<PAGE>
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 NOVEMBER 30, 1996
-----------------
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 1-8654
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UNITEL VIDEO, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-1713238
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 WEST 57TH STREET - NEW YORK, NEW YORK 10019
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(Address of principal executive offices)
(212) 265-3600
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months and (2) has been subject to such 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.
2,674,665 common shares outstanding as of January 17, 1997.
(Number of shares) (Date)
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
QUARTER ENDED NOVEMBER 30, 1996
Page
INDEX Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
November 30, 1996 (Unaudited) and 3-4
August 31, 1996
Consolidated Statements of Operations
November 30, 1996 (Unaudited) and 5
November 30, 1995 (Unaudited)
Consolidated Statements of Cash Flows
November 30, 1996 (Unaudited) 6-7
and November 30, 1995 (Unaudited)
Notes to Consolidated Financial 8-10
Statements (Unaudited)
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of 11-13
Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
2
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
QUARTER ENDED NOVEMBER 30, 1996
Part 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1996 AUGUST 31, 1996
----------------- ---------------
(Unaudited) (Note)
ASSETS
- ------
Current Assets:
Cash $ 77,000 $ 192,000
Accounts receivable,
less allowance for
doubtful accounts of
$631,000 and $712,000 8,234,000 8,701,000
Other receivables 407,000 333,000
Prepaid income taxes 103,000 142,000
Prepaid expenses 779,000 735,000
Net assets held for sale -- 1,587,000
Deferred tax asset 844,000 844,000
----------- -----------
Total current assets 10,444,000 12,534,000
Property and equipment - at cost
Land, buildings
and improvements 19,978,000 19,915,000
Video equipment 98,469,000 97,023,000
Furniture and fixtures 3,304,000 3,502,000
----------- -----------
121,751,000 120,440,000
Less accumulated depreciation 71,518,000 69,974,000
----------- -----------
50,233,000 50,466,000
Deferred tax asset 1,625,000 1,625,000
Goodwill 1,824,000 1,859,000
Other assets 1,223,000 1,134,000
----------- -----------
$65,349,000 $67,618,000
----------- -----------
----------- -----------
Note: The balance sheet at August 31, 1996 has been taken from the audited
consolidated financial statements at that date.
See notes to consolidated financial statements.
3
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UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED BALANCE SHEETS
(Continued)
NOVEMBER 30, 1996 AUGUST 31, 1996
----------------- ---------------
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 4,319,000 $ 4,967,000
Accrued expenses 1,464,000 1,450,000
Accrued payroll, benefits and
related taxes 1,758,000 2,947,000
Current maturities of long-term debt 6,795,000 8,362,000
Current maturities of subordinated debt 1,167,000 1,166,000
Current maturities of ESOP loan 120,000 166,000
Current maturities of capital
lease obligations 1,847,000 1,832,000
-------------- ------------
Total current liabilities 17,470,000 20,890,000
Deferred rent 304,000 325,000
Long-term debt, less current maturities 20,446,000 19,706,000
Subordinated debt, less current maturities 1,895,000 1,979,000
Long-term leases, less current maturities 5,139,000 5,604,000
Accrued retirement 1,272,000 1,304,000
Stockholders' equity:
Common stock, par value
$.01 per share
Authorized 5,000,000 shares
Issued 3,540,854 and 3,532,554 shares
respectively, and outstanding 2,674,565
and 2,666,265 shares respectively 27,000 26,000
Additional paid-in capital 27,568,000 27,545,000
Accumulated deficit (657,000) (1,592,000)
Common stock held in treasury,
at cost (866,289 shares) (7,974,000) (7,974,000)
-------------- ------------
18,964,000 18,005,000
Unearned employee benefit expense (141,000) (195,000)
-------------- ------------
Total stockholders' equity 18,823,000 17,810,000
-------------- ------------
$ 65,349,000 $ 67,618,000
-------------- ------------
-------------- ------------
Note: The balance sheet at August 31, 1996 has been taken from the audited
consolidated financial statements at that date.
