-----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, VZt4+nYo1Z20cr0ds4N6SrYfA9cna8EXx+2b3omdwV6/Azom5z57FWOmJ842oHTd V859etQjb9QHBm4bO5Xr6Q== 0000944209-97-000628.txt : 19970515 0000944209-97-000628.hdr.sgml : 19970515 ACCESSION NUMBER: 0000944209-97-000628 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 1934 Act SEC FILE NUMBER: 000-18102 FILM NUMBER: 97605820 BUSINESS ADDRESS: STREET 1: 2405 EMPIRE AVE 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 MARCH 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 -------------------------- 10,336,591 SHARES AS OF APRIL 30, 1997. - --------------------------------------- INDEX MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets - March 31, 1997 and September 30, 1996 Condensed consolidated statements of income - Three months ended March 31, 1997 and 1996; Six months ended March 31, 1997 and 1996 Condensed consolidated statements of cash flows - Six months ended March 31, 1997 and 1996 Notes to condensed consolidated financial statements - March 31, 1997 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Change in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures PART I, FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Condensed Consolidated Balance Sheets ($ in thousands)
March 31, September 30, 1997 1996 ----------- ------------- (Unaudited) (Note) ASSETS: Current assets: Cash and cash equivalents $ 685 $ 462 Accounts receivable, less allowance of $579 at March 31, 1997 and $480 at September 30, 1996 6,242 5,145 Current portion of net investment in leases 771 794 Inventories 6,363 4,961 Prepaid expenses and other current assets 1,124 945 ----------- ----------- Total current assets 15,185 12,307 Property and equipment, less accumulated depreciation and amortization of $18,537 at March 31, 1997 and $17,214 at September 30, 1996 20,932 20,339 Investment in leases, less current portion 660 865 Other assets 1,431 973 ----------- ----------- Total assets $ 38,208 $ 34,484 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable $ 2,814 $ 2,603 Accrued liabilities 2,302 1,626 Current portion of long-term debt and capital lease obligations 165 125 Income taxes payable 158 - ----------- ----------- Total current liabilities 5,439 4,354 Long-term debt and capital leases 20,658 18,914 Deferred income taxes 2,142 2,142 Shareholders' equity Preferred stock - - Common stock 5,589 5,584 Retained earnings 4,380 3,490 ----------- ----------- Total shareholders' equity 9,969 9,074 ----------- ----------- Total liabilities and shareholders' equity $ 38,208 $ 34,484 =========== ===========
Note: The balance sheet at September 30, 1996 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 Six Months Ended March 31, March 31, 1997 1996 1997 1996 -------- -------- -------- -------- Net product sales $ 5,149 $ 3,517 $ 8,703 $ 6,697 Revenue from rental operations 5,626 3,249 11,394 6,434 -------- -------- -------- -------- 10,775 6,766 20,097 13,131 Costs and expenses: Cost of sales 3,537 2,285 5,869 4,285 Cost of rental operations 2,982 1,841 6,380 3,638 Selling, general and administrative 2,828 2,018 5,235 3,854 Interest 564 476 1,130 999 -------- -------- -------- -------- 9,911 6,620 18,614 12,776 Income before income taxes 864 146 1,483 355 Provision for income taxes 345 29 593 70 -------- -------- -------- -------- Net income $ 519 $ 117 $ 890 $ 285 ======== ======== ======== ======== Earnings per common share $0.05 $0.01 $0.09 $0.03 ======== ======== ======== ======== Weighted average number of common shares outstanding 10,335 10,321 10,333 10,324
See accompanying notes. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) ($ in thousands)
Six Months Ended March 31, 1997 1996 -------- -------- Operating activities: Net income $ 890 $ 285 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for doubtful accounts 138 80 Depreciation & amortization 1,614 1,667 Gain on sale of assets (146) (65) Changes in operating assets and liabilities net of effects from purchase of Media Lighting Supply, Inc.: Accounts receivable (639) 290 Inventories (921) (84) Net investment in leases 252 302 Prepaids/other assets (238) (56) Income tax refund receivable - 252 Accounts payable and accrued liabilities 84 (229) Income taxes payable 158 54 -------- -------- Net cash provided by operating activities 1,192 2,496 Investing activities: Payment for acquisition of Media Lighting Supply, Inc., less amount paid by assumption of debt (200) - Purchase of other property and equipment (2,254) (3,847) Proceeds from sale of property and equipment 364 218 -------- -------- Cash used in investing activities (2,090) (3,629) Financing activities: Proceeds from exercise of stock options 5 12 Proceeds from borrowings 1,116 1,069 -------- -------- Net cash provided by financing activities 1,121 1,081 Net increase (decrease) in cash and cash equivalents 223 (52) Cash and cash equivalents at beginning of period 462 438 -------- -------- Cash and cash equivalents at end of period $ 685 $ 386 ======== ========
