<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Period ended MARCH 31, 1997
----------------
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-18102
-------
MATTHEWS STUDIO EQUIPMENT GROUP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1447751
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3111 NORTH KENWOOD STREET, BURBANK, CA 91505
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(818) 525-5200
----------------------------------------------------
(Registrant's telephone number, including area code)
2405 EMPIRE AVENUE, BURBANK, CA 91504-3399
-------------------------------------------------------
(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 Exchange Act 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 the latest practicable date. COMMON STOCK, NO PAR VALUE
--------------------------
10,336,591 SHARES AS OF APRIL 30, 1997.
- ---------------------------------------
<PAGE>
INDEX
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31, 1997 and
September 30, 1996
Condensed consolidated statements of income - Three months ended March
31, 1997 and 1996; Six months ended March 31, 1997 and 1996
Condensed consolidated statements of cash flows - Six months ended
March 31, 1997 and 1996
Notes to condensed consolidated financial statements - March 31, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
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>
PART I, FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
----------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 685 $ 462
Accounts receivable, less allowance of $579 at
March 31, 1997 and $480 at September 30, 1996 6,242 5,145
Current portion of net investment in leases 771 794
Inventories 6,363 4,961
Prepaid expenses and other current assets 1,124 945
----------- -----------
Total current assets 15,185 12,307
Property and equipment, less accumulated
depreciation and amortization of $18,537
at March 31, 1997 and $17,214 at
September 30, 1996 20,932 20,339
Investment in leases, less current portion 660 865
Other assets 1,431 973
----------- -----------
Total assets $ 38,208 $ 34,484
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 2,814 $ 2,603
Accrued liabilities 2,302 1,626
Current portion of long-term debt and capital
lease obligations 165 125
Income taxes payable 158 -
----------- -----------
Total current liabilities 5,439 4,354
Long-term debt and capital leases 20,658 18,914
Deferred income taxes 2,142 2,142
Shareholders' equity
Preferred stock - -
Common stock 5,589 5,584
Retained earnings 4,380 3,490
----------- -----------
Total shareholders' equity 9,969 9,074
----------- -----------
Total liabilities and shareholders' equity $ 38,208 $ 34,484
=========== ===========
</TABLE>
Note: The balance sheet at September 30, 1996 has been derived from the audited
financial statements at that date.
See accompanying notes
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net product sales $ 5,149 $ 3,517 $ 8,703 $ 6,697
Revenue from rental operations 5,626 3,249 11,394 6,434
-------- -------- -------- --------
10,775 6,766 20,097 13,131
Costs and expenses:
Cost of sales 3,537 2,285 5,869 4,285
Cost of rental operations 2,982 1,841 6,380 3,638
Selling, general and
administrative 2,828 2,018 5,235 3,854
Interest 564 476 1,130 999
-------- -------- -------- --------
9,911 6,620 18,614 12,776
Income before income taxes 864 146 1,483 355
Provision for income taxes 345 29 593 70
-------- -------- -------- --------
Net income $ 519 $ 117 $ 890 $ 285
======== ======== ======== ========
Earnings per common share $0.05 $0.01 $0.09 $0.03
======== ======== ======== ========
Weighted average number of
common shares outstanding 10,335 10,321 10,333 10,324
</TABLE>
See accompanying notes.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Six Months Ended March 31,
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 890 $ 285
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for doubtful accounts 138 80
Depreciation & amortization 1,614 1,667
Gain on sale of assets (146) (65)
Changes in operating assets and liabilities net of
effects from purchase of Media Lighting Supply, Inc.:
Accounts receivable (639) 290
Inventories (921) (84)
Net investment in leases 252 302
Prepaids/other assets (238) (56)
Income tax refund receivable - 252
Accounts payable and accrued liabilities 84 (229)
Income taxes payable 158 54
-------- --------
Net cash provided by operating activities 1,192 2,496
Investing activities:
Payment for acquisition of Media Lighting Supply, Inc.,
less amount paid by assumption of debt (200) -
Purchase of other property and equipment (2,254) (3,847)
Proceeds from sale of property and equipment 364 218
-------- --------
Cash used in investing activities (2,090) (3,629)
Financing activities:
Proceeds from exercise of stock options 5 12
Proceeds from borrowings 1,116 1,069
-------- --------
Net cash provided by financing activities 1,121 1,081
Net increase (decrease) in cash and cash equivalents 223 (52)
Cash and cash equivalents at beginning of period 462 438
-------- --------
Cash and cash equivalents at end of period $ 685 $ 386
======== ========
</TABLE>
See accompanying notes.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited) - Continued
($ in thousands)
Supplementary Schedule of Noncash Investing and
Financing Activities
The Company purchased the operations of Media Lighting Supply, Inc., for $425 in
cash, with only $200 of the purchase price being due on closing. The remaining
portion will be due in installments of $100, $100 and $25 over the next three
years. In connection with the acquisition, assets acquired and liabilities
assumed were as follows:
<TABLE>
<S> <C>
Assets purchased $ 1,705
Cash paid (200)
-------
Liabilities assumed $ 1,505
=======
</TABLE>
See accompanying notes.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Presentation
The accompanying unaudited condensed consolidated financial statements of
Matthews Studio Equipment Group and Subsidiaries (the "Company") 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 and six month periods ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1997, due to fluctuations in film
production activities. For further information refer to the consolidated
financial statements and footnotes thereto included in the Matthews Studio
Equipment Group annual report on Form 10-K for the year ended September 30,
1996.
2. Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Long-Lived Assets
Long-lived assets used in operations are reviewed periodically to determine that
the carrying values are not impaired and if indicators of impairment are
present, or if long-lived assets are expected to be disposed of, impairment
losses are recorded.
Stock Based Compensation
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees," and intends to
continue to do so. In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" ("FAS 123"). FAS 123 established a fair value-based
method of accounting for compensation cost related to stock options and other
stock-based compensation awards. However, FAS 123 allows an entity to continue
to measure compensation costs using the principles of APB 25 if certain proforma
disclosures are made. FAS 123 is effective for fiscal years beginning after
December 15, 1995 (the Company's 1997 fiscal year). The Company intends to
disclose the information required by FAS 123 beginning with its financial
statements for fiscal year end 1997.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)-Continued
2. Accounting Policies (continued)
Per Share Data
Per share data has been computed based on the weighted average number of shares
of common stock outstanding as dilutive options and warrants account for less
than 3% of the outstanding common shares. For the first and second quarters of
fiscal years 1997 and 1996, the effect of the stock options and warrants were
antidilutive, using the modified treasury stock method as a result of exercise
prices of options and warrants in excess of market.
Inventories
Inventories are principally stated at the lower of first-in, first-out cost or
market.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The effective income tax rate is 40% for the current
quarter versus approximately 20% for the same period of the prior year. The
lower rate for last year was primarily attributable to the utilization of net
operating loss and alternative minimum tax carryforwards.
3. Stock Options
During the six months ended March 31, 1997, 5,000 shares of common stock were
issued upon exercise of stock options.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)-Continued
4. Acquisition
On February 21, 1997, the Company purchased the assets and business of Media
Lighting Supply, Inc., a lighting supply company in Miami, Florida. The
acquisition was made for cash of $425,000. In addition, the Company assumed
debt, including unpaid purchase price of $1,505,000. Only $200,000 of cash was
paid on closing, with the remaining portion of the purchase price becoming due
in installments of $100,000, $100,000 and $25,000 on the first, second and third
anniversaries of the closing. The pro forma unaudited results of operations for
the six months ended March 31, 1997 and 1996, assuming consummation of the
purchase as of October 1, 1995, are as follows:
<TABLE>
<CAPTION>
Six Months Ended March 31
1997 1996
---- ----
($ in thousands, except per share data)
<S> <C> <C>
Net revenue $21,192 $15,008
Net income 910 303
Net income per common share $ 0.09 $ 0.03
</TABLE>
5. Subsequent Event
On May 2, 1997, the Company purchased the assets and business of Duke City
Video, Inc. ("Duke City"), which generally conducts business as Duke City
Studio. Duke City provides rental services of audio, video, film and
professional grip equipment, as well as various levels of production expertise,
crews and expendable supplies to the film and television production industry.
Duke City has operations in Albuquerque, New Mexico, Burbank, California and
Dallas, Texas. In connection with the acquisition of Duke City, the Company
entered into stock purchase agreements to exchange all of the outstanding common
stock of Duke City with the former shareholders for 285,715 of restricted shares
of the Company's common stock. The acquisition will be accounted for as a
purchase and the operations of Duke City will be included in the consolidated
statements in the Company's third fiscal quarter.
Also, in connection with the Duke City acquisition certain amendments to the
Company's revolving credit facility were approved by the bank which increased
the facility to $18.5 million.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Overview
- --------
In the first and second quarters of fiscal 1997, the Company continued the
trends from fiscal 1996 of growth and improved operating results. The first and
second quarters of fiscal 1997 showed improvements in sales, net income, and
earnings per share over the comparable periods of fiscal 1996. Revenues
increased by $6,966,000 or 53% to $20,097,000 for the first six months of
fiscal 1997, from $13,131,000 for the first six months of fiscal 1996. Net
income increased by $605,000 or 212% to $890,000 for the first six months of
fiscal 1997, from $285,000 for the first six months of fiscal 1996 while income
before income taxes increased by $1,128,000 or 318% during the same period.
