<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 MAY 31, 1998
------------
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
------
Unitel Video, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1713238
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 West 57th Street - New York, New York 10019
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(212) 265-3600
- --------------------------------------------------------------------------------
(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.
2,710,216 Common shares outstanding as of July 9, 1998
(Number of shares) (Date)
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
QUARTER ENDED MAY 31, 1998
Page
INDEX Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
May 31, 1998 (Unaudited) and
August 31, 1997 3-4
Consolidated Statements of Operations
May 31, 1998 (Unaudited) and
May 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows
May 31, 1998 (Unaudited)
and May 31, 1997 (Unaudited) 6-7
Notes to Consolidated Financial
Statements (Unaudited) 8-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-14
Item 3. Quantitative and Qualitative Disclosure
about Market Risk 15
Part II. OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
2
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
QUARTER ENDED MAY 31, 1998
Part 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, 1998 August 31, 1997
------------ ---------------
(Unaudited) (Note)
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash $ 174,000 $ 137,000
Accounts receivable, less
allowance for doubtful accounts
of $537,000 and $412,000 6,688,000 5,139,000
Other receivables 99,000 19,000
Prepaid income taxes 112,000 75,000
Prepaid expenses 543,000 564,000
Deferred tax asset 495,000 495,000
------------ ------------
Total current assets 8,111,000 6,429,000
Property and equipment - at cost
Land, buildings
and improvements 21,680,000 20,799,000
Video equipment 81,520,000 87,745,000
Furniture and fixtures 1,965,000 2,591,000
------------ ------------
105,165,000 111,135,000
Less accumulated depreciation 54,617,000 59,228,000
------------ ------------
50,548,000 51,907,000
Deferred tax asset 1,974,000 1,974,000
Goodwill 1,617,000 1,721,000
Other assets 1,335,000 1,052,000
------------ ------------
$ 63,585,000 $ 63,083,000
============ ============
</TABLE>
Note: The balance sheet at August 31, 1997 has been taken from the audited
consolidated financial statements at that date.
See notes to consolidated financial statements.
3
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
May 31, 1998 August 31, 1997
------------ ---------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 7,112,000 $ 6,754,000
Accrued expenses 1,555,000 998,000
Payroll, benefits and related taxes 331,000 2,038,000
Current maturities of long-term debt 5,111,000 3,530,000
Current maturities of subordinated debt 2,634,000 1,167,000
Current maturities of capital lease obligations 1,952,000 1,946,000
----------- -----------
Total current liabilities 18,695,000 16,433,000
Deferred rent 109,000 121,000
Long-term debt, less current maturities 28,872,000 26,525,000
Subordinated debt, less current maturities -- 1,770,000
Long-term leases, less current maturities 3,644,000 3,666,000
Accrued retirement 1,079,000 1,176,000
Stockholders' equity:
Common stock, par value
$.01 per share
Authorized 5,000,000 shares
Issued 3,540,954 and 3,540,954 shares
respectively, and outstanding 2,710,216
and 2,674,665 shares respectively 27,000 27,000
Additional paid-in capital 27,273,000 27,367,000
Accumulated deficit (8,469,000) (6,028,000)
Common stock held in treasury,
at cost (830,738 and 866,289
shares, respectively) (7,645,000) (7,974,000)
----------- -----------
Total stockholders' equity 11,186,000 13,392,000
----------- -----------
$63,585,000 $63,083,000
=========== ===========
</TABLE>
Note: The balance sheet at August 31, 1997 has been taken from the audited
consolidated financial statements at that date.
See notes to consolidated financial statements.
