<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 1, 1998
MATTHEWS STUDIO EQUIPMENT GROUP
----------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA
--------------------------------------------
(State or other jurisdiction of incorporation)
0-18102 95-1447751
---------------------- ------------------
(Commission file number) (I.R.S. Employer
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)
N/A
----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On April 1, 1998, Matthews Studio Equipment Group ("Matthews" or "the Company")
acquired Four Star Holding, Inc. ("Four Star") a holding company which owns 100%
of Four Star Lighting, Inc. Pursuant to a stock purchase agreement, in exchange
for all of the capital stock of Four Star, the Company paid $18,421,000 in cash
to the shareholders of Four Star and $9,104,000 in cash to reduce Four Star's
long-term debt. The amount of consideration paid to the Four Star shareholders
was reached through arms-length negotiations and was funded through the
Company's credit facility discussed in Item 5 below. The amount paid to Four
Star creditors was funded through the same credit facility.
Prior to the acquisition, the ownership in Four Star was held by Four Star
Associates, L.P., Stonebridge Partners Equity Fund, L.P., Bill L. Aishman,
Anthony P. Cancellieri and Darren DeVerna. Four Star has operations in New
York, New York and Los Angeles, California. Four Star provides rentals of
lighting and other equipment for use in theatrical productions. Four Star will
continue its business and operations as a wholly-owned subsidiary of the
Company.
Four Star's revenues for its fiscal year ended December 31, 1997 were
approximately $11.7 million and the total liabilities as of that date were $13.9
million. Of the $27,525,000 cash paid on April 1, 1998, $9,104,000 was used to
pay off certain liabilities of Four Star.
A copy of the press release of the Company in respect of the acquisition of Four
Star is attached hereto as Exhibit 3.
Item 5. Other Events
On April 1, 1998, Matthews and its principal subsidiaries amended its senior
secured revolving credit facility (the "Amended Chase Facility") with The Chase
Manhattan Bank as agent for a syndicate of lenders ("Bank").
The Amended Chase Facility provides for revolving credit loans of up to
$64,000,000 and a term loan of $16,000,000, with an aggregate principal amount
not in excess of $80.0 million at any time outstanding. The term loan requires
principal payments beginning December 31, 1998. The proceeds of the Amended
Chase Facility may be used, 1) to finance the Four Star acquisition, including
fees and expenses incurred in connection with the Four Star acquisition, within
the limits specified in the stock purchase agreement, 2) for general working
capital purposes, 3) for the financing of future acquisitions of businesses with
$10.0 million designated for such activities, 4) to finance the repayment of
certain capitalized lease obligations, 5) to finance capital expenditures,
within the limits specified in the agreement, and 6) to repay certain
subordinated debt.
Interest on outstanding borrowings under the Amended Chase Facility at the
Company's choice is at LIBOR plus a maximum of 2.75% or the greater of (i) Chase
Manhattan Bank's Prime Rate plus a maximum of 0.75%, (ii) the Base CD Rate (as
determined by the Bank) plus a maximum of 1.75% or (iii) the Federal Funds
Effective Rate plus a maximum of 1.25%. In each case, the interest margin
charged on outstanding loans may be reduced if specified ratios are achieved by
the Company. In addition, the Company pays from three-eights of one percent to
one-half of one percent on the unused credit commitment.
The Amended Chase Facility matures August 14, 2002. The Amended Chase Facility
requires the Company to maintain certain levels of net worth and, on a quarterly
basis, certain levels of EBITDA (earnings before interest, taxes, depreciation
and amortization), and to meet several financial ratios including interest
coverage, leverage and debt service coverage ratios. In addition, the Company
must maintain limits on annual rent expenses.
<PAGE>
The Amended Chase Facility provides for annual capital expenditure limits of
$12.75 million in fiscal 1998 and $11.5 million for each fiscal year thereafter.
Amounts (up to $2.0 million) permitted to be expended in a given fiscal year may
be carried over (if not spent) and expended in the succeeding fiscal year. In
addition, the annual limits will be increased by 25% in years when specified
financial ratios have been achieved.
Borrowings under the Amended Chase Facility by the Company and its subsidiaries
are cross collateralized pursuant to a security agreement in which the Company
and its subsidiaries has granted the Bank a first priority lien in all of their
respective assets.
