<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
333-46235
------------------------
(Commission File Number)
PRODUCTION RESOURCE GROUP, L.L.C.
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
Delaware 14-1786937
-------- ----------
(State or other Jurisdiction of Formation) (I.R.S. Employer
Identification No.)
539 Temple Hill Road, New Windsor, New York 12553
- ------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(914) 567-5700
--------------
(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of June 30, 1999: Not Applicable
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
Table Of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Combined Balance Sheets as of June 30, 1999 and December 31, 1998
Combined Statements of Operations for the six months and three
months ended June 30, 1999 and 1998
Combined Statements of Cash Flows for the six months ended June
30, 1999 and 1998
Notes to Combined Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
Combined Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998 *
(unaudited)
----------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,036 $ 6,014
Accounts receivable - net of allowance of $3,127 at June 30,
1999 and $2,570 in 1998 46,479 35,415
Deferred production expenses 2,185 958
Inventories 12,220 10,755
Other current assets 9,281 6,760
----------- ------------
Total current assets 77,201 59,902
Property and equipment - net 82,067 82,096
Goodwill - net of accumulated amortization of $3,190 at June 30,
1999 and $2,031 in 1998 46,322 46,116
Other assets 13,454 7,992
----------- ------------
Total assets $ 219,044 $ 196,106
=========== ============
Liabilities and Members' Equity (Deficit)
Current liabilities:
Current portion of long-term debt $ 720 $ 8,046
Accounts payable 19,431 16,725
Payroll and sales taxes payable 4,163 3,164
Income taxes payable 820 1,659
Deferred revenue 8,338 4,797
Other current liabilities (including accrued interest of $5,446
at June 30, 1999 and $5,366 in 1998) 10,301 11,063
----------- ------------
Total current liabilities 43,773 45,454
Long-term debt:
Senior Subordinated Notes 100,000 100,000
Credit Facility 63,538 45,638
Other long-term debt 3,376 3,557
----------- ------------
Total long-term debt 166,914 149,195
Deferred income tax liability 1,051 1,305
Minority interest - 233
Total members' equity (deficit) includes accumulated other
Comprehensive loss of $380 at June 30, 1999 and $13 in 1998) 7,306 (81)
----------- ------------
Total Liabilities and Members' Equity (Deficit) $ 219,044 $ 196,106
=========== ============
</TABLE>
Note: The combined balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date.
* Certain items have been reclassified to conform to current period
presentation.
See accompanying notes.
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
Combined Statements of Operations (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 66,348 $ 29,879 $ 121,879 $ 55,365
Direct production expenses:
Direct production costs 45,019 17,971 80,018 32,548
Depreciation expense 3,504 2,403 6,993 4,761
--------- --------- --------- ---------
48,523 20,374 87,011 37,309
Gross profit 17,825 9,505 34,868 18,056
Selling, general and administrative expenses 14,263 6,785 26,865 13,463
Other depreciation and amortization 1,449 1,202 2,953 2,247
Restructuring charges 562 - 1,735 -
Non-recurring compensation expense 365 - 365 -
--------- --------- --------- ---------
Operating profit 1,186 1,518 2,950 2,346
Other (income) expense 54 - 54 -
Interest expense 4,772 3,164 9,351 6,233
Interest (income) (67) (222) (125) (433)
--------- --------- --------- ---------
Loss before income taxes and cumulative
effect of accounting change and minority interest (3,573) (1,424) (6,330) (3,454)
Provision (benefit) for income taxes (47) 170 199 193
--------- --------- --------- ---------
Loss before cumulative effect of accounting
change and minority interest (3,526) (1,594) (6,529) (3,647)
Minority interest (2) (11) (2) (11)
Cumulative effect of accounting change - - (263) -
--------- --------- --------- ---------
Net loss $ (3,528) $ (1,605) $ (6,794) $ (3,658)
========= ========= ========= =========
</TABLE>
See accompanying notes.
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
Combined Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998 *
--------- ---------
<S> <C> <C>
Operating activities
Net loss $ (6,794) $ (3,658)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation 8,648 5,963
Amortization of goodwill and other 1,297 696
Amortization of debt-related costs 374 348
Minority interest, net (231) -
Provision for doubtful accounts 646 191
Gain on sale of property and equipment (1,372) (927)
Cumulative effect of accounting change 263 -
Changes in operating assets and liabilities:
Accounts receivable (7,356) 3,773
Deferred production expenses (838) -
Inventories 197 (3,032)
Other current assets (1,698) (517)
Accounts payable 189 (7,788)
Payroll and sales taxes payable 514 305
Deferred revenue 2,349 1,868
Income taxes payable 211 -
Other current liabilities (3,076) 5,923
-------- ---------
Net cash (used in) provided by operating activities (6,677) 3,145
Investing activities
Acquisition of net assets of A-1 Audio, Inc., net of cash acquired (8,268) -
Acquisition of net assets of Ancha Electronics, Inc., net of cash
acquired (3,952) -
Acquisition of net assets of Production Arts, Inc., net of cash acquired - (13,604)
Acquisition of net assets of Light & Sound Design Holdings Ltd., net of
cash acquired - (14,525)
Acquisition of net assets of Pro-Mix, Inc., net of cash acquired - (6,328)
Purchases of property and equipment (11,170) (9,171)
Proceeds from sale of rental equipment and property 9,771 1,471
Additions to software development costs (109) (192)
Other assets (3,284) (2,773)
-------- ---------
Net cash used in investing activities (17,012) (45,122)
Financing activities
Proceeds from long-term debt 27,290 32,338
Repayments of long-term debt (17,140) (614)
Additions to bond offering costs and deferred financing costs - (280)
Issuance of preferred units 50 -
Member contributions 14,511 -
-------- ---------
Net cash provided by financing activities 24,711 31,444
-------- ---------
Net increase (decrease) in cash and cash equivalents 1,022 (10,533)
Cash and cash equivalents--beginning of period 6,014 27,164
-------- ---------
Cash and cash equivalents--end of period $ 7,036 $ 16,631
======== =========
</TABLE>
* Certain items have been reclassified to conform to current period
presentation.