See notes to consolidated financial statements.
4
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UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------
1996 1995
---- ----
Sales $16,370,000 $22,940,000
Cost of sales:
Production costs 10,716,000 15,402,000
Depreciation 2,051,000 1,733,000
----------- -----------
12,767,000 17,135,000
----------- -----------
Gross profit 3,603,000 5,805,000
Operating expenses:
Selling 485,000 676,000
General and administrative 1,370,000 2,444,000
Interest 841,000 848,000
Impairment charge -- 853,000
----------- -----------
2,696,000 4,821,000
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Earnings from operations 907,000 984,000
Other income 78,000 --
----------- -----------
Earnings before income taxes 985,000 984,000
Income taxes 50,000 462,000
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Net earnings applicable for common stock $ 935,000 $ 522,000
----------- -----------
----------- -----------
Earnings Per Common Share
Net earnings $ .35 $ .20
----------- -----------
----------- -----------
Weighted average of common
and common equivalent
shares outstanding 2,690,000 2,570,000
----------- -----------
----------- -----------
See notes to consolidated financial statements.
5
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------
1996 1995
---- ----
Cash Flows From Operating Activities:
Net income $ 935,000 $ 522,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 2,187,000 1,735,000
Net gain on disposal of assets (136,000) (2,000)
Deferred financing costs -- (80,000)
Amortization of deferred
financing costs 37,000 21,000
Deferred rent (21,000) (23,000)
Accrued retirement expenses (32,000) 41,000
Impairment charge -- 853,000
Decrease (Increase) in:
Accounts receivable 548,000 (324,000)
Allowance for doubtful accounts (81,000) (9,000)
Other receivables (74,000) 129,000
Prepaid expenses (44,000) (240,000)
Prepaid taxes 39,000 567,000
Other assets (209,000) (198,000)
Increase (Decrease) in:
Accounts payable (648,000) (1,863,000)
Accrued expenses 14,000 93,000
Payroll and related taxes (1,189,000) 948,000
Income taxes payable -- 84,000
----------- ----------
Total adjustments 391,000 1,732,000
----------- ----------
Net cash provided by operating
activities 1,326,000 2,254,000
Cash Flows from Investing
Activities:
Capital expenditures (1,945,000) (807,000)
Proceeds from disposal of assets 1,832,000 8,000
----------- ----------
Net cash used in
investing activities (113,000) (799,000)
(Continued)
6
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------
1996 1995
---- ----
Cash Flows From Financing
Activities:
Proceeds from long term financing $ 1,182,000 $ --
Proceeds from issuance of common stock 39,000 7,000
Repayment of loan to ESOP (46,000) (37,000)
Principal repayments (2,542,000) (1,299,000)
Release of ESOP quarterly shares 39,000 49,000
----------- ------------
Net cash used in financing activities (1,328,000) (1,280,000)
Net Increase (Decrease) in Cash (115,000) 175,000
Cash Beginning of Year 192,000 161,000
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Cash End of Quarter $ 77,000 $ 336,000
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----------- ------------
Schedule of income taxes and
interest paid:
Income Taxes Paid $ 10,000 $ 5,000
Interest Paid 821,000 860,000
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$ 831,000 $ 865,000
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----------- ------------
See notes to consolidated financial statements.
7
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
THREE MONTHS ENDED NOVEMBER 30, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of November 30, 1996, the
consolidated statements of operations for the quarters ended November 30, 1996
and 1995, and the consolidated statements of cash flows for the three months
then ended have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations, and
cash flows at November 30, 1996 and for all periods presented have been made.
Certain information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto in the Company's August 31, 1996 Form 10-K filed
with the Securities and Exchange Commission. The results of operations for the
quarter ended November 30, 1996 are not necessarily indicative of the operating
results for the full year.
