-----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, SMLJnNMJNPbGH1qhw1JcVmzlB7hYyRal4bUKK8U7yZfTBXleWMGvUCQ6kDVLNxGY PSw+d7OYBccfDAR72jTGVw== 0000898430-98-000559.txt : 19980218 0000898430-98-000559.hdr.sgml : 19980218 ACCESSION NUMBER: 0000898430-98-000559 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTHEWS STUDIO EQUIPMENT GROUP CENTRAL INDEX KEY: 0000855575 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 951447751 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18102 FILM NUMBER: 98538328 BUSINESS ADDRESS: STREET 1: 3111 N KENWOOD ST CITY: BURBANK STATE: CA ZIP: 91504 BUSINESS PHONE: 8436715X32 MAIL ADDRESS: STREET 1: 2405 EMPIRE AVENUE CITY: BURBANK STATE: CA ZIP: 91504 10-Q 1 FORM 10-Q UNITED STATES 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 Period ended DECEMBER 31, 1997 ----------------- 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 0-18102 ------- MATTHEWS STUDIO EQUIPMENT GROUP ------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 95-1447751 ----------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3111 NORTH KENWOOD STREET, BURBANK, CA 91505 ----------------------------------------------------------- (Address of principal executive offices) (Zip Code) (818) 525-5200 -------------- (Registrant's telephone number, including area code) 2405 EMPIRE AVENUE, BURBANK, CA 91504-3399 ------------------------------------------ (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 Exchange Act 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 --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK, NO PAR VALUE -------------------------- 10,988,806 SHARES AS OF JANUARY 31, 1998. - ----------------------------------------- INDEX MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets - December 31, 1997 and September 30, 1997 Condensed consolidated statements of income - Three months ended December 31, 1997 and 1996 Condensed consolidated statements of cash flows - Three months ended December 31, 1997 and 1996 Notes to condensed consolidated financial statements - December 31, 1997 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Signatures PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS (UNAUDITED) MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Condensed Consolidated Balance Sheets ($ in thousands)
December 31, September 30, 1997 1997 ------------ ------------- (Unaudited) (Note) ASSETS : Current Assets: Cash and cash equivalents $ 567 $ 393 Accounts receivable, less allowance for doubtful accounts of $808 at December 31, 1997 and $745 at September 30, 1997 8,715 9,144 Current portion of net investment in finance and sales-type leases 796 829 Inventories 9,242 7,844 Prepaid expenses and other current assets 774 923 Income tax refund receivable 645 645 Deferred income taxes 894 894 -------- -------- Total current assets 21,633 20,672 Property and Equipment: Rental equipment 51,893 47,169 Manufacturing equipment and tooling 1,851 1,952 Office furniture and equipment 3,874 3,627 Land and building 2,131 2,131 Leasehold improvements 1,292 1,112 -------- -------- 61,041 55,991 Less accumulated depreciation and amortization 22,544 20,804 -------- -------- Property and equipment, net 38,497 35,187 Net investment in finance and sales-type leases, less current portion 405 455 Goodwill (Notes 2 & 4) 5,543 4,052 Other assets 1,575 1,505 -------- -------- Total assets $ 67,653 $ 61,871 ======== ========
Note: The balance sheet at September 30, 1997 has been derived from the audited financial statements at that date. See accompanying notes. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Condensed Consolidated Balance Sheets (continued) ($ in thousands)
December 31, September 30, 1997 1997 ------------- ------------- (Unaudited) (Note) LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable $ 3,799 $ 5,241 Accrued liabilities 2,393 2,950 Current portion of long-term debt 555 693 Current portion of capital lease obligations 2,203 2,126 ------------- ------------- Total current liabilities 8,950 11,010 Long-term debt, less current portion 39,346 31,859 Notes payable to related parties 956 956 Capital lease obligations, less current portion 3,356 3,900 Deferred income taxes 2,976 2,976 Shareholders' equity: Preferred stock - - Common stock 7,064 6,168 Retained earnings 5,005 5,002 ------------- ------------- Total shareholders' equity 12,069 11,170 ------------- ------------- Total liabilities and shareholders' equity $ 67,653 $ 61,871 ============= =============
Note: The balance sheet at September 30, 1997 has been derived from the audited financial statements at that date. See accompanying notes. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited) ($ in thousands, except per share data)
Three Months Ended December 31, 1997 1996 -------------- ------------- Revenues from rental operations $ 7,771 $ 5,768 Net product sales 5,686 3,554 -------------- ------------- 13,457 9,322 Costs and expenses: Cost of rental operations 4,062 3,398 Cost of sales 3,860 2,332 Selling, general and administrative 4,379 2,339 Provision for doubtful accounts receivable 41 67 Interest 1,110 567 -------------- ------------- 13,452 8,703 Income before income taxes 5 619 Provision for income taxes 2 248 -------------- ------------- Net income $ 3 $ 371 ============== ============= Earnings per common share, basic and diluted (Note 3) $0.00 $0.04 ============== =============
See accompanying notes. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) ($ in thousands)
Three Months Ended December 31, 1997 1996 --------- --------- Operating activities: Net income $ 3 $ 371 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for doubtful accounts receivable 41 67 Depreciation and amortization 1,867 799 Gain on sale of assets (105) (53) Changes in operating assets and liabilities net of effects from acquisitions (Note 4): Accounts receivable 832 137 Inventories (585) (403) Net investment in leases 83 99 Prepaids and other assets 12 (29) Accounts payable and accrued liabilities (1,692) (290) Income tax refund receivable - 206 --------- --------- Net cash provided by operating activities 456 904 Investing activities: Payment for acquisitions (1,800) - Purchase of property and equipment (4,227) (1,376) Proceeds from sale of property and equipment 209 150 --------- --------- Net cash used in investing activities (5,818) (1,226) Financing activities: Proceeds from exercise of stock options 12 - Proceeds from borrowings 7,019 153 Repayment of borrowings (1,495) - --------- --------- Net cash provided by financing activities 5,536 153 Net increase (decrease) in cash and cash equivalents 174 (169) Cash and cash equivalents at beginning of period 393 462 --------- --------- Cash and cash equivalents at end of period $ 567 $ 293 ========= =========