See accompanying notes. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) - Continued ($ in thousands) Supplementary Schedule of Noncash Investing and Financing Activities The Company purchased the operations of Media Lighting Supply, Inc., for $425 in cash, with only $200 of the purchase price being due on closing. The remaining portion will be due in installments of $100, $100 and $25 over the next three years. In connection with the acquisition, assets acquired and liabilities assumed were as follows: Assets purchased $ 1,705 Cash paid (200) ------- Liabilities assumed $ 1,505 =======
See accompanying notes. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. 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 and six month periods ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending September 30, 1997, 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 annual report on Form 10-K for the year ended September 30, 1996. 2. Accounting Policies 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. 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. Stock Based Compensation The Company accounts for its stock compensation arrangements under the provisions of APB 25, "Accounting for Stock Issued to Employees," and intends to continue to do so. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("FAS 123"). FAS 123 established a fair value-based method of accounting for compensation cost related to stock options and other stock-based compensation awards. However, FAS 123 allows an entity to continue to measure compensation costs using the principles of APB 25 if certain proforma disclosures are made. FAS 123 is effective for fiscal years beginning after December 15, 1995 (the Company's 1997 fiscal year). The Company intends to disclose the information required by FAS 123 beginning with its financial statements for fiscal year end 1997. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited)-Continued 2. Accounting Policies (continued) Per Share Data Per share data has been computed based on the weighted average number of shares of common stock outstanding as dilutive options and warrants account for less than 3% of the outstanding common shares. For the first and second quarters of fiscal years 1997 and 1996, the effect of the stock options and warrants were antidilutive, using the modified treasury stock method as a result of exercise prices of options and warrants in excess of market. Inventories Inventories are principally stated at the lower of first-in, first-out cost or market. 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. The effective income tax rate is 40% for the current quarter versus approximately 20% for the same period of the prior year. The lower rate for last year was primarily attributable to the utilization of net operating loss and alternative minimum tax carryforwards. 3. Stock Options During the six months ended March 31, 1997, 5,000 shares of common stock were issued upon exercise of stock options. MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited)-Continued 4. Acquisition On February 21, 1997, the Company purchased the assets and business of Media Lighting Supply, Inc., a lighting supply company in Miami, Florida. The acquisition was made for cash of $425,000. In addition, the Company assumed debt, including unpaid purchase price of $1,505,000. Only $200,000 of cash was paid on closing, with the remaining portion of the purchase price becoming due in installments of $100,000, $100,000 and $25,000 on the first, second and third anniversaries of the closing. The pro forma unaudited results of operations for the six months ended March 31, 1997 and 1996, assuming consummation of the purchase as of October 1, 1995, are as follows:
Six Months Ended March 31 1997 1996 ---- ---- ($ in thousands, except per share data) Net revenue $21,192 $15,008 Net income 910 303 Net income per common share $ 0.09 $ 0.03
5. Subsequent Event On May 2, 1997, the Company purchased the assets and business of Duke City Video, Inc. ("Duke City"), which generally conducts business as Duke City Studio. Duke City provides rental services of audio, video, film and professional grip equipment, as well as various levels of production expertise, crews and expendable supplies to the film and television production industry. Duke City has operations in Albuquerque, New Mexico, Burbank, California and Dallas, Texas. In connection with the acquisition of Duke City, the Company entered into stock purchase agreements to exchange all of the outstanding common stock of Duke City with the former shareholders for 285,715 of restricted shares of the Company's common stock. The acquisition will be accounted for as a purchase and the operations of Duke City will be included in the consolidated statements in the Company's third fiscal quarter. Also, in connection with the Duke City acquisition certain amendments to the Company's revolving credit facility were approved by the bank which increased the facility to $18.5 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- Overview - -------- In the first and second quarters of fiscal 1997, the Company continued the trends from fiscal 