<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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: 001-12391
----------------
PANAVISION INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3593063
------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6219 DE SOTO AVENUE
WOODLAND HILLS, CALIFORNIA 91367
------------------------- -------------------------
(Address of principal executive offices) (Zip code)
</TABLE>
(818) 316-1000
Registrant's telephone number including area code
----------------
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
As of November 12, 1999, there were 8,055,619 shares of Panavision Inc.
Common Stock outstanding.
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<PAGE>
PANAVISION INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations ....................... 3
Condensed Consolidated Balance Sheets ................................. 4
Condensed Consolidated Statements of Cash Flows ....................... 5
Notes to Condensed Consolidated Financial Statements .................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ........................................................ 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................................... 13
Item 2. Changes in Securities ................................................. 13
Item 3. Defaults Upon Senior Securities ....................................... 13
Item 4. Submission of Matters to a Vote of Security Holders ................... 13
Item 5. Other Information ..................................................... 13
Item 6. Exhibits and Reports on Form 8-K ...................................... 13
SIGNATURES ..................................................................... 14
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
The financial information herein and management's discussion thereof,
include consolidated data for Panavision Inc. ("Registrant" or "Panavision")
and its subsidiaries. Registrant and its subsidiaries are sometimes herein
referred to collectively as the "Company".
PANAVISION INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Camera rental ............................. $ 34,471 $ 34,054 $ 94,371 $ 93,411
Lighting rental ........................... 9,892 7,341 26,517 19,601
Sales and other ........................... 9,126 9,286 26,823 26,778
--------- --------- --------- ---------
Total rental revenue and sales ............ 53,489 50,681 147,711 139,790
Cost of camera rental ..................... 15,608 15,633 47,609 45,264
Cost of lighting rental ................... 7,287 5,261 20,099 15,516
Cost of sales and other ................... 5,537 5,509 15,221 15,962
--------- --------- --------- ---------
Gross margin .............................. 25,057 24,278 64,782 63,048
Selling, general and administrative
expenses ................................. 14,779 12,996 43,520 40,066
Research and development expenses ......... 1,591 1,318 4,426 3,595
Charges in connection with the
Panavision Recapitalization .............. -- -- -- 58,726
--------- --------- --------- ---------
Operating income (loss) ................... 8,687 9,964 16,836 (39,339)
Interest income ........................... 100 163 287 3,103
Interest expense .......................... (10,770) (10,057) (31,324) (21,335)
Foreign exchange gain (loss) .............. 945 567 (201) 777
Other, net ................................ 388 (79) 1,482 1,466
--------- --------- --------- ---------
Income (loss) before income taxes ......... (650) 558 (12,920) (55,328)
Income tax (provision) benefit ............ (1,510) (1,289) (3,033) 512
--------- --------- --------- ---------
Net loss .................................. $ (2,160) $ (731) $ (15,953) $ (54,816)
========= ========= ========= =========
Basic loss per share ...................... $ (0.27) $ (.09) $ (1.98) $ (3.85)
========= ========= ========= =========
Diluted loss per share .................... $ (0.27) $ (.09) $ (1.98) $ (3.85)
========= ========= ========= =========
Shares used in computation -- Basic ....... 8,056 8,056 8,056 14,229
Shares used in computation -- Diluted ..... 8,056 8,056 8,056 14,229
</TABLE>
See accompanying notes.
