<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 DECEMBER 31, 1996
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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
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MATTHEWS STUDIO EQUIPMENT GROUP
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(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1447751
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2405 EMPIRE AVENUE, BURBANK, CA 91504-3399
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(Address of principal executive offices) (Zip Code)
(818) 843-6715
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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
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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
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VALUE - 10,331,591 SHARES AS OF JANUARY 31, 1997.
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<PAGE>
INDEX
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - December 31, 1996 and
September 30, 1996
Condensed consolidated statements of income - Three months ended
December 31, 1996 and 1995
Condensed consolidated statements of cash flows - Three months
ended December 31, 1996 and 1995
Notes to condensed consolidated financial statements - December
31, 1996
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 I. FINANCIAL STATEMENTS (UNAUDITED)
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
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(Unaudited) (Note)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 293 $ 462
Accounts receivable, less allowance of $545 at December 31,
1996 and $480 at September 30, 1996 4,941 5,145
Current portion of net investment in leases 788 794
Inventories 5,364 4,961
Prepaid expenses and other current assets 1,005 945
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Total current assets 12,391 12,307
Property and equipment, less accumulated depreciation
and amortization of $17,880 at December 31, 1996
and $17,214 at September 30, 1996 20,968 20,339
Investment in leases, less current portion 772 865
Other assets 929 973
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Total assets $35,060 $34,484
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 1,520 $ 2,603
Accrued liabilities 2,419 1,626
Current portion of long-term debt and capital
lease obligations 116 125
Income taxes payable 206 -
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Total current liabilities 4,261 4,354
Long-term debt and capital leases 19,212 18,914
Deferred income taxes 2,142 2,142
Shareholders' equity:
Preferred stock - -
Common stock 5,584 5,584
Retained earnings 3,861 3,490
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Total shareholders' equity 9,445 9,074
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Total liabilities and shareholders' equity $35,060 $34,484
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</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
December 31,
1996 1995
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<S> <C> <C>
Net product sales $3,554 $3,077
Revenues from rental operations 5,768 3,287
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9,322 6,364
Costs and expenses:
Cost of sales 2,332 1,925
Cost of rental operations 3,398 1,871
Selling, general and administrative 2,406 1,835
Interest 567 523
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8,703 6,154
Income before income taxes 619 210
Provision for income taxes 248 42
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Net income $ 371 $ 168
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Earnings per common share $ 0.04 $ 0.02
====== ======
Weighted average number of
common shares outstanding 10,332 10,321
</TABLE>
See accompanying notes.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1996 1995
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<S> <C> <C>
Operating activities:
Net income $ 371 $ 168
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for doubtful accounts 67 37
Depreciation and amortization 799 846
Gain on sale of assets (53) (63)
Changes in operating assets and liabilities:
Accounts receivable 137 (224)
Inventory (403) 59
Net investment in leases 99 216
Prepaids and other assets (29) (64)
Income tax refund receivable - 295
Accounts payable and accrued liabilities (290) 157
Income taxes payable 206 23
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Net cash provided by (used in) operating activities 904 1,450
Investing activities:
Purchase of property and equipment (1,376) (2,396)
Proceeds from sale of property and equipment 150 53
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Net cash used in investing activities (1,226) (2,343)
Financing activities:
Proceeds from exercise of stock options - 6
Proceeds from borrowings 153 1,321
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Net cash provided by financing activities 153 1,327
Net increase (decrease) in cash and cash equivalents (169) 434
Cash and cash equivalents at beginning of period 462 438
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Cash and cash equivalents at end of period $ 293 $ 872
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</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 months ended December 31, 1996
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's 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 1997 fiscal year
end.
<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 quarter 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 net operating loss carryforwards.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
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Overview
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In the first three months of fiscal 1997, the Company continued the trends from
fiscal 1996 of growth and improved operating results. The first three months of
fiscal 1997 showed improvements in sales, net income, and earnings per share
over the first three months of fiscal 1996. Revenues increased $2,958,000 or
46% to $9,322,000 for the first three months of fiscal 1997, from $6,364,000 for
the first three months of fiscal 1996. Net income increased $203,000 to $371,000
for the first three months of fiscal 1997, from $168,000 for the first three
months of fiscal 1996.