4
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended May 31, Nine Months Ended May 31,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 13,957,000 $ 15,840,000 $ 40,154,000 $ 47,210,000
Cost of sales:
Production costs 9,073,000 10,993,000 27,136,000 31,937,000
Depreciation 2,248,000 2,101,000 6,589,000 6,410,000
------------- ------------- ------------- -------------
11,321,000 13,094,000 33,725,000 38,347,000
------------- ------------- ------------- -------------
Gross profit 2,636,000 2,746,000 6,429,000 8,863,000
Operating expenses:
Selling 314,000 413,000 1,083,000 1,407,000
General and administrative 1,489,000 2,072,000 4,593,000 5,193,000
Interest 1,007,000 900,000 2,852,000 2,674,000
Merger Agreement Costs 685,000 -- 685,000 --
Impairment and restructuring
charge (Note 5) -- 1,055,000 -- 1,055,000
------------- ------------- ------------- -------------
3,495,000 4,440,000 9,213,000 10,329,000
------------- ------------- ------------- -------------
Earnings (loss) from operations (859,000) (1,694,000) (2,784,000) (1,466,000)
Other income (loss) 182,000 96,000 345,000 250,000
------------- ------------- ------------- -------------
Earnings (loss) before
income taxes (677,000) (1,598,000) (2,439,000) (1,216,000)
Income taxes (benefit) -- (18,000) 2,000 1,000
------------- ------------- ------------- -------------
Net earnings (loss) available to
common stockholders $ (677,000) $ (1,580,000) $ (2,441,000) $ (1,217,000)
============= ============= ============= =============
Earnings (loss) per Common
Share-Basic and Diluted $ (.25) $ (.59) $ (.91) $ (.45)
============= ============= ============= =============
Weighted average of common and
common equivalent shares
outstanding 2,687,000 2,681,000 2,679,000 2,690,000
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
--------------------------------
May 31, 1998 May 31, 1997
-------------- --------------
Cash Flows From Operating Activities:
Net loss $ (2,441,000) $ (1,217,000)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 6,675,000 6,621,000
Net gain on disposal of equipment (86,000) (211,000)
Deferred financing costs (475,000) --
Amortization of deferred financing costs 231,000 115,000
Deferred rent (12,000) (211,000)
Accrued retirement expense (97,000) (96,000)
Impairment charge and restructuring charges 780,000
Decrease (Increase) in:
Accounts receivable (1,549,000) 1,284,000
Other receivables (80,000) 251,000
Prepaid expenses 21,000 235,000
Prepaid taxes (37,000) (44,000)
Other assets (38,000) (104,000)
Increase (Decrease) in:
Accounts payable 358,000 1,504,000
Accrued expenses 557,000 (602,000)
Payroll and related taxes (1,707,000) (1,409,000)
------------ ------------
Total adjustments 3,761,000 8,113,000
------------ ------------
Net cash provided by operating
activities 1,320,000 6,896,000
Cash Flows From Investing
Activities:
Capital expenditures (5,346,000) (9,373,000)
Proceeds from disposal of equipment 219,000 2,230,000
------------ ------------
Net cash used in
investing activities (5,127,000) (7,143,000)
(Continued)
6
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Nine Months Ended
--------------------------------
May 31, 1998 May 31, 1997
-------------- --------------
Cash Flows From Financing Activities:
Proceeds from long-term financing 12,757,000 $ 9,874,000
Proceeds from issuance of common stock -- 39,000
Repayment of loan to ESOP -- (136,000)
Principal repayments (9,148,000) (9,765,000)
Release of ESOP quarterly shares -- 118,000
Reissue of treasury stock 235,000 --
------------ ------------
Net cash provided by financing activities 3,844,000 130,000
------------ ------------
Net Increase (Decrease) in Cash 37,000 (117,000)
Cash Beginning of Year 137,000 192,000
------------ ------------
Cash End of Nine Months $ 174,000 $ 75,000
============ ============
Schedule of income taxes and
interest paid:
Income Taxes Paid $21,000 $30,000
Interest Paid 2,523,000 2,416,000
------------ ------------
$ 2,544,000 $ 2,446,000
============ ============
See notes to consolidated financial statements.
7
<PAGE>
UNITEL VIDEO, INC.
FORM 10-Q
NINE MONTHS ENDED MAY 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of May 31, 1998, the consolidated
statements of operations for the nine months and quarters ended May 31, 1998 and
1997, and the consolidated statements of cash flows for the nine 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 May 31, 1998 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, 1997 Form 10-K filed
with the Securities and Exchange Commission. The results of operations for the
nine months ended May 31, 1998 are not necessarily indicative of the operating
results for the full year.