3
<PAGE>
PANAVISION INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 5,720 $ 9,772
Accounts receivable (net of allowance of $2,602 and $3,391) ......... 33,890 28,716
Inventories ......................................................... 9,897 9,648
Prepaid expenses .................................................... 3,534 3,142
Income tax receivable ............................................... 1,731 1,678
Other current assets ................................................ 1,043 415
---------- ----------
Total current assets ................................................. 55,815 53,371
Property, plant and equipment, net ................................... 214,794 213,306
Other ................................................................ 28,005 25,080
---------- ----------
Total assets ......................................................... $ 298,614 $ 291,757
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIENCY)
Current liabilities:
Accounts payable .................................................... $ 7,835 $ 7,470
Accrued liabilities ................................................. 25,312 20,794
Current maturities of long-term debt ................................ 8,500 4,814
---------- ----------
Total current liabilities ............................................ 41,647 33,078
Long-term debt ....................................................... 477,034 463,605
Deferred tax liabilities ............................................. 6,904 6,862
Other liabilities .................................................... 2,300 1,977
Commitments and Contingencies
Stockholders' equity/(deficiency):
Preferred stock, $.01 par value; 2,000 shares authorized; no shares
issued and outstanding ............................................ -- --
Common stock, $.01 par value; 50,000 shares authorized;
8,056 shares issued and outstanding at September 30, 1999 and
December 31, 1998 ................................................. 81 81
Additional paid-in capital .......................................... 168,032 168,032
Accumulated deficit ................................................. (395,217) (379,264)
Accumulated other comprehensive loss ................................ (2,167) (2,614)
---------- ----------
Total stockholders' equity/(deficiency) ........................... (229,271) (213,765)
---------- ----------
Total liabilities and stockholders' equity/(deficiency) .............. $ 298,614 $ 291,757
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PANAVISION INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................................ $ (15,953) $ (54,816)
Adjustments to derive net cash provided by operating activities:
Depreciation and amortization ...................................... 27,405 23,395
Gain on sale of property and equipment ............................. (2,029) (1,968)
Amortization of discount on subordinated notes ..................... 11,929 9,332
Charges in connection with the Panavision Recapitalization ......... -- 58,726
Changes in operating assets and liabilities:
Accounts receivable .............................................. (5,174) (5,565)
Inventories ...................................................... (249) (1,230)
Prepaid expenses and other current assets ........................ (1,020) 1,740
Accounts payable ................................................. 365 (1,774)
Accrued liabilities .............................................. 4,518 (2,333)
Other, net ......................................................... (4,206) 1,352
--------- ----------
Net cash provided by operating activities ........................... 15,586 26,859
INVESTING ACTIVITIES
Capital expenditures ................................................ (28,023) (40,511)
Proceeds from dispositions of fixed assets .......................... 3,159 5,487
--------- ----------
Net cash used in investing activities ............................... (24,864) (35,024)
FINANCING ACTIVITIES
Borrowings under notes payable and credit agreement ................. 11,500 463,248
Repayments of notes payable and credit agreement .................... (6,314) (132,618)
Contribution from Mafco ............................................. -- 154,377
Contribution from Warburg ........................................... -- 3,041
Redemption and retirement of stock and stock options ................ -- (480,473)
Deferred financing costs ............................................ -- (10,583)
Notes receivable from officers and key employees .................... -- 7,115
--------- ----------
Net cash provided by financing activities ........................... 5,186 4,107
Effect of exchange rate changes on cash ............................. 40 (222)
--------- ----------
Net decrease in cash and cash equivalents ........................... (4,052) (4,280)
Cash and cash equivalents at beginning of period .................... 9,772 11,020
--------- ----------
Cash and cash equivalents at end of period .......................... $ 5,720 $ 6,740
========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the period ..................................... $ 19,183 $ 10,821
Income taxes paid during the period ................................. $ 1,831 $ 1,793
</TABLE>
See accompanying notes.
5
<PAGE>
PANAVISION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. The results of operations for
interim periods are not necessarily indicative of the results that may be
expected for the fiscal year. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. All terms used but not defined elsewhere herein
have the meaning ascribed to them in the Company's 1998 Annual Report on Form
10-K.
The condensed consolidated financial statements include the accounts of
Panavision, Panavision International, L.P. ("PILP") and PILP's majority-owned
subsidiaries. All significant intercompany amounts and transactions have been
eliminated.
Certain amounts in previously issued financial statements have been
reclassified to conform to the 1999 presentation.
2. THE PANAVISION RECAPITALIZATION
On June 4, 1998, as contemplated by (i) an Agreement of Recapitalization
and Merger, dated as of December 18, 1997 (the "Recapitalization Agreement"),
by and among PX Holding Corporation ("PX Holding"), PX Merger Corporation (the
"Merger Sub") and Panavision Inc. (the "Company"), and (ii) an Amended and
Restated Voting and Stockholders Agreement, dated as of April 16, 1998 (the
"Stockholders Agreement"), by and among Warburg Pincus Capital Company, L.P., a
Delaware limited partnership ("Warburg"), the Company and Mafco Holdings Inc.
("Mafco"), a Delaware corporation, the Company consummated a merger whereby
Merger Sub was merged with and into the Company (the "Merger"), with the
Company remaining as the surviving corporation.
