UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000
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 1-14234
------------------------------
AUDIO VISUAL SERVICES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3466655
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
111 WEST OCEAN BOULEVARD, SUITE 1110, LONG BEACH, CALIFORNIA 90802
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(562) 366-0620
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
Common Stock, par value $0.01 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of December 15, 2000, the aggregate market value of voting stock held by
non-affiliates of the registrant was $4,297,655.
As of December 12, 2000, the registrant had 25,018,346 shares of its common
stock, par value $0.01 per share (the "Common Stock"), issued and outstanding.
================================================================================
<PAGE>
PART I
Certain statements contained herein may be deemed to be forward-looking
statements as defined in the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve known and
unknown risks and uncertainties, which may cause the Company's actual results in
future periods or plans for future periods to differ materially from what is
currently anticipated. Those risks include, among others, general competitive
factors, the Company's ability to continue operational improvements in its
businesses, the Company's ability to comply with the terms of its bank credit
agreement, the seasonality of the Company's business, the resolution of the
shareholder class action currently pending against the Company and other risks
and uncertainties detailed from time to time in the Company's filings with the
Securities and Exchange Commission. Other factors and assumptions not identified
above were also involved in the derivation of these forward-looking statements,
and the failure of such other assumptions to be realized, as well as other
factors, may also cause actual results to differ materially from those
projected. The Company assumes no obligation to update these forward-looking
statements to reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking statements.
ITEM 1. BUSINESS
AudioVisual Services Corporation is a leading provider of audiovisual services,
equipment rentals, staging and meeting services and related technical support to
hotels, event production companies, trade associations, convention centers and
corporations in the USA. In addition to its United States operations, Audio
Visual Services Corporation has operations in Mexico, Canada, the United
Kingdom, Belgium, Brazil and the Caribbean. As used herein, the terms "AVSC" or
the "Company" refer to Audio Visual Services Corporation and its subsidiaries,
and the references to a fiscal year are to the Company's fiscal year ended
September 30 in the referenced year.
Business activities and events that generate a need for audiovisual equipment
rentals, staging services and other related services include sales meetings,
product launches, trade shows, training and education of employees and dealers,
conferences and stockholder meetings and other executive management
presentations that are used to convey important information about a business
and/or its products. Large corporate events tend not to occur regularly,
depending, for example, on timing of product rollouts, changing competitive
environments, the annual nature of many trade shows and shifts in corporate
strategy, which makes it relatively costly to acquire and maintain the equipment
and services to create and execute these events. Many companies therefore look
to engage outside firms to assist in the production of these events.
SERVICES
The Company has two core operational business divisions, which provide
audiovisual equipment rentals, staging services and other related services:
Presentation Services and Audio Visual Headquarters.
PRESENTATION SERVICES is a leading provider of in-house audiovisual services in
hotels, resorts and conference centers throughout the United States, the United
Kingdom, Belgium, Mexico, Canada, Brazil and the Caribbean. Currently providing
audiovisual services at over 600 properties, Presentation Services offers a full
range of on-site audiovisual equipment and related services to hotel, resort and
conference center guests and clients, including the latest in special effects
technology - from laser and intelligent lighting systems to indoor pyrotechnics
and fiber optic curtains, as well as video conferencing. In addition,
Presentation Services operates business centers under the trade name EXECUTIVE
EXPRESS in many of the hotel and resort properties in which it maintains on-site
operations.
AUDIO VISUAL HEADQUARTERS, commonly known in the trade industry as "AVHQ", is a
leading provider of high-end audiovisual equipment rentals with approximately 35
offices throughout the United States. Its services include providing complete
audiovisual and technical support to meetings, conventions, tradeshows,
corporate theater, large presentations and entertainment events. The Company
believes that AVHQ is unique to the audiovisual industry in the United States
because of its ability to serve clients on a national basis. The Company's
Rental Services division (which provides drop-off audiovisual equipment rentals
on an as-needed basis) was recently integrated into AVHQ's operations.
CLIENTS
PRESENTATION SERVICES client base primarily consists of hotels and conference
centers with sufficient meeting space to accommodate group meetings and events
with attendees numbering up to 10,000. These events utilize audiovisual
equipment provided for by an on-site inventory and staff of managers and
technicians. The Company currently provides audio visual services, both on an
exclusive and non-exclusive basis, at major hotel and resort facilities
including, properties owned, operated and/or franchised by Hyatt, Hilton, Omni,
Sheraton, Westin, Doubletree, Red Lion, Loews, Inter-Continental, Crown Plaza,
Holiday Inn as well as major independent properties. In addition, the Company
has entered into national agreements with Omni Hotels, Hilton Hotels, Starwood
Hotels and Resorts, KSL Recreation Corporation, Inter-Continental Hotels and
Meristar H & R Operating Company L.P., pursuant to which such companies have
agreed to promote the Company's audiovisual outsourcing services to properties
operated, managed and/or franchised under their respective flags.
2
<PAGE>
AUDIO VISUAL HEADQUARTERS targets corporate clients with significant audiovisual
equipment needs, production companies, trade associations and other businesses
that require audiovisual and staging services. AVHQ has numerous long-
established clients, including national associations, trade organizations and
Fortune 500 corporations, and has regularly provided services to prestigious
entertainment industry productions such as the Academy Awards(R).
Among the ways the Company seeks to differentiate itself to clients from other
providers of audiovisual equipment and staging and technical services are by its
customer service, its breadth of technical expertise, its demonstrated ability
to execute a broad range of projects, large and small, across a number of
industries, its investment in new technology and equipment, its size in the
United States and its emerging international presence.
SALES AND MARKETING
Historically, the Company has acquired new clients and marketed its services
primarily by cross-selling to existing clients, responding to requests for
proposals, pursuing client referrals, identifying prospects through research of
potential clients and actively marketing to potential new customers. The Company
solicits prospective accounts through personal contacts by members of the
Company's senior management as well as through the Company's managers
responsible for business development.
The Company markets its services by type of service offered, customer type and
by geographic region. Personnel are assigned to those accounts that are
identified by management to be strategically significant. In addition, each of
the Company's business units employs a full-time sales and marketing staff to
evaluate market opportunities and identify potential clients. Personnel in the
Company's Presentation Services unit also work with the sales and marketing
personnel of the various hotels in which the Company acts as the in-house
provider to promote the hotels' meeting and conference capabilities, thereby
creating additional selling opportunities for the Company.
OPERATIONS
The Company's operations are divided into two principal business units,
generally along service offerings.
PRESENTATION SERVICES, the Company's hotel audiovisual outsourcing business
unit, based near Chicago, Illinois, services approximately 600 hotels pursuant
to agreements under which it acts as the preferred in-house provider of
audiovisual equipment rental services in such hotels. To service each of the
hotel properties, the Company employs on-site management, service and technical
representatives who work with each individual hotel's management to assist the
hotel and its guests and customers with their audiovisual equipment and office
service needs and to exploit opportunities to increase the volume of rental
activity in such hotels. In addition to employees maintained at each hotel, the
division also employs a full time sales and marketing staff that seeks out new
opportunities with individual hotels and hotel chains.
AUDIO VISUAL HEADQUARTERS, the Company's staging, rental and meeting services
business unit, based near Los Angeles, California, provides staging services and
audiovisual equipment rentals to corporate clients, production companies, trade
associations and other businesses that require such services. AUDIO VISUAL
HEADQUARTERS maintains regional inventory support and sales offices in
approximately 35 locations throughout the United States.
Throughout each of the Company's business units, each office supplements its
staff with independent contractors or part-time employees on an as-needed basis.
The Company's management emphasizes the coordination of activities between
business units. This coordination of activities allows the Company to serve its
clients at a local level while at the same time providing clients with resources
and expertise of an international organization.
RECENT DEVELOPMENTS
During the fiscal year, the Company engaged in the restructuring of its
businesses, which included, among other things, the sale of certain of its
business units, changing the name of the Company from Caribiner International,
Inc. to Audio Visual Services Corporation and relocating the Company's corporate
headquarters from New York, New York to Long Beach, California. On April 20,
2000, the Company sold substantially all of the assets of its worldwide
communications group ("Communications Division"), and on May 9, 2000, the
Company sold its U.K.-based Melville Exhibitions Services subsidiary. As a
result of the aforementioned dispositions, the Company ceased being in the
business of producing meetings, events and training programs on a worldwide
basis and providing exhibition services in the United Kingdom. Net proceeds from
each disposition were applied principally to the repayment of outstanding
amounts under the Company's Term Facility (as hereafter defined) and the
reduction of the commitment under the Company's Revolving Facility (as
hereinafter defined). Specifically, the Company (i) repaid an aggregate of $38
million under the Term Facility thereby permanently reducing availability and
outstanding amounts thereunder from $199.6
3
<PAGE>
million to $161.6 million and (ii) repaid an aggregate of $47.5 million under
the Revolving Facility thereby permanently reducing the availability thereunder
from $250 million to $202.5 million. In addition, on December 14, 2000, the
Company changed its fiscal year end from September 30 to December 31.
EMPLOYEES
As of October 31, 2000, the Company employed approximately 2,968 total full-time
employees, of which 2,533 employees were located domestically and 435 were
located internationally.
Except for 67 employees of the Company's hotel audiovisual outsourcing business
unit, whose terms of employment are covered by a collective bargaining agreement
with a union, the Company has no full-time employees whose employment is covered
by collective bargaining or similar agreements with unions; however, the Company
and its subsidiaries do from time to time independently contract with or hire
part-time union personnel, especially during the provision of services in
connection with a particular meeting or event, and, accordingly, the Company
and/or its subsidiaries, is a party to certain agreements with unions governing
the hiring and terms of employment of such personnel. Over the course of any
given project period, the Company evaluates the personnel requirements and
determines the extent to which it must supplement its available employee base
with the use of freelance contractors or part-time employees. Depending on the
timing and specific requirements of the events and the number of overlapping
events in any given planning period, the use of independent contractors and
part-time employees can vary significantly. The Company considers its relations
with its full-time employees, part-time employees and independent contractors to
be good.
COMPETITION
Although no firm data exists with respect to the size of the audiovisual
equipment rental and meeting services industry and the number and size of
competitors within the industry, management believes, based on its experience in
the industry, that the industry is relatively fragmented. The Company believes
that no one participant is dominant in the industry and that its competitors
consist primarily of small, generally regional firms which provide a limited
range of services. Management believes that the competitive factors most
important in the audiovisual equipment rental and meeting services industry are
organizational breadth, technical expertise, demonstrated ability to execute
projects, range of services offered, size, geographical presence and price.
The Company believes its principal strengths are the depth of its technical
talent, its ability to consistently meet its clients' objectives and
expectations, its focus on quality and customer service and its ability to
manage effectively and reliably multiple complex, large-scale projects
contemporaneously. The Company believes it is at a competitive disadvantage in
certain regions where it does not have local offices.
SEASONALITY
The Company experiences quarterly variations in revenue, operating income and
net income as a result of many factors, including the timing of clients'
meetings and events, delays in or cancellation of client's events, as well as
changes in the Company's revenue mix among its various services offered.
Historically, the Company's business has tended to be slower in the quarters
ended September 30 and December 31 mainly due to the summer holiday period,
Thanksgiving and Christmas holidays, when clients and hotel guests traditionally
stage fewer meetings and events.
ITEM 2. PROPERTIES
On or about June 1, 2000, the Company's relocated its corporate headquarters to
leased offices occupying approximately 5,584 square feet at 111 West Ocean
Boulevard, Suite 1110, Long Beach, California 90802. The lease for the Long
Beach, California premises expires on April 30, 2002. Prior to the relocation of
its corporate headquarters to California, the Company had entered into a lease
for headquarters office space to be located at 498 Seventh Avenue, New York, New
York. Such lease was assigned to the purchaser in connection with the sale of
the Communications Division in April, 2000.
The Company also leases offices and warehouse space in cities throughout the
United States, as well as in London, Mexico, Brazil, Puerto Rico and the U.S.
Virgin Islands. The Company believes that, to the extent required, suitable
additional or alternative space necessary for its operations will be available
on an as needed basis.
ITEM 3. LEGAL PROCEEDINGS
On March 25, 1999, a shareholder class action was filed in the United States
District Court for the Southern District of New York (the "Southern District")
against the Company and certain of its current and former officers and one of
its directors. On May 7, 1999, a shareholder class action substantially
identical to the March 25th action was filed in the Southern District against
the Company and the same individuals named in the March 25th action. Both
lawsuits allege, among other things, that defendants
4
<PAGE>
misrepresented the Company's ability to integrate various companies it was
acquiring and alleges violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and various rules promulgated thereunder. The lawsuits seek
unspecified money damages, plus costs and expenses, including attorneys' fees
and expert fees. In November, 1999, the court issued an order consolidating the
lawsuits into a single action and appointing lead plaintiffs and lead counsel.
The plaintiffs filed a consolidated amended complaint in January 2000. In
February, 2000, the Company filed a motion to dismiss the consolidated amended
complaint.
Although the Company believes it has meritorious defenses to this action, in
light of the inherent uncertainties and the burden and expense of lengthy
litigation, the Company reached an agreement in principle in late June, 2000 to
settle the class action, which was announced on July 20, 2000. Under the
agreement, all claims against the Company and the individuals named as
defendants in the action will be dismissed without presumption or admission of
any liability or wrongdoing. The principal terms of the agreement call for the
payment to the plaintiff class of the sum of $15.0 million. The settlement
amount was paid in its entirety by the Company's insurance carrier. The terms of
the settlement are subject to, among other things, court approval and execution
of definitive settlement documentation. In the event this action is not finally
settled, the Company would defend the lawsuit vigorously.
In addition to the litigation described above, from time to time the Company is
a party to various legal proceedings incidental to its business. Although the
ultimate disposition of these proceedings is not determinable, in the opinion of
the Company, none of such proceedings has had or is likely to have a material
adverse effect on the Company's results of operations, financial condition or
liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
<TABLE>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert K. Ellis.................... 49 Chairman of the Board and Chief Executive Officer
of Audio Visual Services Corporation
Digby J. Davies.................... 42 President, Chief Operating Officer, Acting Chief Financial Officer and Director
of Audio Visual Services Corporation
Michael J. O'Brien................. 50 Executive Vice President of Audio Visual Services Corporation
and Chief Executive Officer of Audio Visual Headquarters Division
John C. Voaden..................... 50 Executive Vice President of Audio Visual Services Corporation
and Chief Executive Officer of Presentation Services Division
Kenneth R. Sanders................. 35 Executive Vice President of Audio Visual Services Corporation
and Chief Operating Officer of Presentation Services Division
Errol M. Cook...................... 61 Director
Bryan D. Langton................... 64 Director
David E. Libowitz.................. 37 Director
C. Anthony Wainwright.............. 67 Director
</TABLE>
Robert K. Ellis has been Chairman of the Board and Chief Executive Officer of
the Company since May, 2000. Mr. Ellis joined the Company in April, 2000, as
Chief Executive Officer of the Company's audiovisual services businesses. Prior
to his joining the Company, he served as Chief Executive Officer of Telecast
Communication Limited ("Telecast"), a U.K.- based group providing rental and
technical services to the corporate meeting and broadcast markets, which he
helped found in May, 1998. Prior thereto, he was Chief Executive Officer of
Visual Action Holdings Plc ("VAH"), which was acquired by AVSC in late 1997,
from 1995 to November, 1997.
Digby J. Davies has been President, Chief Operating Officer and a director of
the Company since May, 2000. In addition, he has been Acting Chief Financial
Officer of the Company since July, 2000. Mr. Davies joined the Company in April,
2000, as Chief Operating Officer of the Company's audiovisual service
businesses. Prior to his joining the Company, Mr. Davies served as Chief
Financial Officer of Telecast from May, 1998 to April, 2000. Prior thereto, he
was Chief Financial Officer of VAH from February, 1997 to November, 1997. Prior
to his joining VAH, Mr. Davies worked as an independent consultant providing
services in the areas of corporate restructuring and recoveries from 1990 to
1996.
Michael J. O'Brien has been Executive Vice President of the Company since May,
2000, and Chief Executive Officer of the Company's Audio Visual Headquarters
(staging and meeting services) division since June, 1998. Mr. O'Brien served as
Chief Executive Officer of the Company's hotel audiovisual outsourcing division
from January, 1998, through May, 1998. Prior to his joining the Company, Mr.
O'Brien served as Chief Executive Officer of Audio Visual Headquarters
Corporation, a subsidiary of VAH, from 1992 through November, 1997.
John C. Voaden has been Executive Vice President of the Company and Chief
Executive Officer of the Company's Presentation Services division since May,
1999. Prior to his joining the Company, Mr. Voaden served as Senior Vice
President of Sales and Distribution for Carvel Corporation, a consumer packaged
goods company from 1995 through 1998. Prior
5
<PAGE>
thereto, Mr. Voaden served as Regional Director for Coca-Cola Bottling Company
of New York from 1988 through 1995.
