
)
|
|
|
33
|
%
|
Amortization of intangible assets
|
|
|
599
|
|
|
|
707
|
|
|
|
(108
|
)
|
|
|
15
|
%
|
Fees to related parties
|
|
|
|
|
|
|
6,287
|
|
|
|
(6,287
|
)
|
|
|
(100
|
)%
|
Selling, general and administrative expenses decreased $8.6 million to $17.9 million in the
six months ended June 30, 2009, from $26.5 million in the same period in 2008. The decrease of 33%
is primarily due to the collection of approximately $2.8 million of accounts receivable from
Tele-Munchen, which was previously reserved for during the six months ended June 30, 2008. During
the six months ended June 30, 2008 we incurred approximately $2.8 million of costs associated with
severance agreements compared to approximately $0.7 million during the same period of 2009. These
decreases were offset by additional costs incurred in connection with operating as a publicly
traded company as well as professional fees which were not incurred during the six months ended
June 30, 2008. While the company has begun to experience cash savings from our 2008 decision to
reduce overhead costs, it is not evident in our selling, general and administrative expenses
because a significant portion of the savings related to overhead costs were capitalized and
allocated to our films in the prior year.
In 2006, we agreed to pay Kelso an annual management fee of $600,000 in connection with a
financial advisory agreement for the planning, strategy, oversight and support to management. A
total of $287,000 of this management fee was recorded as fees paid to related parties during the
six months ended June 30, 2008. Concurrent with the closing of the IPO, we paid Kelso $6.0 million
in exchange for the termination of its fee obligations under the existing financial advisory
agreement. The $6.0 million was recorded as fees paid to related parties during the six months
ended June 30, 2008.
Interest expense, net
Interest expense, net decreased $2.3 million
to $20.1 million for the six months ended June 30, 2009 from $22.4 million during the comparable period in 2008. The decrease in interest expense
is largely due to lower average interest rates during the six months ended June 30, 2009 as
compared to the comparable period of 2008 resulting from the reductions in the benchmark interest
rates (i.e. LIBOR). The average interest rate during the six months ended June 30, 2009 was 4.0%,
compared to 6.0% during the comparable period of 2008. Also contributing to the decrease in
interest expense, net were lower weighted average debt balances outstanding during the six months
ended June 30, 2009 compared to 2008. During the six months ended June 30, 2009, we had an average
debt balance of $578.0 million compared to $669.7 million during the comparable period of 2008.
Partially offsetting the reduction in interest rates and weighted average debt outstanding is
amortization of the fair market value of the interest rate swaps de-designated as hedges as well as
an increase in interest expense recorded in connection with our interest rate swap contracts
resulting from the aforementioned reduction in LIBOR. As discussed in footnote 7 of our unaudited
condensed consolidated financial statements, on April 21, 2009, the Company amended its existing
interest rate swap agreements and de-designated them as cash flow hedges. As a result of the
de-designation, the fair market value of the swaps immediately preceding the amendments is being
amortized as interest expense for the period of April 21, 2009 through April 27, 2010, which is the
maturity date of the original swaps. For the six months ended June 30, 2009, the amortization of
the fair value of the amended interest rate swaps was $3.0 million. Approximately $6.0 million in
interest expense was recorded in connection with our interest rate swap contracts during the six
months ended June 30, 2009, compared to $3.5 million in the six months ended June 30, 2008.
Other income (expense), net
For the six months ended June 30, 2009, Other income (expense), net represents the change in
fair value of our interest rate swaps subsequent to the amendment and de-designation of our
interest rate swaps as
cash flow hedges and realized foreign currency losses resulting from the settlement of
customer accounts denominated in foreign currencies. The change in the fair market value of our
interest rate swaps resulted in a loss of $1.3 million for the six months ended June 30, 2009.
Foreign exchange losses for the same period amount to $0.4 million. Other income (expense), net
for the six months ended June 30, 2008 primarily represents foreign exchange gains of $0.8 million.
20
Income tax(provision) benefit
The income tax provision for the six month period ended June 30, 2009 is primarily related to
foreign taxes related to license fees from customers located outside the United States. The benefit
in the prior year resulted from taxable losses associated with our corporate subsidiary offset by
foreign taxes related to license fees from customers located outside the United States. No tax
benefit has been provided for RHI Inc.s interest in the net loss because insufficient evidence is
available that would support that it is more likely than not that we will generate sufficient
income to utilize the net operating loss generated by RHI Inc.