As a result of the Merger, PX Holding, a wholly owned subsidiary of Mafco,
the sole stockholder of which is Ronald O. Perelman, has acquired an
approximately 91% controlling interest in the Company. Other stockholders own
approximately 9% of Panavision Common Stock.
The Merger has been accounted for as a leveraged recapitalization as there
has been a significant continuation of stockholder ownership.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- -------------
<S> <C> <C>
Finished goods .......... $4,931 $4,608
Work-in-process ......... 354 100
Component parts ......... 1,893 1,930
Supplies ................ 2,719 3,010
------ ------
$9,897 $9,648
====== ======
</TABLE>
6
<PAGE>
PANAVISION INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from such estimates.
5. GEOGRAPHICAL AND BUSINESS SEGMENT INFORMATION
The following table presents revenue and other financial information by
business segment (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NORTH ASIA
SEPTEMBER 30, 1999 AMERICA EUROPE PACIFIC CORPORATE TOTAL
- ------------------------------------- --------- ---------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers ..... $27,543 $19,018 $ 6,928 -- $ 53,489
Intersegment revenue ................ 3,558 809 -- -- 4,367
Operating income (loss) ............. 6,753 1,558 1,805 (1,429) 8,687
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NORTH ASIA
SEPTEMBER 30, 1998 AMERICA EUROPE PACIFIC CORPORATE TOTAL
- ------------------------------------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers ..... $25,814 $ 19,838 $5,029 -- $ 50,681
Intersegment revenue ................ 3,036 896 -- -- 3,932
Operating income (loss) ............. 6,381 3,078 1,329 (824) 9,964
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NORTH ASIA
SEPTEMBER 30, 1999 AMERICA EUROPE PACIFIC CORPORATE TOTAL
- -------------------------------------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers ...... $72,594 $57,317 $ 17,800 -- $147,711
Intersegment revenue ................. 9,607 2,325 -- -- 11,932
Operating income (loss) .............. 11,843 4,718 4,119 (3,844) 16,836
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NORTH ASIA
SEPTEMBER 30, 1998 AMERICA EUROPE PACIFIC CORPORATE TOTAL
- ------------------------------------ --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from external customers..... $70,201 $ 55,360 $14,229 -- $ 139,790
Intersegment revenue ............... 7,414 2,602 -- -- 10,016
Operating income (loss) ............ 13,258 5,058 3,582 (61,237) (39,339)
</TABLE>
6. COMPREHENSIVE INCOME (LOSS)
For the quarter ended September 30, 1999 and 1998, comprehensive income
(loss) amounted to $(719,000) and $172,000, respectively. For the nine months
ended September 30, 1999 and 1998 comprehensive loss amounted to $(15,506,000)
and $(54,942,000), respectively. The difference between net loss and
comprehensive income (loss) relates to the Company's change in foreign currency
translation adjustments.
7
<PAGE>
PANAVISION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998
CAMERA RENTAL OPERATIONS
Camera rental revenue for the third quarter of 1999 was $34.5 million.
Revenue increased $0.4 million, or 1.2%, compared to the third quarter of 1998.
The increase was primarily due to higher rentals associated with feature film
productions in California and Western Canada, partially offset by a decrease in
camera rental revenue in the U.K.
Cost of camera rental for the current quarter was $15.6 million, unchanged
from the third quarter of 1998. A reduction in rental equipment maintenance
costs and lower commission to third-party agents offset an increase in
depreciation on newly capitalized rental equipment.
LIGHTING RENTAL OPERATIONS
Lighting rental revenue for the current quarter was $9.9 million, an
increase of $2.6 million, or 35.6%, compared to the third quarter of 1998. The
increase reflects additional lighting rentals generated on the lighting
equipment acquired in Australia in the second quarter of 1999, and higher
feature film revenue at Lee Lighting in the U.K.
Cost of lighting rental for the current quarter was $7.3 million, an
increase of $2.0 million, or 37.7%, from the third quarter of 1998. The
increase was primarily due to the increase in costs associated with the
expansion of the Australian lighting operation and increased labor costs
associated with the growth in revenue at Lee Lighting.
OPERATING COSTS
Selling, general and administrative expenses for the third quarter of 1999
were $14.8 million, an increase of $1.8 million, or 13.8%, from the third
quarter of 1998. The increase was the result of additional operating costs
associated with the expansion of the Australian lighting operation and higher
corporate costs and professional fees.