Kenneth R. Sanders has been Executive Vice President of the Company since July,
2000, and Executive Vice President and Chief Operating Officer of the Company's
Presentation Services division from 1997 to April 1999. Prior thereto, Mr.
Sanders served as Executive Vice President of the Company's Hotel audiovisual
outsourcing Division from 1997 to April 1999. Prior to this position, Mr.
Sanders served as Vice President of Sales and Operations of Audio Visual
Headquarters Corporation, a subsidiary of VAH, from 1992.
Errol M. Cook has been a director of the Company since June, 1992. Mr. Cook
presently serves as a senior advisor to E.M. Warburg, Pincus & Co., LLC ("EMW
LLC"). Mr. Cook served as a Managing Director of EMW LLC or its predecessor
since March, 1991 through his retirement therefrom in December, 1998.
Bryan D. Langton has been a director of the Company since April, 1996. Mr.
Langton served as Chairman and Chief Executive Officer of Holiday Inn Worldwide
and Holiday Inn, Inc. from February, 1990 to December, 1996. Mr. Langton serves
on the board of directors of Fairfield Communities, Inc.
David E. Libowitz has been a director of the Company since June, 1992. Mr.
Libowitz is a Managing Director of EMW LLC and has been associated with EMW LLC
or its predecessor since July, 1991. Mr. Libowitz serves on the board of
directors of Information Holdings, Inc. and Four Media Company, as well as
certain privately held companies.
C. Anthony Wainwright has been a director of the Company since March, 1997. Mr.
Wainwright has served as Vice Chairman of McKinney & Silver, a privately held
advertising agency, since April, 1997. Mr. Wainwright was Chairman of Harris,
Drury, Cohen, Inc., an advertising agency, from 1995 to February, 1997. Prior
thereto Mr. Wainwright was Chairman of Compton Partners, Saatchi & Saatchi, a
national advertising agency, from 1994 to 1995 and was Vice Chairman of that
company from 1989 to 1994. Mr. Wainwright serves on the board of directors of
Marketing Services Group, Inc., American Woodmark Corporation, Del Webb Corp.,
Gibson Greetings, Inc. and Advanced Polymer Systems.
6
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Common Stock is listed on the New York Stock Exchange under the
symbol "AVC". The following table sets forth on a per share basis,
for the periods indicated, the high and low closing prices of the
Common Stock as reported by the New York Stock Exchange. The number
of stockholders of record of Common Stock on December 12, 2000 was
149.
PRICE RANGE
HIGH LOW
---- ---
FISCAL 1999:
First Quarter......................... $10 3/4 $5 7/16
Second Quarter........................ 10 9/16 7 1/8
Third Quarter......................... 8 15/16 4 9/16
Fourth Quarter........................ 9 3/8 5 1/8
FISCAL 2000:
First Quarter......................... $ 9 $3 5/8
Second Quarter........................ 4 5/16 1 1/4
Third Quarter......................... 1 3/4 7/16
Fourth Quarter........................ 3/4 11/32
The closing price per share of the Common Stock on December 27, 2000 was $0.25.
The Company has not paid any dividends with respect to the Common Stock. The
Company presently intends to retain future earnings to finance its growth and
development and therefore does not anticipate any cash dividends in the
foreseeable future. Payment of future dividends, if any, will depend upon future
earnings and capital requirements of the Company and other factors, which the
Board of Directors considers appropriate. In addition, the terms of the
Company's credit facility pursuant to which The Chase Manhattan Bank acts as
administrative agent contains restrictions on the Company's ability to pay
dividends.
Recent Developments
In May, 2000, the New York Stock Exchange, Inc. ("NYSE") notified the Company
that it was in noncompliance with the NYSE's continued listing criteria
requiring (i) total market capitalization of not less than $50 million and total
stockholders equity of not less than $50 million and (ii) total market
capitalization of at least $15 million over a consecutive 30-day trading period.
In addition, the NYSE notified the Company that its common stock fell below the
continued listing standard requiring the average closing price per share of
common stock to be at least $1.00 over a consecutive 30-day trading period.
Thereafter, the Company submitted a business plan to the NYSE describing how the
Company would return to compliance with the NYSE's continued listing criteria by
the November, 2001, deadline set by the NYSE. The Company's business plan was
accepted by the NYSE in September, 2000, subject to the Company meeting certain
interim objectives outlined in the business plan. Although the Company believes
that to date it has complied with the interim objectives set forth in the
business plan approved by the NYSE, the Company continues to be in
non-compliance with the NYSE's continued listing criteria. The Company also
believes, based upon recent discussions between management and the NYSE, that
continued listing on the NYSE and meeting the future interim objectives outlined
in the business plan may not be possible and may not be in the best interests of
the Company. The Company plans to continue discussions with the NYSE to
determine its options going forward. There can be no assurance that the NYSE
will not take action to suspend the Company's common stock from trading on the
NYSE prior to the November, 2001 deadline.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The historical selected financial data presented below as of and for the fiscal
years ended September 30, 1996, 1997, 1998, 1999 and 2000, are derived from, and
are qualified by reference to, the consolidated financial statements that have
been audited by Ernst & Young LLP, independent auditors. The data presented
below should be read in conjunction with the Company's consolidated financial
statements and related notes thereto and other information included elsewhere in
this Form 10-K.
On April 20, 2000, the Company sold substantially all of the assets of its
worldwide Communications Group (the "Communications Group"). On May 9, 2000, the
Company sold its U.K.-based Melville Exhibition Services subsidiary ("MES"). The
Company recorded an aggregate net loss on disposal of these operations of $40.3
million at March 31, 2000.
During fiscal 2000, the Company's continuing operations consisted of three
reportable segments: Presentation Services, Audio Visual Headquarters and
7
<PAGE>
Rental Services. Prior to fiscal 1999, the Company operated these three segments
on a combined basis. Disaggregated information related to the components within
the audiovisual services businesses is not practicably determinable for fiscal
1997 and fiscal 1998. The Company did not have any operations related to the
audiovisual services business in fiscal 1996.
The operating results of the Communications Group and MES have been segregated
and reported as discontinued operations in the financial data presented below.
The balance sheet data presented below was determined using the Company's
consolidated balance sheets as of September 30th for each of the fiscal years
presented.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenue................................................................ $--- $131,844 $361,157 $386,891 $420,414
Cost of revenue........................................................ --- 86,885 274,531 314,234 349,221
------ -------- -------- -------- --------
Gross profit (a)....................................................... --- 44,959 86,626 72,657 71,193
Operating expenses:
Selling, general and administrative expenses (b).................... --- 27,076 69,372 68,401 53,230
Restructuring charge (c)............................................ --- --- 4,364 8,880 ---
Depreciation and amortization....................................... --- 2,391 11,389 14,359 12,675
------ -------- -------- -------- --------
Total operating expenses......................................... --- 29,467 85,125 91,640 65,905
------ -------- -------- -------- --------
Operating (loss) income before corporate reorganization and other costs --- 15,492 1,501 (18,983) 5,288
Equity in income of affiliated company (d)............................. --- --- 688 --- ---
Corporate reorganization and other costs (e)........................... --- --- --- --- 11,005
Loss on disposal of assets (f)......................................... --- --- --- 16,500 3,000
------ -------- -------- -------- --------
Operating income (loss)................................................ --- 15,492 2,189 (35,483) (8,717)
Interest expense, net.................................................. --- 2,002 24,808 35,218 46,308
------ -------- -------- -------- --------
Income (loss) from continuing operations before taxes.................. --- 13,490 (22,619) (70,701) (55,025)
Benefit (provision) for taxes......................................... --- (5,550) 8,942 11,195 (340)
------ -------- -------- -------- --------
Loss from continuing operations........................................ --- 7,940 (13,677) (59,506) (55,365)
------ -------- -------- -------- --------
Discontinued operations
Income (loss) from operations (net of income taxes)............... 7,989 10,122 14,612 7,213 (16,458)
Loss on disposal of assets.......................................... --- --- --- --- (40,313)
------ -------- -------- -------- --------
Income (loss) from discontinued operations............................. 7,989 10,122 14,612 7,213 (56,771)
------ -------- -------- -------- --------
Extraordinary charge on early extinguishment of debt (net of income
taxes of $403) (g)................................................... --- --- 605 --- ---
------ -------- -------- -------- --------
Net income (loss)...................................................... $7,989 $18,062 $330 $(52,293)$(112,136)
====== ======== ======= ======== ==========
Basic and diluted earnings (loss) per common share:
Income (loss) from continuing operations ........................... $ --- $0.37 $(0.58) $(2.51) $(2.32)
Income (loss) from discontinued operations, net of tax.............. 0.55 0.46 0.62 0.30 (2.38)
Extraordinary charge................................................ --- --- (0.03) --- ---
------ -------- -------- -------- --------
Net income (loss) per common share..................................... $ 0.55 $ 0.83 $0.01 $(2.21) $(4.70)
===== ======== ======= ======== ==========
BALANCE SHEET DATA:
Working capital........................................................ $7,488 $36,151 $56,974 $34,457 $11,133
Total assets........................................................... 126,322 313,877 697,949 659,469 414,289
Total debt............................................................. 22,839 61,859 397,240 427,139 344,957
Stockholders' equity................................................... 53,468 171,434 175,775 122,480 7,554
</TABLE>
See Notes to Selected Financial Data
8
<PAGE>
NOTES TO SELECTED FINANCIAL DATA
(a) Gross profit for the years ended September 30, 1999 and 2000 has been
impacted by aggregate non-cash charges of $3.7 million and $4.7 million,
respectively, relating to the write-down of audiovisual rental equipment
used in operations.
(b) Included in selling, general and administrative expenses in fiscal 1999 is
approximately $14.6 million in costs incurred during fiscal 1999 related to
the Company's former Atlanta-based audiovisual headquarters. Such costs
primarily consist of rent on facilities, certain administrative costs and
consulting fees associated with the completion of the reorganization. In
addition, the Company recorded an additional charge of $6.2 million, which
represents additional reserves, and write-offs related to the accounts
receivable of the former Atlanta-based audiovisual operations. The accounts
receivable charge relates primarily to disruptions in collections and
changes in certain billing procedures arising from the reorganization,
because of personnel turnover and other adverse impacts of the
reorganization.
(c) In connection with the Company's efforts to integrate its acquired
businesses and to streamline its organizational structure, the Company
recorded an aggregate pre-tax restructuring charge of $4.4 million during
the year ended September 30, 1998, of which $2.3 million and $2.1 million
were recorded in the three months ended March 31, 1998 and September 30,
1998, respectively. During fiscal 1999 the Company continued the
reorganization of its businesses. As a result, in the fiscal quarter ended
September 30, 1999 the Company recorded a pre-tax restructuring charge of
$8.9 million consisting of charges related primarily to employee
termination and severance costs, lease termination costs and certain other
asset write-offs.
(d) In November, 1997, the Company acquired a minority interest in Visual
Action Holdings, plc ("Visual Action") through open market purchases
resulting in the equity in income reflected for the year ended September
30, 1998. The Company acquired a majority interest and began consolidating
the financial results of Visual Action as of December 1, 1997.
(e) In connection with corporate office and divisional reorganization plans, a
charge of $3.9 million was recorded during the three months ended March 31,
2000. Such charge primarily included severance payments, which were made in
the third fiscal quarter of 2000. During the three months ended September
30, 2000, the Company wrote off approximately $0.5 million of computer
software no longer being used as a result of the corporate reorganization.
In July 2000, the Company announced that it had reached an agreement in
principle to settle the class action previously filed against the Company,
certain of its former officers and one of its former directors. The
settlement amount was paid in its entirety by the Company's insurance
carrier. During the year ended September 30, 2000, the Company recorded
charges aggregating $6.6 million for the cost of the related insurance
coverage.
(f) In connection with the Company's disposal of its design and installation
business headquartered in Atlanta, a pre-tax loss of $16.5 million was
recorded in the three months ended June 30, 1999. During fiscal 2000, the
Company wrote off an additional $3.0 million of assets related to sold
businesses.
(g) In connection with the acquisition of Visual Action, the Company entered
into a new credit facility in October, 1997. As a result, during the three
months ended December 31, 1997, the Company wrote off approximately $0.6
million (net of taxes of $0.4 million) of the remaining unamortized debt
issuance costs related to the Company's former bank facilities that were
repaid from the proceeds of the new credit facility.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained herein may be deemed to be forward-looking
statements as defined in the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve known and
unknown risks and uncertainties, which may cause the Company's actual results in
future periods or plans for future periods to differ materially from what is
currently anticipated. Those risks include, among others, general competitive
factors, the Company's ability to continue operational improvements in its
businesses, the Company's ability to comply with the terms of its bank credit
agreement the seasonality of the Company's business, the resolution of the
shareholder class action lawsuit currently pending against the Company and other
risks and uncertainties detailed from time to time in the Company's filings with
the Securities and Exchange Commission. Other factors and assumptions not
identified above were also involved in the derivation of these forward-looking
statements, and the failure of such other assumptions to be realized, as well as
other factors, may also cause actual results to differ materially from those
projected. The Company assumes no obligation to update these forward-looking
statements to reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking statements.
9
<PAGE>
RESULTS OF OPERATIONS
Introduction. During the third quarter of fiscal 1999 the Company determined
that it was necessary to reevaluate its strategic plan and to take steps to
reduce its outstanding long-term indebtedness with the overall objective of
maximizing shareholder value. In connection therewith, in May, 1999, the Company
retained Salomon Smith Barney as its financial advisor to assist it in reviewing
its existing operations and assessing strategic and financial alternatives. As a
result of these efforts, during the fourth quarter of 1999 the Company
concluded, among other matters, that it should further reorganize its
audiovisual services operations (the "Restructuring") and pursue the possible
sale of one or more of its business operations.
On April 20, 2000, the Company sold substantially all of the assets of its
worldwide Communications Group (the "Communications Group"). On May 9, 2000, the
Company sold its U.K.-based Melvile Exhibition Services subsidiary ("MES"). The
Company recorded an aggregate net loss on disposal of these operations of $40.3
million at March 31, 2000. Operating results of the Communications Group and MES
have been segregated and reported as discontinued operations in the consolidated
results of operations for the three years ended September 30, 2000 (with the
prior year periods restated).
The following table sets forth, for the periods indicated, the Company's
consolidated results of continuing operations, including such data as a
percentage of revenue.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1998 1999 2000
---- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue....................................... $361,157 100.0% $386,891 100.0% $420,414 100.0%
Cost of revenue............................... 274,531 76.0 314,234 81.2 349,221 83.1
-------- ----- -------- ----- -------- ------
Gross profit.................................. 86,626 24.0 72,657 18.8 71,193 16.9
Operating expenses:
Selling, general and administrative expenses 69,372 19.2 68,401 17.7 53,230 12.7
Restructuring charge........................ 4,364 1.2 8,880 2.3 -- --
Depreciation and amortization............... 11,389 3.2 14,359 3.7 12,675 3.0
-------- ----- -------- ----- -------- ------
Total operating expenses.................. 85,125 23.6 91,640 23.7 65,905 15.7
Operating (loss) income before corporate
reorganization and other costs............... 1,501 0.4 (18,983) (4.9) 5,288 1.2
Equity in income of affiliated company........ 688 0.2 -- -- -- --
Corporate reorganization and other costs...... -- -- -- -- 11,005 2.6
Loss on disposal of assets.................... -- -- 16,500 4.3 3,000 0.7
-------- ----- -------- ----- -------- ------
Operating income (loss)....................... 2,189 0.6 (35,483) (9.2) (8,717) (2.1)
Interest expense, net......................... 24,808 6.9 35,218 9.1 46,308 11.0
-------- ----- -------- ----- -------- ------
Loss from continuing operations before taxes.. (22,619) (6.3) (70,701) (18.3) (55,025) (13.1)
Benefit (provision) for taxes................. 8,942 2.5 11,195 2.9 (340) (0.1)
-------- ----- -------- ----- -------- ------
Loss from continuing operations............... (13,677) (3.8) (59,506) (15.4) (55,365) (13.2)
Discontinued operations
Income (loss) from operations
(net of income taxes)...................... 14,612 4.0 7,213 1.9 (16,458) (3.9)
Loss on disposal of assets.................. -- -- -- -- (40,313) (9.6)
-------- ----- -------- ----- -------- ------
Income (loss) from discontinued operations 14,612 4.0 7,213 1.9 (56,771) (13.5)
-------- ----- -------- ----- -------- ------
Extraordinary charge on early extinguishment
of debt (net of income taxes of $403)........ 605 0.2 -- -- -- --
-------- ----- -------- ----- -------- ------
Net income (loss)............................. $330 -- $(52,293) (13.5) $(112,136) (26.7)
======== ===== ========= ===== ========= ======
</TABLE>
10
<PAGE>
FISCAL 2000 COMPARED TO FISCAL 1999
Revenue
Revenue increased $55.8 million, or 15.3%, from $364.6 million in fiscal 1999 to
$420.4 million in fiscal 2000, excluding revenue of $22.3 million generated in
fiscal 1999 by the company's design and installation business, Presentation
Technologies, which was disposed of effective June 30, 1999. The increase in
fiscal 2000 revenue is primarily attributable to the growth in the Company's
Presentation Services segment, which increased its revenues by $52.6 million, or
20.1%, from $261.6 million in fiscal 1999 to $314.2 million in fiscal 2000. The
increase in sales was due primarily to an increase in the overall number of
hotels in which it provided outsourcing services, as well as an increase in
revenue generated in properties serviced under existing contracts. The fiscal
2000 revenue of the Company's Audio Visual Headquarters and Rental Services
segments was comparable with revenue generated by such business units in fiscal
1999.