Net loss
The net loss for the six months ended June 30, 2009 was $(21.3) million,
compared to $(26.0) million for the six months ended June 30, 2008. The net loss for the six months ended June 30, 2009
is not comparable to the net loss for six months ended June 30, 2008, as the pre-IPO period from
January 1, 2008 to June 22, 2008 does not include any adjustment for non-controlling interest in
loss of consolidated entity.
Liquidity and capital resources
Our credit facilities currently include: (i) two first lien facilities, a $175.0 million term
loan and a $350.0 million revolving credit facility; and (ii) a $75.0 million senior second lien
term loan. As of June 30, 2009, all of our debt was variable rate and totaled $583.8 million
outstanding. To manage the related interest rate risk, we have entered into interest rate swap
agreements. As of June 30, 2009, we had floating to fixed interest rate swaps outstanding in the
notional amount of $435.0 million, effectively converting that amount of debt from variable rate to
fixed rate. The interest rate swaps were amended in April 2009 (refer to footnote 7 of our
unaudited condensed consolidated financial statements) which will result in cash interest savings
over the next twelve months. As of June 30, 2009, we had $1.9 million of cash compared to $22.4
million of cash at December 31, 2008. As of June 30, 2009, we had $12.8 million available under our
revolving credit facility, net of an outstanding letter of credit, subject to the terms and
conditions of that facility. The decrease in cash reflects our production spending during the six
months ended June 30, 2009. Historically, we have financed our operations with funds from
operations, capital contributions from our owners and the use of credit facilities. Additionally,
from time-to-time, we may seek additional capital through the incurrence of debt, the issuance of
equity or other financing alternatives.
Our ability to meet our debt and other obligations and to reduce our total debt depends on our
future operating performance and on economic, financial, competitive and other factors. High levels
of interest expense could have negative effects on our future operations. Interest expense, which
is net of capitalized interest and includes amortization of debt issuance costs and amortization of
the fair market value of the interest rate swaps de-designated as hedges, totaled $20.1 million for
the six months ended June 30, 2009. A substantial portion of our cash flow from operations must be
used to pay our interest expense and will not be available for other business purposes.
Management is continually reviewing its operations for opportunities to adjust the timing of
expenditures to ensure that sufficient resources are maintained. The timing surrounding the
commencement of production of movies and mini-series is the most significant item we can alter in
terms of managing our resources.
In addition to the six films we delivered
during the six months ended June 30, 2009, we have films in various stages of production and remain
on track to deliver 30-35 films in 2009.
Our production partners have financed a substantial portion of
the cost for each 2009 film through the use of new or existing credit facilities of their own.
Although a majority of our films are in production in the summer months so that they can be
delivered late in the third quarter and during the fourth quarter, a portion of the funding for
these films has been paid and, consistent with prior periods, a portion has been deferred to future
periods to better match the cash inflows related to sales of this product. As such, our net
production funding requirements for the balance of 2009 are not significant relative to the
remaining film deliveries. If our production partners cannot finance a substantial portion of a
films cost through the use of new or existing credit facilities of their own, we may not develop
or produce that film. See Risk Factors Risks related to our business Our focus on managing
our resources in the most efficient manner may result in a reduction in our production slate in
our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC
on March 5, 2009.
We believe our cash on hand, available borrowings under our revolving credit facility and
projected cash flows from operations will be sufficient to satisfy our financial obligations
through at least the next twelve months. However, a development that significantly decreases our
revenue or significantly increases our expenses or cash needs may result in the need for additional
financing. Given current credit and equity market conditions, our ability to attract additional
capital may be significantly more difficult than it has been in the past. See Risk Factors
Risks related to our business Our substantial indebtedness could adversely affect our financial
health and prevent us from fulfilling our obligations under our existing senior secured credit
facilities in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed
with the SEC on March 5, 2009.