Research and development expenses for the current quarter were $1.6
million, an increase of $0.3 million, or 23.1%, from the third quarter of 1998.
The increase was primarily due to increased costs related to the development of
products for digital application.
INTEREST, TAXES AND OTHER
Net interest expense for the third quarter of 1999 was $10.7 million, an
increase of $0.8 million, or 8.1%, from the third quarter of 1998. The increase
reflects additional borrowings and slightly higher interest rates as compared
to the third quarter of 1998.
Net other income for the third quarter of 1999 was $1.3 million, an
increase of $0.8 million from the third quarter of 1998. The increase was
primarily due to changes in foreign exchange gains and losses.
The effective tax rates for the quarters ended September 30, 1999 and
September 30, 1998 were a provision of 232.3% and 231.0%, respectively. The
difference in the expected tax rate and the effective tax rate is due to the
recording of a tax provision related to profitable foreign operations without a
corresponding tax benefit being recorded for U.S. losses.
8
<PAGE>
PANAVISION INC.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
CAMERA RENTAL OPERATIONS
Camera rental revenue for the first nine months of 1999 was $94.4 million.
Revenue increased $1.0 million, or 1.1%, compared to the first nine months of
1998. The increase was primarily due to higher rentals associated with feature
film productions in California and Western Canada, partially offset by a
decrease in camera rental revenue in the U.K.
Cost of camera rental for the first nine months of 1999 was $47.6 million,
an increase of $2.3 million, or 5.1%, as compared to the first nine months of
1998. The increase reflects a $1.8 million increase in depreciation on newly
capitalized rental equipment and other increases related to the growth in
camera rental revenue.
LIGHTING RENTAL OPERATIONS
Lighting rental revenue for the first nine months of 1999 was $26.5
million, an increase of $6.9 million, or 35.2%, compared to the first nine
months of 1998. The increase reflects additional lighting rentals generated on
the lighting equipment acquired in Australia in the second quarter of 1999, and
higher feature film revenue at Lee Lighting.
Cost of lighting rental for the first nine months of 1999 was $20.1
million, an increase of $4.6 million, or 29.7%, from the first nine months of
1998. The increase was primarily due to the increase in costs associated with
the expansion of the Australian lighting operation and increased costs
associated with the growth in revenue at Lee Lighting.
OPERATING COSTS
Selling, general and administrative expenses for the first nine months of
1999 were $43.5 million, an increase of $3.4 million, or 8.5%, from the first
nine months of 1998. The increase was the result of additional operating costs
associated with the expansion of the Australian lighting operation and higher
corporate costs and professional fees.
Research and development expenses for the first nine months of 1999 were
$4.4 million, an increase of $0.8 million, or 22.2%, from the first nine months
of 1998. The increase was primarily due to increased costs related to the
development of products for digital application.
INTEREST, TAXES AND OTHER
Charges in connection with the Panavision Recapitalization, for the first
nine months of 1998, totaled $58.7 million consisting of a compensation charge
of $48.6 million and a transaction expense charge of $10.1 million. The
compensation charge resulted from the retirement of options and purchase of
converted stock held by Directors, Officers and other key management required
upon consummation of the Panavision Recapitalization.
Net interest expense for the first nine months of 1999 was $31.0 million,
an increase of $12.8 million, or 70.3%, from the first nine months of 1998. The
increase was due to the increased borrowings under the New Credit Agreement and
the interest on the Notes related to the Panavision Recapitalization.
Net other income for the first nine months of 1999 was $1.3 million, a
decrease of $0.9 million from the first nine months of 1998. The decrease was
primarily due to changes in foreign exchange gains and losses.
The effective tax rates for the nine months ended September 30, 1999 and
September 30, 1998 were a provision of 23.5% and a benefit of 0.9%,
respectively. The difference in the expected tax rate and the effective tax
rate is due to the recording of a tax provision related to profitable foreign
operations without a corresponding tax benefit being recorded for U.S. losses.