Gross Profit
Total gross profit increased $5.8 million, or 8.9%, from $65.4 million in fiscal
1999 to $71.2 million in fiscal 2000, excluding gross profit of $7.3 million
contributed by the disposed Presentation Technologies in fiscal 1999.
Presentation Services increased its gross profit in fiscal 2000 by $8.8 million
from $52.9 million in fiscal 1999 to $61.7 million in fiscal 2000 as a result of
higher sales. Comparable gross profit as a percentage of revenue was 16.9% in
both fiscal 1999 and fiscal 2000. During fiscal 1999 and fiscal 2000, the
Company recorded non-cash charges of $3.7 million and $4.7 million,
respectively, for the write-down of audiovisual rental equipment. Gross profit
for both fiscal 1999 and 2000 was reduced by $16.2 million and $22.8 million,
respectively, of depreciation expense related to rental equipment used in the
audiovisual services business. Such depreciation expense is included in cost of
revenue. Excluding depreciation expense included in cost of revenue and the
charges for the equipment write-down, on a comparable basis, the gross profit as
a percentage of revenue was approximately 22.4% in both fiscal 1999 and 2000.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $5.3 million, or 9.0%,
from $58.5 million in fiscal 1999 to $53.2 million in fiscal 2000, excluding the
impact of Presentation Technologies in fiscal year 1999. Included in selling,
general and administrative expenses in fiscal 1999 is approximately $8.4 million
in costs incurred during fiscal 1999 related to the Company's former
Atlanta-based audiovisual headquarters. Such costs primarily consist of rent on
facilities, certain administrative costs and consulting fees associated with the
completion of the Restructuring. In addition, the Company recorded additional
charges of $6.2 million and $3.8 million in fiscal 1999 and 2000, respectively,
which represent additional write-offs related primarily to the accounts
receivable of the former Atlanta-based audiovisual operations. The accounts
receivable charge in fiscal 1999 related primarily to disruptions in collections
and changes in certain billing procedures arising from the Restructuring.
Billing and collection efforts were affected because of personnel turnover and
other adverse impacts of the Restructuring. In connection with such activities,
and as part of the Company's periodic review of purchase accounting accruals,
approximately $2.6 million of aggregate liabilities established in connection
with certain acquisitions completed in fiscal 1996 and 1997 were identified as
excess and reversed in fiscal 1999.
Restructuring Charge
The Company effectuated the Restructuring and recorded a pre-tax restructuring
charge of $8.9 million in the fiscal quarter ended September 30, 1999. The
charge included $0.7 million of employee termination and severance costs
associated with a further reduction in the workforce, $3.1 million related to
lease termination and other facility shut-down costs and $5.1 million of
computer software and equipment no longer used as a result of the
reorganization.
The Restructuring began in fiscal 1998 when the Company initiated a review of
its operations, focusing on the integration of acquired businesses as well as
the overall management and organizational structure. Accordingly, during the
fiscal quarter ended March 31, 1998, the Company recorded a pre-tax
restructuring charge of $2.3 million. The charge included $1.4 million related
to employee termination and severance costs associated with a reduction in the
workforce and $0.9 million related to lease termination and other costs. During
the fiscal quarter ended September 30, 1998, the Company recorded an additional
pre-tax restructuring charge of $2.1 million in connection with the continuation
of the reorganization plan begun in March 1998. The charge included $0.8 million
related to the severance and termination costs, $0.4 million of lease
termination costs and $0.9 million relating to the write-off of certain assets
and other termination and shut down costs.
The remaining liability at September 30, 1999 was $1.1 million. There was no
remaining liability at September 30, 2000.
Loss on disposal of assets
Effective June 30, 1999, the Company disposed of its Presentation Technologies
business headquartered in Atlanta. A pre-tax loss of $16.5 million was incurred
and recorded on June 30, 1999 upon the disposition of the related assets. During
fiscal 2000, the Company wrote off an additional $3.0 million related to sold
businesses.
11
<PAGE>
Depreciation and amortization
Depreciation and amortization expense for fiscal 2000 was $12.7 million as
compared with $14.4 million in fiscal 1999. The decrease of $1.7 million is
primarily a result of the fixed asset write-offs recorded in fiscal 1999 related
to the Company's former Atlanta-based audiovisual headquarters. Amortization
expense for fiscal 1999 and fiscal 2000 was comparable.
Corporate Reorganization and Other Costs.
During fiscal 2000, the Company recorded aggregate charges of $11.0 million
related to its corporate and certain division reorganization plans. Such charges
included, among other things, $3.9 million primarily related to severance
payments made in the third fiscal quarter of 2000. In addition, during the three
months ended September 30, 2000, the Company wrote off approximately $0.5
million of computer software no longer being used as a result of the corporate
reorganization. Also, in July 2000, the Company announced that it had reached an
agreement in principle to settle the securities class action filed against the
Company in March, 1999, certain of its former officers and one of its former
directors. Under the agreement, all claims against the Company and the
individuals named as defendants in the action will be dismissed without
presumption or admission of any liability or wrongdoing. The principal terms of
the agreement call for the payment to the plaintiff class of the sum of $15.0
million. The settlement amount was paid in its entirety by the Company's
insurance carrier. During the year ended September 30, 2000, the Company
recorded charges aggregating $6.6 million for the cost of the related insurance
coverage. The remaining liability at September 30, 2000 was $5.1 million.
Interest expense, net.
Interest expense, net increased by $11.1 million due to higher borrowing costs
primarily resulting from an amendment to the Company's credit facility completed
in March 2000.
Provision for income taxes
The provision for taxes in fiscal 2000 results from the Company's foreign
operations. The decrease in the effective tax rate is attributable to the
establishment of a valuation allowance for the deferred tax assets arising from
the fiscal 2000 and prior net operating losses.
Net (loss) income.
Overall, the Company's net loss was $112.1 million in fiscal 2000 compared to a
net loss of $52.3 million in fiscal 1999. The Company realized a net loss from
continuing operations of $55.4 million in fiscal 2000 compared to a net loss of
$59.5 million in fiscal 1999. The loss per common share from continuing
operations was $2.32 as compared with a loss per common share of $2.51 for
fiscal 1999. The Company's discontinued operations generated a loss from
operations of $16.5 million in fiscal 2000 compared with income from operations
of $7.2 million in fiscal 1999. The Company recognized a loss of $40.3 million
upon disposition of its Communications and MES divisions in April and May, 2000
respectively.
FISCAL 1999 COMPARED TO FISCAL 1998
Revenue.
Revenue increased $25.7 million, or 7.1%, from $361.2 million in fiscal 1998 to
$386.9 million in fiscal 1999, primarily due to growth in the Company's hotel
audiovisual services segment, increased local market penetration from the rental
services segment and consistent solid results from the staging and meeting
services segment.
Gross Profit
Total gross profit decreased $14.0 million, or 16.2%, from $86.6 million in
fiscal 1998 to $72.7 million in fiscal 1999. Gross profit as a percentage of
revenue was 24.0% and 18.8% in fiscal 1998 and fiscal 1999, respectively. The
decrease in the gross margin on revenue resulted primarily from the impact of
acquired rental businesses, which had historically operated at lower gross
margins and investments made to strengthen the infrastructure of the Company's
audiovisual services businesses to enable them to handle future revenue growth.
Gross profit on rental revenue in both fiscal 1998 and 1999 was impacted by
$16.2 million of depreciation expense related to rental equipment used in the
audiovisual services businesses. Such depreciation expense is included in cost
of revenue. In addition, the gross profit in fiscal 1999 was impacted by fixed
asset write-offs of $3.7 million. Gross profit as a percentage of revenue was
19.7%, excluding the effect of the fixed asset write-offs.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses were comparable in fiscal
1998 and fiscal 1999. Included in selling, general and administrative expenses
in fiscal 1999 is approximately $8.4 million in costs incurred during fiscal
1999 related to the Company's former Atlanta-based audio visual headquarters.
Such costs primarily consist of rent on facilities, certain administrative costs
and consulting fees associated with the completion of the Restructuring. In
addition, the Company recorded an additional charge of $6.2
12
<PAGE>
million, which represents additional reserves, and write-offs related to the
accounts receivable of the former Atlanta-based audio visual operations. The
accounts receivable charge related primarily to disruptions in collections and
changes in certain billing procedures arising from the Restructuring. Billing
and collection efforts were affected because of personnel turnover and other
adverse impacts of the Restructuring. In connection with such activities, and as
part of the Company's periodic review of purchase accounting accruals,
approximately $2.6 million of aggregate liabilities established in connection
with certain acquisitions completed in fiscal 1996 and 1997 were identified as
excess and reversed. Excluding the impact of the accounts receivable charge of
$6.2 million, the reversal of the $2.6 million of excess purchase accounting
accruals and the above-described costs of $8.4 million, selling, general and
administrative expenses, as a percentage of revenue, was approximately 14.6% in
fiscal 1999 as compared with 19.2% in fiscal 1998.
Restructuring Charge
In fiscal 1998, the Company initiated a review of all of its operations,
primarily focusing on the integration of the audiovisual services businesses
that it had acquired, as well as the Company's overall management organizational
structure. In connection with this review, the Company adopted a reorganization
plan to streamline its organizational structure and evaluate its overall
operational efficiency.
Accordingly, during the three months ended March 31, 1998, the Company recorded
a pre-tax restructuring charge of $2.3 million. The charge included $1.4 million
related to employee termination and severance costs associated with a reduction
in the workforce and $0.9 million related to lease termination and other related
costs. During the three months ended September 30, 1998, the Company recorded an
additional pre-tax restructuring charge of $2.1 million in connection with the
continuation of the reorganization plan begun in March 1998. The charge included
$0.8 million related to severance and termination costs, $0.4 million of lease
termination costs, $0.9 million relating to the write-off of certain assets and
other termination and shut down costs.
Depreciation and Amortization
Depreciation and amortization increased to $14.4 million in fiscal 1999, an
increase of $3.0 million from the $11.4 million incurred in fiscal 1998.
Property and equipment acquired through acquisitions and increased capital
expenditures for computer and other technology equipment resulted in increased
depreciation of $2.1 million. Amortization expense increased $0.9 million
resulting primarily from goodwill arising from acquisitions.
Equity in Income of Visual Action
In November, 1997, the Company acquired a minority interest in Visual Action
through open market purchases resulting in the equity in income reflected for
the year ended September 30, 1998. The Company acquired a majority interest and
began consolidating the financial results of Visual Action as of December 1,
1997.
Interest Expense, Net
Net interest expense increased by $10.4 million from $24.8 million in fiscal
1998 to $35.2 million in fiscal 1999 due to higher borrowings to finance
acquisitions, operational expansion, capital expenditures and increased working
capital requirements.
Provision for income taxes
The effective tax rate for the years ended September 30, 1999 and 1998 was 15.8%
and 39.5%, respectively. The decrease in the effective tax rate is attributable
to the establishment of a valuation allowance for the deferred tax assets
arising from the fiscal 1999 net operating losses.
Extraordinary Charge on Early Extinguishment of Debt.
In connection with the acquisition of Visual Action, the Company entered into a
new credit facility in October, 1997. As a result, during the year ended
September 30, 1998 the Company wrote-off approximately $0.6 million (net of
taxes of $0.4 million) of the remaining unamortized debt issuance costs related
to its former bank facilities that were repaid from the proceeds of such new
credit facility.
Net Income (Loss).
Overall, the Company realized a net loss of $52.3 million in fiscal 1999
compared to net income of $0.3 million in fiscal 1998. The Company recognized a
net loss from continuing operations of $59.5 million in fiscal 1999 compared to
a net loss of $13.7 million if fiscal 1998. The loss per common share from
continuing operations was $2.51 for fiscal 1999 compared to a net loss per
common share from continuing operations of $0.58 in fiscal 1998.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources is for the Company's
continuing and discontinued operations. Cash flow impacts of the discontinued
operations have not been segregated in the consolidated statements of Cash
Flows. The following table sets forth certain information from the Company's
Consolidated Statements of Cash Flows for periods indicated:
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1999 2000
---- ---- ----
Net cash provided by (used in):
Operating activities............... $22,990 $14,839 $ 6,738
Investing activities............... (302,973) (55,276) 74,596
Financing activities............... 285,499 27,257 (81,677)
In fiscal 1998, the Company generated $23.0 million from its operating
activities. Net income adjusted for depreciation and amortization and the
extraordinary and restructuring charges provided $42.9 million. The net change
in working capital used $19.9 million, with an increase in deferred income, and
a decrease in accrued expenses and other liabilities and prepaid expenses and
other current assets, which were more than offset by an increase in accounts
receivable and other assets and a decrease in taxes payable and accounts
payable. Investing activities used $303.0 million due to acquisition-related
expenditures and fixed asset purchases, primarily audiovisual and computer
equipment, as well as information technology enhancements. Aggregate net
proceeds of $48.9 million related to the disposition of the Company's U.K.-based
broadcast video and audiovisual staging divisions offset the expenditures
described above. Financing activities provided $285.5 million, of which $759.1
million was provided by drawings under the Company's bank facilities, offset by
repayments of $470.5 million. In addition, the Company received $0.7 million
from the exercise of employee stock options.
In fiscal 1999, the Company generated $14.8 million from its operating
activities. Net income adjusted for depreciation and amortization, the
restructuring charges, the loss on disposal of assets, and the fixed asset
write-offs provided $21.9 million. The net change in working capital used $7.0
million, with a decrease in accounts receivable, deferred charges and taxes
receivable, which were more than offset by an increase in prepaid expenses and
other current assets and decreases in deferred income, accounts payable and
accrued expenses and other liabilities. Investing activities used $55.3 million
due to acquisition-related expenditures and fixed asset purchases, primarily
audiovisual and computer equipment, as well as information technology
enhancements. Financing activities provided $27.3 million, of which $174.6
million was provided by drawings under the Company's bank facilities, offset by
repayments of $144.5 million and $2.8 million was used to pay financing fees in
connection with amendments to the Company's credit agreement.
In fiscal 2000, the Company generated $6.7 million from its operating
activities. The net change in working capital provided $30.7 million in fiscal
2000, with decreases in accounts receivable, prepaid expenses and other assets
and taxes receivable. Increases in deferred income, accrued expenses and
accounts payable also provided cash flow for the fiscal year. Investing
activities provided $74.6 million, with $111.7 million of cash generated from
the dispositions of the Company's Communications Group and MES divisions.
Approximately $36.8 million was used for the purchase of audiovisual rental
equipment and the continued investment in information technology. Financing
activities used a net of $81.7 million. Approximately $96.6 million was drawn
under the Company's Credit Facility during fiscal 2000 and $177.3 million was
used to repay outstanding amounts thereunder.
On October 28, 1997, the Company entered into a new loan agreement with a
syndicate of banks pursuant to which the Company increased its aggregate
available bank financing from $100 million to $550 million, consisting of a $300
million six year revolving line of credit (the "Revolving Facility") to be
utilized in connection with future acquisitions and for working capital and
general corporate purposes and a $250 million six year term loan (the "Term
Facility" and together with the Revolving Facility, the "Credit Agreement"),
which was fully utilized in connection with the acquisition of Visual Action.
Amounts outstanding under the Company's former credit facility were repaid with
the proceeds from the Credit Agreement. The Company recognized an extraordinary
loss of $0.6 million, net of taxes of $0.4 million in the quarter ended December
31, 1997 resulting from the write-off of the unamortized debt issuance fees
relating to the Company's former credit facility. Approximately $4.8 million in
debt issuance fees were incurred in connection with the Credit Agreement. Such
fees are being amortized over the term of the Credit Agreement.
At June 30, 1999, the Company did not achieve certain of the financial covenants
specified in the Credit Agreement. In connection with the amendments made to the
Credit Agreement in July 1999 (the "July 1999 Amendment"), the lenders waived
through March 30, 2000, all defaults that have arisen or may arise from the
failure to satisfy the specified financial covenants for June 30, 1999,
September 30, 1999 and December 31, 1999. As part of such amendment, the Company
agreed, among other things, to revised
14
<PAGE>
covenants regarding minimum consolidated earnings before interest, taxes,
depreciation and amortization ("EBITDA") as defined in the Credit Agreement, for
the twelve month periods ending June 30, September 30 and December 31, 1999, and
to restrictions on the amount of permitted capital expenditures (as described in
the Credit Agreement) for the three month periods ending September 30 and
December 31, 1999.