2. STOCKHOLDERS' EQUITY
During the nine months ended May 31, 1998, stockholders' equity decreased due
to:
Net loss $ (2,441,000)
Reduction in additional paid in capital resulting
from the release of treasury shares to
the Company's 401(k) plan (94,000)
Reduction in common stock held in treasury
resulting from the release of treasury shares to
the Company's 401(k) plan $ 329,000
------------
Total decrease in stockholders' equity $ (2,206,000)
============
3. PER SHARE DATA
Per share data for the quarter and nine months ended May 31, 1998 and 1997 is
based on the weighted average number of common shares outstanding. In the
quarter and nine months ended May 31, 1998, unreleased Employee Stock Ownership
Plan shares are not considered outstanding for earnings per share calculations.
There were no unreleased Employee Stock ownership shares in the quarter and nine
months ended May 31, 1998.
8
<PAGE>
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").
The Company reports compensation expense based on the dollar value of the 401(k)
match expense. The Plan's compensation expense was $35,000 and $105,000 for the
quarter and nine months ended May 31, 1998.
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.
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 the Company.
In fiscal 1996 the Company began marketing these divisions to potential buyers.
In the first nine months of fiscal 1996 the Company recorded an impairment
charge of $2,000,000 relating to the assets at all three Editel divisions. The
impairment charge recorded represented 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 and primarily due
to increasing sales and profitability at that division, the Company decided to
retain and expand the Editel Los Angeles division. In August 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 the Editel New York 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 were redeployed throughout the Company or disposed of
through an auction. Proceeds from the sale of these assets were used by the
Company to repay outstanding debt.
9
<PAGE>
In June 1997 the Company determined that a single facility in California would
significantly reduce costs and adequately meet the demand for its services in
that location and, accordingly, the Company merged its Unitel Hollywood and
Editel Los Angeles divisions in the Company's owned Editel Los Angeles facility.
A significant portion of the equipment from Unitel Hollywood was moved to the
Editel Los Angeles location. Additionally, a portion of the equipment was
transferred to the Company's New York Post Production division for future use.
The balance of the equipment was sold and the proceeds, in the amount of
$1,700,000, were used to repay outstanding debt. The positive result of the
decision to merge the Editel Los Angeles and Unitel Hollywood divisions is
reflected in the profitable results of operations for the merged operation in
the nine months ended May 31, 1998 as compared to a substantial operating loss
for the two divisions during the nine months ended May 31, 1997. As a result of
the merger and sale, the Company recorded a restructuring charge of $1,055,000
in the third quarter of 1997. The restructuring charge consisted primarily of
the write off of assets sold and the costs of moving equipment and personnel to
Editel Los Angeles. Severance and related payroll costs were expensed as
incurred. There is no continuing liability in connection with the closure of
the Unitel Hollywood division. Additionally, after a reassessment of its New
York post production assets, the Company recorded an impairment charge of
$300,000 in the fourth quarter of fiscal 1997 with respect to those assets.
6. STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock Based Compensation," provides 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 was 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 $5,346,000 during the nine months ended May
31, 1998, and primarily consisted of video equipment for the Company's two new
digital mobile teleproduction units as well as the purchase of production, post
production and graphics equipment for use throughout the Company.
Net cash provided by operating activities during the nine months ended May 31,
1998 was $1,320,000 and during the nine months ended May 31, 1997 was
$6,896,000. Net cash provided by operating activities for the nine months ended
May 31, 1998 was offset by $5,127,000 of cash used in investing activities,
which consisted of capital expenditures (net of proceeds from asset dispositions
of $219,000) and was supplemented by net cash provided by financing activities
of $3,844,000 on new debt financing (net of $9,148,000 of debt repayments),
resulting in a net increase in cash available of $37,000.
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 Loans A and B).
In May 1997, Term Loan A was revised by the inclusion of $2,500,000 of the
original Term Loan B and the advance of $518,000 of new finds, resulting in a
revised Term Loan A balance of $9,000,000. Term Loan A is payable in fifty two
(52) equal monthly principal installments of $100,000 plus interest, with the
balance of $3,800,000 due December 2001. In November 1997 Term Loan B was
repaid, in part from the proceeds of a new Term Loan D in the amount of
$2,500,000. $3,742,000 of the original Term Loan B was repaid from sales of
equipment from the Company's Editel Chicago, Editel New York and Unitel
Hollywood divisions. In February 1998 Term Loan D was extended and is payable
in eighteen (18) monthly installments of $140,000 commencing May 1, 1998.