See accompanying notes.
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
Notes to Combined Financial Statements (Unaudited)
1. General
Presentation
The accompanying unaudited combined financial statements of Production Resource
Group, L.L.C. (the "Company" or "PRG LLC") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months and six months ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999, due to fluctuations in the Company's varying markets.
For further information, refer to the combined financial statements and
footnotes thereto included in the Production Resource Group, L.L.C. Annual
Report on Form 10-K for the year ended December 31, 1998.
Business
The Company is an integrator, fabricator and supplier of a broad range of
entertainment technology for the live entertainment (live theatre, concert
touring and special events), corporate events (trade and industrial shows) and
themed entertainment (gaming, theme parks and themed retail) markets. The
Company operates through four segments: lighting, audio, event services and
scenery.
The lighting segment provides automated lighting systems and related products
for rental and sale. The Company's audio segment provides sound equipment for
sale and rental, as well as sound system design, installation and consulting
services to customers with large-scale systems such as casinos, sports stadiums
and corporations. The event services segment provides a variety of services,
primarily to corporate clients, including exhibit fabrication and production
management for trade and industrial shows. The scenery segment fabricates
scenery for sale and rents automation equipment that controls the motion of such
scenery to the live entertainment market.
Sale of Units
On June 15, 1999, the members of the Company (other than Harris Production
Services, Inc.) ("HPS") contributed their equity interests (membership units) in
the Company to Production Resource Group Inc. ("PRG Inc."), a Delaware
corporation, in exchange for stock of PRG Inc. Simultaneously with such
contribution, the shareholders of HPS contributed their stock in HPS to PRG Inc.
in exchange for stock in PRG Inc. and certain shareholders of PRG Inc. sold
shares of PRG Inc. to Boston Ventures Limited Partnership V, a Delaware limited
partnership ("BV"). Furthermore, BV made a contribution to the Company in the
amount of $12,000,000. Further, PRG Inc. then contributed the ownership
interests held in the Company to HPS making HPS a wholly-owned subsidiary of PRG
Inc. and as a result the Company became a wholly-owned subsidiary of HPS. The
Company incurred non-recurring compensation expense of approximately $365,000
related to the compensation of senior management related to the closure of the
above transaction. PRG Inc. also issued stock to the minority interest holders
of Light & Sound Design Ltd. for the remaining shares not owned by the Company.
PRG Inc. then contributed such stock in Light &
<PAGE>
Sound Design to HPS which, in turn, contributed such shares to the Company.
Other than as described above, PRG Inc. had no operations or transactions during
the quarter and will continue to function solely as a holding company. PRG LLC
will continue to function as the operating entity.
2. Accounting Policies
Principles of Combination
The Company's combined financial statements include the accounts of all the
entities under common control of the members of the Company. The financial
statements do not include the accounts of PRG Inc. All intercompany balances and
transactions have been eliminated.
Recently Issued Accounting Standards
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-up Activities" (SOP
98-5). The statement is effective January 1, 1999, and requires that start-up
costs capitalized prior to January 1, 1999 be written off and any future
start-up costs be expensed as incurred. Accordingly, the Company wrote off the
unamortized balance of organization costs of approximately $263,000 effective
January 1, 1999, and reported the expense as a cumulative effect of accounting
change.
3. Acquisitions
The Company completed two acquisitions during the six months ended June 30,
1999. On April 5, 1999, the Company acquired all the assets and assumed certain
liabilities of A-1 Audio, Inc. ("A-1 Audio"). A-1 Audio, based in Hollywood,
California, provides audio products for sale and rental primarily to the concert
touring market. The acquired assets of A-1 Audio will operate as part of the
Company's audio segment. The Company paid approximately $8.3 million for the
acquisition using its Credit Facility.
On April 30, 1999, the Company acquired all of the assets and assumed certain
liabilities of Ancha Electronics, Inc. ("Ancha"). Ancha, based in Rolling
Meadows, Illinois with offices in Norcross, Georgia; Tampa, Florida; and
Houston, Texas, provides specialized audio and video systems for installation.
The acquired assets of Ancha will operate as part of the Company's audio
segment. The Company paid approximately $3.9 million for Ancha including the
issuance of 2,666 Preferred Units of the Company with a liquidation preference
of $100,000. The Company financed the acquisition using its Credit Facility.