21
The chart below shows our cash flows for the six months ended June 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
(a) + (b)
|
|
|
|
|
Successor
|
|
Predecessor
|
|
Combined
|
|
Predecessor
|
|
|
Period from
|
|
Period from
|
|
Six Months
|
|
Six Months
|
|
|
June 23, 2008
|
|
January 1,
|
|
Ended
|
|
Ended
|
|
|
to June 30,
|
|
2008 to June 22,
|
|
June 30,
|
|
June 30,
|
|
|
2008
|
|
2008
|
|
2008
|
|
2009
|
|
|
(Dollars in thousands)
|
Net cash used in operating activities
|
|
$
|
(11,904
|
)
|
|
$
|
(32,331
|
)
|
|
$
|
(44,235
|
)
|
|
$
|
(27,440
|
)
|
Net cash used in investing activities
|
|
|
|
|
|
|
(81
|
)
|
|
|
(81
|
)
|
|
|
(77
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(16,344
|
)
|
|
|
64,520
|
|
|
|
48,176
|
|
|
|
7,000
|
|
Cash (end of period)
|
|
|
5,267
|
|
|
|
33,515
|
|
|
|
5,267
|
|
|
|
1,856
|
|
Operating activities
Cash used in operating activities in the six months ended June 30, 2009 was $27.4 million, and
reflects spending related to production, distribution, selling, general and administrative expenses
and interest, offset by the collection of cash associated with the distribution of our MFT movies,
mini-series and other television programming. In the six months ended June 30, 2009, $24.1 million
of interest was paid.
Cash used in operating activities in the six months ended June 30, 2008 was $44.2 million, and
reflects spending related to production, distribution, selling, general and administrative expenses
and interest, offset by the collection of cash associated with the distribution of our MFT movies,
mini-series and other television programming. In the six months ended June 30, 2008, $26.6 million
of interest was paid as were $3.1 million of minimum guarantee payments to ION associated with our
arrangement to provide programming for its primetime weekend schedule.
Investing activities
During the six months ended June 30, 2009 and 2008, we used $77,000 and $81,000, respectively,
in investing activities, reflecting the purchase of property and equipment.
Financing activities
During the six months ended June 30, 2009, there was $7.0 million of cash provided by
financing activities due to borrowings under our credit facilities (net of repayments of $1.0
million), principally to fund our operations.
During the six months ended June 30, 2008, $48.2 million of cash was provided by financing
activities. We used the $174.0 million of net proceeds from our IPO in combination with $55.0
million of proceeds from our new second lien term loan and $81.2 million of proceeds from our
revolving credit facility to fund the $260.0 million repayment of our prior second lien term loan,
a $35.7 million distribution to KRH, a $2.6 million second lien term loan pre-payment penalty and
$4.2 million of costs associated with our new and amended credit facilities. RHI LLC received a
$29.1 million equity contribution from KRH prior to the IPO. An additional $11.4 million of cash
was provided by financing activities from borrowings under our credit facilities (net of repayments
of $44.7 million), principally to fund our operating activities.
22
Contractual obligations
The following table sets forth our contractual obligations as of June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
More Than
|
|
|
Total
|
|
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
5 Years
|
|
|
(Dollars in thousands)
|
Off balance sheet arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease commitments (1)
|
|
$
|
36,136
|
|
|
$
|
3,805
|
|
|
$
|
7,314
|
|
|
$
|
6,963
|
|
|
$
|
18,054
|
|
Obligations pursuant to ION Agreement (2)
|
|
|
25,450
|
|
|
|
25,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations (3)
|
|
|
14,126
|
|
|
|
8,998
|
|
|
|
5,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,712
|
|
|
|
38,253
|
|
|
|
12,442
|
|
|
|
6,963
|
|
|
|
18,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual obligations reflected on the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations (4)
|
|
|
583,789
|
|
|
|
|
|
|
|
52,500
|
|
|
|
456,289
|
|
|
|
75,000
|
|
Accrued film production costs (5)
|
|
|
67,391
|
|
|
|
63,105
|
|
|
|
4,286
|
|
|
|
|
|
|
|
|
|
Other contractual obligations (6)
|
|
|
10,365
|
|
|
|
6,365
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
661,545
|
|
|
|
69,470
|
|
|
|
58,786
|
|
|
|
458,289
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
(7)
|
|
$
|
737,257
|
|
|
$
|
107,723
|
|
|
$
|
71,228
|
|
|
$
|
465,252
|
|
|
$
|
93,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Operating lease commitments represent future minimum payment obligations on various long-term
noncancellable leases for office (primarily New York City headquarters) and storage space.