In July 1997 the credit facility was further amended by the issuance of a
$5,080,000 letter of credit (the "Letter of Credit") to secure payment of
principal and interest on $5,000,000 principal amount of Allegheny County
(Pennsylvania) Industrial Development Authority Variable Rate Demand Revenue
Bonds (the "Bonds"). The proceeds from the sale of the Bonds were loaned to the
Company and were used by the Company, together with other available funds, to
build a new digital mobile teleproduction unit. The Letter of Credit requires
quarterly principal payments of $179,000 commencing August 1998 to be applied to
the redemption in equal principal amount of the Bonds. The Bonds mature on July
1, 2009 and, to the extent not previously redeemed in full as provided in the
prior sentence, are required to be repaid by the Company on that date.
In December 1997 the credit facility was further amended by increasing the
Letter of Credit to $8,636,000 to secure payment of principal and interest on an
additional $3,500,000 principal amount of Allegheny County (Pennsylvania)
Industrial
11
<PAGE>
Development Authority Variable Rate Demand Revenue Bonds ("the Additional
Bonds"). The proceeds from the sale of the Additional Bonds were loaned to the
Company and were used by the Company, together with other available funds, to
build a second new digital mobile teleproduction unit. The amended Letter of
Credit requires additional quarterly principal payments of $125,000 commencing
February 1999 to be applied to the redemption in equal principal amount of the
Additional Bonds. The Additional Bonds mature on July 1, 2009 and, to the
extent not previously redeemed in full as provided in the prior sentence, are
required to be repaid by the Company on that date. The Company is currently in
negotiations to refinance certain of its owned real estate and anticipates using
the proceeds of the refinancing to repay certain of its outstanding debt,
including the mortgages currently encumbering such real estate, with the balance
used for working capital purposes.
The terms of the overall credit facility with the financial institution provide
that the lender receive a first lien on all property and equipment and accounts
receivable that are not encumbered by another lender. In addition, under
certain circumstances the Company is required to prepay the loans under the
credit facility from funds generated by the sale of assets and to prepay Term
Loan D from excess cash flow. The Company has at certain times not been in
compliance with the tangible net worth, fixed charge coverage, leverage ratio
and interest coverage ratio financial covenants (the "Financial Covenants") in
certain of its loan documents and the lenders have waived such non-compliance
and are currently revising the Financial Covenants to a level such that it is
expected that the Company will be in compliance with the Financial Covenants on
a going forward basis. It is not expected that in the future the Financial
Covenants will be revised to their initial levels on the date of execution of
the related loan documents. The Company anticipates that funds generated from
operations together with funds available under its existing credit facility and
proceeds from the refinancing of certain of its owned real estate currently
being negotiated and noted above in this item will be sufficient to meet the
Company's anticipated working capital and investing needs in fiscal 1998.
RESULTS OF OPERATIONS
Sales were $13,957,000 and $15,840,000 for the quarters ended May 31, 1998 and
1997, respectively. Sales were $40,154,000, and $47,210,000 for the nine months
ended May 31, 1998 and 1997, respectively. The decrease in sales in the nine
month period ending May 31, 1998 was due primarily to the merger of the
Company's Unitel Hollywood and Editel Los Angeles divisions in fiscal 1997. The
Company's Mobile division commenced operating its two newest and most
sophisticated mobile teleproduction units during the nine months ended May 31,
1998. However, sales for the Mobile division were flat during such period as
compared to the same period of the prior year as a result of delays in the
completion of such mobile units. The completion of the units was delayed in
order to incorporate technical design changes made to maximize the capability of
the units to take advantage of new Interstate Commerce Commission regulations
regarding length and weight. Uncertainty as to the completion date made
premarketing of the units difficult, since mobile units are typically booked
several months in advance. In addition, sales for the Company's Studio division
were lower during the nine months ended May 31, 1998 as compared with the nine
months ended May 31, 1997 due to the non-renewal of the "Gordon Elliott" and
"Rolanda" shows. This loss was partially offset by revenues from the addition
of the "Chris Rock" and "TV Food Network" shows. Sales
12
<PAGE>
for the Company's New York Post Production division were lower during the nine
months ended May 31, 1998 as compared with the nine months ended May 31, 1997 as
a result of a continuing industry-wide decline in revenues and profitability
from analog editing.