The pro forma results of operations for the six months ended June 30, 1999 and
1998, assuming consummation of all 1998 and 1999 acquisitions as of January 1,
1998 are as follows:
<TABLE>
<CAPTION>
(In thousands) Six Months Ended June 30,
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Total revenues from continuing operations $ 129,755 $ 117,663
Net income (loss) $ (7,127) $ (1,770)
</TABLE>
<PAGE>
4. Reportable Segments
The Company's operations include four reportable segments: lighting, audio,
event services and scenery. Lighting has five primary operating units that
provide lighting equipment and systems to a highly diversified client base.
Audio consists of primarily three operating units that sell and rent audio
systems and products. Event services has three operating units that sell their
services and exhibits primarily to corporate clients. Scenery consists of two
operating units that fabricate scenery and rent computerized automation
equipment, primarily to live theatrical concerns.
<TABLE>
<CAPTION>
Three month period ended June 30, 1999
-------------------------------------------------------------------------------------------------------------------
(In thousands)
Event
Lighting Audio Services Scenery Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 26,951 $ 15,689 $ 14,516 $ 9,192 $ 66,348
Intersegment revenues 768 90 1,269 332 2,459
Segment profit (1) 3,804 1,972 1,865 2,641 10,282
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three month period ended June 30, 1998 (2)
-------------------------------------------------------------------------------------------------------------------
(In thousands)
Event
Lighting Audio Services Scenery Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 13,108 $ 3,452 $ 6,540 $ 6,779 $ 29,879
Intersegment revenues 1,076 - 3 346 1,425
Segment profit 3,690 1,434 558 1,862 7,544
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six month period ended June 30, 1999
-------------------------------------------------------------------------------------------------------------------
(In thousands)
Event
Lighting Audio Services Scenery Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 54,049 $ 25,862 $ 24,284 $ 17,684 $121,879
Intersegment revenues 2,139 102 1,597 779 4,617
Segment profit (1) 9,274 3,443 2,322 5,811 20,850
<CAPTION>
Six month period ended June 30, 1998 (2)
-------------------------------------------------------------------------------------------------------------------
(In thousands)
Event
Lighting Audio Services Scenery Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers $ 26,091 $ 6,154 $ 10,979 $ 12,141 $ 55,365
Intersegment revenues 1,563 - 73 811 2,447
Segment profit 6,039 2,395 1,149 4,263 13,846
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Segment profit excludes restructuring charges and non-recurring compensation
expense.
(2) Certain items have been reclassified to conform to current period
presentation.
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 1999 1998 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Profit (loss)
Total profit for reportable
segments $ 10,282 $ 7,544 $ 20,850 $ 13,846
Restructuring charges and
non-recurring compensation
expense (927) - (2,100) -
Unallocated amounts:
Corporate selling, general, and
administrative expenses (3,216) (2,377) (5,854) (4,556)
Depreciation and amortization (4,953) (3,605) (9,946) (7,008)
Interest expense, net (4,705) (2,942) (9,226) (5,800)
Other income (expense) (54) (44) (54) 64
-------- -------- -------- --------
Total loss before income taxes and
cumulative effect of accounting
change $ (3,573) $ (1,424) $ (6,330) $ (3,454)
======== ======== ======== ========
<CAPTION>
(In thousands) June 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets
Total assets for reportable segments $ 118,480 $ 99,075
Unallocated amounts:
Goodwill 46,322 46,116
Corporate property and equipment 49,604 43,750
Corporate other assets 6,602 6,380
Elimination of intercompany receivables (4,495) (1,770)
============= ============
Total combined assets * $ 216,513 $ 193,551
============= ============
</TABLE>
- --------------------------------------------------------------------------------
* The total combined assets as of June 30, 1999 and December 31, 1998 exclude
assets associated with the previously discontinued Permanent Installation
Themed Attraction business of approximately $2.5 million and $2.6 million,
respectively.
5. Restructuring Charges
Restructuring charges relate to the implementation of a plan to close the
Company's Denver operations, operating in the event services segment, and the
closure of a New Jersey office within the lighting segment. The aggregate amount
of approximately $1.7 million primarily reflects rental payments for the
remaining lease periods, severance payments relating to workforce reductions and
the write-off of the net book value of furniture and leasehold improvements for
vacated properties. At June 30, 1999, approximately $1.6 million of cash
expenditures have been charged against the reserve.
6. Comprehensive Loss
Total comprehensive loss amounted to approximately $3.8 million and $1.6 million
for the three months ended June 30, 1999 and 1998, respectively. Total
comprehensive loss amounted to
<PAGE>
approximately $7.2 million and $3.7 million for the six months ended June 30,
1999 and 1998, respectively. The difference between net loss and total
comprehensive loss for the three month period and the six month periods ended
June 30, 1999 is the result of foreign currency translation adjustments related
to the Company's United Kingdom subsidiary acquired in June 1998.
7. Subsidiary Financial Information
The following table presents unaudited condensed combining financial statements
as of June 30, 1999 and for the six months ended June 30, 1999 with respect to
the financial position and results of operations of the Company and its
wholly-owned and majority-owned subsidiaries. On December 24, 1997, the Company
and PRG Finance Corporation ("Finance Corp."), a Delaware Corporation, issued
$100 million of 11 1/2 % of Senior Subordinated Notes due 2008 (the "Notes").