At September 30, 1999, the Company was not in compliance with the covenants set
forth in the July 1999 Amendment. In December 1999, the Company obtained a
further amendment (the "December 1999 Amendment") to the Credit Agreement that,
among other things, extended the waivers under the July 1999 Amendment until
October 1, 2000, and waived through October 1, 2000 all defaults arising from
the failure at September 30, 1999 to satisfy the financial covenants specified
in the July 1999 Amendment. As part of the December 1999 Amendment, the Company
agreed to a minimum consolidated adjusted EBITDA covenant that is based on
post-September 30, 1999 consolidated EBITDA (as defined in the Credit
Agreement), and to restrictions on the amount of capital expenditures that may
be made by the Company during the fiscal year ending September 30, 2000.
In addition to the waivers and revised financial covenants described above, the
December 1999 Amendment provided for the deferral through October 1, 2000 of the
principal payments due under the Term Facility on December 31, 1999 and March
31, 2000. The December 1999 Amendment also included a consent by the lenders
that would have allowed the Company to pursue the possible sale of its
audiovisual businesses, provided that certain timing requirements were met and
minimum net proceeds exceeded a specified amount.
In March, 2000, the Company entered into a further amendment (the "March 2000
Amendment") to the Credit Agreement, that, among other things, (i) amended the
maturity date of the Term Facility to eliminate the requirement to make any
installment payments thereon such that all amounts outstanding under the Term
Facility are due and payable on October 1, 2001, (ii) reduced the amounts
available to the Company under the Credit Agreement for letters of credit, (iii)
eliminated altogether those financial covenants that the July 1999 Amendment and
December 1999 Amendments previously had waived through October 1, 2000, (iv)
amended the covenant relating to minimum consolidated EBITDA for the three month
period ended December 31, 1999, the six month period ended March 31, 2000, the
nine month period ended June 30, 2000, the twelve month periods ending September
30 and December 31, 2000, and any period of four consecutive fiscal quarters
ending on or after March 31, 2001, (v) amended the covenant relating to
restrictions on the amount of permitted capital expenditures (as described in
the Credit Agreement) such that the Company may not permit capital expenditures
to exceed $25 million in any two consecutive fiscal quarters or $40 million in
any four consecutive fiscal quarters commencing with fiscal quarter beginning
January 1, 2000 and (vi) requires the Company to provide certain additional
reports to the lenders. In addition, pursuant to the terms of the March 2000
Amendment, the lenders withdrew the consent granted to the Company in the
December 1999 amendment to pursue the possible sale of the Company's audiovisual
businesses.
In addition to the amendments and revised financial covenants described above,
the March 2000 Amendment also included a consent by the lenders to allow the
Company to proceed with the sale of its worldwide Communications Group (the
"Communications Sale") and to pursue the sale of MES ( the "MES Sale"), provided
that, in each case, certain timing requirements were met, minimum net proceeds
exceeded a specific amount and 75% of the net proceeds of each such disposition
would be applied to the prepayment of the Term Facility and the reduction of the
commitment under the Revolving Facility. The Company consummated the
Communications Sale on April 20, 2000, and consummated the MES Sale on May 9,
2000, and in connection therewith (i) repaid an aggregate of $38.0 million under
the Term Facility thereby permanently reducing availability and outstanding
amounts thereunder from $199.6 million to $161.6 million and (ii) repaid an
aggregate of $47.5 million under the Revolving Facility, which resulted in a
permanent reduction of the availability thereunder from $250.0 million to $202.5
million.
Pursuant to the terms of the March 2000 Amendment, the Company also agreed to
retain not later than June 1, 2001, an investment banking firm for the purposes
of evaluating strategic and debt reduction alternatives.
Fees of approximately $1.2 million, $1.4 million and $1.0 million were incurred
in connection with the amendments made to the Credit Agreement in December,
1998, July, 1999, and December 1999, respectively. Such fees will be amortized
over the remaining term of the Credit Agreement.
No fees were paid to the Company's lenders in connection with the March 2000
Amendment; however, pursuant to a deferred amendment fee letter entered into in
connection with the March 2000 Amendment, the Company will be required to pay a
fee equal to the greater of (A) not less than $2.5 million nor more than $12.5
million or (B) not less than 2.5% nor more than 12.5% of the net equity value
(as defined in the deferred amendment fee letter) of the Company upon the
occurrence of the earlier of (i) the maturity date of the Revolving Facility,
(ii) an event of default (as defined in the Credit Agreement), (iii) a sale of
all or substantially all of the Company's assets, (iv) a sale of substantially
all of the capital stock of the Company, or (v) the repayment of all amounts
outstanding under the Credit Agreement (such events being referred to as a
"Triggering Event"). The actual amount of such fee will be determined on the
date that a Triggering Event shall occur.
Interest on outstanding amounts under the Credit Agreement is payable monthly in
arrears and at the option of the Company accrues at either (i) LIBOR plus an
applicable margin or (ii) an alternate base rate based upon the greatest of (a)
the agent bank's prime rate, (b) the three-month secondary certificate
15
<PAGE>
of deposit rate and (c) the federal funds rate. The applicable margins are
subject to change based on the occurrence of certain events. Pursuant to the
terms of the March 2000 Amendment, outstanding amounts under each of the Term
Facility and Revolving Facility also accrue additional interest at a rate of 1 %
per annum payable in arrears upon the termination of the Credit Agreement. The
weighted average interest rate on outstanding debt at September 30, 2000 is
9.64%.
The Credit Agreement is secured by substantially all of the assets of the
Company and its material subsidiaries, and the Company and its subsidiaries have
pledged the stock of their respective subsidiaries for the ratable benefit of
its lending banks. In addition to the financial covenants described above, the
Credit Agreement contains certain other covenants and restrictions customary for
credit facilities of a similar nature, including, without limitation,
restrictions on the ability of the Company to pay dividends.
The Company believes it will be able to satisfy the financial and other
covenants included in the Credit Agreement, as amended. As stated above,
pursuant to the terms of the Credit Agreement, the entire principal on each of
the Term Facility and the Revolving Facility is payable on October 1, 2001. With
the foregoing in mind, the Company recognizes that it will be necessary to take
actions to reduce its indebtedness or restructure the terms of such indebtedness
under the Credit Agreement by assessing various refinancing options or obtaining
a further amendment to the Company's existing Credit Agreement. There can be no
assurance that the Company will be able to take such actions. In the event that
the Company is unable to refinance the indebtedness under the Credit Agreement
or restructure the terms thereof, then upon the maturity of the Term Facility
and the Revolving Facility, the lenders would be entitled to exercise all or any
of their rights or remedies. Any such exercise of rights and remedies would
likely have a material adverse effect on the Company.
As of December 15, 2000, the Company had approximately $356.5 million
outstanding under the Credit Agreement, of which $194.8 million was outstanding
under the Revolving Facility. Cash on hand as of such date was $11.3 million.
The Company believes that cash flow from operations and available credit under
the Revolving Facility will be sufficient to meet operating needs through the
end of fiscal 2001.
The Company has received a commitment letter from Chase Securities, Inc. and The
Chase Manhattan Bank to structure, arrange and syndicate a senior revolving
credit facility in an aggregate amount of up to $16 million, which would provide
working capital to the Company in addition to the liquidity provided under the
Company's existing Credit Agreement. Consummation of the financing under the
proposed additional credit facility is conditioned upon, among other things, the
consent of the requisite number of lenders under the Company's existing Credit
Agreement, the execution of definitive financing documentation, the amendment of
the terms of the Company's existing Credit Agreement and other conditions
customary for transactions of this type. There can be no assurance that such
conditions will be met and that such additional financing will be consummated.
Capital expenditures were $46.5 million in fiscal 1998, $45.4 million in fiscal
1999, and $36.8 million in fiscal 2000. During each of the three years ended
September 30, 2000, the purchase of audiovisual rental equipment and the
continued investment in information technology comprised the major portion of
capital expenditures.
QUARTERLY RESULTS
The following table sets forth the unaudited quarterly results of operations
related to the Company's continuing businesses for each of the quarters in the
two years ended September 30, 1999 and 2000. In management's opinion, this
unaudited quarterly information includes all adjustments which are necessary for
a fair presentation of the information for the quarters presented.
The operating results in any quarter are not necessarily indicative of the
results, which may be expected for any other future period.
<TABLE>
<CAPTION>
FISCAL 1999(A) (B)(C) (D) FISCAL 2000 (B) (C) (D)
------------------------- -----------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenue.................... $95,651 $104,252 $107,111 $79,877 $98,767 $111,207 $117,054 $93,386
Gross profit............... 18,249 23,405 24,116 6,887 16,748 21,072 25,033 8,340
Operating income (loss).... (2,277) 4,317 (11,083) (26,440) 2,785 (3,715) 8,954 (16,741)
Net income (loss).......... (5,983) (2,639) (14,451) (36,493) (7,818) (14,457) (3,387) (29,703)
Loss per share............. (0.25) (0.11) (0.61) (1.54) (0.34) (0.61) (0.14) (1.23)
</TABLE>
NOTES TO QUARTERLY RESULTS
(A) Operating losses for the three and twelve months ended September 30, 1999
include approximately $11.4 million and $18.3 million, respectively, of
costs relating to the Company's former Atlanta-based headquarters for its
audiovisual services businesses.
(B) Results of operations for the year ended September 30, 1999 include
operating losses of $2.9 million from the Company's design
16
<PAGE>
and installation business, which was disposed effective June 30, 1999.
A pre-tax loss of $16.5 million in respect of uch disposition was
recorded at June 30, 1999. In addition, during the quarter ended March 31,
2000, the Company wrote-off an additional $3.0 million of assets related
to disposed businesses.
(C) The operating loss for the fourth quarter of fiscal 1999 includes corporate
reorganization and other costs of $8.9 million related to employee
termination and severance costs, lease termination costs and certain other
asset write-offs. Operating losses for the second and fourth quarters of
fiscal 2000 include corporate reorganization and other costs of $3.6
million and $7.4 million, respectively, related to the Company's corporate
office reorganization and class action settlement.
(D) The operating loss for the fourth quarter of fiscal 1999 includes a charge
of $3.7 million relating to the write-off of audiovisual rental equipment
used in operations. Charges of $2.5 million and $2.2 million were recorded
in the second and fourth quarters of fiscal 2000 for similar fixed asset
write-offs.
BILLINGS AND COLLECTIONS
The Customers are normally billed on a per-rental basis upon completion of the
staging service or rental. The Company provides audiovisual equipment rentals to
customers based on published price lists.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company's foreign operations are exposed
to fluctuations in currency values. However, management does not consider the
impact of currency fluctuations to represent a significant risk as its foreign
operations are a minimal component to its consolidated operations. The Company's
interest expense is sensitive to changes in the general level of U.S. interest
rates. In this regard, changes in the U.S. rates affect the interest paid on a
portion of its debt. The Company does not enter into derivative financial
instruments in the normal course of business, nor are such instruments used for
speculative purposes.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of Audio Visual Services Corporation
We have audited the accompanying consolidated balance sheets of Audio Visual
Services Corporation (the "Company") as of September 30, 1999 and 2000, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
September 30, 1999 and 2000 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
2000, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Long Beach, California
December 8, 2000
17
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1999 2000
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................................... $ 1,675 $ 1,272
Trade accounts receivable, net of allowance for doubtful accounts of $4,693 in 1999 and
$4,310 in 2000.............................................................................. 100,446 47,585
Deferred charges............................................................................... 8,301 ---
Prepaid expenses and other current assets...................................................... 20,173 14,782
-------- --------
Total Current Assets........................................................................ 130,595 63,639
Property and equipment, net.................................................................... 100,438 68,103
Goodwill, net.................................................................................. 409,204 272,009
Taxes receivable............................................................................... 4,548 --
Other assets................................................................................... 14,684 10,538
-------- --------
Total Assets...................................................................................... $659,469 $414,289
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.............................................................. $1,299 $ --
Trade accounts payable......................................................................... 22,527 13,249
Accrued expenses and other current liabilities................................................. 40,436 38,427
Accrued production costs....................................................................... 20,259 --
Deferred income................................................................................ 11,617 --
Taxes payable.................................................................................. -- 830
-------- --------
Total Current Liabilities................................................................... 96,138 52,506
Long-term debt................................................................................. 425,840 344,957
Deferred income................................................................................ 4,975 --
Deferred tax liability......................................................................... 7,892 7,350
Other liabilities.............................................................................. 2,144 1,922
----- -----
Total Liabilities................................................................................. 536,989 406,735
Stockholders' Equity:
Preferred stock, $.01 par value:
2,000 shares authorized, none issued and outstanding at 1999 and 2000....................... -- --
Common stock, $.01 par value:
40,000 voting shares authorized, 23,697 and 24,568 shares issued and outstanding
at 1999 and 2000, respectively............................................................. 236 246
Additional paid-in capital..................................................................... 167,677 168,170
Accumulated other comprehensive loss........................................................... (4,785) (7,828)
Deferred compensation.......................................................................... -- (250)
Accumulated deficit............................................................................ (40,648) (152,784)
-------- ---------
Total Stockholders' Equity.................................................................. 122,480 7,554
------- ---------
Total Liabilities and Stockholders' Equity........................................................ $659,469 $414,289
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
18
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenue............................................................................. $361,157 $386,891 $420,414
Cost of revenue..................................................................... 274,531 314,234 349,221
------- ------- -------
Gross profit........................................................................ 86,626 72,657 71,193
Operating expenses:
Selling, general and administrative expenses (note 5)............................ 69,372 68,401 53,230
Restructuring charge (note 4).................................................... 4,364 8,880 --
Depreciation and amortization.................................................... 11,389 14,359 12,675
------- ------- -------
Total operating expenses...................................................... 85,125 91,640 65,905
Operating (loss) income before corporate reorganization and other costs............. 1,501 (18,983) 5,288
Equity in income of affiliated company (note 6)..................................... 688 -- --
Corporate reorganization and other costs (note 7)................................... -- -- 11,005
Loss on disposal of assets (note 6)................................................. -- 16,500 3,000
------- ------- -------
Operating income (loss)............................................................. 2,189 (35,483) (8,717)
Interest expense, net............................................................... 24,808 35,218 46,308
------- ------- -------
Loss from continuing operations before taxes........................................ (22,619) (70,701) (55,025)
Benefit (provision) for taxes...................................................... 8,942 11,195 (340)
------- ------- -------
Loss from continuing operations .................................................... (13,677) (59,506) (55,365)
Discontinued operations (note 3)
Income (loss) from operations (less income taxes)............................... 14,612 7,213 (16,458)
Loss on disposal of assets...................................................... -- -- (40,313)
------- ------- -------
Income (loss) from discontinued operations.......................................... 14,612 7,213 (56,771)
------- ------- -------
Extraordinary charge on early extinguishment of debt (net of income taxes of
$403) (note 7)................................................................... 605 -- --
------- ------- --------
Net income (loss)................................................................... $330 $(52,293) $(112,136)
======= ======== ==========
Basic and diluted earnings (loss) per common share:
Income (loss) from continuing operations ........................................ $(0.58) $(2.51) $(2.32)
Income (loss) from discontinued operations, net of tax........................... 0.62 0.30 (2.38)
Extraordinary charge............................................................. (0.03) -- --
------- ------- -------
Net income (loss) per common share.................................................. $0.01 $(2.21) $(4.70)
======= ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
19
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1999 2000
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $330 $(52,293) $(112,136)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Restructuring charge, net of cash payments................................. 4,125 9,669 --
Loss on disposal of assets................................................. -- 16,500 40,313
Fixed asset write-offs..................................................... -- 4,439 5,190
Extraordinary charge on early extinguishment of debt, net of tax........... 605 -- --
Depreciation and amortization.............................................. 37,801 43,563 42,660
Change in assets and liabilities, net of amounts acquired:
(Increase) decrease in accounts receivable................................. (11,158) 18,206 8,276
(Increase) decrease in deferred charges.................................... (1,880) 2,235 (7,167)
(Increase) decrease in prepaid expenses and other current assets........... 1,280 (9,030) 4,112
(Increase) decrease in taxes receivable.................................... (11,935) 185 4,981
(Increase) decrease in other assets........................................ (3,866) (1,503) 2,757
Increase (decrease) in accounts payable.................................... (3,851) (290) 3,910
Increase (decrease) in deferred income..................................... 6,428 (9,582) 12,733
Increase (decrease) in accrued expenses and other liabilities.............. 5,111 (7,260) 1,109
------- -------- --------
Net cash provided by operating activities.................................. 22,990 14,839 6,738
------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment......................................... (46,454) (45,410) (36,815)
Proceeds from disposition of businesses, net of transaction costs.......... 48,892 -- 111,694
Acquisition of intangibles and businesses, net of cash acquired............ (305,411) (9,866) (283)
--------- -------- ---------
Net cash provided by (used in) investing activities........................ (302,973) (55,276) 74,596
--------- -------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options....................................... 667 -- --
Proceeds from long-term debt.................................................. 759,122 174,550 96,625
Repayments of long-term debt.................................................. (470,478) (144,457) (177,311)
Payment of debt issuance fees................................................. (3,812) (2,836) (991)
--------- --------- --------
Net cash provided by (used in) financing activities........................ 285,499 27,257 (81,677)
--------- --------- --------
Translation effect on cash and cash equivalents.................................. (652) (262) (60)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents............................. 4,864 (13,442) (403)
Cash and cash equivalents beginning of year...................................... 10,253 15,117 1,675
--------- --------- --------
Cash and cash equivalents end of year............................................ $15,117 $1,675 $ 1,272
======== ========= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
20
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER TOTAL
------------ ----------
PAID-IN EARNINGS COMPREHENSIVE DEFERRED STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) INCOME (LOSS) COMPENSATION EQUITY
------ ------ ------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997.............. 23,417 $ 234 $159,874 $11,315 $ 11 $-- $171,434
Net income................................. -- -- -- 330 -- -- 330
Foreign currency translation adjustment.... -- -- -- -- (3,725) -- (3,725)
---------
Comprehensive (loss)....................... (3,395)
Issuance of common stock upon acquisitions
completed during fiscal 1998............. 239 2 7,042 -- -- -- 7,044
Issuance of common stock upon exercise of
stock options............................ 33 * 692 -- -- -- 692
------ ----- -------- ------ ------- ---- --------
Balance at September 30, 1998.............. 23,689 236 167,608 $11,645 (3,714) -- 175,775
Net loss................................... -- -- -- (52,293) -- -- (52,293)
Foreign currency translation adjustment.... -- -- -- -- (1,071) (1,071)
--------
Comprehensive (loss)....................... (53,364)
Issuance of common stock................... 8 * 69 -- -- -- 69
------ ----- -------- ------ ------- ---- --------
Balance at September 30, 1999.............. 23,697 236 167,677 (40,648) (4,785) -- 122,480
Net loss................................... -- -- -- (112,136) -- -- (112,136)
Foreign currency translation adjustment.... -- -- -- -- (3,043) -- (3,043)
--------
Comprehensive loss......................... (115,179)
Issuance of restricted common stock........ 666 7 243 -- -- (250) --
Issuance of common stock................... 205 3 250 -- -- -- 253
------ ----- -------- ------- ------- ---- --------
Balance at September 30, 2000.............. 24,568 $246 $168,170 $(152,784) $(7,828) (250) $7,554
====== ===== ======= ========= ======= ======= ========
</TABLE>
* Less than $1 thousand
See accompanying notes to the consolidated financial statements.