Three-Month Period ended March 31, 1997 and March 31, 1996
- ----------------------------------------------------------
Net Product Sales
- -----------------
Net equipment and supply sales were $5,149,000 for the second quarter of fiscal
1997, an increase of $1,632,000 or 46%, from $3,517,000 for the second quarter
of fiscal 1996. Sales of production equipment and accessories for lighting
support, camera support, lighting control and equipment sales to the retail
industry ("Equipment sales") increased to $3,220,000, an increase of $731,000,
or 29%, from $2,489,000 in fiscal 1996. Sales of expendable supply products
increased in the second quarter of fiscal 1997 to $1,929,000 from $1,028,000, an
increase of $901,000 or 88% over the same period last year. The increase in
sales of expendable supply products resulted principally from revenue relating
to Media Lighting Supply, Inc., which was acquired during the second quarter of
fiscal year 1997.
Revenues From Rental Operations
- -------------------------------
Revenues from rental operations were $5,626,000 for the second quarter of fiscal
1997, compared to $3,249,000 for the same period last year, an increase of
$2,377,000 or 73%. Production equipment rentals, primarily of lighting, grip,
power generators and trucks, increased to approximately $5,576,000, an increase
of $2,538,000 or 84% from approximately $3,038,000, for the same period last
year. Approximately 43% of the total revenue in the second quarter of fiscal
year 1997 was from large-budget film projects completed during the quarter.
Also contributing to the increase in the Company's rental revenues was the
addition of equipment to the Company's rental inventory base, including
equipment added for the new marketing centers opened in fiscal 1996.
Gross Profit - Sales
- --------------------
Gross profit as a percentage of sales was approximately 31% for the second
quarter of fiscal 1997, compared to approximately 35% for the same period in
fiscal 1996. The lower gross profit percentage realized by the Company on
higher revenues was primarily attributable to the increase in expendable supply
product sales, which carry lower gross profit margins than the Company's other
products.
<PAGE>
Gross Profit - Rental
- ---------------------
Gross profit as a percentage of rental revenues was approximately 47% for the
second quarter of fiscal 1997 compared to 43% in fiscal 1996. Gross profit from
rental revenues increased by $1,236,000 for the second quarter of fiscal 1997 as
compared to fiscal 1996, mainly due to the increase in revenues and the
significant amount of costs which are of a fixed nature.
Selling, General and Administrative
- -----------------------------------
Selling, general and administrative expenses were $2,828,000 in the second
quarter of fiscal 1997 compared to $2,018,000 for the same period in fiscal
1996. As a percent of sales, selling, general and administrative expenses were
26% for the second quarter of fiscal 1997 compared to 30% for the same period in
fiscal 1996. The dollar increase was required to support the increase in
operations and was due mainly to higher payroll and related costs, as well as
higher advertising and sales commission expenses.
Interest
- --------
Interest increased to $564,000 in the second quarter of fiscal 1997 from
$476,000 in the second quarter of fiscal 1996. The increase in interest costs is
primarily due to an increase in the outstanding principal amount of debt, a
portion of which is attributable to the acquisition of Media Lighting Supply,
Inc.
Six-Month Period ended March 31, 1997 and March 31, 1996
- --------------------------------------------------------
Net Product Sales
- -----------------
Net equipment and supply sales increased to $8,703,000 for the first six months
of fiscal 1997, compared to $6,697,000 for the first six months of fiscal 1997.
Equipment sales increased to $5,772,000 for the first six months of fiscal 1997,
an increase of $916,000 or 19% from $4,856,000 for the same period last year.
The increase in Equipment sales is attributable to concentrated marketing
efforts. Sales of expendable supplies increased by approximately $1,581,000
compared to the first six months of 1996 and approximately $1,062,000 of the
increase relates to Media Lighting Supply, Inc., which was acquired during the
second quarter of fiscal year 1997.
Revenues From Rental Operations
- -------------------------------
Revenues from rental operations were $11,394,000 for the first six months of
fiscal 1997, compared to $6,434,000 for the same period last year, an increase
of $4,960,000 or 77%. Approximately 51% of the total revenue of the first six
months of fiscal year 1997 was from large-budget film projects which were
completed during the second quarter. Also contributing to the increase in the
Company's rental revenues was the addition of equipment to the Company's rental
inventory base, including equipment added for the new marketing centers opened
in fiscal year 1996.