The Notes are fully and unconditionally guaranteed by the Company's domestic
subsidiaries other than Finance Corp. and Light and Sound Design. Seven of the
Guarantors are wholly-owned subsidiaries of the Company and the remaining
Guarantor is 99% owned by the Company (with the remaining 1% interest owned by a
member of the Company). The condensed combining financial statements are
presented in lieu of separate financial statements and other related disclosures
of Finance Corp., Light and Sound Design, and the Guarantors as management has
determined that such information is not material to investors.
<PAGE>
Condensed Combining Balance Sheet (Unaudited)
June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor PRG
PRG* Subsidiaries Subsidiaries Adjustments Combined
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,294 $ 2,211 $ (469) $ 7,036
Accounts receivable, net 30,986 13,984 1,509 46,479
Deferred production expenses 2,185 - - 2,185
Inventories 8,055 3,357 808 12,220
Intercompany receivables 348 1,944 (2,292) -
Other current assets 3,876 2,823 2,582 9,281
--------------------------------------------------------------------------------
Total current assets 50,744 24,319 2,138 77,201
Property and equipment, net 68,388 9,555 4,124 82,067
Investment in subsidiaries 27,767 - - $ (27,767) -
Goodwill, net 32,887 8,607 - 4,828 46,322
Other assets 13,110 66 278 13,454
================================================================================
Total assets $ 192,896 $ 42,547 $ 6,540 $ (22,939) $ 219,044
================================================================================
Liabilities and Equity
Current liabilities:
Current portion of long-term debt $ 648 $ 72 $ 720
Accounts payable 8,120 9,925 $1,386 19,431
Payroll and sales taxes payable 2,572 1,591 - 4,163
Income taxes payable - 820 - 820
Deferred revenue 7,894 444 - 8,338
Other current liabilities 9,030 514 757 10,301
--------------------------------------------------------------------------------
Total current liabilities 28,264 13,366 2,143 43,773
Long-term debt
Senior Subordinated Notes 100,000 - - 100,000
Credit Facility 63,538 - - 63,538
Other long-term (receivable) debt (10,909) 14,729 (444) 3,376
--------------------------------------------------------------------------------
152,629 14,729 (444) 166,914
Deferred tax liability - 468 583 1,051
Equity 12,003 13,984 4,258 $ (22,939) 7,306
--------------------------------------------------------------------------------
$ 192,896 $ 42,547 $6,540 $(22,939) $219,044
================================================================================
</TABLE>
* Exclusive of Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
<PAGE>
Condensed Combining Statement of Operations (Unaudited)
Six Months Ended June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor PRG
PRG* Subsidiaries Subsidiaries Combined
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $80,743 $36,931 $4,205 $121,879
Direct production costs 51,146 26,344 2,528 80,018
Depreciation expense 5,755 729 509 6,993
--------------------------------------------------------------
Gross profit 23,842 9,858 1,168 34,868
Selling, general and administrative
expenses 17,740 7,789 1,336 26,865
Other depreciation and
amortization 2,508 360 85 2,953
Restructuring charges 1,735 - - 1,735
Non-recurring compensation 365 - - 365
--------------------------------------------------------------
Operating profit 1,494 1,709 (253) 2,950
Other (income) expense 54 - - 54
Interest expense 8,680 652 19 9,351
Interest (income) (100) (25) - (125)
--------------------------------------------------------------
Income (loss) before income taxes
and cumulative effect of
accounting change (7,140) 1,082 (272) (6,330)
Provision (benefit) for income taxes (30) 315 (86) 199
--------------------------------------------------------------
Income (loss) before cumulative
effect of accounting change (7,110) 767 (186) (6,529)
Minority interest (2) - - (2)
Cumulative effect of accounting change (263) - - (263)
--------------------------------------------------------------
Net income (loss) $(7,375) $ 767 $(186) $(6,794)
==============================================================
</TABLE>
* Exclusive of Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
<PAGE>
Condensed Combining Statement of Cash Flows (Unaudited)
Six Months Ended June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor PRG
PRG* Subsidiaries Subsidiaries Combined
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net cash (used in) provided by
operating activities $ (7,164) $ 643 $ (156) $ (6,677)
Investing activities
Purchases of property and equipment (9,322) (1,690) (158) (11,170)
Proceeds from sale of rental
equipment and property 9,477 294 - 9,771
Additions to software development costs (109) - - (109)
Other assets (15,504) - - (15,504)
--------------------------------------------------------------
Net cash (used in) investing
activities (15,458) (1,396) (158) (17,012)
Financing activities
Proceeds from long-term debt 27,290 - - 27,290
Repayments of long-term debt (16,740) (400) - (17,140)
Member contributions and issuance of
preferred units 14,561 - - 14,561
--------------------------------------------------------------
Net cash provided by (used in)
financing activities 25,111 (400) - 24,711
--------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 2,489 (1,153) (314) 1,022
Cash and cash equivalents-beginning
of period 2,805 3,364 (155) 6,014
--------------------------------------------------------------
Cash and cash equivalents-end of
period $5,294 $2,211 $(469) $7,036
==============================================================
</TABLE>
* Exclusive of Guarantor Subsidiaries and Non-Guarantor Subsidiaries.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in this Form 10-Q to
make applicable and take advantage of safe harbor provisions of the Private
Security Reform Act of 1995 for any forward-looking statements made by, or on
behalf of, the Company. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements, which are other than statements of
historical facts. From time to time, the Company may publish or otherwise make
available forward-looking statements of this nature. All such subsequent
forward-looking statements, whether written or oral, and whether made by or on
behalf of the Company, are also expressly qualified by these cautionary
statements. Certain statements contained herein are forward-looking statements
and, accordingly, involve risk and uncertainties that could cause actual results
or outcomes to differ materially from those expressed in the forward-looking
statements.
