-----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, AUZMJWrkETnn8amFURNnFh4qORrXEVa4gfkqDKllhuJ7EtyBaQ9WxgXQThPeqJ/Q SfrO2Gskr/lMohTsbuPEGw== 0001047469-99-001471.txt : 19990120 0001047469-99-001471.hdr.sgml : 19990120 ACCESSION NUMBER: 0001047469-99-001471 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITEL VIDEO INC/DE CENTRAL INDEX KEY: 0000740103 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ALLIED TO MOTION PICTURE PRODUCTION [7819] IRS NUMBER: 231713238 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08654 FILM NUMBER: 99508199 BUSINESS ADDRESS: STREET 1: 555 WEST 57TH STREET STREET 2: 12TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2122653600 MAIL ADDRESS: STREET 1: 555 WEST 57TH STREET STREET 2: 12FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended NOVEMBER 30, 1998 ----------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ____________________ Commission file number 1-8654 UNITEL VIDEO, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 23-1713238 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 555 WEST 57TH STREET - NEW YORK, NEW YORK 10019 - -------------------------------------------------------------------------------- (Address of principal executive offices) (212) 265-3600 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 twelve months and (2) has been subject to such requirements for the past 90 days. Yes /X/ No / / APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 2,714,116 common shares outstanding as of January 19, 1999 (Number of shares) (Date) UNITEL VIDEO, INC. FORM 10-Q QUARTER ENDED NOVEMBER 30, 1998 Page INDEX Number Part I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets November 30, 1998 (Unaudited) and 3-4 August 31, 1998 Consolidated Statements of Operations November 30, 1998 (Unaudited) and 5 November 30, 1997 (Unaudited) Consolidated Statements of Cash Flows November 30, 1998 (Unaudited) 6-7 and November 30, 1997 (Unaudited) Notes to Consolidated Financial 8 Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of 9-15 Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk 15 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 2 UNITEL VIDEO, INC. FORM 10-Q QUARTER ENDED NOVEMBER 30, 1998 Part 1. FINANCIAL INFORMATION ITEM 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, 1998 August 31, 1998 ----------------- --------------- (Unaudited) (Note) ASSETS Current Assets: Cash $ 349,000 $ 1,190,000 Accounts receivable, net 4,825,000 4,784,000 Other receivables 149,000 93,000 Prepaid income taxes 55,000 62,000 Prepaid expenses 397,000 498,000 Deferred tax asset 312,000 312,000 ----------- ----------- Total current assets 6,087,000 6,939,000 Property and equipment - at cost Land, buildings and improvements 23,644,000 23,490,000 Video equipment 78,590,000 78,113,000 Furniture and fixtures 1,773,000 1,758,000 ----------- ----------- 104,007,000 103,361,000 Less accumulated depreciation and amortization 54,593,000 52,420,000 ----------- ----------- 49,414,000 50,941,000 Deferred tax asset 2,157,000 2,157,000 Goodwill 1,549,000 1,583,000 Other assets 2,191,000 2,112,000 ----------- ----------- $61,398,000 $63,732,000 =========== ===========
Note: The balance sheet at August 31, 1998 has been taken from the audited consolidated financial statements at that date. See notes to consolidated financial statements. 3 UNITEL VIDEO, INC. FORM 10-Q CONSOLIDATED BALANCE SHEETS (Continued)
November 30, 1998 August 31, 1998 ----------------- --------------- (Unaudited) (Note) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,602,000 $ 5,282,000 Accrued expenses 1,007,000 2,056,000 Payroll and related taxes 1,406,000 1,434,000 Current maturities of long-term debt 3,729,000 3,563,000 Current maturities of subordinated debt 2,438,000 640,000 Current maturities of capital lease obligations 2,016,000 2,077,000 ----------- ----------- Total current liabilities 16,198,000 15,052,000 Deferred rent 111,000 112,000 Long-term debt, less current maturities 32,206,000 32,679,000 Subordinated debt, less current maturities -- 2,171,000 Long-term leases, less current maturities 3,948,000 4,468,000 Accrued retirement 1,013,000 1,047,000 Stockholders' equity: Common stock, par value $.01 per share: Authorized 5,000,000 shares Issued 3,544,854 and 3,541,754 shares, respectively, and outstanding 2,714,116 and 2,711,016 shares, respectively 27,000 27,000 Additional paid-in capital 27,284,000 27,275,000 Accumulated deficit (11,744,000) (11,454,000) Common stock held in treasury, at cost (830,738 shares) (7,645,000) (7,645,000) ----------- ----------- Total stockholders' equity 7,922,000 8,203,000 ----------- ----------- $61,398,000 $63,732,000 =========== ===========
Note: The balance sheet at August 31, 1998 has been taken from the audited consolidated financial statements at that date. See notes to consolidated financial statements. 4 UNITEL VIDEO, INC. FORM 10-Q CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended November 30, --------------------------------------- 1998 1997 ----------- ----------- Sales $12,322,000 $13,768,000 Cost of sales: Production costs 8,012,000 9,279,000 Depreciation and amortization 2,097,000 2,151,000 ----------- ----------- 10,109,000 11,430,000 ----------- ----------- Gross profit 2,213,000 2,338,000 Operating expenses: Selling 268,000 363,000 General and administrative 1,201,000 1,620,000 Interest 1,043,000 899,000 ----------- ----------- 2,512,000 2,882,000 ----------- ----------- Loss from operations (299,000) (544,000) Other income -- 90,000 Loss before income taxes (299,000) (454,000) Income taxes -- 2,000 Net loss applicable for common stock- basic and diluted $ (299,000) $ (456,000) =========== =========== Net loss per common share $ (.11) $ (.17) =========== =========== Weighted average number of common shares outstanding 2,714,000 2,675,000 =========== ===========