1996 of growth and improved operating results. The first and second quarters of fiscal 1997 showed improvements in sales, net income, and earnings per share over the comparable periods of fiscal 1996. Revenues increased by $6,966,000 or 53% to $20,097,000 for the first six months of fiscal 1997, from $13,131,000 for the first six months of fiscal 1996. Net income increased by $605,000 or 212% to $890,000 for the first six months of fiscal 1997, from $285,000 for the first six months of fiscal 1996 while income before income taxes increased by $1,128,000 or 318% during the same period. Three-Month Period ended March 31, 1997 and March 31, 1996 - ---------------------------------------------------------- Net Product Sales - ----------------- Net equipment and supply sales were $5,149,000 for the second quarter of fiscal 1997, an increase of $1,632,000 or 46%, from $3,517,000 for the second quarter of fiscal 1996. Sales of production equipment and accessories for lighting support, camera support, lighting control and equipment sales to the retail industry ("Equipment sales") increased to $3,220,000, an increase of $731,000, or 29%, from $2,489,000 in fiscal 1996. Sales of expendable supply products increased in the second quarter of fiscal 1997 to $1,929,000 from $1,028,000, an increase of $901,000 or 88% over the same period last year. The increase in sales of expendable supply products resulted principally from revenue relating to Media Lighting Supply, Inc., which was acquired during the second quarter of fiscal year 1997. Revenues From Rental Operations - ------------------------------- Revenues from rental operations were $5,626,000 for the second quarter of fiscal 1997, compared to $3,249,000 for the same period last year, an increase of $2,377,000 or 73%. Production equipment rentals, primarily of lighting, grip, power generators and trucks, increased to approximately $5,576,000, an increase of $2,538,000 or 84% from approximately $3,038,000, for the same period last year. Approximately 43% of the total revenue in the second quarter of fiscal year 1997 was from large-budget film projects completed during the quarter. Also contributing to the increase in the Company's rental revenues was the addition of equipment to the Company's rental inventory base, including equipment added for the new marketing centers opened in fiscal 1996. Gross Profit - Sales - -------------------- Gross profit as a percentage of sales was approximately 31% for the second quarter of fiscal 1997, compared to approximately 35% for the same period in fiscal 1996. 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. Gross Profit - Rental - --------------------- Gross profit as a percentage of rental revenues was approximately 47% for the second quarter of fiscal 1997 compared to 43% in fiscal 1996. Gross profit from rental revenues increased by $1,236,000 for the second quarter of fiscal 1997 as compared to fiscal 1996, mainly due to the increase in revenues and the significant amount of costs which are of a fixed nature. Selling, General and Administrative - ----------------------------------- Selling, general and administrative expenses were $2,828,000 in the second quarter of fiscal 1997 compared to $2,018,000 for the same period in fiscal 1996. As a percent of sales, selling, general and administrative expenses were 26% for the second quarter of fiscal 1997 compared to 30% for the same period in fiscal 1996. The dollar increase was required to support the increase in operations and was due mainly to higher payroll and related costs, as well as higher advertising and sales commission expenses. Interest - -------- Interest increased to $564,000 in the second quarter of fiscal 1997 from $476,000 in the second quarter of fiscal 1996. The increase in interest costs is primarily due to an increase in the outstanding principal amount of debt, a portion of which is attributable to the acquisition of Media Lighting Supply, Inc. Six-Month Period ended March 31, 1997 and March 31, 1996 - -------------------------------------------------------- Net Product Sales - ----------------- Net equipment and supply sales increased to $8,703,000 for the first six months of fiscal 1997, compared to $6,697,000 for the first six months of fiscal 1997. Equipment sales increased to $5,772,000 for the first six months of fiscal 1997, an increase of $916,000 or 19% from $4,856,000 for the same period last year. The increase in Equipment sales is attributable to concentrated marketing efforts. Sales of expendable supplies increased by approximately $1,581,000 compared to the first six months of 1996 and approximately $1,062,000 of the increase relates to Media Lighting Supply, Inc., which was acquired during the second quarter of fiscal year 1997. Revenues From Rental Operations - ------------------------------- Revenues from rental operations were $11,394,000 for the first six months of fiscal 1997, compared to $6,434,000 for the same period last year, an increase of $4,960,000 or 77%. Approximately 51% of the total revenue of the first six months of fiscal year 1997 