2. STOCKHOLDERS' EQUITY
During the three months ended November 30, 1996, stockholders' equity increased
due to:
Net income $ 935,000
Reduction in unearned employee benefit expense 54,000
Reduction in additional paid in capital resulting
from the allocation of ESOP shares (15,000)
Purchase of stock under the Unitel Video, Inc. Employee
Stock Purchase Plan 39,000
------------
Total increase in stockholders' equity $ 1,013,000
------------
------------
3. PER SHARE DATA
Per share data for the three months ended November 30, 1996 and 1995 is based on
the weighted average number of common shares outstanding. In the three months
ended November 30, 1996 and 1995, unreleased Employee Stock Ownership Plan
shares are not considered outstanding for earnings per share calculations. (See
Note 4).
8
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4. 401(K) EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Company sponsors a 401(k) savings and stock ownership plan (the "Plan")
which requires the Company to match employee contributions to the 401(k) portion
of the Plan in shares of the Company's Common Stock up to the maximum amount set
forth in the Plan. Effective September 1, 1994, the Company has adopted the
provisions of Statement of Position 93-6, "Employer's Accounting for Employee
Stock Ownership Plans" ("SOP 93-6").
In 1987, to purchase 115,849 shares of the Company's stock, the Plan obtained
financing from a bank amounting to $1,250,000. In 1991 the Plan purchased
25,810 shares of the Company stock which was financed by a $229,193 loan from
the Company. The Plan is funded by the Company as required to provide the Plan
with the funds necessary to meet its debt service requirements. The loan
obligations of the Plan are considered unearned employee benefit expense and are
recorded as a separate reduction of the Company's shareholders' equity. The
bank financing is guaranteed by the Company.
The Plan's shares are released and allocated to participant accounts based upon
Company contributions and certain payments made to reduce the Plan debt. The
Company reports compensation expense based on the dollar value of the 401(k)
match expense.
The Plan's compensation expense was $39,000 for the three months ended November
30, 1996. A summary of the Plan's shares as of November 30, 1996 is as follows:
Allocated shares 96,666
Shares released for allocation 8,608
Unreleased shares 27,575
--------
132,849
--------
--------
Fair value of unreleased shares
at November 30, 1996 $ 227,000
--------
--------
Prior to adoption of SOP 93-6, the unreleased shares were considered outstanding
for the earnings per share computation. Accordingly, 27,575 and 48,896 shares
were no longer considered outstanding for the three months ended November 30,
1996 and 1995. The effect of adopting SOP 93-6 was not material on the net
income, and resulted in an increase of less than 1% on the net income per share
for the three months ended November 30, 1996 and 1995.
5. IMPAIRMENT AND RESTRUCTURING CHARGES
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FASB Statement
No. 121") which provides guidance on when to assess and how to measure
impairment of long-lived assets, certain intangibles and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company adopted FASB Statement
No. 121 as of August 31, 1995.
9
<PAGE>
In fiscal 1995 the Company determined to focus its resources toward providing
services to the entertainment and corporate communications areas, which
represent the Company's strength, and decided to sell its three Editel divisions
which did not specialize in these areas. The Company recorded the carrying
value of the assets related to these divisions as net assets held for sale, and
a corresponding impairment charge, since these assets were no longer needed for
the current and future operations of these divisions.
In fiscal 1996 the Company began marketing these divisions to potential buyers.
In the first quarter of fiscal 1996 the Company recorded an impairment charge of
$853,000 relating to the assets at all three Editel divisions. The impairment
charge recorded represents management's estimate of the decrease in value of
these assets during the period such assets were held for sale based upon the
depreciation method which the Company has found to be reasonable and
appropriate.