General
The Company is a leading integrator, fabricator and supplier of a broad range of
entertainment technology for the live entertainment (live theater, concert
touring and special events), corporate events (trade and industrial shows) and
themed entertainment (gaming, theme parks and themed retail) markets. During the
second quarter of 1999, the Company has focused on the integration of the prior
year's acquisitions and the consolidation of redundant facilities and
operations. In connection therewith, the Company's management authorized a
restructuring plan designed to close two facilities, and integrate their
operations with remaining business units.
Additionally, during the second quarter of 1999, the Company has expanded its
audio segment with the acquisitions of the net assets of A-1 Audio, Inc. ("A-1
Audio") and Ancha Electronics, Inc ("Ancha"). The acquisitions have given the
audio segment a larger inventory of audio products for rental, and have created
a national delivery capability for the engineering, fabrication and installation
of audio and video systems.
Results of Operations
Comparability of Periods
Financial results for the three month period and six month period ended June 30,
1999 are not fully comparable to prior periods due to the acquisitions of Light
and Sound Design (previously referred to as "Holdings" in all prior filings),
Production Arts, CBE, SPL, PLS and Haas on June 19, June 30, July 31, August 19,
October 23 and November 30, 1998, respectively and the A-1 Audio and Ancha
acquisitions previously discussed.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues. The Company's revenues more than doubled to $66.3 million for the
three months ended June 30, 1999 an increase of $36.4 million or 122%, from
$29.9 million for the three months ended June 30, 1998. The increase was
primarily attributable to revenues generated by operations acquired in and
subsequent to the second quarter of 1998. Revenues increased in the lighting
segment by approximately $13.9 million. This increase was primarily related to
the acquisitions of
<PAGE>
Light and Sound Design and Production Arts in June 1998, and PLS in October 1998
which collectively provided an additional $12.2 million. The remaining $1.7
million represents incremental growth of previously existing businesses.
Revenues in the scenery segment increased by approximately $2.4 million
primarily related to an increase in scenery fabrication projects. In the audio
segment, the acquisitions of SPL in August 1998 and Ancha and A1 Audio in April
1999 provided an additional $6.1 million, $3.0 million and $1.5 million in
revenues, respectively, for the second quarter of 1999. The remaining increase
of $1.6 million was primarily attributed to incremental growth of the existing
audio segment. Revenues in the event services segment increased approximately
$8.0 million primarily resulting from the acquisitions of CBE and Haas in July
and November, that provided an additional $11.0 million in revenues for the
three months ended June 30, 1999 partially offset by the decline in revenues of
approximately 2.2 million related to the closure of the Denver based operating
unit during the first half of 1999.
Gross Profit. The Company's gross profit increased to $17.8 million for the
three months ended June 30, 1999, from $9.5 million for the same period in 1998,
resulting in an increase of $8.3 million, or 87%. The increase in gross profit
was primarily due to the increase in revenues described above. Gross profit
margin decreased as a percentage of revenues from approximately 32% for the
three months ended June 30, 1998 to 27% for the three months ended June 30,
1999. The decrease was primarily attributable to the shift in revenue mix
between rental revenues and sales and installation revenues. For the three
months ended June 30, 1999, rental revenues comprised only 30% of total revenues
as compared to 39% for the same period in the prior year. Rental revenues have a
greater gross margin than sales and installation revenues. The reason for the
change in the revenue mix is primarily attributable to the acquisitions of CBE,
SPL, and Haas during 1998 and Ancha in 1999. These operations do not have rental
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $14.3 million for the three months ended
June 30, 1999 compared to $6.8 million for the same period last year. The
increase was primarily attributable to incremental selling, general and
administrative expenses associated with the acquisitions of Light and Sound
Design, Production Arts, CBE, SPL, PLS, Haas, and most recently, Ancha and A-1
Audio. As a percentage of revenues, selling, general and administrative expenses
decreased to 21% for three months ended June 30, 1999 as compared to 23% for the
same period in 1998.
Restructuring Charges. The increase in restructuring charges relates to the
closure of the Denver operations within the event services' segment. The
additional payments in the second quarter of approximately $0.6 million
represented primarily additional costs related to vacating the leased premises.
Non-recurring compensation. The non-recurring compensation in the three month
period ended June 30, 1999 represented bonus payments paid to senior management
related to the sale of membership units to the BV (See "Sale of Units" in the
notes to the financial statements).