Three-Month Period ended December 31, 1996 and December 31, 1995
- ----------------------------------------------------------------
Net Product Sales
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Net equipment and supply sales were $3,554,000 for the first three months of
fiscal 1997, an increase of $477,000, or 16%, from $3,077,000 for the first
three months 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 $2,470,000, an increase of
$139,000, or 6%, from $2,331,000 in fiscal 1996. Sales of expendable supply
products increased in the first quarter of fiscal 1997 to $1,002,000 from
$693,000, an increase of $309,000 or 45% over the same period last year.
Revenues From Rental Operations
- -------------------------------
Revenues from rental operations were $5,768,000 for the first three months of
fiscal 1997, compared to $3,287,000 for the same period last year, an increase
of $2,481,000 or 75%. Production equipment rentals, primarily of lighting,
grip, power generators and trucks, increased to approximately $5,643,000, an
increase of $2,726,000 or 93% from approximately $2,917,000, for the same period
last year. The increase was primarily due to a large-budget film project
currently in progress and a general increase in industry activity. 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 34% for the first three
months of fiscal 1997, compared to approximately 37% 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. The dollar amount of gross profit on net product sales increased only
slightly in the first quarter of fiscal 1997 over the same period last year.
Gross Profit - Rental
- ---------------------
Gross profit as a percentage of rental revenues was approximately 41% for the
first three months of fiscal 1997 compared to 43% in fiscal 1996. While the
gross profit from rental revenues increased by $954,000 for the first three
months of fiscal 1997 as compared to fiscal 1996, the gross profit percentage
decreased mainly as a result of substantially increased subrental costs to
support the heavy increase in rental activity.
<PAGE>
Selling, General and Administrative
- -----------------------------------
Selling, general and administrative expenses were $2,406,000 in the first three
months of fiscal 1997 compared to $1,835,000 for the same period in fiscal 1996.
As a percent of sales, selling, general and administrative expenses were 26% for
the first three 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, sales commission and bonus expenses.
Interest
- --------
Interest increased to $567,000 in the first three months of fiscal 1997 from
$523,000 in the first three months of fiscal 1996.
Liquidity and Capital Resources
- -------------------------------
During the three months ended December 31, 1996, the Company financed its
operations primarily from internally generated cash flow.
Working capital was $8,130,000 at December 31, 1996 compared to $7,953,000 at
September 30, 1996.
During the first three months of fiscal 1997, the Company generated cash from
operating activities of $905,000. The major contributor to cash from operating
activities was earnings before depreciation and amortization of $1,170,000.
Operating cash flow was somewhat lower for the first three 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 primarily applied cash from operating activities of $905,000,
augmented by additional borrowings from the Company's bank line of $152,000, to
finance the acquisition of capital equipment. The major component of the asset
additions were equipment for the Company's Equipment rental operations of
approximately $903,000.
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 subrental 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 through 5 are not applicable.
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 December 31, 1996.
<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 December 31, 1996, to be signed on its behalf by the undersigned hereunto
duly authorized.
MATTHEWS STUDIO EQUIPMENT GROUP
(Registrant)
Date: February 10, 1997 By: /s/ Gary Borman
---------------------------------------------
Gary Borman
Corporate Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q FOR
PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 293
<SECURITIES> 0
<RECEIVABLES> 5,486
<ALLOWANCES> 545
<INVENTORY> 5,364
<CURRENT-ASSETS> 12,391
<PP&E> 38,848
<DEPRECIATION> 17,880
<TOTAL-ASSETS> 35,060
<CURRENT-LIABILITIES> 4,261
<BONDS> 0
0
0
<COMMON> 5,584
<OTHER-SE> 3,862
<TOTAL-LIABILITY-AND-EQUITY> 35,060
<SALES> 3,554
<TOTAL-REVENUES> 9,322
<CGS> 2,332
<TOTAL-COSTS> 5,730
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 567
<INCOME-PRETAX> 619
<INCOME-TAX> 248
<INCOME-CONTINUING> 371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 371
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