See accompanying notes. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (continued) (Unaudited) ($ in thousands)
Three Months Ended December 31, 1997 1996 ------- ------- Schedule of noncash investing and financing transactions: Common stock issued for acquired company $ 884 $ - Additional disclosures: Cash paid during period for: Interest 1,069 597 Income taxes - -
See accompanying notes. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. General Presentation The accompanying unaudited condensed consolidated financial statements of Matthews Studio Equipment Group and Subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. 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 accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 1997 are not necessarily indicative of the results that may be expected for the year ending September 30, 1998, due to fluctuations in film production activities. For further information refer to the consolidated financial statements and footnotes thereto included in the Matthews Studio Equipment Group's annual report on Form 10-K for the year ended September 30, 1997. Business The Company designs, manufactures, sells, leases and rents audio, video, film and production equipment and accessories, to the motion picture, television, corporate, video, photography and live theatrical industries. The Company operates in one business segment and provides, as a single source, the necessary production equipment which is otherwise only available by using many different suppliers. The Company supplies equipment such as lights, grip lighting supports, professional video equipment, camera mounts, tripods, pedestals, fluid heads, camera dollies, portable camera cranes, power generation, production trucks, and theatrical equipment. The Company's manufactured products are distributed worldwide by its sales force and by independent dealers and distributors located in North America, Europe, Asia and South America. In addition, the Company has fully operational soundstages and studios which are supplied with equipment. 2. Accounting Policies Principles of Consolidation The financial statements include the accounts of the Company and its subsidiaries. Material intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (continued) (Unaudited) Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Concentration of Credit Risk The Company's customers are located around the world and are principally engaged in motion picture and television production, theatrical production, corporate video, commercial photography, or in providing rental equipment to companies in these industries. The Company generally sells on credit terms of 30 days and does not require collateral, except for items sold under capital leases in which it retains a security interest. The Company rents equipment to customers under short-term leases on credit terms of generally 30 days and retains a security interest. Inventories Inventories are principally stated at the lower of first-in, first-out cost or market. Goodwill The goodwill, which arose from acquisitions, is amortized over a period of twenty five years. Property and Equipment Property and equipment, including capital leases, are stated at cost. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets as follows: Rental equipment 5 - 10 years Buildings and improvements 10 - 40 years Other equipment 5 - 10 years Capital leases are amortized over the estimated useful lives using the straight- line method and the amortization is included in depreciation expense. Leasehold improvements are amortized over the estimated useful life of the improvement, or the related lease term, whichever is shorter. Costs incurred for major renewals and betterments that extend the useful life of the assets are capitalized, whereas repair and maintenance costs are charged to expense as incurred. When property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (Unaudited) 2. Accounting Policies (continued) Revenue Recognition The Company recognizes revenue from rentals under operating leases in the week in which they are earned and recognizes product sales upon shipment. Interest income from non-cancelable lease contracts accounted for as direct finance leases is recognized using the interest method over the term of the related lease agreement. Per Share Data In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Accounting for Earnings Per Share" ("FAS 128"). This statement establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. This statement simplifies the standards for computing earnings per share previously found in APB Opinion No. 15, Earnings Per Share, and makes them comparable to international EPS standards. Accordingly, the Company implemented FAS 128 in the quarter ended December 31, 1997. The retroactive application of the statement had no impact on the EPS for the quarter ended December 31, 1996. Income Taxes The Company utilizes the liability method to determine the provision for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. For the three months ended December 31, 1997 and 1996, an effective income tax rate of approximately 40% was utilized. Long-Lived Assets Long-lived assets used in operations are reviewed periodically to determine that the carrying values are not impaired and if indicators of impairment are present or if long-lived assets are expected to be disposed of, impairment losses are recorded. Financial Statement Presentation Certain balances from the December 31, 1996, financial statements have been reclassified to conform to the December 31, 1997 presentation. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (Unaudited) 3. Earnings Per Share The following is a reconciliation of the computations for basic and diluted EPS:
For the Quarter Ended December 31, ------------------------------------------------------------------------- 1997 1996 ----------------------------------- ----------------------------------- Income Shares Per-Share Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- --------- ----------- ------------- --------- Basic EPS: Income available to common stockholders $ 3 10,987 $ 0.00 $ 371 10,332 $ 0.04 ========= ======== Effect of Dilutive Options and warrants 1,593 76 ----------- ------------- ----------- ------------- Diluted EPS: Income available to common Stockholders and assumed conversions $ 3 12,580 $ 0.00 $ 371 10,408 $ 0.04 =========== ============= ========= =========== ============= =========