was from large-budget film projects which were completed during the second quarter. Also contributing to the increase in the Company's rental revenues was the addition of equipment to the Company's rental inventory base, including equipment added for the new marketing centers opened in fiscal year 1996. Gross Profit - Sales - -------------------- Gross profit as a percentage of sales was approximately 33% for the first six months of fiscal 1997, compared to approximately 36% for the same period in fiscal 1996. The decrease was primarily attributable to the increase in expendable supply product sales, which carry lower gross profit margins than the Company's other products. Gross Profit - Rental - --------------------- Gross profit as a percentage of rental revenues was approximately 44% for the first six months of fiscal 1997, compared to 43% in fiscal 1996. The small increase in gross profit despite a more significant increase in rental revenues is due to an increase of $1,902,000 in sub-rental costs as a result of higher rental activities during the current period. Sub-rental costs as a percentage of revenue was 22% for the first six months of fiscal year 1997, compared to 10% for the same period in fiscal year 1996. Selling, General and Administrative - ----------------------------------- Selling, general and administrative expenses were $5,235,000 for the first six months of fiscal 1997, compared to $3,854,000 for the same period in fiscal year 1996. As a percent of sales, selling, general and administrative expenses were 26% for the first six months of fiscal 1997, compared to 29% for the same period in fiscal 1996. The dollar increase was required to support the increase in operations and was due mainly to higher payroll and related costs, as well as higher advertising and sales commission expenses. Interest - -------- Interest increased to $1,130,000 for the first six months of fiscal 1997, compared to $999,000 for the first six months of fiscal 1996. The increase in interest costs is primarily due to an increase in the outstanding principal amount of debt. Liquidity and Capital Resources - ------------------------------- During the six months ended March 31, 1997, the Company financed its operations primarily from internally generated cash flow and bank borrowings. Working capital was $9,746,000 at March 31, 1997 compared to $7,953,000 at September 30, 1996. During the first six months of fiscal 1997, the Company generated cash from operating activities of $1,192,000. The major contributor to cash from operating activities was earnings before depreciation and amortization of $2,504,000. Operating cash flow was somewhat lower for the first six months of fiscal 1997 compared to the same period last year, due to increased working capital requirements to support the increase in business activity. The Company utilized the cash from operating activities augmented by additional borrowings from the Company's bank line of $1,116,000, to finance the acquisition of capital equipment. The major components of the asset additions were equipment for the Company's equipment rental operations of approximately $1,429,000, and cash used for the acquisition of the operations and assets of Media Lighting Supply, Inc. 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 minimize the sub-rental of equipment necessary to meet customer orders. The Company expects to finance its capital acquisition program through a combination of cash generated from operations and additional borrowings under its bank line of credit. 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 Items 1,2,3, and 5 are not applicable. Item 4. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Shareholders of Matthews Studio Equipment Group was held on March 27, 1997. In addition to election of directors, the following matters were voted upon and the results were as follows: To amend the Articles of Incorporation to eliminate inapplicable language regarding the Company's business. Number of votes: For Against Abstain Broker Non-votes --- ------- ------- ---------------- 6,632,245 516,000 6,054 242,700 To ratify Ernst & Young LLP as the Company's independent accountants for the fiscal year ending September 30, 1997. Number of votes: For Against Abstain Broker Non-votes --- ------- ------- ---------------- 7,385,245 11,550 204 - Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed herewith: 27 Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the three months ended March 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 March 31, 1997, to be signed on its behalf by the undersigned hereunto duly authorized. MATTHEWS STUDIO EQUIPMENT GROUP (Registrant) Date: May 13, 1997 By: /s/ Gary Borman --------------------------------- Gary Borman Vice President, Corporate Controller EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-1997 OCT-01-1996 MAR-31-1997 685 0 6,821 579 6,363 15,185 39,469 18,537 38,208 5,439 0 0 0 5,589 4,380 38,208 8,703 20,097 5,869 12,249 0 0 1,130 1,483 593 890 0 0 0 890 0.09 0.09
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