21
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Audio Visual Services Corporation (formerly known as Caribiner International,
Inc.) (the "Company") is a provider of audiovisual equipment rentals, staging
services and other related services. As used herein, the term the "Company"
refers to Audio Visual Services Corporation and its subsidiaries, and the
references to a fiscal year are to the Company's fiscal year ended September 30
in the referenced year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation.
Certain reclassifications have been made to the fiscal 1998 and fiscal 1999
consolidated financial statements to conform to the current year presentation.
Revenue Recognition
Revenue is recognized over the period in which audiovisual equipment is rented
to customers. Revenue for staging services is recognized as the services are
provided.
Cost of Revenue
Cost of revenue is comprised principally of direct labor costs, commissions,
depreciation of equipment rented to clients and customers in the conduct of the
business, and equipment rentals.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets, ranging from
three to five years. Leasehold improvements are amortized on the straight-line
method over the shorter of the lease term or the estimated useful life.
Goodwill
Goodwill represents the excess of the cost over the fair value of net assets of
purchased businesses and is amortized on a straight-line basis over periods
ranging from 15 years to 40 years. Accumulated amortization of goodwill was
$33.4 million and $27.7 million at September 30, 1999 and 2000, respectively.
The Company reviews the recoverability of intangible and other long-lived assets
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable as determined based upon the estimated undiscounted cash
flow of the entity acquired. In the event goodwill is determined to be
unrecoverable, a loss is recognized for the difference between the carrying
amount and the estimated fair value of the asset.
Deferred Financing Fees
Deferred financing fees are amortized on a straight-line basis over the term of
the related debt. The amortization of deferred financing fees is reflected as a
component of interest expense. Deferred financing fees amortized during the
years ending September 30, 1998, 1999 and 2000 were $0.9 million, $1.2 million
and $2.8 million, respectively.
Foreign Currency Translation
The financial statements of foreign subsidiaries are translated into U.S.
dollars at current rates as of the balance sheet date, except for revenue, costs
and expenses which are translated at average current rates during each reporting
period. The gains or losses resulting from translation are included as a
component of accumulated other comprehensive income (loss) in stockholders'
equity. The gains and losses resulting from foreign currency transactions are
included in the Company's current results of operations. Transaction gains or
losses in the years ended September 30, 1998, 1999 and 2000 were not
significant.
22
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Stock Based Compensation
The Company grants to certain employees' stock options for a fixed number of
shares with an exercise price equal to the fair value of the shares at the date
of grant. The Company accounts for stock option grants in accordance with APB
Opinion 25, "Accounting for Stock Issued to Employees," and, accordingly,
recognizes no compensation expense for such grants.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, which establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is required to be adopted in fiscal years beginning after June 15, 2000.
This statement is not expected to affect the Company as the Company currently
does not engage or plan to engage in derivative instruments or hedging
activities.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB No. 101") which summarizes certain of
the SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company will be required to
adopt the accounting provisions of SAB No. 101, no later than the fourth quarter
of 2000. The Company is currently evaluating the impact of adopting SAB No. 101,
but the Company does not believe that the implementation of SAB No. 101 will
have a significant effect on its results of operations.
3. DISCONTINUED OPERATIONS
On April 20, 2000, the Company sold substantially all of the assets of its
worldwide Communications Group (the "Communications Group"). On May 9, 2000, the
Company sold its U.K.-based Melvile Exhibition Services subsidiary ("MES"). The
Company recorded an aggregate loss on disposal of these operations of $40.3
million at March 31, 2000. Operating results of the Communications Group and MES
have been segregated and reported as discontinued operations in the Consolidated
Statement of Operations for the three years ended September 30, 2000 (with the
prior year periods restated). Cash flow impacts of the discontinued operations
have not been segregated in the Consolidated Statement of Cash Flows. Components
of the income (loss) from discontinued operations reflected in the Consolidated
Statements of Operations for the three years ended September 30, 2000 are
presented in the following table (amounts in thousands).
1998 1999 2000
--------- --------- --------
Revenue $348,197 $352,232 $138,946
Cost of Revenue 237,681 244,119 94,943
Selling, general and administrative expenses 74,035 80,746 53,378
Restructuring charge 2,590 1,889 --
Depreciation and amortization 10,197 12,988 6,671
--------- --------- --------
Operating income (loss) 23,694 12,490 (16,046)
Interest income (expense), net 484 268 (82)
--------- --------- ---------
Income (loss) from operations before tax 24,178 12,758 (16,128)
Tax provision (9,566) (5,545) (330)
--------- --------- --------
Income (loss) from discontinued operations $14,612 $ 7,213 $(16,458)
========= ========= =========
23
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. RESTRUCTURING CHARGE
During the third quarter of fiscal 1999 the Company determined that it was
necessary to reevaluate its strategic plan and to take steps to reduce its
outstanding long-term indebtedness with the overall objective of maximizing
shareholder value. In connection therewith, in May, 1999, the Company retained
Salomon Smith Barney as its financial advisor to assist it in reviewing its
existing operations and assessing strategic and financial alternatives. As a
result of these efforts, during the fourth quarter of 1999 the Company
concluded, among other matters, that it should further reorganize its
audiovisual services operations (the "Restructuring") and pursue the possible
sale of one or more of its business operations.
As a result, in the fiscal quarter ended September 30, 1999, the Company
recorded a pre-tax restructuring charge of $8.9 million. The charge included
$0.7 million of employee termination and severance costs associated with a
further reduction in the workforce, $3.1 million related to lease termination
and other facility shut-down costs and $5.1 million of computer software and
equipment no longer usable as a result of the reorganization.
The restructuring began in fiscal 1998 when the Company initiated a review of
its operations, focusing on the integration of its businesses as well as the
overall management and organizational structure, which resulted in the
initiation of the Restructuring. Accordingly, during the fiscal quarter ended
March 31, 1998, the Company recorded a pre-tax restructuring charge of $2.3
million. The charge included $1.4 million related to employee termination and
severance costs associated with a reduction in the workforce and $0.9 million
related to lease termination and other costs. During the fiscal quarter ended
September 30, 1998, the Company recorded an additional pre-tax restructuring
charge of $2.1 million in connection with the continuation of the reorganization
plan begun in March 1998. The charge included $0.8 million related to the
severance and termination costs, $0.4 million of lease termination costs, $0.9
million relating to the write-off of certain assets and other termination and
shut down costs to be incurred during the Restructuring.
The remaining liability at September 30, 1999 was $1.1 million. There was no
remaining liability at September 30, 2000.
5. OTHER COSTS ASSOCIATED WITH REALIGNMENT OF BUSINESS
During fiscal 1999, the Company recorded additional charges of $9.9 million
related to the Restructuring described in Note 4 but which did not satisfy the
accounting criteria for inclusion in the restructuring charge. These charges
included $6.2 million of additional reserves and write-offs related to the
accounts receivable of the former Atlanta-based audiovisual operations. The
accounts receivable charge related primarily to disruptions in certain billing
procedures, which the Company believes, arose from the Restructuring. Such
accounts receivable related charge is included in selling, general and
administrative expenses for the year ended September 30, 1999 in the
accompanying financial statements.
In addition, during fiscal 1999, the Company recorded a non-cash charge of $3.7
million for audiovisual rental equipment losses. The charge was identified
during the Company's reorganization of its audiovisual businesses from its
former Atlanta-based audiovisual headquarters to the respective business unit
facilities. In accordance with generally accepted accounting principles, as such
charge does not satisfy the criterion for inclusion in the restructuring charge,
it has been included in cost of rental revenue.
6. BUSINESS ACQUISITIONS/DISPOSITIONS
During the two years ended September 30, 1999, the Company completed various
acquisitions and dispositions in each of the audiovisual and business
communications services industries. The following describes the significant
transactions completed during the two years ended September 30, 1999 relating to
the Company's continuing audiovisual services operations.
Fiscal 1998 Acquisitions/Dispositions
Effective December 1, 1997, the Company acquired the outstanding capital stock
of Visual Action Holdings, plc ("Visual Action") for an aggregate purchase price
of $253.0 million (excluding transaction costs). In addition, the Company
assumed approximately $44.3 million in outstanding indebtedness of Visual
Action. Visual Action provides corporate meeting services, including audiovisual
and exhibition services, in the United States and United Kingdom. The goodwill
resulting from the acquisition of Visual Action is being amortized over 40
years. The cost of the acquisition, including transaction costs, was financed
through the Company's loan agreement entered into in October, 1997 (see Note 9).
Prior to December 1997, the Company had acquired a minority interest through
open market purchases resulting in the equity in income reflected for the year
ended September 30, 1998.
24
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. BUSINESS ACQUISITIONS/DISPOSITIONS (Continued)
In May, 1998, the Company completed the disposition of the broadcast video
services business of Visual Action for approximately $27.6 million in cash,
excluding transaction costs of $2.0 million. In July, 1998, the Company
completed the disposition of the U.K.-based audiovisual staging operations of
Visual Action for approximately $26.7 million in cash. The Company retained the
hotel audiovisual outsourcing services portion of this business, integrating it
with Visual Action's existing U.K. operations. The Company used the cash
proceeds from the sales of the businesses to repay outstanding bank debt. No
gain or loss was recognized on such disposition transactions.
Fiscal 1999 Dispositions
During fiscal 1999, in connection with the Company's consolidation of hotel
audiovisual outsourcing operations, and as part of the Company's periodic review
of the purchase accounting accruals, approximately $2.6 million of liabilities
established in connection with certain of the acquisitions completed in fiscal
1996 and 1997 were identified as excess and reversed.
Effective June 30, 1999, the Company disposed of its design and installation
business, Presentation Technologies, headquartered in Atlanta. A pre-tax loss of
$16.5 million was incurred upon the disposition of the related assets. During
the three months ended March 31, 2000, the Company wrote off an additional $3.0
million of assets related to sold businesses.
The Company accounted for its acquisitions in accordance with the purchase
method and, accordingly, operations of the acquired businesses are included in
the accompanying consolidated statements of operations from their respective
dates of acquisition.
The following unaudited consolidated pro forma results of operations of the
Company for the year ended September 30, 1999 give effect to the disposition of
Presentation Technologies, as if such transaction had occurred on October 1,
1998.
YEAR ENDED
SEPTEMBER 30,
--------------
1999
----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue.................................. $364,572
Income before taxes...................... (51,205)
Net income............................... (46,444)
Pro forma basic and diluted
earnings per common share............... (1.96)
The above calculation of pro forma basic and diluted net income per common share
assumes that approximately 23,695,126 shares were outstanding during 1999.
The unaudited pro forma consolidated results of operations do not purport to be
indicative of the actual results of operations that would have occurred had the
acquisitions described above been made at the beginning of fiscal 1999 or of
results, which may occur in the future.
7. CORPORATE REORGANIZATION AND OTHER COSTS
During fiscal 2000, the Company recorded aggregate charges of $11.0 million
related to its corporate office and certain divisional reorganization plans.
Such charges included, among other things, $3.9 million primarily related to
severance payments which were made in the third fiscal quarter of 2000. During
the three months ended September 30, 2000, the Company wrote off approximately
$0.5 million of computer software no longer being used as a result of the
corporate reorganization.
In July 2000, the Company announced that it had reached an agreement in
principle to settle the class action previously filed against the Company,
certain of its former officers and one of its former directors. Under the
agreement, all claims against the Company and the individuals named as
defendants in the action will be dismissed without presumption or admission of
any liability or wrongdoing. The principal terms of the agreement call for the
payment to the plaintiff class of the sum of $15.0 million. The settlement
amount was paid in its entirety by the Company's insurance carrier. During the
year ended September 30, 2000, the Company recorded charges aggregating $6.6
million for the cost of the related insurance coverage (See Note 14). The
remaining liability at September 30, 2000 was $5.1 million.
25
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. PROPERTY AND EQUIPMENT
At September 30, 1999 and 2000 property and equipment consisted of:
AT SEPTEMBER 30,
----------------
1999 2000
---- ----
(IN THOUSANDS)
Audiovisual rental and production equipment......... $97,274 $125,314
Furniture and fixtures............................. 9,363 4,279
Information systems................................. 24,718 12,018
Leasehold improvements............................. 12,293 911
Other............................................... 10,349 2,909
------- --------
153,997 145,431
Less--accumulated depreciation and amortization.... 53,559 77,328
------- --------
$100,438 $68,103
======== =======
The related depreciation and amortization expense for the years ended September
30, 1999 and 2000 was $20.5 million and $31.8 million, respectively.
9. DEBT
At September 30, 1999 and 2000, long-term debt consisted of:
AT SEPTEMBER 30,
----------------
1999 2000
---- ----
(IN THOUSANDS)
Credit Agreement............................ $425,280 $344,950
Notes payable............................... 1,415 --
Other....................................... 444 7
-------- --------
427,139 344,957
Less--current portion of long-term debt...... 1,299 --
--------- --------
$425,840 $344,957
========= ========
At September 30, 2000, the carrying amount of the above commitments approximated
fair value.
On October 28, 1997, the Company entered into a loan agreement with a syndicate
of banks pursuant to which the Company increased its aggregate available bank
financing from $100 million to $550 million, consisting of a $300 million six
year revolving line of credit (the "Revolving Facility") to be utilized in
connection with future acquisitions and for working capital and general
corporate purposes and a $250 million six year term loan ( the "Term Facility"
and together with the Revolving Facility, the "Credit Agreement") to be utilized
in connection with the acquisition of Visual Action. (See Note 6, Business
Acquisitions/Dispositions). The Company recognized an extraordinary loss of $0.6
million in the quarter ended December 31, 1997 resulting from the write-off of
the unamortized debt issuance fees relating to the Company's former bank
facilities. Approximately $4.8 million in debt issuance fees were incurred in
connection with the Credit Agreement. Such fees are being amortized over the
term of the Credit Agreement.
At June 30, 1999, the Company did not achieve certain of the financial covenants
specified in the Credit Agreement. In connection with the amendments made to the
Credit Agreement in July 1999 (the "July 1999 Amendment"), the lenders waived
through March 30, 2000 all defaults that have arisen or may arise from the
failure to satisfy the specified financial covenants for June 30, 1999,
26
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEBT (Continued)
September 30, 1999 and December 31, 1999. As part of such amendment, the Company
agreed, among other things, to revised covenants regarding minimum consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA"), as
defined in the Credit Agreement for the twelve month periods ending June 30,
September 30 and December 31, 1999, and to restrictions on the amount of
permitted capital expenditures (as defined in the Credit Agreement), for the
three month periods ending September 30 and December 31, 1999.