Options to purchase 119,000 shares of common stock at a range of $4.13 to $4.74 per share, and options to purchase 3,314,000 shares of common stock at a range of $2.50 to $4.13 per share, were outstanding during the quarter ended December 31, 1997 and 1996 respectively, but were not included in the computation of diluted EPS because the options' exercise prices were greater than the average market price of the common shares. During the three months ended December 31, 1997, 7,100 shares of common stock were issued upon exercise of stock options. The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, "Accounting for Stock- Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):
Three Months Ended December 31, 1997 ---- Net income As reported $ 3 Pro forma (16) Earnings per share, basic and diluted As reported - As Pro forma -
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (Unaudited) 4. Acquisitions The following acquisitions are included in the results of operations of the Company beginning as of the effective date of the transactions. Effective October 1, 1997, the Company purchased the assets and business of Haehnle Dwertman, Inc. (HDI), a grip, lighting and video camera rental company in Covington, Kentucky and Cincinnati, Ohio. The acquisition was made for cash of $800,000 and 350,000 restricted and unregistered shares of the Company's common stock in exchange for all of the common stock of HDI, in a transaction exempt from registration under the Securities Act of 1933. In addition, the Company incurred debt of $1,511,000 and recorded $842,000 of goodwill relating to the transaction. As part of the acquisition, the Company entered into real estate leases with an affiliate of HDI, for Cincinnati, Ohio and Covington, Kentucky facilities from which HDI's business was conducted. The Company is continuing to operate the business acquired from HDI at those facilities. Effective November 1, 1997, the Company purchased the assets and business of Olesen, a theatrical supply company in Hollywood, California. The acquisition was made for cash of $1,450,000 of which $1,000,000 of cash was paid on closing, with the remaining portion of the purchase price becoming due in two equal installments on October 31, 1999 and October 31, 2000. In addition, the Company incurred debt of $605,000 and recorded goodwill of $690,000 relating to the transaction. As part of the acquisition, the Company entered into real estate leases with an affiliate of Olesen, for facilities located in Hollywood, California, from which Olesen's business was conducted. The Company is continuing to operate the business acquired from Olesen from those facilities. The fair market value of the assets acquired relating to the above acquisitions was $1,153,000. The acquisitions of both HDI and Olesen have been accounted for under the purchase method of accounting for business combinations. The pro forma results of operations for the three months ended December 31, 1997 and 1996, assuming consummation of the purchases as of October 1, 1996, are as follows:
Three Months Ended December 31, 1997 1996 ---- ---- ($ in thousands, except per share data) Net revenue $13,708 $13,701 Net income (loss) (4) (15) Net income (loss) per common share, basic and diluted - -
The above pro forma information includes the operations of HDI and Olesen for both periods and, for the 1996 period, other acquisitions completed subsequent to December 31, 1996. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview The expansion of the Company and its marketing and distribution network into various select geographic marketplaces continued in the first three months of fiscal 1998 with the completion of the acquisitions of two companies. In addition, the Company continued to invest in the expansion of its core businesses, as well as operations acquired in fiscal 1997. Revenues increased $4,135,000 or 44% to $13,457,000 for the first three months of fiscal 1998, from $9,322,000 for the first three months of fiscal 1997. Net income decreased $368,000 compared to the first three months of fiscal 1997. Several factors contributed to the decrease in net income for the first quarter of fiscal 1998. These factors included higher expenses associated with the expansion of the operations and the costs to improve systems and absorb new operations. In addition, in the first quarter of fiscal 1997 a large-budget film project bolstered the results by providing additional revenues without requiring a significant amount of incremental costs and expenses. Three-Month Period ended December 31, 1997 and December 31, 1996 - ---------------------------------------------------------------- Revenues From Rental Operations - ------------------------------- Revenues from rental operations were $7,771,000 for the first three months of fiscal 1998, compared to $5,768,000 for the same period last year, an increase of $2,003,000 or 35%. Revenues generated by operations acquired subsequent to the first quarter of fiscal 1997 accounted for $3,543,000 of total revenues for the first three months of fiscal 1998. Production equipment rentals, primarily of lighting, grip, power generators and trucks, decreased by approximately $1,538,000 to $4,105,000 in the first quarter of fiscal 1998 from $5,643,000, for the same period last year. The decrease is primarily attributable to a large-budget film project included in the results of the first quarter of last fiscal year. Net Product Sales - ----------------- Net equipment and supply sales were $5,686,000 for the first three months of fiscal 1998, an increase of $2,132,000 or 60%, from $3,554,000 for the first three months of fiscal 1997. Sales generated by expendable supply sales operations acquired subsequent to the first quarter of fiscal 1997 accounted for approximately $2,052,000 of total sales for the first three months of fiscal 1998. Sales from existing operations changed only slightly from the three months ended December 31, 1997 as compared to the same period last year. Gross Profit - Rental - --------------------- Gross profit on rental revenues, as a percentage of revenues, was 48% for the first three months of fiscal 1998 compared to 41% in fiscal 1997. Production equipment rentals, primarily of lighting, grip, power generators and trucks accounted for approximately 5% of the increase in the gross profit percentage. The increase resulted primarily from lower equipment sub-rental costs in the current quarter compared to the first quarter of fiscal 1997, during which period higher costs were incurred to support the high level of rental activity. In addition, higher margins from recently acquired rental operations contributed to the increased gross profit percentage when comparing the first quarter of fiscal 