Operating Profit. Operating profit was $1.2 million for the three months ended
June 30, 1999, a decrease of $0.3 million from $1.5 million for the three months
ended June 30, 1998. Operating profit, as a percentage of revenues, was 2% for
the second quarter of 1999 and 5% for the second quarter of 1998. Operating
profit would have been $2.1 million for the three months ended June 30, 1999 if
not for the restructuring charge of $562,000 and $365,000 for the non-recurring
compensation.
Interest Expense. Interest expense increased to $4.8 million for the three month
period ended June 30, 1999 from $3.2 million for the three months ended June 30,
1998. The increase was primarily attributed to the interest expense associated
with the increased borrowings under the Company's Credit Facility.
<PAGE>
Income Taxes. For the three months ended June 30, 1998, no subsidiaries were
subject to Federal income taxes. For the three months ended June 30, 1999, the
benefit for income taxes represents corporate federal, state and foreign taxes
for the acquired subsidiaries that are subject to income tax.
Net Loss. The Company had a net loss of $3.5 million for the three months ended
June 30, 1999 compared to a net loss of $1.6 million for the three months ended
June 30, 1998. The net loss was primarily due to the restructuring charge, the
aforementioned decrease in gross profit as a percentage of revenue, and an
increase in interest expense, partially offset by the decline in selling,
general and administrative expenses, and depreciation expense, as a percentage
of revenues.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues. The Company's revenues more than doubled to $121.9 million for the six
months ended June 30, 1999 an increase of $66.5 million or 120%, from $55.4
million for the six months ended June 30, 1998. The increase was primarily
attributable to revenues generated by operations acquired in and subsequent to
the second quarter of 1998. Revenues increased in the lighting segment by
approximately $28.0 million. This increase was primarily related to the
acquisitions of Light and Sound Design and Production Arts in June 1998 and PLS
in October 1998, which collectively provided an additional $26.7 million of
revenues. Revenues in the scenery segment increased by approximately $5.5
million primarily related to an increase in scenery fabrication projects. The
acquisitions of SPL in August 1998 and A-1 Audio and Ancha in April 1999
provided an additional $12.7 million, $3.0 million and $1.5 million in revenues,
respectively, for the first half of 1999 for the audio segment. The remaining
increase of approximately $2.5 million in the audio segment is attributed to
incremental growth of the segment business which began in January 1998. Revenues
in the event services segment increased approximately $13.3 million primarily
resulting from the acquisitions of CBE in July and Haas in November, which
contributed additional revenues of $7.7 million and $11.1 million, respectively.
These increases were partially offset by a decline in revenues for the
Denver-based operating unit that has been closed during the first half of 1999.
Gross Profit. The Company's gross profit increased to $34.9 million for the six
months ended June 30, 1999, from $18.1 million for the same period in 1998, an
increase of $16.8 million, or 93%. The increase in gross profit was primarily
due to the increase in revenues described above. Gross profit margin decreased
as a percentage of revenues from approximately 33% for the six months ended June
30, 1998 to 29% for the six months ended June 30, 1999. The decrease was
primarily attributable to the shift in revenue mix between rental revenues and
sales and installation revenues. For the six months ended June 30, 1999, rental
revenues comprised only 31% of total revenues as compared to 42% for the same
period in the prior year. Rental revenues have a greater gross margin than sales
and installation revenues. The reason for the change in the revenue mix is
primarily attributable to the acquisitions of CBE, SPL, and Haas during 1998 and
Ancha in 1999. These operations do not have rental revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $26.9 million for the six months ended June
30, 1999 compared to $13.5 million for the same period last year. The increase
was primarily attributable to incremental selling, general and administrative
expenses associated with the acquisitions of Light and Sound Design, Production
Arts, CBE, SPL, PLS, Haas and the recently acquired Ancha and A-1 Audio. As a
percentage of revenues, selling, general and administrative expenses decreased
to 22% for six months ended June 30, 1999 as compared to 24 % for the same
period in 1998.
<PAGE>
Restructuring Charges. Restructuring charges relate to the implementation of
closing the Denver operations of one of the event services segments and the
closure of a New Jersey office within the lighting segment. The aggregate amount
of approximately $1.7 million primarily reflects rental payments for the
remaining lease period, severance payments relating to workforce reductions, the
write-off of furniture and leasehold improvements, and other expenditures
incurred for vacating the properties.
Non-recurring compensation. The non-recurring compensation was recorded in the
three month period ended June 30, 1999 and represented bonus payments paid to
senior management related to the sale of membership units to BV (See "Sale of
Units" in "Notes to Combined Financial Statements").
Operating Profit. Operating profit was $2.9 million for the six months ended
June 30, 1999, an increase of $0.6 million from $2.3 million for the six months
ended June 30, 1998. Operating profit, as a percentage of revenues, was 2.4% for
the six month period ending June 30, 1999, down from 4.2% for the same period
last year. Operating profit would have been $5.1 million for the six months
ended June 30, 1999 if not for the restructuring charge of $1.7 million and
non-recurring compensation of $365,000.