9
<PAGE>
PANAVISION INC.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information from the Company's
Condensed Consolidated Statements of Cash Flows for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net cash provided by (used in):
Operating activities .......... $ 15,586 $ 26,859
Investing activities .......... (24,864) (35,024)
Financing activities .......... 5,186 4,107
</TABLE>
For the nine months ended September 30, 1999, cash provided by operating
activities was $15.6 million. Net loss of $16.0 million, adjusted for
depreciation and all amortization of $39.3 million, provided $23.3 million,
which was decreased by $7.7 million from the net change in working capital
(excluding cash) and miscellaneous items. Total investing activities of $24.9
million were comprised of capital expenditures of $28.0 million, offset by $3.1
million of proceeds received from the disposition of fixed assets. The majority
of capital expenditures were used to manufacture camera rental systems and
accessories. Cash provided by financing activities was $5.2 million. Borrowings
of $11.5 million were offset by repayments of $6.3 million under the New Credit
Agreement.
For the nine months ended September 30, 1998, cash provided by operating
activities was $26.9 million. Net loss of $54.8 million, adjusted for
depreciation and all amortization of $32.7 million, and adjusted for charges in
connection with the Panavision Recapitalization of $58.7 million, provided
$36.6 million, which was decreased by $9.7 million from the net change in
working capital (excluding cash) and miscellaneous items. Total investing
activities of $35.0 million were comprised of capital expenditures of $40.5
million, offset by $5.5 million of proceeds received from the disposition of
fixed assets. The majority of the capital expenditures were used to manufacture
camera rental systems. Cash provided by financing activities was $4.1 million.
Borrowings of $460.2 million and the contribution by Mafco of $154.4 million
were used to repay outstanding borrowings under the Old Credit Agreement of
$125.2 million in the second quarter and to redeem and retire stock and options
(net of the proceeds from the exercise of options) of $480.5 million In
addition, $3.9 million was used to re-pay a portion of borrowings under the Old
Credit Agreement during the first quarter of 1998.
The Company intends to use the cash provided by operating activities to
make additional capital expenditures to manufacture camera systems and
accessories and to purchase other rental equipment. Although there can be no
assurance, the Company believes that its existing working capital together with
borrowings under the New Credit Agreement and anticipated cash flow from
operating activities will be sufficient to meet its expected operating and
capital spending requirements for the foreseeable future. The Company will not
be required to pay interest on the New Notes until August 1, 2002, which
management believes will assist the Company in implementing its growth
strategy.
Panavision currently anticipates that in order to pay the principal amount
at maturity of the New Notes or upon the occurrence of an Event of Default (as
defined in the New Notes), to redeem the New Notes or to repurchase the New
Notes upon the occurrence of a Change of Control (as defined in the New Notes),
Panavision will be required to adopt one or more alternatives, such as seeking
capital contributions or loans from its affiliates, refinancing its
indebtedness or selling its equity securities. None of the affiliates of the
Company will be required to make any capital contributions or other payments to
the Company with respect to the Company's obligations on the New Notes, and the
obligations of the Company with respect to the New Notes will not be guaranteed
by any affiliate of the Company or any other person. There can be no assurance
that any of the foregoing actions could be effected on satisfactory terms, that
they would be sufficient to enable the Company to make any payments in respect
of the New Notes when required or that any of such actions would be permitted
by the terms of the Indenture or the debt instruments of Panavision then in
effect.
10
<PAGE>
PANAVISION INC.
Panavision is a holding company whose only material asset is the capital
stock of and partnership interests in its subsidiaries. Panavision's principal
business operations are conducted by its subsidiaries, and Panavision has no
operations of its own. Accordingly, Panavision's only source of cash to pay its
obligations, is expected to be distributions with respect to its ownership
interests in its subsidiaries. There can be no assurance that Panavision's
subsidiaries will generate sufficient cash flow to pay dividends or distribute
funds to Panavision or that applicable state law and contractual restrictions,
including negative covenants contained in the debt instruments of such
subsidiaries, will permit such dividends or distributions.
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of computer programs that were written
using two digits rather than four to define the applicable year. Accordingly,
computer programs that have time-sensitive software may recognize a date using
`00' as the year 1900 rather than the year 2000. This could result in complete
system failure or improper operation of systems, such as miscalculations.
Potential problems of this nature could cause disruptions to operations
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar activities. To address the Year 2000
issues, the Company is using a multi-phased concurrent approach. The phases
include awareness, assessment, remediation, validation and implementation.