1998 with the same period last year. Gross Profit - Sales - -------------------- Gross profit as a percentage of sales was approximately 32% for the first three months of fiscal 1998, compared to approximately 34% for the same period in fiscal 1997. The lower gross profit percentage realized by the Company on higher revenues was primarily attributable to the increase in expendable supply product sales, which carry lower gross profit margins than the Company's other products. Selling, General and Administrative - ----------------------------------- Selling, general and administrative expenses were $4,379,000 in the first three months of fiscal 1998 compared to $2,339,000 for the same period in fiscal 1997. As a percent of sales, selling, general and administrative expenses were 33% for the first three months of fiscal 1998 compared to 25% for the same period in fiscal 1997. The increase is due primarily to costs and expenses incurred to expand the operations of the Company, including costs to pursue the growth strategy, improve the foundation for the operations and improve and integrate business systems. The dollar increase is primarily due to the acquisitions completed subsequent to the first quarter of fiscal 1997, as well as a general increase in the overall operations resulting in higher payroll, employee benefits, depreciation and rent expenses. Interest - -------- Interest increased to $1,110,000 in the first three months of fiscal 1998 from $567,000 in the first three months of fiscal 1997. The increase in interest costs is mainly due to additional debt incurred and assumed in the acquisitions the Company completed since the first quarter of fiscal 1997, and to the substantial amount of capital investment made in certain of the acquired, as well as the existing, operations. Liquidity and Capital Resources - ------------------------------- During the three months ended December 31, 1997, the Company financed its operations from internally generated cash flow and bank borrowings. At December 31, 1997 the Company's working capital was $12,683,000 which was an increase of $3,021,000 from its working capital at September 30, 1997. The Company primarily applied cash from additional borrowings from the Company's bank line of $7,019,000 to finance the acquisition of rental equipment of approximately $3,611,000, to consummate the acquisitions of Haehnle Dwertman, Inc., ("HDI"), and the business of Olesen, for $1,800,000 cash, to retire certain debt assumed in the acquisition of HDI and to pay down capital lease obligations incurred in a fiscal year 1997 acquisition. The major components of the net capital equipment additions were equipment for the Company's video equipment rental operations of approximately $1,922,000 and equipment additions to other rental operations of approximately $1,689,000. The Company has signed a letter of intent to acquire the business of Four Star Stage Lighting, Inc. ("Four Star"). This transaction is structured as a stock purchase for $26,500,000, payable in cash. The Company is obtaining an increase to its bank line to finance this acquisition and provide for future working capital requirements. Closing of this acquisition is conditioned on the execution of a mutually satisfactory definitive purchase agreement. Four Star is engaged in the rental of theatrical equipment and is headquartered in New York, New York. During the next twelve months, the Company expects to purchase new capital equipment to allow its operations to be more efficient, support growth and to control cost. The Company expects to finance its capital acquisition program through a combination of cash generated from operations and additional borrowings under its bank line. The Company believes it will have sufficient funds from operations and bank borrowings to meet its anticipated requirements for working capital during the next twelve months. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed herewith: 10(i) Amended and Restated Employment Agreement between the Company and Carlos D. DeMattos, dated as of October 1, 1997 (in Edgar filing only). 27 Financial Data Schedule (in Edgar filing only) (b) The Company did not file any reports on Form 8-K during the three months ended December 31, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report on Form 10-Q for the period ending December 31, 1997, to be signed on its behalf by the undersigned hereunto duly authorized. MATTHEWS STUDIO EQUIPMENT GROUP (Registrant) Date: February 12, 1998 By: /s/ Carlos D. DeMattos ------------------------------ Carlos D. DeMattos Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer By: /s/ Gary S. Borman ------------------------------ Gary S. Borman Vice President, Corporate Controller EX-10.(I) 2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10(i) AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement (this "Agreement") is made effective as of the First day of October, 1997, by and between MATTHEWS STUDIO EQUIPMENT GROUP, a corporation organized under the laws of the State of California (the "Company") and CARLOS D. DEMATTOS ("Executive"). WHEREAS, the Company and Executive entered into an Employment Agreement dated July 1, 1995 ("Prior Agreement"), pursuant to which Executive has been retained as an executive for the Company since July 1, 1995; WHEREAS, the Company and Executive wish to amend and restate such Prior Agreement to provide for new terms under which the Company shall retain the services of Executive for the Company; and NOW THEREFORE, in consideration of the covenants and agreements set forth and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive mutually covenant and agree as follows: I. NATURE OF SERVICES ------------------ A. Executive shall be employed as Chairman and Chief Executive Officer/President of the Company and shall perform all those services incident to such offices and such other services as are consistent with such offices as the Board of Directors of the Company from time to time may require, all subject to the Bylaws of the Company. B. Executive hereby consents to serve as a Director of the Company or any subsidiary or affiliated corporation, partnership, joint venture or entity which now is, or which may be in the future, affiliated with the Company on condition that Executive receive the same compensation as that paid to other Directors of any such company for their services as Directors. C. During the Term of Employment (as defined below), Executive shall perform his obligations hereunder faithfully and to the best of his ability at the principal executive offices of the Company under the direction of the Board of Directors of the