See notes to consolidated financial statements. 5 UNITEL VIDEO, INC. FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended November 30, --------------------------------------- 1998 1997 ----------- ----------- Cash Flows From Operating Activities: Net loss $ (299,000) $ (456,000) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,337,000 2,151,000 Net gain on disposal of equipment (240,000) -- Amortization of deferred financing costs 56,000 47,000 Deferred rent and other 8,000 2,000 Accrued retirement expense (34,000) (33,000) Changes in operating assets and liabilities: Accounts receivable, net (41,000) (1,625,000) Other receivables (339,000) (82,000) Prepaid expenses 101,000 (181,000) Prepaid taxes 7,000 (26,000) Other assets (106,000) (229,000) Accounts payable 603,000 1,410,000 Accrued expenses (1,049,000) 294,000 Payroll and related taxes (28,000) (452,000) ----------- ----------- 1,275,000 1,276,000 ----------- ----------- Net cash provided by operating activities 976,000 820,000 Cash Flows from Investing Activities: Capital expenditures (851,000) (947,000) Proceeds from disposal of equipment 316,000 -- ----------- ----------- Net cash used in investing activities (535,000) (947,000)
(Continued) 6 UNITEL VIDEO, INC. FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three Months Ended November 30, --------------------------------------- 1998 1997 ----------- ----------- Cash Flows From Financing Activities: Proceeds from long term financing $ -- $ 6,832,000 Proceeds from issuance of common stock 9,000 -- Deferred financing costs (30,000) -- Principal repayments (1,261,000) (6,274,000) ----------- ----------- Net cash (used) provided in financing Activities (1,282,000) 558,000 ----------- ----------- Net (Decrease) Increase in Cash (841,000) 431,000 Cash Beginning of Year 1,190,000 137,000 ----------- ----------- Cash End of Quarter $ 349,000 $ 568,000 =========== =========== Schedule of income taxes and interest paid: Income Taxes Paid $ 2,000 $ 2,000 Interest Paid 982,000 854,000 ----------- ----------- $ 984,000 $ 856,000 =========== ===========
See notes to consolidated financial statements. 7 UNITEL VIDEO, INC. FORM 10-Q THREE MONTHS ENDED NOVEMBER 30, 1998 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of November 30, 1998, the consolidated statements of operations for the quarters ended November 30, 1998 and 1997, and the consolidated statements of cash flows for the three months then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at November 30, 1998 and for all periods presented have been made. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto in the Company's August 31, 1998 Form 10-K filed with the Securities and Exchange Commission. The results of operations for the quarter ended November 30, 1998 are not necessarily indicative of the operating results for the full year. 2. STOCKHOLDERS' EQUITY During the three months ended November 30, 1998, stockholders' equity decreased due to: Net loss $ (299,000) Translation adjustment 9,000 Purchase of stock under the Unitel Video, Inc. Employee Stock Purchase Plan 9,000 ----------- Total decrease in stockholders' equity $ (281,000) =========== 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. LIQUIDITY AND CAPITAL RESOURCES The Company has taken several steps to increase its liquidity, which had been significantly reduced by the losses incurred during the past several fiscal years. In August 1998, the Company refinanced its owned New York City real estate generating funds of approximately $4,600,000 after repayment of the existing first mortgages on such properties, closing costs and escrows. These funds were used to repay Term Loan D of the credit facility described below in this item in the amount of $1,600,000, with the balance used for working capital purposes. Additionally, the holders of subordinated debt of the Company related to the acquisition of the mobile facilities company GC& Co. by the Company in 1995, which had been due in August 1998, agreed to a new payment schedule providing for payments of fifty percent of the $650,000 in October 1998 and the balance in six equal installments beginning November 1998. In a third step, another holder of subordinated debt of the Company agreed to restructure its note with the Company by postponing the maturity date from May 1999 to September 1999 and by eliminating principal payments that had been due for the months of April 1998 through April 1999, totaling $450,000. The holder also agreed to add $108,000 of accrued but unpaid interest to the principal balance payable in September 1999. The new terms require that interest only be paid on a current basis effective September 1, 1998 through the September 30, 1999 maturity date. The Company has reduced its cash requirements through cost reductions. Additionally, due to capital expenditures in fiscal years 1996 through 1998 totaling approximately $30,000,000, the Company currently anticipates that capital expenditures in fiscal 1999 will be less than $2,500,000. Capital expenditures were $535,000 (net of proceeds from dispositions of equipment) during the quarter ended November 30, 1998, and consisted of the purchase of production, post production and graphics equipment for use throughout the Company. Net cash provided by operating activities during the quarter ended November 30, 1998 and 1997 was $976,000 and $820,000, respectively. Net cash provided by operating activities for the quarter ended November 30, 1998 was offset by net cash of $535,000 