At September 30, 1999, the Company was not in compliance with the covenants set
forth in the July 1999 Amendment. In December, 1999, the Company obtained a
further amendment (the "December 1999 Amendment") to the Credit Agreement that,
among other things, extended the waivers under the July 1999 Amendment to
October 1, 2000, and waived through October 1, 2000 all defaults arising from
the failure at September 30, 1999 to satisfy the financial covenants specified
in the July 1999 Amendment. As part of the December 1999 Amendment, the Company
agreed to a minimum consolidated adjusted EBITDA covenant that is based on
post-September 30, 1999 consolidated EBITDA (as defined in the Credit
Agreement), and to restrictions on the amount of capital expenditures that may
be made by the Company during the fiscal year ending September 30, 2000.
In addition to the waivers and revised financial covenants described above, the
December 1999 Amendment provided for the deferral through October 1, 2000 of the
principal payments due under the Term Facility on December 31, 1999 and March
31, 2000. The December 1999 Amendment also included a consent by the lenders
that would have allowed the Company to pursue the possible sale of its
audiovisual businesses, provided that certain timing requirements were met and
minimum net proceeds exceeded a specified amount.
In March, 2000, the Company entered into a further amendment (the "March 2000
Amendment") to the Credit Agreement, that, among other things, (i) amended the
maturity date of the Term Facility to eliminate the requirement to make any
installment payments thereon such that all amounts outstanding under the Term
Facility are due and payable on October 1, 2001, (ii) reduced the amounts
available to the Company under the Credit Agreement for letters of credit, (iii)
eliminated altogether those financial covenants that the July 1999 Amendment and
December 1999 Amendments previously had waived through October 1, 2000, (iv)
amended the covenant relating to minimum consolidated EBITDA for the three month
period ended December 31, 1999, the six month period ended March 31, 2000, the
nine month period ended June 30, 2000, the twelve month periods ending September
30 and December 31, 2000, and any period of four consecutive fiscal quarters
ending on or after March 31, 2001, (v) amended the covenant relating to
restrictions on the amount of permitted capital expenditures (as described in
the Credit Agreement) such that the Company may not permit capital expenditures
to exceed $25 million in any two consecutive fiscal quarters or $40 million in
any four consecutive fiscal quarters commencing with fiscal quarter beginning
January 1, 2000 and (vi) requires the Company to provide certain additional
reports to the lenders. In addition, pursuant to the terms of the March 2000
Amendment, the lenders withdrew the consent granted to the Company in the
December 1999 amendment to pursue the possible sale of the Company's audiovisual
businesses.
In addition to the amendments and revised financial covenants described above,
the March 2000 Amendment also included a consent by the lenders to allow the
Company to proceed with the sale of its worldwide Communications Group (the
"Communications Sale") and to pursue the sale of MES ( the "MES Sale"), provided
that, in each case, certain timing requirements were met, minimum net proceeds
exceeded a specific amount and 75% of the net proceeds of each such disposition
would be applied to the prepayment of the Term Facility and the reduction of the
commitment under the Revolving Facility. The Company consummated the
Communications Sale on April 20, 2000, and consummated the MES Sale on May 9,
2000, and in connection therewith (i) repaid an aggregate of $38.0 million under
the Term Facility thereby permanently reducing availability and outstanding
amounts thereunder from $199.6 million to $161.6 million and (ii) repaid an
aggregate of $47.5 million under the Revolving Facility, which resulted in a
permanent reduction of the availability thereunder from $250.0 million to $202.5
million.
Pursuant to the terms of the March 2000 Amendment, the Company also agreed to
retain not later than June 1, 2001, an investment banking firm for the purposes
of evaluating strategic and debt reduction alternatives.
Fees of approximately $1.2 million, $1.4 million and $1.0 million were incurred
in connection with the amendments made to the Credit Agreement in December,
1998, July, 1999, and December 1999, respectively. Such fees will be amortized
over the remaining term of the Credit Agreement.
No fees were paid to the Company's lenders in connection with the March 2000
Amendment; however, pursuant to a deferred amendment fee letter entered into in
connection with the March 2000 Amendment, the Company will be required to pay a
fee equal to the greater of (A) not less than $2.5 million nor more than $12.5
million or (B) not less than 2.5% nor more than 12.5% of the net equity value
(as defined in the deferred amendment fee letter) of the Company upon the
occurrence of the earlier of (i) the maturity date of the Revolving Facility,
(ii) an event of default (as defined in the Credit Agreement), (iii) a sale of
all or substantially all of the Company's assets, (iv) a sale of substantially
all of the capital stock of the Company, or (v) the repayment of all amounts
outstanding under the Credit Agreement (such events being referred to as a
"Triggering Event"). The actual amount of such fee will be
27
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEBT (Continued)
determined on the date that a Triggering Event shall occur.
The maturity date of each of the Term Facility and the Revolving Facility is
October, 2001. Interest on outstanding amounts under the Credit Agreement is
payable monthly in arrears and at the option of the Company accrues at either
(i) LIBOR plus an applicable margin or (ii) an alternate base rate based upon
the greatest of (a) the agent bank's prime rate, (b) the three-month secondary
certificate of deposit rate and (c) the federal funds rate. The applicable
margins are subject to change based on the occurrence of certain events.
Pursuant to the terms of the March 2000 Amendment, outstanding amounts under
each of the Term Facility and Revolving Facility also accrue additional interest
at a rate of 1 % per annum payable in arrears upon the termination of the Credit
Agreement. The weighted average interest rate on outstanding debt at September
30, 2000 is 9.64%.
The Credit Agreement is secured by substantially all of the assets of the
Company and its material subsidiaries, and the Company and its subsidiaries have
pledged the stock of their respective subsidiaries for the ratable benefit of
its lending banks. In addition to the financial covenants described above, the
Credit Agreement contains certain other covenants and restrictions customary for
credit facilities of a similar nature, including, without limitation,
restrictions on the ability of the Company to pay dividends.
The Company believes it will be able to satisfy the financial and other
covenants included in the Credit Agreement, as amended. As stated above,
pursuant to the terms of the Credit Agreement, the entire principal on the Term
Facility and the Revolving Facility is payable on October 1, 2001. With the
foregoing in mind, the Company recognizes that it will be necessary to take
actions to reduce its indebtedness or restructure the terms of such indebtedness
under the Credit Agreement by assessing various refinancing options or obtaining
a further amendment to the Company's existing Credit Agreement. There can be no
assurance that the Company will be able to take such actions. In the event that
the Company is unable to refinance the indebtedness under the Credit Agreement
or restructure the terms thereof, then upon the maturity of the Term Facility
and the Revolving Facility, the lenders would be entitled to exercise all or any
of their rights or remedies. Any such exercise of rights and remedies would
likely have a material adverse effect on the Company.
As of December 15, 2000, the Company had approximately $356.5 million
outstanding under the Credit Agreement, of which $194.8 million was outstanding
under the Revolving Facility. Cash on hand at such date was $11.3 million.
Fees of approximately $1.2 million, $1.4 million and $1.0 million were incurred
in connection with the amendments made to the Credit Agreement in December,
1998, July, 1999, and December 1999, respectively. Such fees will be amortized
over the remaining term of the Credit Agreement.
The Company has received a commitment letter from Chase Securities, Inc. and The
Chase Manhattan Bank to structure, arrange and syndicate a senior revolving
credit facility in an aggregate amount of up to $16 million, which would provide
working capital to the Company in addition to the liquidity provided under the
Company's existing Credit Agreement. Consummation of the financing under the
proposed additional credit facility is conditioned upon, among other things, the
consent of the requisite number of lenders under the Company's existing Credit
Agreement, the execution of definitive financing documentation, the amendment of
the terms of the Company's existing Credit Agreement and other conditions
customary for transactions of this type. There can be no assurance that such
conditions will be met and that such additional financing will be consummated.
10. CAPITAL STOCK
Effective as of January 1, 1996, the Board of Directors adopted a stock-based
incentive plan, the Caribiner International, Inc. 1996 Stock Option Plan (the
"1996 Option Plan"). On February 27, 1998 and March 16, 1999, the stockholders
of the Company approved certain amendments to the 1996 Option Plan. Further, on
June 28, 2000, the stockholders approved an Amended and Restated 1996 Stock
Option Plan (the "Amended and Restated Option Plan"), which, among other things,
amended the 1996 Stock Option Plan to permit the Company to issue shares of
restricted common stock, as well as options to purchase common stock. The
Amended and Restated Option Plan is not subject to the requirements of the
Employee Retirement Income Security Act of 1974 as amended or qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
The Amended and Restated Option Plan is designed to: to optimize the
profitability and growth of the Company through incentives which are consistent
with the Company's goals and which link the personal interest of plan
participants to the interests of the stockholders; to provide plan participants
with an incentive for excellence
28
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. CAPITAL STOCK(Continued)
in individual performance; to promote teamwork among plan participants; to
provide flexibility to the Company in its ability to motivate, attract, and
retain the services of plan participants who make significant contributions to
the Company's success; and, to allow Plan Participants to share in the success
of the Company. The Amended and Restated Option Plan provides that an aggregate
of 3,500,000 shares of the Company's common stock shall be available for grant
(either in the form of stock options or shares of restricted stock), subject to
authorization by the Compensation Committee of the Board of Directors. The
option price per share under the Amended and Restated Option Plan is generally
the market price of the common stock on the grant date. Generally, options
granted under the Amended and Restated Option Plan vest over a period of three
years from the grant date.
As of September 30, 2000, stock options to purchase an aggregate of 1,960,700
shares of Common Stock were outstanding, of which options to purchase 120,111
shares of Common Stock were vested and an aggregate of 666,000 shares of
Restricted Common Stock were outstanding.
The Company applies the provisions of APB No. 25, Accounting for Stock Issued to
Employees, in accounting for its stock-based awards. Accordingly, no
compensation cost has been recognized for its stock option plans.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest rate of 4% in 1998 and 6% in 1999 and 2000; a dividend yield of 0% in
1998, 1999 and 2000; volatility of 67.4% in 1998, 77.4% in 1999 and 156.1% in
2000, respectively, and an expected life of 5 years in 1998, 1999 and 2000.
Had the Company elected to apply the provisions of Statement of Financial
Accounting Standards (SFAS No. 123), Accounting for Stock Based Compensation,
net income would have been reduced by $823,000, or $0.03 per share and
$1,372,000, or $0.06 per share, for fiscal years 1998 and 1999, respectively,
and increased by $2,009,000, or $0.08 per share for the fiscal year ended
September 30, 2000.
A summary of the status of the Company's option plans at September 30, 2000 and
activity during the years ended September 30, 1998, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
---------------- ---------------- ----------------
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 737 $23.22 1,048 $21.75 1,989 $9.23
Options granted.......................... 561 20.25 2,024 8.68 1,644 0.51
Options exercised........................ (30) 23.38 -- -- -- --
Options forfeited/expired................ (220) 23.10 (1,083) 16.06 (1,672) 9.48
----- ----- ------- ----- ------ -----
Options outstanding at end of year....... 1,048 21.75 1,989 9.23 1,961 1.80
----- ----- ----- ----- ------ -----
Exercisable at end of year............... 275 20.69 67 16.52 120 9.39
----- ----- ----- ----- ------ -----
Weighted average fair value of options
granted during the year................ 12.00 5.80 0.50
----- ----- -----
</TABLE>
A summary of information about stock options outstanding and options exercisable
at September 30, 2000 is as follows (In thousands of shares):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------- -------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES SHARES REMAINING TERM EXERCISE PRICE SHARES EXERCISE PRICE
------------------------ ------ -------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$0.36 to $0.47............................ 1,626 9.80 $0.43 -- --
$6.66 to $7.63............................ 309 7.56 7.39 102 7.39
$20.63 to $21.94.......................... 26 7.51 $20.73 18 $20.77
$0.36 to $21.94........................... 1,961 9.41 $1.80 120 $9.39
</TABLE>
29
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. EMPLOYEE BENEFIT PLANS
The Company maintains several defined contribution plans covering all qualified
employees. Effective January 1, 1997, the Company began matching $0.25 for each
dollar contributed by an employee, up to a maximum of 3% of such employee's base
compensation (subject to applicable limits under the Internal Revenue Code of
1986, as amended). In addition, the Company continues to maintain several
existing defined contribution plans that it inherited in connection with its
acquisition of Visual Action in December, 1997. Under such plans, the Company
contributes varying amounts ranging from $0.25 to $0.50 for each dollar
contributed by an employee to such plan up to a maximum of 4% of base salary.
Company matching contributions during the years ended September 30, 1998, 1999
and 2000 totaled $0.4 million, $0.7 million and $0.7 million, respectively.
12. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the carrying amounts used for income tax purposes which resulted
from the acquisition of certain business operations, the difference between
financial reporting recovery periods and tax reporting recovery periods and the
write-down of certain assets for financial reporting purposes.
Significant components of the Company's deferred tax assets and liabilities as
of September 30, 1999 and September 30, 2000 are as follows:
<TABLE>
<CAPTION>
1999 2000
---- ----
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS:
NOL and tax credit carryforwards............................ $23,900 $43,176
Accrued interest............................................ 247 --
Allowance for doubtful accounts............................. 691 1,082
Restructuring and other reserves............................ 1,791 6,297
------- -------
Total deferred tax assets................................... 26,629 50,555
Valuation allowance......................................... (14,640) (39,875)
------- -------
Net deferred tax assets..................................... 11,989 10,680
DEFERRED TAX LIABILITIES:
Tax over book depreciation and amortization................. 8,003 7,769
Adjustments for differences in basis of acquired assets..... 8,000 6,913
Amortization of intangibles................................. 3,653 3,193
Other....................................................... 225 155
------- -------
Total deferred tax liabilities.............................. 19,881 18,030
------- ------
Net deferred tax liability/(asset).......................... $7,892 $7,350
======= ======
</TABLE>
At September 30, 2000, the Company had net operating loss ("NOL") carryforwards
for federal income tax purposes of approximately $100.5 million, of which, $1.6
million expire in the years 2001 through 2007 and $98.9 million expire in the
years 2019 and 2020. The Company also has tax loss carryforwards for state and
local tax purposes. A valuation allowance has been recorded to the extent the
Company believes the benefit from the tax loss carryforwards will not be
realized. In addition, approximately $1.6 million of the NOL carryforwards may
be subject to limitations under the change in ownership provisions of the
Internal Revenue Code and may also be limited for state and local income tax
purposes. The Company has not recorded any future benefit related to the usage
of these NOL carryforwards.
30
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES (Continued)
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
1998 1999 2000
----- ----- -----
(IN THOUSANDS)
Current:
Federal.................................... $(6,992) $(7,624) $ --
State...................................... (566) (500) --
Foreign.................................... (2,938) (3,325) 340
------ ------- ----
Total current tax........................ (10,496) (11,449) 340
Deferred:
Federal................................... 1,345 (1,879) --
State..................................... (992) 858 --
Foreign................................... 1,201 1,275 --
------- -------- ----
Total deferred tax...................... 1,554 254 --
Total (benefit) provision for taxes......... $(8,942) $(11,195) $340
======= ======= =====
For fiscal 1998 and 1999, a federal current tax benefit has been recorded to the
extent the current year tax loss can be carried back and for a portion of the
tax loss carried forward.
The reconciliation of income tax attributable to operations computed at the U.S.
federal statutory tax rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at statutory rate.............................. $(7,917) $(24,745) $(19,258)
State income tax expense/(benefit) (net of federal tax).... (1,013) 233 --
Non-deductible goodwill amortization....................... 354 4,708 2,434
Non-deductible expenses.................................... 42 478 682
Losses without benefit..................................... 8 10,461 16,472
Rate differential related to foreign operations............ (416) (2,364) 10
Other...................................................... 34 --
------- -------- --------
$(8,942) $(11,195) $340
======= ======== =========
</TABLE>
13. SEGMENT INFORMATION
In accordance with Financial Accounting Standards Board Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information, set forth
below is selected financial information about the Company's reportable operating
segments.
Description of Segments
As described in Note 3, the company disposed of its Communications Group and MES
segments in April, 2000 and May, 2000, respectively. During fiscal 2000, the
Company's continuing audiovisual operations were comprised of three segments:
Presentation Services (formerly known as Hotel Services), Audio Visual
Headquarters (formerly known as Staging and Meeting Services) and Rental
Services. Presentation Services provides audiovisual equipment rental services
to hotels via an on-site presence of both equipment and technical support staff.
Audio Visual Headquarters is a provider of audiovisual equipment, technical
labor and related staging services to production companies and other
corporations for use during meetings, trade shows, conventions and
presentations. Rental Services is a remote full service provider on an as-needed
basis to local and national corporations, convention centers and smaller hotels.