In February 1996 the Company closed its Editel Chicago division, distributed the
majority of its assets to other divisions throughout the Company and sold the
remaining assets at an auction held in May 1996. Also in May 1996, after
reevaluating the potential of the Editel Los Angeles division, the Company
decided to retain and expand this division. In August of 1996 the Company
closed its Editel New York division and distributed the majority of its
editorial and computer graphics assets throughout the Company. In November 1996
the Company sold the majority of this division's remaining net assets held for
sale of $1,587,000 to an unrelated third party for $1,400,000. The balance of
the assets, which have been fully reserved, will be redeployed throughout the
Company or disposed of through an auction. Proceeds from the sale of assets are
used by the Company to repay outstanding debt.
6. STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock Based Compensation," provided companies a choice in the
method of accounting used to determine stock-based compensation. Companies may
account for such compensation either by using the intrinsic value-based method
provided by APB Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," or the fair market value based method provided in SFAS No. 123.
This statement is required to be adopted by the Company during its fiscal year
ending August 31, 1997. The Company intends to use the intrinsic value-based
method provided in APB No. 25 to determine stock-based compensation. The sole
effect of the adoption of SFAS No. 123 is the obligation imposed on the Company
to comply with the new disclosure requirements provided thereunder.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company is committed to keeping pace with technological developments as well
as taking advantage of new business opportunities in the video communications
industry. Capital expenditures were $1,945,000 during the quarter ended
November 30, 1996, and consisted of the purchase of production, post production
and graphics equipment for use throughout the Company.
Net cash provided by operating activities during the quarter ended November 30,
1996 and 1995 was $1,326,000 and $2,254,000, respectively. Net cash provided by
operating activities for the quarter ended November 30, 1996 was offset by net
cash of $113,000 used in investing activities which consisted of capital
expenditures (net of proceeds from asset dispositions of $1,832,000), and by net
cash used in financing activities of $1,328,000 for debt repayment, resulting in
a net decrease in cash available of $115,000.
In December 1995, the Company entered into a $26 million revolving credit and
term loan agreement with a financial institution, consisting of an $11 million
revolving credit facility and two $7.5 million term loans. Term loan A is
payable in 59 monthly principal payments of $89,000 through November 2000 and a
payment of $2,249,000 at December 2000. Term loan B is repayable from the
proceeds of sales of fixed assets. As of November 30, 1996, $2,486,000 has been
repaid leaving a balance of $5,014,000 for term loan B. The remaining balance
of term loan B is due in full on February 28, 1997. At November 30, 1996,
$6,888,000 was outstanding under the revolving portion of the credit facility.
RESULTS OF OPERATIONS
Sales were $16,370,000 and $22,940,000 for the quarters ended November 30, 1996
and 1995, respectively, resulting in a decrease from the same period of the
prior year. The decrease in sales is primarily due to the closure of the
Company's Editel Chicago and Editel New York divisions in fiscal 1996. Also
contributing to lower sales was the cancellation of the "Rush Limbaugh" and
"Mark Walberg" talk shows, which had been produced at Unitel studios during the
majority of fiscal 1996, and the out of service status of one of the Mobile
division's most sophisticated units during a substantial portion of the first
quarter of fiscal 1997 while being digitally retrofitted by Company engineers.
The sales decrease in the first quarter of fiscal 1997 was partially offset by a
significant increase in sales at the Company's Editel Los Angeles division.
The Company's net income for the quarter ended November 30, 1996 was $935,000,
compared to net income of $522,000 for the comparable quarter of fiscal year
1996. While pretax income for the first quarter of fiscal 1997 was at the same
level as the comparable period of the prior year, the effective tax rate of 5%
in the first quarter of fiscal 1997 as compared with 47% in the first quarter of
fiscal 1996 resulted in a significant increase in net income at November 30,
1996. The effective rate for the first quarter of fiscal 1997 was less than the
prior period tax rate due to the utilization of net operating loss carryforwards
generated by the losses incurred in fiscal 1995 and 1996.