used in investing activities which consisted of capital expenditures (net of proceeds from asset dispositions), and by net cash used in financing activities of $1,282,000 for debt repayment, resulting in a net decrease in cash available of $841,000. Net cash provided by operating activities for the quarter ended November 30, 1997 was increased by net cash provided from financing activities of $558,000 from additional long term debt and was offset by net cash of $947,000 used in investing activities which consisted of capital expenditures resulting in a net increase in cash available of $431,000 9 In December 1995, the Company entered into a $26 million revolving credit and term loan agreement (the "credit facility") with a financial institution, consisting of an $11 million revolving credit facility and two $7.5 million term loans (Term Loans A and B). In May 1997, Term Loan A was revised by the inclusion of $2,500,000 of the original Term Loan B and the advance of $518,000 of new funds, resulting in a revised Term Loan A balance of $9,000,000. Term Loan A is payable in equal monthly principal installments of $100,000 plus interest, with the balance of $6,000,000 due March 2000. In November 1997 Term Loan B was repaid, in part from the proceeds of a new Term Loan D in the amount of $2,500,000. $3,742,000 of the original Term Loan B was repaid from sales of equipment from the Company's Editel Chicago, Editel New York and Unitel Hollywood divisions. The Company refinanced its New York owned real estate in August 1998 and used a portion of the proceeds of the refinancing to repay Term Loan D and other indebtedness and the balance of the proceeds for working capital purposes. In July 1997 the credit facility was further amended by the issuance of a $5,080,000 letter of credit to secure payment of principal and interest on $5,000,000 principal amount of Allegheny County (Pennsylvania) Industrial Development Authority Variable Rate Demand Revenue Bonds (the "Bonds"). The proceeds from the sale of the Bonds were loaned to the Company and were used by the Company to build a new digital mobile teleproduction unit. The credit facility requires quarterly principal payments of $179,000 commencing December 1998 in respect of the Bonds. The Bonds mature on July 1, 2009 and, to the extent not previously redeemed in full, are required to be repaid by the Company on that date. In December 1997 a second series of Bonds were issued in an amount of $3,500,000. The proceeds of the second series of Bonds were used to finance the construction of a second digital mobile unit. The credit facility requires quarterly principal payments of $125,000 commencing February 1999 in respect of this second series of Bonds which also mature on July 1, 2009. The terms of the credit facility with the financial institution provide that the lender receive a first lien on all property and equipment and accounts receivable that are not encumbered by another lender. The Company has at certain times during the quarter ended November 30, 1998 not been in compliance with certain of the financial covenants contained in the credit facility and the lender has waived such non-compliance. In addition, the Company has at certain times during the quarter ended November 30, 1998 been in arrears on certain other indebtedness. The Company is currently in discussions with various lenders to refinance the credit facility and make available to the Company additional working capital. The Company is also in negotiations to restructure the repayment terms of certain of its other long-term debt. The Company anticipates that the steps enumerated above in this item together with funds generated from operations and proceeds from the sale of selected fixed assets no longer useful in the Company's business will be sufficient to meet the Company's anticipated working capital and investment needs in fiscal 1999. 10 RESULTS OF OPERATIONS Sales were $12,322,000 and $13,768,000 for the quarters ended November 30, 1998 and 1997, respectively, resulting in a decrease from the same period of the prior year. The decrease in sales of $1,446,000 in the quarter ended November 30, 1998 is primarily attributable to the following three areas of the Company's business. First, the consolidation of the Company's two New York City based post-production facilities into a single facility at Unitel Post 38 resulted in a decrease in sales of approximately $600,000 from the closing of the Unitel Post 57 facility and the elimination of the interactive segment of the Company's post-production business. Second, sales of the Company's mobile division declined approximately $400,000 as a result of pass-through costs being eliminated from mobile division billing and absorbed directly by the Company's clients. Although mobile division sales were lower in the quarter ended November 30, 1998 compared to sales for that division in the quarter ended November 30, 1997, results of operations for that division were the same in both the quarters ended November 30, 1998 and November 30, 1997. Third, sales for the Company's Editel Los Angeles division declined approximately $400,000 as a result of the loss of the Company's business in connection with the Star Trek television series in the fourth quarter of fiscal 1998. The Company's net loss for the quarter ended November 30, 1998 was ($299,000) compared to a net loss of ($456,000) for the quarter ended November 30, 1997. The comparative decrease in the net loss of approximately $157,000 for the quarter ended November 30, 1998 compared to the quarter ended November 30, 1997 is principally due to the improvement in the results of the New York post production