The Company is currently reducing its New York post production assets and is
repurposing the related space for use in its New York Studio division. An
auction of miscellaneous excess analogue equipment was held in April 1998.
The merger of the Editel Los Angeles and Unitel Hollywood divisions in fiscal
1997 resulted in a significant decrease in sales during the nine months ended
May 31, 1998. However, the Editel Los Angeles division's merged operations
resulted in a profit during the nine months ended May 31, 1998 as compared to a
substantial operating loss for the two divisions during the nine months ended
May 31, 1997. The Company's net loss for the quarter ended May 31, 1998 was
($677,000), after giving effect to the write off of legal and advisory costs of
($685,000) ("merger agreement costs") incurred by the Company in connection with
certain third party expressions of interest in acquiring the Company, compared
to the net loss of ($1,580,000) after giving effect to impairment and
restructuring charges of $1,055,000 for the comparable quarter of fiscal year
1997. In May 1998 the Company announced that it was no longer actively involved
in discussions with third parties with respect to expressions of interest in
acquiring the Company. The Company's net loss was ($2,441,000) for the nine
months ended May 31, 1998, compared with a net loss of ($1,217,000) for the same
period of the prior fiscal year. The third quarter operating results before
merger agreement costs in fiscal 1998 and before impairment and restructuring
charges in fiscal 1997 were net income of $8,000 in the quarter ended May 31,
1998 compared to a net loss of ($525,000) in the quarter ended May 31, 1997.
The comparative improvement in results of operations in the quarter ended May
31, 1998 as compared to the quarter ended May 31, 1997 resulted from a
substantial improvement in operations of the New York Post Production division
and the Editel Los Angeles division. The comparative increase in net loss of
approximately ($1,594,000) for the nine months ended May 31, 1998 compared to
the nine months ended May 31, 1997, before merger agreement costs and impairment
and restructuring charges in those periods, is principally due to a decrease in
sales in the Company's New York Studio division in the period and in the New
York Post Production division in the first two quarters of fiscal 1998 and an
increase in expenses in the Mobile division. The increase in expenses in the
Mobile division is primarily due to a new field shop in Montreal, Canada,
promotional expenses in connection with the new digital mobile teleproduction
units, as well as increased depreciation and interest expense generated by the
new units.
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 65.0% for the quarter ended May
31, 1998, as compared to 69.4% for the quarter ended May 31, 1997 and 67.6% for
both of the nine months ended May 31, 1998 and 1997. Production costs decreased
for the quarter ended May 31, 1998 when compared with the same period of the
prior year primarily due to the merger of the Editel Los Angeles and Unitel
Hollywood divisions. Production costs as a percentage of sales remained
constant for the nine months ended May 31, 1998 when compared with the same
period of the prior year due to the decrease in sales related to the merger of
the
13
<PAGE>
Editel Los Angeles and Unitel Hollywood divisions and a comparable decrease in
expenses.
Depreciation, as a percentage of sales, was 16.1% and 13.3% for the quarters
ended May 31, 1998 and 1997, respectively, and 16.4% and 13.6% for the nine
months ended May 31, 1998 and 1997, respectively. The increase in the quarter
and nine months ended May 31, 1998 compared to the same periods in the prior
year was a result of depreciation on the Mobile division's newest digital mobile
teleproduction units introduced in the nine months ended May 31, 1998 as well as
increased depreciation resulting from additions to property and equipment at
other divisions during fiscal 1997. This increase was offset by a reduction in
depreciation on the Editel Los Angeles division resulting from the merger of the
Editel Los Angeles and Unitel Hollywood divisions in fiscal 1997. Since sales
were down and depreciation was approximately the same in the quarter and nine
months ended May 31, 1998 compared to the quarter and nine months ended May 31,
1997, depreciation as a percentage of sales increased for such periods.
