-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T5IXVEKojMMP3QBGY9gMAYphGrsKLhOm6gatfE2CjPN4amAWzFpYWxbbinvXtIEs 392FS7iPQgcn5wfhleNvIQ== 0001047469-98-020677.txt : 19980518 0001047469-98-020677.hdr.sgml : 19980518 ACCESSION NUMBER: 0001047469-98-020677 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VDI MEDIA CENTRAL INDEX KEY: 0001014733 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954272619 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21917 FILM NUMBER: 98624368 BUSINESS ADDRESS: STREET 1: 6920 SUNSET BOULEVARD CITY: HOLLYWOOD STATE: CA ZIP: 90028 BUSINESS PHONE: 2139575500 MAIL ADDRESS: STREET 1: 6920 SUNSET BLVD CITY: HOLLYWOOD STATE: CA ZIP: 90028 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 Commission File Number 0-21917 ------------------- VDI MEDIA (Exact name of registrant as specified in its charter) California 95-4272619 (State of or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6920 Sunset Boulevard, 90028 Hollywood, California (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (213) 957-5500 Securities registered pursuant to Section 12(b) of the Act None. Securities registered pursuant to Section 12(g) of the Act Common Stock, no par value. ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X] No [ ] As of May 12, 1998, there were 9,769,780 shares of Common Stock outstanding. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VDI MEDIA CONSOLIDATED BALANCE SHEET ASSETS
December 31, March 31, 1997 1998 ------------ ----------- (Unaudited) Current assets: Cash and cash equivalents $ 2,921,000 $ 3,249,000 Accounts receivable, net of allowances for doubtful accounts of $607,000 and $552,000, respectively 11,532,000 10,709,000 Inventories 285,000 505,000 Prepaid expenses and other current assets 382,000 367,000 Deferred income taxes 330,000 619,000 ----------- ----------- Total current assets 15,450,000 15,449,000 Property and equipment, net 7,808,000 8,519,000 Deferred income taxes 119,000 - Other assets, net 124,000 276,000 Goodwill and other intangibles, net 9,406,000 9,798,000 ----------- ----------- Total Assets $32,907,000 $34,042,000 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,964,000 $ 4,460,000 Accrued expenses 3,147,000 1,717,000 Income taxes payable 791,000 487,000 Borrowings under revolving credit agreement 1,086,000 2,172,000 Current portion of notes payable 350,000 28,000 Current portion of capital lease obligations 758,000 682,000 ----------- ----------- Total current liabilities 10,096,000 9,546,000 ----------- ----------- Deferred income taxes - 24,000 Notes payable, less current portion 552,000 - Capital lease obligations, less current portion 727,000 496,000 Shareholders' equity: Preferred stock; no par value; 5,000,000 authorized; none outstanding - - Common stock; no par value; 50,000,000 authorized; 9,580,000 and 9,762,186 shares, respectively, issued and outstanding 18,880,000 20,206,000 Retained earnings 2,652,000 3,770,000 ----------- ----------- Total shareholders' equity 21,532,000 23,976,000 ----------- ----------- $32,907,000 $34,042,000 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements 2 VDI MEDIA CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Three Months Ended March 31, -------------------------- 1997 1998 ----------- ----------- Revenues $ 8,487,000 $11,643,000 Cost of goods sold 5,072,000 7,138,000 ----------- ----------- Gross profit 3,415,000 4,505,000 Selling, general and administrative expense 2,151,000 2,523,000 ----------- ----------- Operating income 1,264,000 1,982,000 Interest expense 119,000 101,000 Interest income 51,000 14,000 ----------- ----------- Income before income taxes 1,196,000 1,895,000 Provision for income taxes 190,000 777,000 Establishment of deferred tax liability (Note 1) 185,000 - ----------- ----------- Net income $ 821,000 $ 1,118,000 ----------- ----------- ----------- ----------- Earnings per share: Basic: Net income per share $ 0.11 $ 0.12 Weighted average number of shares 7,522,667 9,635,199 Diluted: Net income per share $ 0.11 $ 0.11 Weighted average number of shares including the dilutive effect of stock options (1,133 for 1997 and 99,506 for 1998) 7,523,800 9,734,705
See accompanying notes to consolidated financial statements 3 VDI MEDIA CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ---------------------------- 1997 1998 ------------ ------------ Cash flows from operating activities: Net income $ 821,000 $ 1,118,000 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 798,000 1,144,000 Change in deferred taxes 185,000 (450,000) Provision for doubtful accounts 20,000 (55,000) Changes in assets and liabilities: (Increase) decrease in accounts receivable (431,000) 998,000 Increase in inventories (69,000) (220,000) Decrease (increase) in prepaid expenses and other current assets 231,000 (105,000) Increase in other assets - (152,000) Decrease in deferred offering costs 875,000 - (Decrease) increase in accounts payable (120,000) 496,000 Increase (decrease) in accrued expenses 97,000 (1,164,000) ----------- ----------- Net cash provided by operating activities 2,407,000 1,610,000 ----------- ----------- Cash used in investing activities: Capital expenditures (232,000) (1,707,000) Net cash paid for acquisitions (4,091,000) (540,000) ----------- ----------- Net cash used in investing activities (4,323,000) (2,247,000) Cash flows from financing activities: S Corporation distributions to shareholders (4,233,000) - Change in revolving credit agreement - 1,086,000 Proceeds from sale of common stock 18,041,000 1,060,000 Repayment of notes payable (1,795,000) (874,000) Repayment of amounts receivable from officer 1,225,000 - Repayment of capital lease obligations (260,000) (307,000) ----------- ----------- Net cash provided by financing activities 12,978,000 965,000 Net increase in cash 11,062,000 328,000 Cash at beginning of period 564,000 2,921,000 ----------- ----------- Cash at end of period $11,626,000 $ 3,249,000 ----------- ----------- ----------- ----------- Supplemental disclosure of cash flow information: Cash paid for: Interest $ 119,000 $ 101,000 ----------- ----------- ----------- ----------- Income tax $ 53,000 $ 1,227,000 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements 4 VDI MEDIA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1998 NOTE 1 -- THE COMPANY VDI MEDIA (the "Company") provides broadcast quality video duplication, distribution and related value-added services including distribution of national television spot advertising, trailers and electronic press kits. The Company's services consist of (i) the physical and electronic delivery of broadcast quality advertising, including spots, trailers, electronic press kits and infomercials, and syndicated television programming to television stations, cable television and other end-users nationwide and (ii) a broad range of video services, including the duplication of video in all formats, element storage, standards conversions, closed captioning and transcription services, and video encoding for air play verification purposes. The Company also provides its customers value-added post production and editing services. The Company is headquartered in Hollywood, California and has additional facilities in Los Angeles, California; Tulsa, Oklahoma; Chicago, Illinois; New York, New York and San Francisco, California. In the first quarter of 1997, the Company completed the sale of 3,120,000 common shares, no par value ("Common Stock"), in an initial public offering (the "Offering"). Prior to the Offering, the Company had elected S Corporation status for federal and state income tax purposes. As a result of the Offering, the S Corporation status terminated. Thereafter, the Company has paid federal and state income taxes as a C Corporation. The termination of the Company's S Corporation status resulted in the establishment of a net deferred tax liability calculated at normal federal and state income rates, causing a one-time non-cash charge of $185,000 against earnings for additional income tax expense in the quarter ended March 31, 1997. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles and the Securities and Exchange Commission's rules and regulations for reporting interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company's Form 10-K for the year ended December 31, 1997. VDI MEDIA MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In connection with the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company, in its Annual Report on Form 10-K for the year ended December 31, 1997, outlined cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statement made by, or on behalf of, the Company. Such forward-looking statements, as made within this Quarterly Report on Form 10-Q, should be considered in conjunction with the information included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and the risk factors set forth in the Company's prospectus as filed with the Securities and Exchange Commission on February 19, 1997. THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 REVENUES. Revenues increased by $3.1 million, or 37.2%, to $11.6 million for the three month period ended March 31, 1998 compared to $8.5 million for the three month period ended March 31, 1997. This increase in revenue was due to increased volume resulting from (i) the integration of new clients and availability of new services resulting from the acquisitions of Woodholly Productions, Multi-Media Services and Fast Forward and (ii) to a lesser extent the increased use of the companies services by existing clients. GROSS PROFIT. Gross profit increased $1.1 million, or 32.0%, to $4.5 million for the three month period ended March 31, 1998 compared to $3.4 million for the three month period ended March 31, 1997. As a percentage of revenues, gross profit decreased from 40.2% to 38.7%. The decrease in gross profit as a percentage of revenues was attributable to an increase in direct labor costs, depreciation charges and outsourcing costs resulting from the consolidation of acquired facilities in New York, San Francisco and West Los Angeles. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense increased $0.4 million, or 17.3%, to $2.5 million for the three month period ended March 31, 1998 compared to $2.1 million for the three month period ended March 31, 1997. As a percentage of revenues, selling, general and administrative expense decreased to 21.7% for the three month period ended March 31, 1998 compared to 25.3% for the three month period ended March 31, 1997. This decrease in selling, general and administrative expense as a percentage of revenues was primarily due to the ability of the Company to leverage these expenses as companies were acquired, and the spreading of fixed overhead expenses over a higher revenue base in the three month period ended March 31, 1998 compared to the same period in 1997. OPERATING INCOME. Operating income increased $0.7 million, or 56.8%, to $2.0 million for the three month period ended March 31, 1998 compared to $1.3 million for the three month period ended March 31, 1997. INCOME TAXES. Prior to the Offering, the Company operated as an S Corporation. As such, the Company was not responsible for federal income taxes and provided for state income taxes at reduced rates. As a result of the Offering, the Company's S Corporation status terminated. Accordingly, the Company has since provided, and will continue to provide, for all income taxes at higher statutory rates. These factors resulted in an effective tax rate for 1997 of approximately 40%. The Company provided for taxes at a rate of 41% in the first quarter of 1998. VDI MEDIA MANAGEMENT'S DISCUSSION AND ANALYSIS - (CONTINUED) NET INCOME. Net income for the three month period ended March 31, 1998 increased $0.3 million, or 36.2%, to $1.1 million compared to $0.8 million for the three month period ended March 31, 1997. LIQUIDITY AND CAPITAL RESOURCES This discussion should be read in conjunction with the notes to the financial statements and the corresponding information more fully described in the Company's Form 10-K for the year ended December 31, 1997. At March 31, 1998, the Company's cash and cash equivalents aggregated $3.2 million. The Company's operating activities provided cash of $1.3 million for the three months ended March 31, 1998 and $2.4 million for the three months ended March 31, 1997. The Company's investing activities used cash of $2.2 million for the three months ended March 31, 1998. The Company spent approximately $1.7 million for the addition and replacement of capital equipment necessary to accommodate increased customer demands for the Company's services, and for investments in management information systems. The Company's business is equipment intensive, requiring periodic expenditures of cash or the incurrence of additional debt to acquire additional videotape duplication equipment in order to increase capacity or replace existing equipment. The Company expects to spend approximately $1.0 million on capital expenditures during the last three quarters of 1998 to upgrade and replace equipment and management information systems. The Company's financing activities provided cash of $1.2 million in the three months ended March 31, 1998. Cash flows from financing activities include $1.0 million in proceeds from the exercise of stock options. The Company has a $10 million revolving credit agreement with Union Bank which expires on June 30, 1998. There was $2.2 million outstanding under the Union Bank Credit agreement at March 31, 1998. Management believes that cash generated from its revolving credit agreement and its ongoing operations and existing working capital will fund necessary capital expenditures and provide adequate working capital for at least the next twelve months. The Company, from time to time, considers the acquisition of businesses complementary to its current operations. Consummation of any such acquisition or other expansion of the business conducted by the Company may be subject to the Company securing additional financing. VDI MEDIA PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit No. DESCRIPTION ----------- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K ------------------- No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VDI MEDIA DATE: May 15, 1998 BY: /s/ Donald R. Stine ----------------- ---------------------- Donald R. Stine Chief Financial Officer and Treasurer (duly authorized officer and principal financial officer) EX-27 2 EX-27
5 3-MOS DEC-31-1998 MAR-31-1998 3,249,000 0 11,261,000 (552,000) 505,000 15,449,000 19,482,000 (10,963,000) 34,042,000 9,546,000 0 0 0 20,206,000 0 34,042,000 11,643,000 11,643,000 7,138,000 7,138,000 2,523,000 0 101,000 1,895,000 777,000 1,118,000 0 0 0 1,118,000 0.12 0.11
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