Company. D. During the Term of Employment, Executive shall devote all of his business time, energy and skill as may be reasonably necessary for the performance of his duties, responsibilities and obligations hereunder, consistent with past practices and norms with respect to similar positions with companies of similar size and in the same or similar industry. II. DURATION OF EMPLOYMENT AND TERMINATION A. The "Term of Employment" pursuant to this Agreement shall commence on the date hereof and shall end on September 30, 2000. Should Executive's employment by the Company be earlier terminated pursuant to Section II.B, the Term of Employment shall end on the date of such earlier termination. B. Subject to the payments contemplated by Section II.D, the Term of Employment may be terminated by the Company for the following: 1. upon the death of Executive; 2. in the event that, because of physical or mental disability, Executive is unable to perform, and does not perform his primary duties hereunder for a continuous period of 120 days; or 3. for "cause". C. Subject to the payments contemplated by Section II.D, the Term of Employment may be terminated at any time by Executive: 1. upon the death of Executive; 2. in the event that, because of physical or mental disability, Executive is unable to perform, and does not perform his primary duties hereunder for a continuous period of 120 days; 3. as a result of the Company's material reduction in Executive's authority, perquisites, position, title or responsibilities (other than such a reduction by the Company because of a temporary illness or disability or such a reduction which affects all of the Company's senior executives on a substantially equal or proportionate basis as a result of financial results, conditions, prospects, reorganization, workout or distressed condition of the Company), the relocation of the Company's primary place of business or the relocation of Executive by the Company to another Company office more than 150 miles from Burbank, California, or the Company's willful, material violation of its obligations under this Agreement, in each case, after 30 days' prior written notice by Executive to the Company and its Board of Directors and the Company's failure thereafter to cure such reduction or violation within such 30 days; or 4. voluntarily or for any reason not referred to in clauses 1 through 3, or no reason; in each case, after 90 days' prior written notice to the Company and its Board of Directors. In such circumstances, the Consultancy Period (as defined below) and relationship described below automatically shall be triggered and become effective. -2- D. For the purposes of this Section II: 1. "Cause" shall mean any of the following: (i) Executive's conviction of a crime or criminal offense involving the unlawful theft or conversion of substantial monies or other property or conviction of fraud or embezzlement; and (ii) Executive's willful, continual and material neglect or failure to discharge his duties, responsibilities or obligations (other than that which arises solely due to physical or mental disability). For purposes of clause (ii), termination may result only after the Company or the Board of Directors has provided Executive with thirty (30) days' written notice of such circumstances and the possibility of terminating on this basis, and Executive fails to cure such circumstances within those thirty (30) days. 2. If the employment of Executive is terminated for any reason, including death or disability, other than for "cause", the Company shall continue to pay the salary compensation described in Section III below during the balance of the Term of Employment. These payments shall be in addition to any deferred compensation to which Executive otherwise is entitled. 3. (a) Upon the expiration or earlier termination (other than for "cause") of the Term of Employment and any extensions thereof, Executive shall be available to render, and must provide, consulting services on less than a full-time basis for a five (5)-year period from the date of such expiration or earlier termination. (b) Executive's annual compensation as a consultant, payable in equal installments no less frequently than monthly, shall be not less than fifty percent (50%) of his annual Base Salary (as defined below) in effect upon the expiration or earlier termination of his Term of Employment. III. COMPENSATION ------------ During the Term of Employment, Executive shall be compensated as follows: A. Salary: ------ 1. From the date hereof until the first anniversary of such date, Executive shall be paid an annual salary of $400,000 (the "Base Salary") paid in equal installments no less frequently than monthly. 2. On each succeeding anniversary of the date hereof thereafter, the Base Salary shall be increased in an amount to be determined at the sole discretion, and by approval by a majority of the members of the Compensation Committee of the Board of Directors, and a majority of the members of the Board of Directors, provided such amount shall not be less than ten percent (10%) of the previous year's Base Salary. -3- B. Automobile Allowance: -------------------- Executive shall receive an automobile allowance of $2,000.00 per month which allowance shall be paid contemporaneously with Executive's salary payments. C. Business Expenses: ----------------- The Company shall reimburse Executive for documented travel, entertainment and other expenses reasonably incurred by Executive in connection with the performance of Executive's duties under this Agreement and, in each case, in accordance with the rates, customs and usages promulgated by the Company and from time to time in effect. D. Incentive Bonus: --------------- 1. The Company shall pay Executive an annual bonus payable following the end of the 1997 fiscal year in accordance with Schedule A to this Agreement, an annual bonus following the end of the 1998 fiscal year in accordance with Schedule B to this Agreement, and an annual bonus following the end of each of the 1999 and 2000 fiscal years of the Company in accordance with targets, to be established annually within thirty-one (31) days following the commencement of each such fiscal year, pursuant to approval by a majority of the members of the Compensation Committee of the Board of Directors. Bonus targets for the 1999 and 2000 fiscal years shall be based on the Company's Pre-Tax Earnings Per Share, as described in Schedule B. 2. Such bonus shall be deferred unless Executive makes an election to have this amount paid immediately, in which case it shall be paid within four months of the end of each applicable fiscal year, in accordance