operation resulting from the closure of the Unitel Post 57 facility and improvements in the New York studio division. These improvements were offset by a loss in the Editel Los Angeles division caused by a decrease in sales. Production costs, the main component of cost of sales, consist primarily of direct labor, equipment maintenance expenses and occupancy costs. The Company's production costs, as a percentage of sales, were 65% for the quarter ended November 30, 1998, as compared to 67% for the quarter ended November 30, 1997. The decrease in production costs for the quarter ended November 30, 1998 compared with the same period of the prior year is primarily due to the efficiencies achieved from an increase in sales without a proportionate increase in costs at the Company's Unitel Post 38 facility as a result of the closure of the Company's Unitel Post 57 facility and the relocation of a significant portion of that facility's customer base to the Unitel Post 38 facility. Depreciation, as a percentage of sales, was 17.0% and 15.6% for the quarters ended November 30, 1998 and 1997, respectively. Had gain on sale of equipment of $240,000 been excluded from depreciation expense for the quarter ended November 30, 1998, depreciation as a percentage of sales would have been 19.0% compared with 15.6% for the same period in the prior year. The increase in the quarter ended November 30, 1998 compared to the same period in the prior year was primarily a result of the introduction of a digital mobile teleproduction unit in the quarter ended February 28, 1998. Additionally, the Company retained the majority of the equipment previously used at the Company's Post 57 facility that was closed in the third quarter of the Company's 1998 fiscal year. Selling expenses, as a percentage of sales, for the quarters ended November 30, 1998 and 1997 were 2.2% and 2.6%, respectively. The decrease in the quarter ended November 30, 1998 as compared to the quarter ended November 30, 1997 is due to a decrease in the Company's overall sales staff primarily as a result of the closure of the Unitel Post 57 facility in May 1998. Also, promotional expenses were higher in the quarter ended 11 November 30, 1997 due to the introduction of one of the Company's new digital mobile teleproduction units. General and administrative expenses, as a percentage of sales, for the quarters ended November 30, 1998 and 1997 were 9.7% and 11.8%, respectively. The decrease in general and administrative expenses as a percentage of sales is primarily due to the greater decrease in expense in relation to the decrease in sales. General and administrative expenses decreased by approximately $400,000 primarily from reductions in corporate expenses, bad debt allowances and professional fees. Interest expense, as a percentage of sales, for the quarters ended November 30, 1998 and 1997 was 8.5% and 6.5%, respectively. Interest expense for the quarter ended November 30, 1998 increased approximately $140,000 compared to the quarter ended November 30, 1997 primarily from new debt added as of August 31, 1998, partially offset by normal principal reductions on older debt. The Company's effective tax rate was 0% for the first quarter of fiscal years 1999 and 1998. The effective tax rate for the first quarter of fiscal 1999 is less than the federal statutory rate of 34% due to the utilization of net operating loss carryforwards generated by the losses incurred in fiscal 1998 and prior years. YEAR 2000 UPDATE General The Company's company-wide Year 2000 Project (the "Project") is proceeding on schedule. The purpose of the Project is to evaluate the ability of computer programs (software) and embedded chips to distinguish between the year 1900 and the year 2000. The Project has been underway since the middle of calendar year 1998, is proceeding on schedule and is expected to be completed by the middle of calendar year 1999. While many different types of equipment and software products may be prone to the Year 2000 problem, major emphasis is being placed on those items considered to be material to the operation of the Company's business. The Company's primary business is to provide services to the video and film communications industry for the recording, editing, creation of digital effects and duplication of television programs, commercials, corporate communications and feature films. Because the various operating divisions of the Company share much of the software and hardware necessary to provide these services, Year 2000 research done at one division is largely applicable at the Company's other divisions. This fact will greatly simplify the process of evaluating the impact of Year 2000 issues on the Company's business and minimize the costs to the Company involved in becoming Year 2000 compliant. 12 Project The Company's Project is divided into four major sections: 1. Administrative Functions - accounts payable, accounts receivable, client scheduling, purchasing and payroll. 2. Technical Services - equipment/systems, software packages, interconnectivity issues. 