11
<PAGE>
Production costs, the main component of cost of sales, consist primarily of
direct labor, equipment maintenance expenses and occupancy costs. The Company's
production costs, as a percentage of sales, were 65% for the quarter ended
November 30, 1996, as compared to 67% for the quarter ended November 30, 1995.
The decrease in production expenses as a percentage of sales is primarily due to
the closure of the Company's Editel Chicago and Editel New York divisions which
had been incurring these expenses at a higher percent of sales compared with the
Company's other divisions. Also included in the decrease in production expenses
from the comparable quarter in the prior year is the impact of the reduction of
certain cost estimates related to the closure of the Editel New York and Editel
Chicago divisions.
Depreciation, as a percentage of sales, was 12.5% and 7.6% for the quarters
ended November 30, 1996 and 1995, respectively. The increase in the quarter
ended November 30, 1996 compared to the same period in the prior year was a
result of the reclassification of the net property and equipment of the
Company's three Editel divisions to net assets held for sale at August 31, 1995
with the corresponding depreciation expense recorded as impairment charges. In
May 1996, the Company determined to retain its Editel Los Angeles division and,
accordingly, resumed recording depreciation expense for this division. The
impairment charge recorded in the first quarter of fiscal 1996 represents
management's estimate of the decrease in value of these assets based upon the
depreciation method which the Company has used in the past and which management
has found to be reasonable and appropriate. Of the $853,000 impairment charge
recorded in the first quarter of fiscal 1996, $377,000 related to the Editel Los
Angeles division, which if recorded as depreciation expense in 1996 would have
resulted in depreciation as a percentage of sales of 9.2% as compared to 7.6% in
the first quarter of fiscal 1996. In addition, the majority of the assets of
the Editel Chicago and Editel New York divisions were redistributed throughout
the Company which contributed to the increase in depreciation expense in fiscal
1997.
Selling expenses, as a percentage of sales, for the quarters ended November 30,
1996 and 1995 were 3.0% and 2.9%, respectively. The increase in the first
quarter of fiscal 1997 as compared to the same quarter in 1996 is mainly due to
an increase in the sales staff at the New York divisions and at Editel Los
Angeles.
General and administrative expenses, as a percentage of sales, for the quarters
ended November 30, 1996 and 1995 were 8.4% and 10.7%, respectively. The
decrease in general and administrative expenses as a percentage of sales is
primarily due to the closure of the Company's Editel Chicago and Editel New York
divisions which had been incurring these expenses as a higher percent of sales
compared with the Company's other divisions. Also included in the decrease in
production expenses from the comparable quarter in the prior year is the impact
of the reduction of certain cost estimates related to the closure of the Editel
New York and Editel Chicago divisions.
Interest expense, as a percentage of sales, for the quarters ended November 30,
1996 and 1995 was 5.1% and 3.7%, respectively. Since the level of outstanding
debt in the first quarter of fiscal 1997 remained constant with the same period
of the prior year and sales decreased in the first quarter of fiscal 1997,
interest expense as a percentage of sales increased in fiscal 1997 when compared
with the same period of the prior year.
12
<PAGE>
The Company's effective tax rate was 5% and 47% for the first quarter of fiscal
years 1997 and 1996, respectively. The effective tax rate for the first quarter
of fiscal 1997 is less than the federal statutory rate of 34% due to the
utilization of net operating loss carryforwards generated by the losses incurred
in fiscal 1995 and 1996. The effective tax rate exceeded the federal statutory
rate of 34% in fiscal 1996 due to state and local taxes.
13
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K.
1. Exhibit 27. Financial Data Schedule.
(b) There were no reports filed on Form 8-K during the three month
period ended November 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITEL VIDEO, INC.
By: /s/ Barry Knepper
-----------------------------
Barry Knepper
President and Chief Executive Officer
By: /s/ George Horowitz
-----------------------------
George Horowitz
Chief Financial Officer
Dated: January 17 , 1997
14
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