Selling expenses, as a percentage of sales, for the quarters ended May 31, 1998
and 1997 were 2.2% and 2.6%, respectively, and 2.7% and 3.0% for the nine months
ended May 31, 1998 and May 31, 1997. The percent of sales in the quarter and
nine months ended May 31, 1998 was comparable to the prior year periods since
selling expense as well as sales decreased proportionately. The decrease in
selling expenses in the quarter and nine months ended May 31, 1998 as compared
to the same periods in the prior year is mainly due to a decrease in sales staff
resulting from the merger of the Unitel Hollywood and Editel Los Angeles
divisions in fiscal 1997.
General and administrative expenses, as a percentage of sales, for the quarters
ended May 31, 1998 and 1997 were 10.7% and 13.1%, respectively, and 11.4% and
11.0% for the nine months ended May 31, 1998 and 1997. The decrease in general
and administrative expenses for the third quarter of fiscal 1998 compared to the
same period in the prior year is primarily due to the merger of the Company's
Editel Los Angeles and Unitel Hollywood divisions. The increase in general and
administrative expenses as a percentage of sales for the nine months ended May
31, 1998 compared to the same period in the prior year is due to a decrease in
sales as previously mentioned without a comparable decrease in general and
administrative expenses.
Interest expense, as a percentage of sales, for the quarters ended May 31, 1998
and 1997 was 7.2% and 5.7%, respectively, and 7.1% and 5.7% for the nine months
ended May 31, 1998 and 1997. The level of outstanding debt in the first nine
months of fiscal 1998 increased compared with the same period of the prior year
and sales decreased in the first nine months of fiscal 1998, resulting in an
increase in interest expense as a percentage of sales in fiscal 1998 when
compared with the same periods of the prior year.
The Company's effective tax rate was 0% and 0% for the first nine months of
fiscal years 1998 and 1997, respectively. The effective tax rate for the first
nine months of fiscal 1998 and 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, 1996 and 1997.
14
<PAGE>
As previously announced, in fiscal 1998 the Company received unsolicited
expressions of interest in acquiring the Company from third parties. The
Company incurred $685,000 of deferred advisory and legal fees in connection with
its evaluation of these expressions of interest. Since discussions have
terminated, these advisory and legal fees have been expensed in the quarter and
nine months ended May 31, 1998.
YEAR 2000
The Company has been actively reviewing all of its financial and operational
software for Year 2000 issues. In discussions with the vendors of such software
the Company has been assured that all Year 2000 issues will be addressed in a
timely manner without significant cost to the Company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
PART II OTHER INFORMATION
Item 5. Other Information
This report contains certain forward-looking statements which are based upon
current expectations and involve certain risks and uncertainties. Under the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995,
readers are cautioned that these statements may be impacted by several factors,
and, accordingly, the Company's actual performance and results may vary from
those stated herein.
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 quarter ended
May 31, 1998.
15
<PAGE>
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.
UNITEL VIDEO, INC.
By: /s/ Barry Knepper
-------------------------------------
Barry Knepper
President and Chief Executive Officer
By: /s/ Neil Marcus
-------------------------------------
Neil Marcus
Chief Financial Officer
Dated: July 9, 1998
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Unitel
Video, inc. Form 10-Q for the Quarter and Nine Months Ended May 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 174
<SECURITIES> 0
<RECEIVABLES> 7,225
<ALLOWANCES> 537
<INVENTORY> 0
<CURRENT-ASSETS> 8,111
<PP&E> 105,165
<DEPRECIATION> 54,617
<TOTAL-ASSETS> 63,585
<CURRENT-LIABILITIES> 18,695
<BONDS> 42,213
0
0
<COMMON> 27
<OTHER-SE> 11,159
<TOTAL-LIABILITY-AND-EQUITY> 63,585
<SALES> 40,154
<TOTAL-REVENUES> 40,154
<CGS> 33,725
<TOTAL-COSTS> 33,725
<OTHER-EXPENSES> 9,213
<LOSS-PROVISION> 55
<INTEREST-EXPENSE> 2,852
<INCOME-PRETAX> (2,439)
<INCOME-TAX> 2
<INCOME-CONTINUING> (2,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,441)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> (.91)
</TABLE>