During fiscal 1999, the Company reorganized its audiovisual services businesses
into the three segments discussed above. Prior to fiscal 1999, the Company
operated the audiovisual services businesses on a combined basis. It is
impracticable to furnish separate financial data relating to fiscal year 1998 in
conformity with the current reporting segments within the audiovisual services
group.
31
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SEGMENT INFORMATION (Continued)
Measurement of Segment Profit or Loss
The Company evaluates performance based upon revenues, gross profit and profit
or loss from operations before interest, income taxes, depreciation and
amortization ("EBITDA"). The accounting policies of the reportable segments are
the same as those described in Note 2, Summary of Significant Accounting
Policies. Intradivision sales are recorded at the Company's costs; there is no
intercompany profit or loss on intradivision sales.
YEAR ENDED SEPTEMBER 30, 1998 (AMOUNTS IN THOUSANDS)
AUDIO
VISUAL
---------
Revenue................................................ $361,157
Gross Profit........................................... 86,626
EBITDA................................................. 38,548
Segment assets......................................... 143,697
Capital expenditures................................... 30,791
YEAR ENDED SEPTEMBER 30, 1999 (AMOUNTS IN THOUSANDS)
AUDIO TOTAL
PRESENTATION VISUAL RENTALS AUDIO
SERVICES HEADQUARTERS SERVICES OTHER(a) VISUAL
-------- ------------ -------- ------- ------
Revenue............... $261,597 $89,390 $22,212 22,319 $395,518
Gross Profit.......... 52,894 8,149 6,480 8,834 76,357
EBITDA................ 37,142 11,416 4,176 (2,607) 50,127(b)
Segment assets........ 87,192 32,161 12,771 -- 132,124
Capital
expenditures........ 21,347 8,962 2,583 196 33,088
(a) Primarily represents the results of operations of the Company's design
and installation business, which was disposed in June, 1999.
(b) Excludes $8.4 million in costs incurred during fiscal 1999 related to
the Company's former Atlanta-based audiovisual headquarters.
YEAR ENDED SEPTEMBER 30, 2000 (AMOUNTS IN THOUSANDS)
AUDIO
PRESENTATION VISUAL RENTALS
SERVICES HEADQUARTERS SERVICES TOTAL
--------- ----------- -------- ---------
Revenue................. $314,231 $88,772 $23,783 $426,786
Gross Profit........... 61,671 8,273 4,311 74,255
EBITDA................. 43,542 12,878 (1,463) 54,957
Segment assets......... 86,580 32,036 11,667 130,283
Capital expenditures... 20,746 6,929 2,868 30,543
32
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. SEGMENT INFORMATION (Continued)
RECONCILIATIONS TO CONSOLIDATED STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Total external revenue for reportable segments....................... $361,157 $386,891 $420,414
Intradivision revenue for reportable segments........................ 601 8,627 6,372
Elimination of intradivision revenue................................. (601) (8,627) (6,372)
--------- -------- -------
Total consolidated revenue........................................ $361,157 $386,891 $420,414
======== ======== ========
Total "EBITDA" for reportable segments............................... $38,548 $50,127 $54,957
Rental equipment write-downs included in cost of rental revenue...... -- (3,700) (4,715)
Restructuring charge................................................. (4,364) (8,880) --
Loss on disposal of assets........................................... -- (16,500) (3,000)
Reserves/write-offs relating to accounts receivable.................. -- (6,167) --
Costs related to the former Atlanta-based audiovisual headquarters... -- (8,407) --
Corporate reorganization and other costs............................. -- -- (11,005)
Corporate expenses................................................... (5,378) (12,592) (9,493)
------- -------- -------
Total operating income (loss) before depreciation and amortization
expense........................................................... 28,806 (6,119) 26,744
Depreciation and amortization expense,
including depreciation in cost of revenue......................... 26,617 29,364 35,461
------- ------- -------
Total operating income (loss) from continuing operations.......... $2,189 $(35,483) $(8,717)
======= ======== ========
RECONCILIATIONS TO CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS)
1998 1999 2000
---- ---- ----
Total assets for reportable segments................................ $143,697 $132,124 $130,284
Goodwill, net....................................................... 419,581 409,204 272,009
Corporate and other assets.......................................... 3,983 12,558 11,996
Assets of discontinued operations................................... 130,688 105,583 --
-------- -------- --------
Total consolidated assets........................................ $697,949 $659,469 $414,289
======== ======== ========
RECONCILIATIONS TO CONSOLIDATED CAPITAL EXPENDITURES
1998 1999 2000
---- ---- ----
Total capital expenditures for reportable segments................. $30,791 $33,088 $30,543
Capital expenditures for discontinued operations................... 15,663 11,420 5,875
Corporate capital expenditures..................................... -- 902 397
------- ------- -------
Total consolidated capital expenditures......................... $46,454 $45,410 $36,815
======= ======== =======
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
Minimum annual rentals under noncancelable leases, excluding escalations based
upon increases in real estate taxes and operating expenses, are payable as
follows, for the year ended September 30, 2001--$6.6 million; 2002--$4.7
million; 2003--$3.5 million; 2004--$2.3 million; 2005--$1.5 million;
thereafter--$0.7 million; totaling $19.3 million.
Rent expense charged to operations in fiscal 1998, fiscal 1999 and fiscal 2000
was $3.5 million, $4.6 million and $5.8 million, respectively.
On March 25, 1999, a shareholder class action was filed in the United States
District Court for the Southern District of New York (the "Southern District")
against the Company and certain of its current and former officers and one of
its directors. On May 7, 1999, a shareholder class action substantially
identical to the March 25th action was filed in the Southern District against
the Company and the same individuals named in the March 25th action. Both
lawsuits allege, among other things, that defendants misrepresented the
33
<PAGE>
AUDIO VISUAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. COMMITMENTS AND CONTINGENCIES (Continued)
Company's ability to integrate various companies it was acquiring and alleges
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and various rules promulgated thereunder. The lawsuits seek unspecified money
damages, plus costs and expenses, including attorneys' fees and expert fees. In
November, 1999, the Court issued an order consolidating the lawsuits into a
single action and appointing lead plaintiffs and lead counsel. The plaintiffs
filed a consolidated amended complaint in January 2000. In February 2000, the
Company filed a motion to dismiss the consolidated amended complaint.
Although the Company believes it has meritorious defenses to this action, in
light of the inherent uncertainties and the burden and expense of lengthy
litigation, the Company reached an agreement in principle in late June, 2000 to
settle the class action which was announced on July 20, 2000. Under the
agreement, all claims against the Company and the individuals named as
defendants in the action will be dismissed without presumption or admission of
any liability or wrongdoing. The principal terms of the agreement call for the
payment to the plaintiff class of the sum of $15.0 million. The settlement
amount was paid in its entirety by the Company's insurance carrier. The terms of
the settlement are subject to, among other things, court approval and execution
of definitive settlement documentation.
In addition to the litigation described above, from time to time, the Company is
a party to various in legal proceedings incidental to its business. Although the
ultimate disposition of these proceedings is not determinable, in the opinion of
the Company, none of such proceedings has had or is likely to have a material
adverse effect on the Company's results of operations, financial condition or
liquidity.
15. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid was $21.9 million, $33.5 million and $46.7 during the years ended
September 30, 1998, 1999 and 2000, respectively. Taxes paid were $12.2 million
and $0.3 million during the years ended September 30, 1998 and 2000
respectively. No taxes were paid during the year ended September 30, 1999.
16. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income for basic and diluted earnings per share:
Income (loss) from continuing operations....................................... $(13,677) $(59,506) $ (55,365)
Discontinued operations:
Income (loss) from operations (net of income taxes)............................ 14,612 7,213 (16,458)
Loss on disposal of assets..................................................... -- -- (40,313)
-------- -------- ----------
Income (loss) from discontinued operations.................................... 14,612 7,213 (56,771)
Extraordinary charge.......................................................... 605 -- --
Net income (loss)............................................................. $330 $(52,293) $(112,136)
======== ========= ==========
Weighted average shares of common stock outstanding:
Weighted average shares of common stock outstanding for basic
earnings per share.......................................................... 23,616 23,695 23,857
Effect of stock options........................................................ -- -- --
-------- --------- ---------
Weighted average shares of common stock outstanding for diluted
earnings per share.......................................................... 23,616 23,695 23,857
======== ======== =========
Basic and diluted earnings (loss) per share:
Income (loss) from continuing operations before extraordinary charge........... $(0.58) $(2.51) $(2.32)
Income (loss) from discontinued operations (net of income taxes)............... 0.62 0.30 $(2.38)
Extraordinary charge........................................................... (0.03) -- --
-------- -------- ----------
Net income..................................................................... $0.01 $(2.21) $(4.70)
======== ======== ==========
</TABLE>
34
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
35
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers and Directors of the Company" set forth in Item 4A of
Part I hereto.
Based solely upon review of the Forms 3, 4 and 5 and any amendments thereto
furnished to the Company pursuant to Rule 16a-3(c) promulgated under the
Exchange Act, the Company is not aware of any failure of any officer, director
or beneficial owner of more than 10% of the Common Stock to timely file with the
Securities and Exchange Commission any Form 3, 4 or 5 in respect of the Company
during fiscal year 2000, except for (i) each of Bryan D. Langton and C. Anthony
Wainwright, directors of the Corporation, each of whom did not file a report on
Form 5 in respect of shares issued to them in fiscal 1999 under the
Corporation's Non-Employee Directors Stock Plan, as amended, and subsequently
made such disclosure on a Form 5 filed in respect of transactions in the
Corporation's equity securities during fiscal 2000, (ii) each of Michael J.
O'Brien and Kenneth R. Sanders, Executive Vice Presidents of the Corporation,
each of whom did not file a report on Form 3 and subsequently made the
disclosures required on such form on a Form 5, and (iii) John C. Voaden, an
Executive Vice President of the Corporation, who did not file a report on Form 5
in respect of options granted to him in fiscal 1999 under the Corporation's
Amended and Restated 1996 Stock Option Plan and subsequently made such
disclosure on a Form 5 filed in respect of transactions in the Corporation's
equity securities during fiscal 2000.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the compensation
paid or accrued by the Company for services rendered to the Company and its
subsidiaries in all capacities for the fiscal years ended September 30, 1998,
1999 and 2000, by its Chief Executive Officer and each of the Company's other
executive officers whose total salary and bonus exceeded $100,000 during such
fiscal year (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------------
ANNUAL
COMPENSATION RESTRICTED SECURITIES
------------------ STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AWARDS OPTIONS COMPENSATION
--------------------------- ------ ----- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Robert K. Ellis(1)
Chairman of the Board and Chief Executive
Officer of the Company
2000........................................ $245,000 $122,500 $100,500(7) 470,000 --
Digby J. Davies(2)
President, Acting Chief Financial Officer and
Chief Operating Officer of the Company
2000........................................ $195,000 $97,500 $80,625(7) 375,000 --
Michael J. O'Brien(3)
Executive Vice President of the Company and
Chief Executive Officer of Audio Visual
Headquarters
2000........................................ $291,800 $283,160 $22,875(7) 73,000 --
1999........................................ $207,072 $103,950 -- -- --
1998........................................ $269,322 $120,476 -- 20,000 --
Kenneth R. Sanders(4)
Executive Vice President of the Company and
Chief Operating Officer of Presentation Services
2000........................................ $253,334 $250,141 $22,875(7) 73,000 43,000(8)
1999........................................ $210,420 $65,030 -- 60,000 --
1998........................................ $160,643 $80,245 -- -- --
John C. Voaden(5)
Executive Vice President of the Company and
Chief Executive Officer of Presentation Services
2000........................................ $264,105 $50,000 $22,875(7) 73,000 --
1999........................................ 93,819 50,000 -- 75,000 --
Christopher A. Sinclair(6)
Former Chairman of the Board, President and Chief
Executive Officer of the Company
2000.......................................... $375,887 250,000 -- -- 700,000(9)
1999........................................... $326,923 250,000 -- 600,000 --
</TABLE>
36
<PAGE>
Footnotes to Summary Compensation Table
(1) Mr. Ellis commenced his employment with the Company in April, 2000.
(2) Mr. Davies commenced his employment with the Company in April, 2000.
(3) Mr. O'Brien was appointed Executive Vice President of the Company in May
2000 and during 1999 and 1998, Mr. O'Brien served as the Chief Executive
Officer of Audio Visual Headquarters.
(4) Mr. Sanders was appointed Executive Vice President of the Company in July
2000, prior thereto and during 1999 and 1998, Mr. Sanders served as Senior
Vice President and Executive Vice President of Presentation Services.
(5) Mr. Voaden commenced his employment with the Company on May 3, 1999.
(6) Mr. Sinclair served as President and Chief Executive Officer of the Company
from December 21, 1998 through May 15, 2000.
(7) The Company granted to each of Messrs. Ellis and Davies 268,000 shares and
215,000 shares, respectively, of restricted stock under the Company's
Amended and Restated 1996 Stock Option Plan. Such shares vest in their
entirety on April 4, 2002. The Company granted to each of Messrs. O'Brien,
Sanders and Voaden 61,000 shares of Restricted Stock, which also vest in
their entirety on April 4, 2002. The value of the Restricted Stock for each
of the Named Executives, based upon a closing price of $0.50 per share on
September 29, 2000, for each of Messrs. Ellis and Davies was $134,000 and
$107,500, respectively, and for each of Messrs. O'Brien, Sanders and Voaden
was $30,500.
(8) All other compensations consists of payments made to Mr. Sanders in
connection with vacation accruals.
(9) All other compensation consists of severance payments made to Mr. Sinclair
in connection with the termination of his employment with the Company.
OPTION GRANTS
The following table sets forth the grants of options with respect to Common
Stock during the year ended September 30, 2000, to the Named Executive Officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------- VALUE AT ASSUMED
ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS OPTION TERM
GRANTED TO EXERCISE OR ----------------------
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Robert K. Ellis 470,000(a) 28.9 $0.46875 6/28/10 $138,553 $351,121
Digby J. Davies 375,000(a) 23.1 0.46875 6/28/10 110,548 280,150
Michael J. O'Brien 73,000(a) 4.5 0.46875 6/28/10 21,520 54,536
Kenneth R. Sanders 73,000(a) 4.5 0.46875 6/28/10 21,520 54,536
John C. Voaden 73,000(a) 4.5 0.46875 6/28/10 21,520 54,536
</TABLE>
(a) Such options vest in their entirety on April 4, 2002.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Ellis, Davies,
O'Brien, Sanders and Voaden. Each of Messrs. Ellis's and Davies's employment
agreements expires on April 5, 2002, provided that the term of each such
agreement shall be extended for successive periods of one year, unless at least
one year prior to the end of the initial term or any renewal term either party
has given the other party notice of its intention to terminate the agreement.
Messrs. O'Brien, Sanders and Voaden are employed by the Company on an "at will"
basis, and their respective employment may be terminated by the Company upon
notice.
The annual base salary of Messrs. Ellis, Davies, O'Brien, Sanders and Voaden
currently is $500,000, $400,000, $290,000, $250,000 and $250,000, respectively.
Each executive is also entitled to fringe benefits and to an annual bonus based
on Company performance against targets and the fulfillment of certain management
objectives established by the Board each year. Pursuant to the terms of their
respective employment agreements, during the first 18 months of the initial term
of their employment with the Company, the Company is required to pay the Messrs.
Ellis and Davies, a guaranteed bonus of $250,000 per annum and $200,000 per
annum, respectively, payable in each case monthly in arrears. Pursuant to the
terms of their respective employment agreements, the Company is required to pay
to Messrs. O'Brien, Sanders and Voaden a minimum bonus of $58,000, $52,400,
$50,000, respectively, for the fiscal year ended September 30, 2000. Under each
agreement the Board is to review the employee's salary at least annually and the
salary amounts may be increased in the Board's discretion.
Each executive may be terminated for "cause" (as defined in the agreements),
with all compensation ceasing. Under the employment agreement for each of
Messrs. Ellis and Davies, if the executive is terminated without cause or if he
resigns for "good reason" (as
37
<PAGE>
defined), the executive is entitled to full compensation and benefits for the
remaining term of the agreement. "Good reason" includes, in the case of each of
Messrs. Ellis and Davies, a change in control (as defined) of the Company. Under
the employment agreements for each of Messrs. O'Brien, Sanders and Voaden, if
the executive is terminated without cause or if he resigns for "good reason" (as
defined in their respective employment agreements), the executive is entitled to
a payment equal to 12 months annual base salary and any annual bonus to which
the executive may be entitled in respect only of the fiscal year of the Company
in which such termination or resignation, as the case may be, occurs and further
prorated by reference to the number of days actually worked by the executive in
such fiscal year.