|
|
(2)
|
|
Obligations pursuant to the ION Agreement represent minimum guarantee payments and certain
promotional obligations associated with our arrangement to provide programming to ION for its
primetime weekend schedule. Included in the obligations above are $18.0 million related to a
third contract year that will be terminated in connection with the proposed Settlement
Agreement (see footnote 11 of our unaudited condensed consolidated financial statements).
|
|
(3)
|
|
Purchase obligation amounts represent a contractual commitment to exclusively license the
rights in and to a film that is not complete.
|
|
(4)
|
|
Debt obligations exclude interest payments and include future principal payments due on our
bank debt (see Note 7).
|
|
(5)
|
|
Accrued film production costs represent contractual amounts payable for the completed films
as well as costs incurred for the buy out of certain participations.
|
|
(6)
|
|
Other contractual obligations primarily represent commitments to settle various accrued
liabilities.
|
|
(7)
|
|
Excluded from the table are $1.6 million of unrecognized tax obligations associated with FIN
48 for which the timing of payment is not estimable.
|
Off-balance sheet arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such
as variable interest entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical accounting policies and estimates
For a complete discussion of our accounting policies, see the information under the heading
Managements discussion and analysis of financial condition and results of operations Critical
accounting policies and estimates in our Annual Report on Form 10-K for the year ended December
31, 2008, which was filed with the SEC on March 5, 2009. We believe there have been no material
changes to the critical accounting policies and estimates disclosed in the Companys Form 10-K.
Recent accounting pronouncements
In June 2009, the FASB issued SFAS No. 166, Amendments to FASB Interpretation No. 46(R).
This statement requires an enterprise to perform an analysis to determine whether the enterprises
variable interest or interests give it a controlling financial interest in a variable interest
entity. The statement requires ongoing reassessments of whether an enterprise is a primary
beneficiary of a variable interest entity and eliminates the quantitative approach previously
required for determining the primary beneficiary. SFAS
23
No. 166 is effective as of January 1, 2010 and the Company does not anticipate SFAS No. 166 to have
a material impact to the companys consolidated financial statements.
In
June 2009, the FASB issued SFAS No. 167, Accounting for Transfers of Financial Assets
an amendment of FASB Statement No. 140, which removes the concept of a qualifying special-purpose
entity from Statement 140 and removes the exception from applying FASB Interpretation No. 46
(revised December 2003),
Consolidation of Variable Interest Entities,
to qualifying special-purpose
entities. This Statement clarifies that the objective of paragraph 9 of Statement 140 is to
determine whether a transferor and all of the entities included in the transferors financial
statements being presented have surrendered control over transferred financial assets. That
determination must consider the transferors continuing involvements in the transferred financial
asset, including all arrangements or agreements made contemporaneously with, or in contemplation
of, the transfer, even if they were not entered into at the time of the transfer. This Statement
modifies the financial-components approach used in Statement 140 and limits the circumstances in
which a financial asset, or portion of a financial asset, should be derecognized when the
transferor has not transferred the entire original financial asset to an entity that is not
consolidated with the transferor in the financial statements being presented and/or when the
transferor has continuing involvement with the transferred financial asset. SFAS No. 166 is
effective as of January 1, 2010 and the Company does not anticipate SFAS No. 166 to have a material
impact to the companys consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles A Replacement of FASB No. 162. This
statement introduces the FASB Accounting Standards Codification (the Codification) as the source
of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. This statement is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The Company will adopt SFAS
No.168 for the quarter ended September 30, 2009 and all subsequent filings will reference the
Codification as the single source of authoritative literature.
For a description of recent accounting pronouncements adopted, see Note 3 Summary of
Significant Accounting Policies in the Notes to Unaudited Condensed Consolidated Financial
Statements.
24
|
|
|
Item 3.
|
|
Quantitative and Qualitative Disclosures about Risk
|
Interest rate risk
We are subject to market risks resulting from fluctuations in interest rates as our credit
facilities are variable rate credit facilities. To manage the related risk, we enter into interest
rate swap agreements. As of June 30, 2009, we have swaps outstanding that total $435.0 million,
effectively converting that portion of debt from variable rate to fixed rate.