with applicable rules and regulations of the Internal Revenue Code of 1986, as amended, which would make such amounts not includable in gross income until received or made available. Any amounts deferred shall be credited to a reserve account ("Reserve Account") in Executive's name on the books of the Company. Such Reserve Account shall be an interest bearing account and all interest shall accrue to the benefit of Executive. E. Previously Approved Stock Options: --------------------------------- Pursuant to the Prior Agreement and pursuant to approval by the shareholders of the Company made at the shareholder meeting held on May 30, 1996, options to purchase 200,000 shares of the common stock of the Company were granted to Executive. The following is meant to confirm and restate those options so granted. For a period of ten (10) years from July 1, 1995, Executive shall have non-qualified options to purchase up to 200,000 shares of the common stock of the Company. Such options have vested on July 1, 1996, with respect to 66,667 shares, have vested on July 1, 1997 with respect to an additional 66,667 shares and shall vest on July 1, 1998 with respect to an additional 66,666 shares. The exercise price for the shares subject to such options shall be $3.00. Any unexercised options shall terminate at the end of the ten (10)-year period (i.e., June 30, 2005). Such options shall be in addition to the options described below in this Agreement -4- and such options which may from time to time in the future be authorized by the Board of Directors for issuance to Executive under employee stock option plans adopted by the Company. F. Additional Stock Options: ------------------------ Executive is hereby granted additional options to purchase 100,000 shares of the common stock of the Company. The exercise price for the shares subject to such options shall be $4.74. Such options shall be subject to the Company's 1994 Stock Option Plan for the Company's employees (the "Plan") and shall be subject to such terms and restrictions as are imposed by the Plan. Such options shall vest in one-third increments on each anniversary of this Agreement, with the first increment (33,334 options) to vest on October 1, 1998, the second increment (33,333 options) to vest on October 1, 1999 and the third increment (33,333 options) to vest on October 1, 2000. All of such options shall be "Nonstatutory Stock Options", as such term is defined in the Plan. Promptly following the execution of this Agreement, the Stock Option Committee of the Company shall cause these options to be issued to Executive pursuant to a Stock Option Agreement customarily used for options granted under the Plan. G. Executive Benefits: ------------------ During the Term of Employment, Executive shall be entitled to receive all other benefits provided to management employees of the Company, including but not limited to profit sharing plans, pension plans, disability medical, dental or life insurance, stock option and other benefits. IV. DEFERRED COMPENSATION --------------------- Any amounts in the Reserve Account shall be paid in cash in monthly installments equal to one-one-hundred-twentieth (1/120th) of the amount in reserve as of the last day of the last month of the Term of Employment. Payments shall commence on the last day of the first full month after the end of the Term of Employment. V. NON-INTERFERENCE ---------------- A. In consideration of this Agreement, Executive covenants and agrees that: 1. Commencing from July 1, 1995 until the termination of the Term of Employment, and during any subsequent period in which Executive serves as a consultant hereunder ("Consultancy Period"), Executive will not, without the express written approval of the Board of Directors of the Company, anywhere in the Market (as defined below), directly or indirectly, in one or a series of transactions, own, manage, operate, control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, lender, director, officer, employee, joint venturer, investor, lessor, agent, representative or other participant, in any Competitive Business (as defined below), provided, -------- however, that (a) Executive may, anywhere in the Market, directly or ------- indirectly, in one or a series of -5- transactions, own, invest or acquire an interest in up to five percent (5%) of the capital stock of a corporation whose capital stock is traded publicly, (b) Executive may accept employment with a successor company to the Company, and (c) Executive may continue any and all consulting and other activities on behalf of Luso America and with the Government of Portugal. 2. Commencing from July 1, 1995 until termination of the Term of Employment and during any subsequent Consultancy Period, Executive will not without the express prior written approval of the Board of Directors of the Company (a) directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales agent, joint venturer, investor, lessor, supplier, customer, agent, representative or any other person which has a business relationship with the Company or had a business relationship with the Company within the twenty-four (24) month period preceding the date of the incident in question, to discontinue, reduce or modify such employment, agency or business relationship with the Company, or (b) employ or seek to employ or cause any Competitive Business to employ or seek to employ any person or agent who is then (or was at any time within six (6) months prior to the date Executive or the Competitive Business employs or seeks to employ such person) employed or retained by the Company. Notwithstanding the foregoing, nothing herein shall prevent Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity. 3. Commencing from July 1, 1995 until termination of the Term of Employment and during any subsequent Consultancy Period, Executive will not without the express prior written approval of the Board of Directors of the Company directly or indirectly, in one or a series of transactions, recruit, solicit or otherwise induce or influence any major customer which has a business relationship with the Company or had a business relationship with the Company within the twenty-four (24) month period preceding the date of the incident in question, to discontinue, reduce or modify such business relationship with the Company. 4. During any Consultancy Period and thereafter, Executive shall be fully free and able to pursue any and all competitive business opportunities which originate or have their basis outside the continental United States. Further at the end of any Consultancy Period, Executive shall be free to pursue any and all competitive business opportunities anywhere. 