Each employment agreement also contains provisions concerning the grant of
Restricted Stock and Stock Options. The grant of Stock Options and Restricted
Stock is further subject to the terms and conditions of a Restricted Stock
Agreement and Stock Option Agreement, which were executed by and between each of
Messrs. Ellis, Davies, O'Brien, Sanders and Voaden and the Company. In
connection with the grant of Stock Options and Restricted Stock, the Company
also agreed that in the event there is a Change in Control (as defined in the
Company's Amended and Restated 1996 Stock Option Plan) and the aggregate value
of Stock Options and Restricted Stock on the date of the consummation of a
Change in Control is less than $1,000,000 in the case of each of Messrs. Ellis
and Davies, and $250,000 in the case of each of Messrs. O'Brien, Sanders and
Voaden, the Company shall be required to pay each of them within sixty (60) days
thereafter the amount by which the aggregate value is less than $1,000,000 or
$250,000, as the case may be.
Each employment agreement includes provisions restricting the executive's
ability to compete with the Company and solicit the clients and employees of the
Company following termination of employment. Each employment agreement also
provides that in the event of the employee's death, the employee's beneficiary
will receive a payment equal to four months' base salary.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors has an audit committee and a compensation committee. The
Board of Directors does not presently have a nominating committee or other
committee performing a similar function.
At present, the Board of Directors of the Company is composed of six directors.
Pursuant to the terms of a stockholders agreement, dated as of March 15, 1996
(the "Stockholders Agreement"), subject to certain conditions, Warburg, Pincus
Investors, L.P. ("Warburg") currently has the right to designate up to two
persons for nomination to the Board. See "Certain Relationships and Transactions
with Related Persons--Stockholders Agreement." The designee of Warburg is Mr.
Libowitz. In addition, Mr. Cook, a director of the Company since 1992, is a
Senior Adviser to EMW LLC and a former Managing Director of EMW LLC. The Board
of Directors held seven (7) meetings during fiscal 2000.
The Compensation Committee of the Board of Directors of the Company determines
the salaries and bonuses of the Company's executive officers and administers the
Company's Amended and Restated 1996 Option Plan. During the Company's last
completed fiscal year Errol M. Cook served as Chairman of the Compensation
Committee, and each of Bryan D. Langton, David E. Libowitz and C. Anthony
Wainwright served as members of the Compensation Committee. The Compensation
Committee held four (4) meetings during fiscal 2000.
The Audit Committee of the Board of Directors recommends the appointment of
auditors and oversees the accounting and audit functions of the Company. During
the Company's last completed fiscal year Bryan D. Langton served as Chairman of
the Audit Committee, and C. Anthony Wainwright served as a member of the Audit
Committee. The Audit Committee held four (4) meetings during fiscal 2000.
None of the members of the Board of Directors failed during fiscal 2000 to
attend at least 75 percent of the aggregate of: (1) the total number of meetings
of the Board of Directors held during the period for which he was a director;
and (2) the total number of meetings held by all committees of the Board of
Directors on which he served during the periods that he served.
Compensation of Directors
Directors who are not employees or officers of the Company receive cash
compensation of $12,500 per annum payable quarterly in arrears. In addition,
non-employee directors receive $1,000 for each meeting of the Board or meeting
of a committee of the Board that they attend in person and $750 for each meeting
of the Board or meeting of a committee of the Board that they attend
telephonically. Mr. Libowitz has waived his right to receive any compensation.
Directors are also reimbursed for certain expenses in connection with attendance
at Board and committee meetings. Other than with respect to reimbursement of
expenses, directors who are employees or officers of the Company do not receive
additional compensation for services as a director.
Effective March 11, 1996, the Company adopted the Non-Employee Directors' Stock
Plan, pursuant to which the Company awards directors (other than (i) directors
affiliated with Warburg, who have waived their right to receive any
compensation, (ii) Errol Cook, who has
38
<PAGE>
waived his right to receive shares under such plan, or (iii) directors who are
employees of the Company) upon their becoming a director and on each anniversary
thereof shares of Common Stock having a market value of $12,500. The
Non-Employee Directors' Stock Plan, as amended, provides that the maximum number
of shares of Common Stock available for issue under the plan is 100,000 shares
(of which 20,866 shares have been issued), subject to adjustment to prevent
dilution or expansion of rights.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITIES BENEFICIALLY OWNED BY
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of December 12, 2000 with respect to (i) each
person known by the Company to be the beneficial owner of more than 5% of the
Common Stock, (ii) each director of the Company, (iii) each of the executive
officers of the Company and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
-------------
NUMBER OF
SHARES OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK
------------------------------------ ------------ ------------
<S> <C> <C>
5% HOLDERS
Warburg, Pincus Investors, L.P.(2).......................... 6,664,236(3) 26.6%
466 Lexington Avenue
10th Floor
New York, New York 10017
State of Wisconsin Investment Board......................... 2,820,000(4) 11.3
P.O. Box 7842
Madison, Wisconsin 53707
Lord, Abbett & Co.
767 Fifth Avenue
New York, New York 10153................................. 2,399,797(5) 9.6
Raymond S. Ingleby.......................................... 1,724,549(3)(6) 6.9
c/o Fylde Office Services Bureau
28 Orchard Road
St. Annes-on-Sea
Lancashire FY8 1PF
England
DIRECTORS AND EXECUTIVE OFFICERS
Digby J. Davies............................................. 348,200 (7)(8) 1.4
Robert K. Ellis............................................. 401,200 (8)(9) 1.6
Michael J. O'Brien.......................................... 194,200 (8)(10) *
Kenneth R. Sanders.......................................... 194,200 (8)(10) *
John C. Voaden.............................................. 194,200 (8)(10) *
Errol M. Cook(2)............................................ 1,625 *
Bryan D. Langton............................................ 36,197 (11) *
David E. Libowitz(2)........................................ 6,664,236 (3) 26.6
C. Anthony Wainwright....................................... 9,669 *
All executive officers and directors as a group (9 persons). 7,377,727 29.4
</TABLE>
* Less than 1%
(1) Except where otherwise indicated, the Company believes that all parties
listed in the table, based on information provided by such persons, have
sole voting and dispositive power over the securities beneficially owned by
them, subject to community property laws, where applicable. For purposes of
this table, a person or group of persons is deemed to be the "beneficial
owner" of any shares that such person or group of persons has the right to
acquire within 60 days. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above on a
given date, any security that such person or group of persons has the right
to acquire within 60 days is deemed to be outstanding, but is not deemed to
be outstanding for the purpose of computing the percentage ownership of any
other person.
(2) The sole general partner of Warburg, Pincus Investors, L.P. ("Warburg") is
Warburg Pincus & Co., a New York general partnership ("WP"). EMW LLC
manages Warburg. The members of EMW LLC are substantially the same as the
partners of WP. Lionel I. Pincus is the managing partner of WP and the
managing member of EMW LLC and may be deemed to control each of WP and EMW
LLC. David E. Libowitz, a director of the Company, is a Managing Director
and member of
39
<PAGE>
EMW LLC, and a general partner of WP. As such, Mr. Libowitz may be deemed
to have an indirect pecuniary interest (within the meaning of Rule 16a-1
under the Exchange Act) in an indeterminate portion of the shares of Common
Stock beneficially owned by Warburg. Mr. Errol M. Cook, a director of the
Company, is a Senior Adviser to EMW LLC. Each of Messrs. Cook and Libowitz
disclaims "beneficial ownership" of the Common Stock owned by Warburg
within the meaning of Rule 13d-3 under the Exchange Act. (Footnotes
continued on next page)
40
<PAGE>
(Footnotes continued from previous page)
(3) Includes 400,000 shares of Common Stock pledged to Warburg by Raymond S.
Ingleby in connection with loan made by Warburg to Mr. Ingleby. Mr. Ingleby
has sole voting power in respect of such pledged shares. Includes 666,000
shares of Common Stock pledged to Warburg by Voltaire Investments LLC
("Voltaire") as security in connection with the sale of such shares to
Voltaire by Warburg. Voltaire has sole voting power in respect of such
pledged shares.
(4) As disclosed in Amendment No. 2, dated August 10, 2000, to Schedule 13G.
(5) As disclosed in Amendment No.2, dated January 19, 2000 to Schedule 13G.
(6) Includes 85,000 shares held of record by the Raymond and Leigh Ingleby
Foundation, Inc.
(7) Includes 215,000 shares of Common Stock issued pursuant to the
Corporation's Amended and Restated 1996 Stock Option Plan (the "Option
Plan"), which shares vest and become non-forfeitable on April 4, 2002.
(8) Includes 133,200 shares owned by Voltaire, of which such person is a member.
Such shares represent individual's pro rata economic interest in shares that
are owned by Voltaire. Shares have been pledged to Warburg by Voltaire as
security in connection with the sale of such shares to Voltaire by Warburg.
(9) Includes 268,000 shares of Common Stock issued pursuant to the Option Plan,
which shares vest and become non-forfeitable on April 4, 2002.
(10)Includes 61,000 shares of Common Stock issued pursuant to the Option Plan,
which shares vest and become non-forfeitable on April 4, 2002.
(11)Includes presently exercisable options to purchase 18,000 shares of
Common Stock at $21.3125 per share, which expire in November, 2006.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH RELATED PERSONS
STOCKHOLDERS AGREEMENT
Upon completion of the initial public offering of the Company's Common Stock in
March, 1996, the Company entered into the Stockholders Agreement with Warburg
and Raymond S. Ingleby. The Stockholders Agreement contains, among other things,
various terms regarding nominations for the Company's Board of Directors and
certain registration rights granted by the Company. Pursuant to the terms of the
Stockholders Agreement, for so long as Warburg beneficially owns at least 20% or
10% of the outstanding shares of Common Stock, it will have the right to
designate two nominees or one nominee, respectively, for director. The
Stockholders Agreement also provides that for so long as Mr. Ingleby shall hold
office as the Chairman and Chief Executive Officer of the Company, he will have
the right to be designated as a nominee for director. In December, 1998, Mr.
Ingleby resigned from the position of Chief Executive Officer of the Company and
in May, 1999, Mr. Ingleby resigned as Chairman of the Company. Accordingly, Mr.
Ingleby no longer has the automatic right to such nomination.
Additionally, the Stockholders Agreement provides that Warburg is entitled to
three "demand" registrations, which may be exercised at any time. The
Stockholders Agreement also provides that Raymond S. Ingleby will be entitled to
one "demand" registration with respect to not less than 50% of the number of
shares of Common Stock that he beneficially owned immediately prior to the
completion of such initial public offering (i.e., 1,396,356 shares), provided
that Mr. Ingleby may not exercise such "demand" until the earliest of (i) six
months after the effective date of a registration statement filed by the Company
in respect of shares of Common Stock owned by Warburg, (ii) the distribution by
Warburg of shares of Common Stock to its partners and (iii) March 15, 2001. In
July, 1997, Warburg made a distribution of shares of Common Stock to its
partners, thereby triggering Mr. Ingleby's right to exercise such "demand." Mr.
Ingleby is also entitled to "piggyback" registration rights in the event that
Warburg exercises a "demand" registration. In addition, the Stockholders
Agreement grants to Mr. Ingleby certain co-sale rights in the event that Warburg
sells, transfers or otherwise disposes of any shares of its Common Stock.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
(1) The response to this portion of Item 14 is set forth in Item 8
of Part II hereof.
(2) Financial Statement Schedules.
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
(3) Exhibits
See accompanying Index to Exhibits. The Company will furnish to any
stockholder, upon written request, any exhibit listed in the
accompanying Index to Exhibits upon payment by such stockholder of
the Company's reasonable expenses in furnishing any such exhibit.
(b) Reports on Form 8-K
None.
42
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON
DECEMBER 28, 2000.
AUDIO VISUAL SERVICES CORPORATION
(Registrant)
By: /s/ Digby J. Davies
------------------------------
President, Chief Operating Officer
and Acting Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT K. ELLIS Chairman of the Board and Chief Executive December 28, 2000
------------------------- Officer (Principal executive Officer)
Robert K. Ellis
/s/ DIGBY J. DAVIES Director, President, Chief Operating Officer December 28, 2000
------------------------- and Acting Chief Financial Officer (Principal
Digby J. Davies Financial and Accounting Officer)
/s/ ERROL M. COOK Director December 28, 2000
-------------------------
Errol M. Cook
/s/ BRYAN D. LANGTON Director December 28, 2000
-------------------------
Bryan D. Langton
/s/ DAVID E. LIBOWITZ Director December 28, 2000
-------------------------
David E. Libowitz
/s/ C. ANTHONY WAINWRIGHT Director December 28, 2000
-------------------------
C. Anthony Wainwright
</TABLE>
43
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C> <C>
3.1 -- Restated Certificate of Incorporation of the Company, filed March 15, 1996, with the Secretary of
State of the State of Delaware (filed as Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1996 and incorporated herein by reference).
3.2 -- Certificate of Amendment to the Restated Certificate of Incorporation of the Company, filed
March 30, 1998, with the Secretary of State of the State of Delaware (filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998 and
incorporated herein by reference).
3.3 -- Certificate of Amendment to the Restated Certificate of Incorporation, as amended, of the Company,
filed June 29, 2000, with the Secretary of the State of Delaware (filed as exhibit 3.3 to the
Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2000 and incorporated herein by reference).
3.4 -- Third Amended and Restated By-Laws of the Company (filed as Exhibit 3.3 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 1998 and incorporated herein by
reference).
4 -- Specimen of Certificate of Common Stock of the Company (filed as Exhibit 4 to the Company's
Registration Statement on Form S-1 (Registration No. 33-80481) and incorporated herein by
reference).
10.1 -- Amended and Restated 1996 Stock Option Plan (filed as exhibit 10.7 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2000 and incorporated herein by
reference).
+10.2 -- Form of Stock Option Agreement for executive management in connection with Amended and Restated 1996
Stock Option Plan.
+10.3 -- Form of Restricted Stock Agreement for each of Robert K. Ellis and Digby J. Davies in connection with
the Amended and Restated 1996 Stock Option Plan.
+10.4 -- Form of Restricted Stock Agreement for each of Michael O'Brien, Kenneth R. Sanders and John C. Voaden in
connection with the Amended and Restated 1996 Stock Option Plan.
10.5 -- Non-Employee Directors' Stock Plan of the Registrant (filed as an exhibit to the Company's Registration
Statement on Form S-1 (Registration No. 33-80481) and incorporated herein by reference).
+10.6 -- Employment Agreement, dated as of April 5, 2000, by and between the Company and Robert K. Ellis (filed
as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000 and incorporated herein by reference).
+10.7 -- Employment Agreement, dated as of April 5, 2000, by and between the Company and Digby J. Davies (filed
as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000 and incorporated herein by reference).
+10.8 -- Employment Agreement, dated August 29, 2000, by and between the Company and Michael J. O'Brien.
+10.9 -- Employment Agreement, dated August 29, 2000, by and between the Company and Kenneth R. Sanders.
+10.10 -- Employment Agreement, dated August 29, 2000, by and between the Company and John C. Voaden.
10.11 -- Credit Agreement, dated as of October 28, 1997 (the "Credit Agreement"), among the Company,
Company, Inc., the several lenders named therein and the Chase Manhattan Bank, as Administrative
Agent, and Merrill Lynch Capital Corporation, as Syndication Agent (schedules and exhibits
omitted--the Company agrees to furnish a copy of any schedule or exhibit to the Commission upon
request) (filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997 and incorporated herein by reference).
10.12 -- First Amendment and Agreement, dated as of March 31, 1998, to the Credit Agreement (schedules and
exhibits omitted--the Company agrees to furnish a copy of any schedule or exhibit to the Commission
upon request) (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998 and incorporated herein by reference).
10.13 -- Second Amendment and Waiver, dated as of December 18, 1998, to the Credit Agreement (schedules and
exhibits omitted--the Company agrees to furnish a copy of any schedule or exhibit to the Commission
upon request) (filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998 and incorporated herein by reference).
10.14 -- Third Amendment and Waiver, dated as of July 30, 1999, to the Credit Agreement (schedules and
exhibits omitted--the Company agrees to furnish a copy of any schedule or exhibit to the Commission
upon request) (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999 and incorporated herein by reference).
10.15 -- Fourth Amendment, Consent and Waiver, dated as of December 23, 1999, to the Credit Agreement
(schedules and exhibits omitted--the Company agrees to furnish a copy of any schedule or exhibit to
the Commission upon request) (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1999 and incorporated herein by reference).
10.16 -- Fifth Amendment, Consent and Agreement, dated as of March 31, 2000, to the Credit Agreement (schedules
and exhibits omitted - the Company agrees to furnish a copy of any schedule or exhibit to the commission
upon request) (filed as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2000 and incorporated herein by reference).
10.17 -- Stockholders Agreement, dated as of March 15, 1996, among the Company, Warburg, Pincus Investors,
L.P. and Raymond S. Ingleby (filed as an exhibit to the Company's Registration Statement on Form
S-1 (Registration No. 33-80481) and incorporated herein by reference).
21 -- Subsidiaries of the Company.
23 -- Consent of Ernst & Young LLP.
27 -- Financial Data Schedule.
</TABLE>
+ Management contracts or compensatory plans or arrangements required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(a) (3) of the
requirements to Form 10-K.
44