Foreign currency risk
Our reporting currency is the U.S. Dollar. We are subject to market risks resulting from
fluctuations in foreign currency exchange rates through some of our international licensees and we
incur certain production and distribution costs in foreign currencies. The primary foreign currency
exposures relate to adverse changes in the relationships of the U.S. Dollar to the British Pound,
the Euro, the Canadian Dollar and the Australian Dollar. However, there is a natural hedge against
foreign currency changes due to the fact that, while certain receipts for international sales may
be denominated in a foreign currency certain production and distribution expenses are also
denominated in foreign currencies, mitigating fluctuations to some extent depending on their
relative magnitude.
Historically, foreign exchange gains (losses) have not been significant. Foreign exchange
gains (losses) for the three months ended June 30, 2009 (Successor), the period from June 23, 2008
through June 30, 2008 (Successor), the period from April 1, 2008 to June 22, 2008 (Predecessor),
the six months ended June 30, 2009 (Successor) and the period from January 1, 2008 through June 22,
2008 (Predecessor) were $0.3 million, $0.1 million, $(0.2) million, $(0.4) million and $0.7
million, respectively.
Credit risk
We are exposed to credit risk from our licensees. These parties may default on their
obligations to us, due to bankruptcy, lack of liquidity, operational failure or other reasons. As
of June 30, 2009, we have an allowance for uncollectible accounts of $0.7 million, which is
primarily related to one customer, Sogecable, whose payments to us are past due.
|
|
|
Item 4.
|
|
Controls and Procedures
|
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the
Exchange Act as of the end of the period covered by this report. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the
period covered by this quarterly report, our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Exchange Act) are effective, in all material respects, to ensure that
information we are required to disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in SEC rules and
forms, and that such information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
In addition, no change in our internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) occurred during our most recent fiscal quarter that has
materially affected, or is likely to materially affect, our internal control over financial
reporting.
25
Part 2. Other Information
|
|
|
Item 1.
|
|
Legal Proceedings
|
None.
Item 1a.
Risk Factors
For a discussion of our potential risks and uncertainties, see the information under the
heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008,
which was filed with the SEC on March 5, 2009 There have been no material changes to the risk
factors as disclosed in the Companys Form 10-K.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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There have not been any unregistered sales of equity securities or repurchases of the
Companys common stock during the three months ended June 30, 2009.
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Item 3.
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Defaults upon Senior Securities
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None.
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Item 4.
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Submissions of Matters to a Vote on Security Holders
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The following items were voted on at the Annual Meeting of Shareholders on May 12, 2009
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1.
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The election of Frank J. Loverro and Russel H. Givens, Jr. to serve on the Board of
Directors of the Company for a term of office expiring on the date of the Annual Meeting of
Stockholders in 2012.
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2.
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The approval of the Amended and Restated RHI Entertainment, Inc. 2008 Incentive Award
Plan, which adds 1,500,000 shares to the total shares reserved for issuance under the plan.
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3.
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Ratification of the appointment of KPMG LLP as the Companys independent registered
public accounting firm for the fiscal year ending December 31, 2009.
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* As previously disclosed in a current report on Form 8-K filed with the SEC on
June 18, 2009, the Board of Directors (the Board) of the Company elected Mr. Jeffrey
C. Bloomberg as a Director of the Company on June 12, 2009. Mr. Bloomberg has been
elected to serve on the Board for a term ending on the date of the 2012 annual meeting of
stockholders. On June 12, 2009, Mr. Frank J. Loverro tendered his resignation
as a member of the Board. Mr. Loverros resignation was not caused by any disagreement
with the Company on any matter related to the Companys operations, policies or
practices. With the resignation of Mr. Loverro, and the subsequent election of Mr.
Bloomberg, the Board is now comprised of a majority of independent directors and, thus,
has satisfied the applicable listing standards of the NASDAQ Stock Market.
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Item 5.
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Other Information
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See Note 11 (Subsequent Event) to the Companys financial statements herein for information on
the Companys recent settlement agreement with ION Media Networks, Inc.
26
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Exhibit
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Number
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Exhibit
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31.1
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Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
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|
Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
|
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Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: August 5, 2009
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By:
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Robert A. Halmi, Jr
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Robert A. Halmi, Jr.
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President & Chief Executive Officer
(Principal Executive Officer)
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Date: August 5, 2009
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By:
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William J. Aliber
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William J. Aliber
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Chief Financial Officer
(Principal Accounting Officer)
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28
EXHIBIT INDEX
|
|
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Exhibit
|
|
|
Number
|
|
Exhibit
|
31.1
|
|
Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
|
Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
|
Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
29
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