5. The scope and term of this Section V would not preclude Executive from earning a living with an entity that is not a Competitive Business. B. The terms of this Section V shall survive termination of this Agreement regardless of who terminates this Agreement, or the reasons therefor. -6- VI. INVENTIONS ---------- Each invention, improvement or discovery made or conceived by Executive, either individually or with others, during the term of his employment with the Company, which invention, improvement or discovery is related to any of the lines of business or work of the Company, any projected or potential activities which the Company has investigated or hereinafter investigates, or which result from or are suggested by any service performed by Executive for the Company, whether patentable or not, shall be promptly and fully disclosed by Executive to the Company. Executive assigns each such invention, improvement or discovery, and the patents thereof, or related thereto, to the Company. Executive shall, during the term of his employment with the Company and thereafter without charge to the Company, but at the request and expense of the company, assist the Company in obtaining or vesting in itself patents upon such improvement and inventions. All such inventions, improvements or discovery shall at all times become and remain the exclusive property of the Company. Executive represents that he does not claim ownership of any inventions, improvements, formulae or discoveries which are excluded from this Agreement. VII. DEFINITIONS (Where not otherwise covered or defined) ----------- "Business: means (a) the design, manufacture, sale, distribution, lease or -------- rental of production (including grip, lighting and camera) equipment to the motion picture, television, commercial production and photography industries or (b) any similar, incidental or related business conducted or pursued by, or engaged in, or proposed to be conducted or pursued by or engaged in, by the Company prior to the date hereof or at any time during the Term of Employment. "Company" means Matthews Studio Equipment Group and its successors or any ------- of its direct or indirect subsidiaries, now or hereafter existing. "Competitive Business" means any business which competes, directly or -------------------- indirectly, with the Business in the Market. "Confidential Information" means any trade secret, confidential study, ------------------------ data, calculations, software storage media or other compilation of information, patent, patent application, copyright, trademark, trade name, service mark, service name, "know-how", trade secrets, customer lists, details of client or consultant contracts, pricing policies, sales techniques, confidential information relating to suppliers, information relating to the special and particular needs of the Companies' customers operational methods, marketing plans or strategies, products and formulae, product development techniques or plans, business acquisition plans or any portion or phase of any scientific or technical information, ideas, discoveries, designs, computer programs (including course of object codes), processes, procedures, research or technical data, improvements to other proprietary or intellectual property of the Companies, whether or not in writing or tangible form, and whether nor not registered, and including all files, records, manuals, books, catalogues, memoranda, notes, summaries, plans, reports, records, documents and other evidence thereof. The term "Confidential Information" does not include, and there shall be no obligation hereunder with -7- respect to, information that is or becomes generally available to the public or other than as a result of a disclosure by Executive is not permissible hereunder. "Executive" means Carlos D. DeMattos or his estate, if deceased. --------- "Market" means any county in the United States of America and each similar ------ jurisdiction in any other country in which the Business was conducted or pursued by, engaged in by the Company prior to the date hereof or is conducted or engaged in or pursued, or is proposed to be conducted or engaged in or pursued, by the Company at any time during the Term of Employment. VIII. ASSIGNMENT; THIRD PARTIES ------------------------- Neither Executive nor the Company may assign, transfer, pledge, hypothecate, encumber or otherwise dispose of this Agreement or any of the Executive's or the Company's respective rights or obligations hereunder, without the prior written consent of the other. The parties agree and acknowledge that each of the Company and stockholders and investors therein are intended to be third party beneficiaries of, and have rights and interests in respect of, Executive's agreements set forth in Section V and Section VI. IX. GENERAL PROVISIONS ------------------ A. Each party to this Agreement agrees to execute and deliver all documents and perform all further acts that may be reasonably necessary to carry out the provisions of this Agreement. B. The waiver by the Company or Executive of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other breach of such other party. Each of the parties (and third party beneficiaries) to this Agreement will be entitled to enforce its rights under this Agreement of any breach of any provision of this Agreement and to exercise all other rights existing in its favor. In the event either party takes legal action to enforce any of the terms or provisions of this Agreement against the other party, the party against whom judgment is rendered in such action shall pay the prevailing party's costs and expenses, including but not limited to, attorneys' fees, incurred in such action. C. This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, successors, and assigns. D. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or five (5) days after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed to the party at his or its address set forth on the signature page of this Agreement, or any other address that any party may designate by written notice to other others. -8- E. This Agreement shall be governed by, construed, applied and enforced in accordance with the laws of the State of California. F. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule if any jurisdiction, such invalidity, illegality or unenforceability with no affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. If any court determines that any provision of Section V or VI or any other provision hereof is unenforceable because of the power to reduce the scope or duration of such provision, as the case may be and, in its reduced form, such provision shall then be enforceable. G. Nothing herein contained shall be construed so as to require the commission of any act contrary to law, and wherever there is a conflict between any provision of this Agreement and any law, statute or regulation, the latter shall prevail, and in such event, the provision(s) of this Agreement affected shall be curtailed, limited and modified only to the extent necessary to bring this affected provision within the legal requirements and this Agreement, as thus curtailed, limited and modified, shall continue in full force and effect. H. This Agreement contains the entire understanding between the parties hereto regarding their employment relationship, and supersedes the Prior Agreement and any other agreements, written or oral, and all understandings, discussions, memoranda and negotiations between the parties hereto relating to the aforesaid subject matters herein agreed upon. Each party acknowledges that no representations, inducements, promises or agreements, written or oral, with reference to the aforesaid subject matters of this Agreement have been made other than expressly set forth in this Agreement. I. In construing and enforcing this Agreement, the provisions hereof shall be interpreted and taken according to their usual and ordinary meaning and not strictly for or against any party hereto. J. The Company agrees to indemnify Executive from, and to hold Executive harmless against all expense of and liability from litigation, arbitration or administrative proceedings and all costs related thereto, including reasonable attorney's fees, judgments or verdicts travel costs and lodging, witness fees to exert witnesses, accountants' fees which may arise from having to defend against any claim or action naming Executive because at the pertinent times on which such claim or action is alleged to have arisen Executive was an Officer or Director this Company or any of its subsidiaries or affiliates, and he was then performing said duties under this Agreement. This indemnification and hold harmless provision shall apply to alleged acts of omission or acts performed negligently or by mistake or misjudgment, but shall not apply to proven willful acts such as intentional fraud. K. Executive and the Company, as of the effective date of this Agreement, hereby cancel, void and render without force and effect the Prior Agreement, and Executive releases and discharges the Company from any further obligations or liabilities thereunder. This -9- Agreement replaces and supersedes in its entirety the Prior Agreement. Executive hereby warrants and represents to the Company that Executive has carefully reviewed this Agreement and has consulted with such advisors as Executive considers appropriate in connection with this Agreement, is not subject to any covenants, agreements or restrictions, including without limitation any covenants, agreements or restrictions arising out of Executive's prior employment, which would be breached or violated by Executive's execution of this Agreement or by Executive's performance of his duties hereunder. L. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument. IN WITNESS WHEREOF, pursuant to approval by the Board of Directors of the Company and pursuant to approval by the Compensation Committee of the Board of Directors of the Company, such Compensation Committee and Executive have duly executed this Agreement as of the date first above written. /s/ Carlos D. DeMattos ----------------------------------- CARLOS D. DEMATTOS MATTHEWS STUDIO EQUIPMENT GROUP By: COMPENSATION COMMITTEE OF BOARD OF DIRECTORS OF MATTHEWS STUDIO EQUIPMENT GROUP /s/ Jack Brehm ----------------------------------- Jack Brehm /s/ John H. Donlon ----------------------------------- John H. Donlon /s/ Jerome E. Farley ----------------------------------- Jerome E. Farley /s/ Benjamin P. Giess ----------------------------------- Benjamin P. Giess /s/ John F. Jastrem ----------------------------------- John F. Jastrem -10- SCHEDULE A ---------- 1997 BONUS Executive shall be entitled to a bonus in the amount stated below if the Company's EBITDA, as described below, for the fiscal year ended September 30, 1997, equals or exceeds the amount stated below. Bonus EBITDA ----- ------ 20% of Base Salary $ 6,262,000 40% of Base Salary $ 8,405,000 1. "EBITDA" means with respect to the Company and all of its subsidiaries calculated on a consolidated basis and with respect to the fiscal year ended September 30, 1997, an amount equal to the sum of: (a) net income, plus (b) to ---- the extent deducted from net income (i) depreciation and amortization for such fiscal year, plus (ii) tax expense, plus (iii) the total interest expense paid ---- ---- or accrued with respect to all outstanding indebtedness, plus (iv) non-cash ---- expenses relating to Financial Accounting Standards Board Statements Nos. 106 and 109, plus (v) the aggregate amount of non-capitalized transaction costs ---- incurred in connection with financing and acquisitions all as determined in accordance with generally accepted accounting principles. 2. The calculation of EBITDA for the Company shall be based upon the audited financial statements of the Company as of the end of the fiscal year. SCHEDULE B ---------- 1998 BONUS Executive shall be entitled to a bonus in the amount stated below if the Company's Pre-Tax Earnings Per Share, as described below, equals or exceeds the amount stated below.
Pre-Tax Earnings Bonus Per Share - ----- ---------------- 20% of Base Salary $0.25 40% of Base Salary $0.33 60% of Base Salary $0.45 80% of Base Salary $0.58 100% of Base Salary $0.70
1. "Pre-Tax Earnings Per Share" means the net income (as calculated in accordance with generally accepted accounting principles) of the Company and all of its subsidiaries calculated on a consolidated basis and with respect to the fiscal year ending September 30, 1998 (after the expense accrual of the amount of Executive's bonus), divided by the weighted average number of common shares of the Company outstanding during the fiscal year ending September 30, 1998 (excluding options and warrants), rounded down to the nearest whole number. ---- 2. The calculation of Pre-Tax Earnings Per Share for the Company shall be based upon the audited financial statements of the Company as of the end of the fiscal year. EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q PERIOD ENDED DEC. 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 567 0 9,523 808 9,242 21,633 61,041 22,544 67,653 8,950 0 0 0 7,064 5,005 67,653 5,686 13,457 3,860 7,922 0 41 1,110 5 2 3 0 0 0 3 0.00 0.00
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