The Company has completed its awareness and assessment phases of the Year
2000 project at all owned-and-operated locations. These phases centered on the
collection of information worldwide relative to system hardware, software and
programming issues which would need modification or replacement to ensure Year
2000 compliance. The assessment phase of the project with respect to the
Company's major customers and vendors is viewed as an ongoing process. The
Company has received a majority of the responses to its original information
requests circulated in 1998. However, the Company continues to request and
review updated information from certain key vendors and customers regarding the
continuing progress of their Year 2000 projects. At this time, the Company does
not believe that the costs associated with the Year 2000 issues applicable to
our vendors and customers will be material. If it is found later that vendors
are not Year 2000 compliant, the Company's contingency plan is to locate
replacement vendors whose operations are Year 2000 compliant.
The remediation, validation and implementation phases of the project are
complete as they relate to the main computer system and programs in operation
at the Company's headquarters in Woodland Hills, California. The main
accounting software and proprietary rental tracking software have been
corrected to allow for the Year 2000 issues. At all entities, the remediation,
validation and implementation phases of our Year 2000 project are complete with
respect to all mission critical items. Year 2000 issues that have been
determined to be non-mission critical are substantially complete with respect
to the remediation, validation and implementation phases. The Company currently
believes that it will be able to modify, replace or mitigate its affected
systems in time to avoid any material detrimental impact on its operations.
To date, the Company has incurred less than $250,000 of costs related to
Year 2000 issues, of which approximately $175,000 has been capitalized. The
Company estimates that future costs associated with Year 2000 issues will not
be material.
While the Company is not presently aware of any significant exposure
relative to its systems not being properly remediated in a timely manner, there
can be no assurance that all Year 2000 remediation processes will be completed
and properly tested before the Year 2000, or that contingency plans will
sufficiently mitigate the risk of a Year 2000 readiness problem. The Company
has developed appropriate contingency plans for critical systems which include
alternatives of a manual nature. An interruption of the Company's ability to
conduct its business, due to a Year 2000 readiness problem, could have a
material adverse effect on the Company. However, the amount of potential
liability and lost revenue, if any, cannot be reasonably estimated at this time
nor can the Company identify specifically the most likely worst-case scenario.
11
<PAGE>
PANAVISION INC.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the period ended September 30,
1999, as well as certain of the Company's other public documents and statements
and oral statements contain forward-looking statements that reflect
management's current assumptions and estimates of future performance and
economic conditions. Such statements are made in reliance upon safe harbor
provisions of Private Securities Litigation Reform Act of 1995. The Company
cautions investors that any forward-looking statements are subject to risks and
uncertainties that may cause actual results and future trends to differ
materially from those projected, stated, or implied by the forward-looking
statements.
In addition to factors described in the Company's Securities and Exchange
Commission filings and others, the following factors could cause the Company's
actual results to differ materially from those expressed in any forward-looking
statements made by the Company: (a) a significant reduction in the number of
feature film, commercial and series television productions; (b) competitive
pressures arising from changes in technology, customer requirements and
industry standards; (c) an increase in expenses related to new product
initiatives and product development efforts; (d) unfavorable foreign currency
fluctuations; and (e) significant increases in interest rates. The Company
assumes no responsibility to update the forward-looking statements contained in
this filing.
Panavision is a leading designer and manufacturer of high-precision film
camera systems, comprising cameras, lenses and accessories for the motion
picture and television industries. Panavision systems are rented through its
domestic and international owned-and-operated facilities and agent network.
12
<PAGE>
PANAVISION INC.
PART II
ITEM 1. LEGAL PROCEEDINGS
No material legal proceedings are pending.
ITEM 2. CHANGES IN SECURITIES
There were no modifications made to the rights of stockholders of any
class of securities during the quarter ended September 30, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no events of default upon senior securities during the
quarter ended September 30, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
third quarter of 1999.
ITEM 5. OTHER INFORMATION
No additional information need be presented.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) There are no Current Reports on Form 8-K filed in the third quarter of
1999.
13
<PAGE>
PANAVISION INC.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
PANAVISION INC.
<TABLE>
<S> <C>
Date: November 15, 1999 By: /S/ JOHN S. FARRAND
------------------------------- ------------------------------------
John S. Farrand
President and Chief Executive Officer
and Director
Date: November 15, 1999 By: /S/ JOSEPH P. PAGE
-------------------------------- ------------------------------------
Joseph P. Page
Vice Chairman, Director and
Chief Administrative Officer
Date: November 15, 1999 By: /S/ SCOTT SEYBOLD
-------------------------------- ------------------------------------
Scott Seybold
Executive Vice President and
Chief Financial Officer
</TABLE>
14
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<PAGE>
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