3. Infrastructure - personal computers (PC's and MAC's), owned telephone system equipment, networks (Novell, Microsoft), office equipment, etc. 4. External Services Vendors - 401K/health care management, payroll services, property/liability insurance providers, etc. Administrative Functions: The accounts payable, accounts receivable and client scheduling tasks at most divisions of the Company are provided by industry standard software applications, for example J.D. Edwards Accounting Package or Xytech Systems (Xymox), or both, depending on the division. Both J.D. Edwards and Xytech Systems have available Year 2000 upgrade programs and the Company anticipates these will be installed in early calendar year 1999. Standard PC based applications, used for these and other applications, are either currently compliant or are expected to have suitable upgrades available in early calendar year 1999. Similarly, the payroll services vendor expects to have Year 2000 software available early in calendar year 1999. These will be purchased by the Company as soon as they become available. Technical Services: The Company utilizes technical hardware from various vendors to provide a wide range of services to its clients. All divisions have been compiling lists of equipment considered critical to their operations. Based on written responses from various vendors, the Company has been advised that the majority of these items are either Year 2000 compliant or not affected by Year 2000 issues. Some software packages utilized on Silicon Graphics and Apple platforms are still being evaluated with respect to Year 2000 issues, but since these items are routinely upgraded by the Company as part of its ongoing operations to insure that the Company is staying current with technology it is anticipated that the Year 2000 issues in such cases should be minimal. Furthermore, the products produced by the Company for its clients are delivered to the client at the conclusion of a job and such products are not thereafter affected by Year 2000 issues. Therefore, Year 2000 compliance is not considered a material issue for already completed client work. All critical equipment and software products utilized in the production of client material will have been certified, either through testing by the Company or vendor representation, to be Year 2000 compliant or not affected by Year 2000 issues by the middle of calendar year 1999. 13 Infrastructure: It is expected that general purpose PC workstations purchased within the past 12 months should be able to recognize the date change to the Year 2000. A comprehensive checklist is being prepared that will assist each division in determining which PCs need to have some form of upgrade. Some older PCs may require replacement, or may be upgraded through inexpensive after-market clock upgrades. Also being evaluated are Company owned telephone systems which contain embedded chips which may be date sensitive. To date, all telephone systems checked have been found to be either Year 2000 compliant or not affected by the Year 2000 issue. Novell or Microsoft computer network products have upgrades available supplied and represented by the vendor to be Year 2000 compliant which will be installed by the Company by the middle of calendar 1999. Other general purpose office equipment such as copy machines and fax machines are being evaluated but are not considered to be material. External Services Vendors: The Company utilizes numerous outside vendors for management of such services as payroll, health care benefits, 401K administration and insurance coverages. All of these vendors are being asked to supply a written statement concerning Year 2000 compliance and a general scope of appropriate needed actions, costs, and time-frames. This part of the Project is expected to be completed by the middle of calendar 1999. Costs The total cost of the Year 2000 Project is not expected to be material to the Company's financial position. Because some investigation is still ongoing, total costs can only be estimated. Based on mission critical hardware and software upgrade costs that are known, and reasonable expectations of results from further testing, the total cost of the Project is not expected to exceed $100,000 Company-wide and will be expensed as incurred. Risks The Company supplies a wide range of services to its clients. Once those services are delivered, whether on videotape, CD Rom, computer disk, or other media, Year 2000 compliance is no longer a concern. Since it has already been determined that much of the hardware and software material to the internal operation of the Company's business is or will be compliant, there appears to be minimal risk to the internal operations of the Company due to the Year 2000 issue. This does not include any serious problems or outages caused by Year 2000 problems that could exist at local utilities that supply telephone, electrical, natural gas and similar services or with external services vendors. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of outside vendors or clients, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. However, the Company's internal Project is expected to significantly reduce the level of uncertainty about the Year 2000 problem particularly with respect to the effect on the Company of the readiness of its vendors. It is the opinion of the Company that, with the installation of new equipment which the Company is advised to be Year 2000 compliant 14 and the completion of the Project as scheduled, the possibility of significant interruptions of normal operations should be significantly reduced. Contingency Plan Based on the Company's expectation that Year 2000 issues will be adequately addressed by the scheduled completion of the Project, no contingency plans have been formulated. In the event an unexpected Year 2000 problem is discovered that will affect either the completion or delivery of client material, the Company expects that a sufficient number of alternative production methods exist in the industry to mitigate any substantial problems. THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE BASED UPON CURRENT EXPECTATIONS AND INVOLVE CERTAIN RISKS AND UNCERTAINTIES. UNDER THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, READERS ARE HEREBY CAUTIONED THAT THESE STATEMENTS MAY BE IMPACTED BY SEVERAL FACTORS, AND, CONSEQUENTLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED HEREIN. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The Company is exposed to interest rate change market risk with respect to its credit facility with a financial institution which is priced based on the prime rate of interest. At November 30, 1998 $12,172,000 was outstanding under the credit facility. Changes in the prime interest rate during fiscal 1998 will have a positive or negative effect on the Company's interest expense. Each 1% fluctuation in the prime interest rate will increase or decrease interest expense for the Company by approximately $122,000 annually. In addition, the Company is exposed to interest rate change market risk with respect to the Bonds in the amount of $8,500,000. The Bonds bear interest at a floating rate established weekly by the remarketing agent. During fiscal 1999 the interest rate on the Bonds approximated 3.5%. Each 1% fluctuation in the interest rate on the Bonds will increase or decrease interest expense on the Bonds by approximately $85,000 annually. The impact of interest rate fluctuations on other floating rate debt of the Company and foreign exchange fluctuation on the Company's Canadian subsidiary is not material. 15 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required to be filed by Item 601 of Regulation S-K. 1. Exhibit 10(A). Agreement, dated as of September 1, 1998, between Unitel Video, Inc. and Albert Walton. 2. Exhibit 27. Financial Data Schedule. (b) There were no reports filed on Form 8-K during the quarter ended November 30, 1998. THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE BASED UPON CURRENT EXPECTATIONS AND INVOLVE CERTAIN RISKS AND UNCERTAINTIES. UNDER THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, READERS ARE HEREBY CAUTIONED THAT THESE STATEMENTS MAY BE IMPACTED BY SEVERAL FACTORS, AND, CONSEQUENTLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED HEREIN. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. UNITEL VIDEO, INC. By: /s/ Barry Knepper --------------------------------------- Barry Knepper President and Chief Executive Officer By: /s/ Neil Marcus --------------------------------------- Neil Marcus Chief Financial Officer Dated: January 19, 1999 17 EX-10.(A) 2 AGREEMENT BETWEEN UNITEL AND ALBERT WALTON Exhibit 10(a) EXECUTION COPY AGREEMENT THIS AGREEMENT, dated as of September 1, 1998, by and between UNITEL VIDEO, INC., a Delaware corporation (herein "Employer") and ALBERT WALTON, an individual residing at 1040 S. Longwood Ave., Los Angeles, CA 90019 (hereinafter "Employee"). Section 1. EMPLOYMENT. A. Employee shall perform such duties and exercise such powers on behalf of Employer and have such responsibilities as are consistent with the position of "President - Editel Los Angeles", together with any other function as might reasonably be deemed required and necessary for the advancement of the interests of Employer. B. Employee shall devote his best efforts and his time, knowledge, skill, attention and energy exclusively to the business of Employer in the advancement of the interests of Employer. Employee will not engage in any activities that would interfere with his ability to discharge his responsibilities as an employee of Employer. C. Employer shall have the right at any time, and from time to time, to modify the duties to be performed by Employee, or the powers exercised by him, consistent with the discharge of his responsibilities as President of Editel Los Angeles; provided, however, that Employer may not modify the duties of Employee such that the modification(s) creates a substantial change or alteration in Employee's duties without first obtaining Employee's written consent. Section 2. TERM OF EMPLOYMENT. A. Employee's employment under this Agreement shall be for an initial period of 12 months commencing on September 1, 1998 and ending on August 31, 1999 (the "Initial Term"). The Initial Term shall automatically renew for an additional twelve month period expiring on August 31, 2000 (such period being, the "Renewal Year" and the Initial Term and the Renewal Year being the "Employment Period"), unless either party shall have given the other written notice, at least ninety (90) days prior to the end of the Initial Term, that the Employment Period shall expire at the end of the Initial Term. B. Notwithstanding the terms of paragraph A of this section, Employee's employment is subject to termination by Employer in accordance with the provisions of Section 5 of this Agreement. Section 3. COMPENSATION. A. In consideration for the services to be rendered by Employee hereunder and in consideration of the covenants herein given by Employee, Employer shall pay to Employee an annual base salary (i) during the Initial Term equal to Two Hundred Thousand Dollars ($200,000.00) and (ii) during the Renewal Year equal to the greater of (a) $200,000.00 (the "Base Amount") or (b) the Base Amount plus an amount equal to the percentage increase in the Bureau of Labor Statistics Consumer Price Index, All Urban Consumers, for the Los Angeles Metropolitan Area (the "Index") (or its successor index, or, failing such successor, the most nearly comparable index published by a governmental authority) at August 31, 1999 over the index at August 31, 1998 multiplied by the Base Amount (by way of example, at September 1, 1999 the Index increase shall be measured by comparing the Index at August 31, 1999 over the Index at August 31, 1998 and in the event that the Index increase during that period is 5%, Employee's annual base salary shall increase in the Renewal Year to $210,000.00). B. Employee shall be paid bonus compensation in respect of each fiscal year of Employer during the Employment Period equal to five (5%) percent of the increase in pre-tax net income of Editel Los Angeles for such fiscal year over the pre-tax net income of Editel Los Angeles in the prior fiscal year (calculated in accordance with Employer's accounting practices currently in force; provided that the corporate charge used in calculating such amount shall be whatever was agreed to in the budget for Editel Los Angeles for such fiscal year (whether the actual number for such charge in such fiscal year increases or decreases from such budgeted amount) and the depreciation expense used in such calculation shall be the lesser of the budgeted amount or the actual amount for Editel Los Angeles for such fiscal year unless actual exceeds budgeted due to an increase in Editel Los Angeles' capital budget for such fiscal year in which case the actual amount will be used in such calculation). Bonus compensation payable pursuant to this Section 3B shall be paid within 90 days after the end of the applicable fiscal year. Bonus compensation shall be pro rated in respect of any period during the Employment Period which is shorter than a full fiscal year of Employer. C. All compensation provided for in this paragraph 3, shall be subject to withholding as required by law or by the terms of any applicable benefit plan(s) and shall be paid in accordance with Employer's customary practices. Section 4. BENEFITS. A. During the Employment Period, Employee shall be eligible to participate in such pension, insurance, medical, disability and other employee benefit plans of Employer which may be in effect from time to time, to the extent he is eligible under the terms of those plans on the same basis as other similarly situated employees of Employer. B. Employee shall receive vacation during each annual period during the Employment Period calculated in accordance with Employer policy. 2 C. Employer will pay for (i) lease payments on one automobile leased and utilized for business purposes not to exceed a maximum of $600 per month (including sales taxes) and (ii) the cost of insurance and maintenance for such automobile. Section 5. TERMINATION. A. Employee's employment and his rights hereunder shall terminate on the first to occur of the following dates: (i) the expiration of the Employment Period; (ii) the date on which Employer gives Employee written notice of termination for cause pursuant to subsection (b) hereof; (iii) upon Employee's death; or (iv) at the option of Employer, at the expiration of the maximum period or leave pursuant to the federal Family Medical Leave Act (if applicable to Employee) or 60 days after the onset of Employee's disability, whichever is later. B. Should Employee (in the reasonable opinion of Employer) (i) fail, neglect or refuse (other than by reason of mental or physical disability) to perform or observe any or all of his obligations hereunder at the time and in the manner herein provided; (ii) commit an act of dishonesty, gross negligence or willful misconduct, including, without limitation, fraud or embezzlement; (iii) make or be found to have made any false representation or warranty herein; (iv) be in breach of any material covenant or other obligation contained in this Agreement; (v) be convicted of a felony or any crime involving moral turpitude; or (vi) be found to be in possession or under the influence of illegal drugs, Employer may upon written notice, at its option, terminate this Agreement, and thereupon be released and discharged from the obligation to pay salary accruing after the date of Employee's discharge, and from all other obligations provided for herein, but such termination shall not affect any liability of Employee to Employer for any loss or damages to Employer caused by, or arising out of, the conduct of Employee resulting in his termination under this subsection (B). Section 6. NON-DISCLOSURE COVENANT; OWNERSHIP OF PROCEEDS EMPLOYMENT. A. Employee shall not, at any time during the term of this Agreement or thereafter, except in the performance of his duties hereunder, communicate or disclose to any person, or use for his own account, without the prior written consent of Employer, any knowledge or information concerning any patents, inventions or equipment used in, or any secret or confidential information (including, without limitation, any customer lists or trade secrets) acquired by Employee by reason of his employment hereunder concerning 3 the business and affairs of Employer or any of its affiliates. Employee shall retain all such proprietary and confidential information in trust for the sole benefit of Employer and its successors and assigns. B. Employer shall be the sole owner of all the fruits and proceeds of Employee's services hereunder all of which Employee will promptly disclose to Employer, including, but not limited to, all formats, suggestions, developments, arrangements, designs, packages, programs, promotions and other intellectual properties which Employee may create in connection with and during the Employment Period, free and clear of any claims by Employee (or anyone claiming through or under him) of any kind or character (other than his right to compensation hereunder). All copyrightable works created by Employee and covered by this paragraph shall be deemed to be Works for Hire. Employee shall, at the request of Employer, execute such assignments, certificates or other instruments as Employer may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend its rights, title or interest in or to any such properties. If Employee is unable or unwilling to