Interest Expense. Interest expense increased to $9.4 million for the six month
period ended June 30, 1999 from $6.2 million for the six months ended June 30,
1998. The increase was primarily attributed to the interest expense associated
with the increased borrowings under the Company's Credit Facility.
Income Taxes. For the six months ended June 30, 1998, no subsidiaries were
subject to Federal income taxes. For the six months ended June 30, 1999, the net
provision for income taxes represents corporate federal state and foreign taxes
for the acquired subsidiaries that are subject to income tax.
Cumulative Effect of Accounting Change. The Company implemented Statement of
Position 98-5, "Reporting the Costs of Start-up Activities" (SOP 98-5), and,
accordingly, wrote off all capitalized start-up costs effective January 1, 1999.
Net Loss. The Company had a net loss of $6.8 million for the six months ended
June 30, 1999 compared to a net loss of $3.7 million for the six months ended
June 30, 1998. The net loss was primarily due to the restructuring charges, the
aforementioned decrease in gross profit as a percentage of revenue,
non-recurring compensation expense, and an increase in interest expense,
partially offset by the decline in selling general and administrative expenses,
and depreciation expense, as a percentage of revenues.
Liquidity and Capital Resources
During the six months ended June 30, 1999, the Company repaid indebtedness
(principally bank borrowings) of approximately $17.1 million, and incurred
additional borrowings of approximately $27.3 million. In accordance with an
amendment to the Company's Credit Facility, the Company sold its facility in Las
Vegas, Nevada and entered into a sale and leaseback arrangement with an
unrelated party for this facility in March 1999. From the net proceeds, the
Company repaid approximately $6.5 million in bank borrowings under the Credit
Facility. Additionally, in conjunction with the sale of units (See Note 1 of
"Notes to Combined Financial Statements"), the Company repaid an additional
$10.0 million in bank borrowings under the Credit Facility with the capital
contributed by BV.
<PAGE>
The Company's investing activities have been financed primarily from members'
contributions and bank borrowings under the existing $100 million, senior
secured, reducing, revolving Credit Facility due December 31, 2002. The
Guarantors are restricted from making distributions under the terms of the
Indenture and the Credit Facility.
The following table sets forth certain information from the Company's Combined
Statements of Cash Flows for the six months ended June 30, 1999 and 1998:
1999 1998
---------------------------
Net cash provided by (used in):
Operating activities $ (6,677) $ 3,145
Investing activities (17,012) (45,122)
Financing activities 24,711 31,444
The Company believes that borrowings available under the Credit Facility, should
be sufficient to meet operating needs and capital spending requirements for the
next twelve months. Borrowings under the Credit Facility are subject to the
maintenance of certain restrictive financial covenants including a minimum pro
forma interest coverage ratio and fixed charge coverage ratio and a maximum
leverage ratio.
The Credit Facility begins to reduce by $7.5 million per quarter beginning on
March 31, 2000 and then by $10.0 million per quarter beginning March 31, 2002.
The Senior Subordinated Notes are not redeemable except in certain circumstances
until January 15, 2003. Thereafter, the Notes are subject to redemption at
prices decreasing from 105.75 percent to 100 percent of the face amount through
2006.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware or equipment purchased from vendors, which have
date-sensitive software or embedded chips may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to operate computerized machinery or equipment,
process transactions, send invoices, or engage in similar normal business
activities.
Based on recent assessments, the Company determined that it would be required to
modify or replace certain portions of its software and certain hardware so that
those systems will properly utilize and recognize dates beyond December 31,
1999. The Company presently believes that with modifications or replacements of
existing software and certain hardware, the Company's exposure to the Year 2000
issue can be mitigated so as to avoid materially adverse consequences. However,
if such modifications and replacements are not made, or are not completed
timely, there is no assurance that the Year 2000 Issue will not have a material
adverse impact on the operations of the Company.
Management's Plan. The Company's plan to address the Year 2000 issue involves
the following four steps: assessment, remediation, testing and implementation.
To date, the Company has completed its assessment of all systems that could be
significantly affected by the Year 2000 problem for all divisions and
subsidiaries of the Company included in the Company's 1998 financial statements.
The Company is currently assessing acquisitions made in the second quarter of
1999. The assessment (excluding the acquisitions made in the second quarter of
1999) concluded that
<PAGE>
several of the Company's legacy financial applications (principally general
ledger) needed to be replaced. In addition, the Company has identified a list of
hardware and software used throughout the Company requiring replacement.
Finally, the Company has queried its 100 most critical vendors and customers
that do not share information systems with the Company (external agents)
regarding their Year 2000 compliance. To date, the Company has received a 75%
response rate and is not yet aware of any external agent with a Year 2000 issue
that could reasonably be expected to materially impact the Company's results of
operations, liquidity or capital resources. The Company anticipates completing
its assessment of external agents during the third quarter of 1999. However, the
Company has no means of ensuring that external agents will be Year 2000 ready.
The only enterprise system that interfaces directly outside the Company is its
outsourced payroll system (ADP). This system has been certified as fully Year
2000 compliant.