<PAGE>
Gross Profit - Sales
- --------------------
Gross profit as a percentage of sales was approximately 33% for the first six
months of fiscal 1997, compared to approximately 36% for the same period in
fiscal 1996. The decrease was primarily attributable to the increase in
expendable supply product sales, which carry lower gross profit margins than the
Company's other products.
Gross Profit - Rental
- ---------------------
Gross profit as a percentage of rental revenues was approximately 44% for the
first six months of fiscal 1997, compared to 43% in fiscal 1996. The small
increase in gross profit despite a more significant increase in rental revenues
is due to an increase of $1,902,000 in sub-rental costs as a result of higher
rental activities during the current period. Sub-rental costs as a percentage of
revenue was 22% for the first six months of fiscal year 1997, compared to 10%
for the same period in fiscal year 1996.
Selling, General and Administrative
- -----------------------------------
Selling, general and administrative expenses were $5,235,000 for the first six
months of fiscal 1997, compared to $3,854,000 for the same period in fiscal year
1996. As a percent of sales, selling, general and administrative expenses were
26% for the first six months of fiscal 1997, compared to 29% for the same period
in fiscal 1996. The dollar increase was required to support the increase in
operations and was due mainly to higher payroll and related costs, as well as
higher advertising and sales commission expenses.
Interest
- --------
Interest increased to $1,130,000 for the first six months of fiscal 1997,
compared to $999,000 for the first six months of fiscal 1996. The increase in
interest costs is primarily due to an increase in the outstanding principal
amount of debt.
Liquidity and Capital Resources
- -------------------------------
During the six months ended March 31, 1997, the Company financed its operations
primarily from internally generated cash flow and bank borrowings.
Working capital was $9,746,000 at March 31, 1997 compared to $7,953,000 at
September 30, 1996.
During the first six months of fiscal 1997, the Company generated cash from
operating activities of $1,192,000. The major contributor to cash from operating
activities was earnings before depreciation and amortization of $2,504,000.
Operating cash flow was somewhat lower for the first six months of fiscal 1997
compared to the same period last year, due to increased working capital
requirements to support the increase in business activity.
The Company utilized the cash from operating activities augmented by
additional borrowings from the Company's bank line of $1,116,000, to finance the
acquisition of capital equipment. The major components of the asset additions
were equipment for the Company's equipment rental operations of approximately
$1,429,000, and cash used for the acquisition of the operations and assets of
Media Lighting Supply, Inc.
<PAGE>
During the next twelve months, the Company expects to purchase new capital
equipment to allow its operations to be more efficient, support growth and to
minimize the sub-rental of equipment necessary to meet customer orders. The
Company expects to finance its capital acquisition program through a combination
of cash generated from operations and additional borrowings under its bank line
of credit. The Company believes it will have sufficient funds from operations
and bank borrowings to meet its anticipated requirements for working capital
during the next twelve months.
<PAGE>
PART II. OTHER INFORMATION
Items 1,2,3, and 5 are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of Matthews Studio Equipment Group
was held on March 27, 1997.
In addition to election of directors, the following matters were voted
upon and the results were as follows:
To amend the Articles of Incorporation to eliminate inapplicable
language regarding the Company's business. Number of votes:
For Against Abstain Broker Non-votes
--- ------- ------- ----------------
6,632,245 516,000 6,054 242,700
To ratify Ernst & Young LLP as the Company's independent accountants
for the fiscal year ending September 30, 1997. Number of votes:
For Against Abstain Broker Non-votes
--- ------- ------- ----------------
7,385,245 11,550 204 -
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report on Form 10-Q for the period
ending March 31, 1997, to be signed on its behalf by the undersigned hereunto
duly authorized.
MATTHEWS STUDIO EQUIPMENT GROUP
(Registrant)
Date: May 13, 1997 By: /s/ Gary Borman
---------------------------------
Gary Borman
Vice President, Corporate Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
PERIOD ENDED MARCH 31, 1997 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> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 685
<SECURITIES> 0
<RECEIVABLES> 6,821
<ALLOWANCES> 579
<INVENTORY> 6,363
<CURRENT-ASSETS> 15,185
<PP&E> 39,469
<DEPRECIATION> 18,537
<TOTAL-ASSETS> 38,208
<CURRENT-LIABILITIES> 5,439
<BONDS> 0
0
0
<COMMON> 5,589
<OTHER-SE> 4,380
<TOTAL-LIABILITY-AND-EQUITY> 38,208
<SALES> 8,703
<TOTAL-REVENUES> 20,097
<CGS> 5,869
<TOTAL-COSTS> 12,249
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,130
<INCOME-PRETAX> 1,483
<INCOME-TAX> 593
<INCOME-CONTINUING> 890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 890
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