perform such acts, Employee hereby appoints Employer his attorney-in-fact with full power and authority to execute any and all documents and take such other action as is necessary to accomplish the foregoing. C. All memoranda, notes, records, and other documents made or compiled by Employee, or made available to him during his employment by Employer, concerning the business of Employer, shall be Employer's property and shall be delivered to Employer on the termination of this Agreement or at any other time on request. Section 7. COVENANTS NOT TO COMPETE; NON-INTERFERENCE. A. Except in the course of his employment or upon the prior written consent of Employer, Employee shall not at any time during the Employment Period (i) render services or advice, for compensation or otherwise, to any other person or entity as an employee, consultant or independent contractor or otherwise; or (iii) enter into any other business affiliation, including, without limitation, the establishment of a proprietorship or the participation in a partnership or joint venture. B. Employee shall not, at any time during the Employment Period and for six (6) months after termination pursuant to Section 5, for compensation or otherwise, acting alone or in conjunction with others, directly or indirectly, as a stockholder, investor, officer or director of a corporation in which he possesses, directly or indirectly, the power to direct or cause the direction of management or policies (including without limitation a 5% or more holder of the voting securities of a corporation), or as sole proprietor or member of a partnership in all cases. (i) for his own account or for the account of any other person, engage, hire, employ or solicit the employment of any person who is then or has been, within three (3) months prior thereto, an officer, manager or employee of Employer, whether or not 4 such person would commit a breach of his or her contract of employment by reason of leaving the services of Employer or (ii) take advantage of any corporate opportunity of Employer. C. The restrictions contained in this section are considered reasonable by the parties and it is the intent of the parties that such restrictions and the other provisions of this Section be enforced to the fullest extent permissible under the laws and the public policies applied in each jurisdiction in which enforcement is ought. Section 8. COMPLIANCE WITH OTHER AGREEMENTS. Employee represents and warrants to Employer that (i) he is legally free to make and perform this Agreement; and (ii) he has no obligation to any other person or entity that would or will affect or conflict with any of his obligations hereunder. Section 9. FULL AND COMPLETE AGREEMENT; AMENDMENT. This Agreement constitutes the full and complete understanding and agreement of the parties and supersedes all prior understandings and agreements regarding Employee's employment by Employer. This Agreement may be modified only by a written instrument executed by both parties. Section 10. WAIVER. No waiver by either party of any failure or refusal to comply with its or his obligation shall be deemed a waiver of any other or subsequent failure or refusal to so comply. Section 11. PARTIAL INVALIDITY. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. Section 12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and shall be binding upon the parties hereto and their respective successors, assigns, heirs, and legal representatives, including any person or entity with which Employer may merge or consolidate or to which it may transfer all or substantially all of its assets. With respect to Employee, this Agreement, being personal, cannot be assigned. 5 Section 13. AUTHORIZATION. Employer warrants and represents that the person executing this Agreement on behalf of Employer has full right and authority to bind Employer corporation, and was and is authorized in every manner and respect to enter into this Agreement. Section 14. NOTICES. All notices and other communications which are required or may be given under this agreement shall be in writing and shall be deemed to have been duly given when delivered in person or transmitted by facsimile, or five (5) days after being mailed by registered or certified first class mail, postage prepaid, return receipt requested, in the case of Employer, to its Chief Executive Officer at 555 West 57th Street, New York, NY 10019, and, in the case of Employee, to 1040 S. Longwood Ave., Los Angeles, CA 90019, or to such other address as such party shall have specified by notice to the other party hereto. Section 15. JURISDICTION. This Agreement shall be governed and construed in accordance with the laws of the State of New York (without regard to the principles of conflicts of laws), the principal place of business of Employer. The parties agree that the courts of the State of California shall have exclusive jurisdiction over all matters of this Agreement and either party may bring suit in such jurisdiction. The venue of such action shall be in Los Angeles County. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first set forth above. UNITEL VIDEO, INC. ALBERT WALTON By: /s/ Barry Knepper /s/ Albert Walton ------------------------------- ------------------------------ Name: Bary Knepper Title:Chief Executive Officer 6 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITEL VIDEO, INC. FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS AUG-31-1999 SEP-01-1998 NOV-30-1998 349 0 5,191 366 0 6,087 104,007 54,593 61,398 16,198 44,337 0 0 27 7,895 61,398 12,322 12,322 10,109 10,019 2,512 (41) 1,043 (299) 0 (299) 0 0 0 (299) (.11) (.11)
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