The Company is approximately 50% complete in its remediation phase. The key
aspect of this phase is replacing the legacy financial applications that are not
Year 2000 compliant. In order to have Year 2000 compliant systems and to improve
access to business information through common, integrated computing systems
across the Company, a fully compliant Enterprise Resource Planner ("ERP")
(principally financial applications) was purchased from the Oracle Corporation
in 1997. The Company has implemented the ERP in approximately half of the
operating divisions and plans to have it implemented in most of the remaining
divisions by the fourth quarter of 1999. Additionally, the Company is
remediating all non-compliant systems in the event that certain operating
divisions are not implemented onto the ERP system. The Company would have
implemented the ERP without regard to Year 2000 issues although the Year 2000
issues have accelerated the Company's implementation.
The testing phase and implementation phase of the Company's plan runs
concurrently with the implementation of the ERP and is similarly 50% complete.
The implementation phase also includes the investigation and replacement of
non-compliant operational and administrative software applications (e.g., e-mail
clients and word processors) and the hardware upgrade or replacement of
non-compliant or questionably compliant hardware and software.
Costs. The Company will utilize primarily internal resources to program,
replace, test and implement changes for the Year 2000 project. The total cost of
the project is anticipated to approximate $4.0 million including the cost of
acquiring hardware and software required for the ERP system. Of this amount,
approximately $3.3 million has been spent to date. The amount primarily
represents the purchase and rollout of the Company's ERP and the remediation of
legacy systems. The remainder will primarily entail software and hardware
upgrades and further rollout of the ERP. The Company does not track the portion
of these costs attributable to Year 2000 compliance and does not allocate
internal costs (primarily personnel costs of Information Technology personnel)
to Year 2000 compliance.
Risks. Although no assurance can be given, Management of the Company believes
it has an effective program in place to resolve the Year 2000 issue in a timely
manner. The majority of the business is centralized or in the process of
becoming centralized. Most centralized corporate functions are fully compliant.
In the event that the Company does not complete any additional phases, the
Company would be required to fully centralize all business functions until that
time that full compliance could be reached. The realistic worst case scenario is
that the Company fails to centralize its key functions in tandem with a failure
to complete the Year 2000 project. The amount of potential liability lost
revenues and failed business processes resulting from the failure of the
Company's Year 2000 compliance program cannot be reasonably estimated at this
time. The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
<PAGE>
Company's results of operations, liquidity and financial condition. Due to the
general uncertainty inherent in the Year 2000 problem, resulting in part from
the uncertainty of the Year 2000 readiness of third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The Year 2000 project
is expected to significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its material external agents. The Company believes that, with the
implementation of new business systems and completion of the Year 2000 project
as scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Contingency Plans. The Company has contingency plans for certain critical
applications. These contingency plans involve primarily manual work-arounds and
shifting processing to the corporate headquarters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from changes
in interest rates. The Company also has limited foreign currency risk associated
with its European operations.
Interest Rate Risk
The Company's interest rate risk management objective is to limit the impact of
interest rate changes on its earnings and cash flows and to lower its overall
borrowing cost.
Foreign Currency Exchange Risk
The Company does not conduct a significant portion of its sales activity in
foreign markets. Presently, the Company's primary foreign activities are
conducted in the United Kingdom. The Company's reported financial results could
be affected, however, by factors such as foreign currency exchange rates in the
markets where it operates. When the U.S. dollar strengthens against foreign
currencies, the reported U.S. dollar value of local currency operating profits
generally decreases; when the U.S. dollar weakens against such foreign
currencies, the reported U.S. dollar value of local currency operating profits
generally increases. Since the Company does not have significant foreign
operations, the Company does not believe it is necessary to enter into any
hedging programs to reduce its exposure to foreign currency exchange risk.
<PAGE>
PART II
Other Information
Items 1,2,3,4, and 5 are not applicable.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
27.1 Financial Data Schedule*
* Filed herewith
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K/A, dated July 13, 1999,
reporting in Item 2, "Acquisition or Disposition of Assets," its acquisition of
Ancha Electronics, Inc.
<PAGE>
PRODUCTION RESOURCE GROUP, L.L.C.
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.
PRODUCTION RESOURCE GROUP, L.L.C.
Dated: August 13, 1999 By: /s/ Bradley G. Miller
Bradley G. Miller
Chief Operating and Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the Combined
Balance Sheets of Production Resource Group, L.L.C. as of June 30, 1999 and the
related Combined Statements of Operations for the Six months ended June 30,
1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,036
<SECURITIES> 0
<RECEIVABLES> 49,606
<ALLOWANCES> 3,127
<INVENTORY> 12,220
<CURRENT-ASSETS> 77,201
<PP&E> 119,861
<DEPRECIATION> 37,794
<TOTAL-ASSETS> 219,044
<CURRENT-LIABILITIES> 43,773
<BONDS> 166,914
0
0
<COMMON> 0
<OTHER-SE> 7,306
<TOTAL-LIABILITY-AND-EQUITY> 219,044
<SALES> 121,879
<TOTAL-REVENUES> 121,879
<CGS> 80,018
<TOTAL-COSTS> 116,829
<OTHER-EXPENSES> 2,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,351
<INCOME-PRETAX> (6,330)
<INCOME-TAX> 199
<INCOME-CONTINUING> (6,529)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (263)
<NET-INCOME> (6,794)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