A copy of the press release of the Company in respect of the Amended Chase
Facility is attached hereto as Exhibit 3.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Four Star was acquired by Matthews on April 1, 1998. The audited financial
statements of Four Star, and the related Independent Auditors' Report for the
Four Star fiscal year ended December 31, 1997 are located at Addendum I.
(b) Pro forma Financial Information (unaudited)
The required pro forma combined financial data is located at Addendum II.
<PAGE>
(2) (c) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Document Description
- ------- --------------------
<C> <S>
1. Sale Agreement dated as of March 20, 1998, among Matthews Studio
Equipment Group, Four Star Associates, L.P., Stonebridge Partners
Equity Fund, L.P., Bill L. Aishman, Anthony P. Cancellieri,
Darren DeVerna, Four Star Lighting, Inc. and Four Star Holdings,
Inc., without the schedules and exhibits thereto, other than as
listed below:
i. Employment Agreement dated as of April 1, 1998, between
Darren DeVerna and Four Star Lighting, Inc.
(previously filed).
2. Amended and Restated Credit Agreement (without schedules or
exhibits)(previously filed).
3. Press release of the Company in respect of the acquisition of
Four Star Lighting, Inc. and the amended Chase credit facility,
(previously filed).
23. Independent Auditors' consent
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 8-K/A, to be signed on its behalf
by the undersigned hereunto duly authorized.
MATTHEWS STUDIO EQUIPMENT GROUP
(Registrant)
Date: May 11, 1998 By: /s/ Carlos De Mattos
----------------------------------------------
Carlos De Mattos
Chairman of the Board, Chief Executive Officer,
President & Chief Financial Officer
By: /s/ Gary S. Borman
----------------------------------------------
Gary S. Borman
Vice President, Corporate Controller
& Principal Accounting Officer
<PAGE>
ADDENDUM I.
- -----------
- --------------------------------------------------------------------
FOUR STAR HOLDING, INC.
Consolidated Financial Statements for the
Year Ended December 31, 1997 and
Independent Auditors' Report
<PAGE>
FOUR STAR HOLDING, INC.
TABLE OF CONTENTS
- --------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1997:
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Stockholder's Equity 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-10
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Four Star Holding, Inc.
We have audited the accompanying consolidated balance sheet of Four Star
Holding, Inc. as of December 31, 1997, and the related consolidated statements
of operations, stockholder's equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Four Star Holding, Inc. as of
December 31, 1997, and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
March 6, 1998
<PAGE>
FOUR STAR HOLDING, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 68,094
Accounts receivable, less allowance for doubtful accounts of $138,000 910,616
Inventories 214,920
Other current assets 16,710
Deferred taxes 67,222
-----------
Total current assets 1,277,562
PROPERTY, PLANT AND RENTAL EQUIPMENT - Net 11,834,952
OTHER NONCURRENT ASSETS - Net 3,418,070
-----------
TOTAL ASSETS $16,530,584
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,810,701
Accrued liabilities 259,356
Note payable - bank 1,053,882
Current portion of long-term debt 2,892,193
-----------
Total current liabilities 6,016,132
DEFERRED TAXES 1,406,010
LONG-TERM DEBT 4,482,588
SUBORDINATED DEBT 2,000,000
-----------
Total liabilities 13,904,730
-----------
STOCKHOLDER'S EQUITY:
Preferred stock 750,000
Common stock, $.01 par value; 750,000 shares authorized,
712,500 shares outstanding 7,125
Additional paid-in capital 705,375
Retained earnings 1,163,354
-----------
Total stockholder's equity 2,625,854
-----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $16,530,584
===========
</TABLE>
See notes to consolidated financial statements.
- -2-
<PAGE>
FOUR STAR HOLDING, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
REVENUES $11,668,787
------------
COSTS AND EXPENSES:
Cost of sales 6,764,522
Selling, general and administrative 1,263,321
------------
Operating income 3,640,944
------------
OTHER EXPENSES:
Interest 1,134,378
Other 694,641
------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,811,925
PROVISION FOR INCOME TAXES 779,441
------------
NET INCOME $ 1,032,484
============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
FOUR STAR HOLDING, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL COMMON
COMMON STOCK PAID-IN PREFERRED STOCK RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
ENDING BALANCE,
DECEMBER 31, 1996 712,500 $7,125 $705,375 150,000 $750,000 $ 200,245 $1,662,745
Net income 1,032,484 1,032,484
Dividends paid (69,375) (69,375)
------- ------ -------- ------- -------- ---------- ----------
BALANCE, DECEMBER 31, 1997 712,500 $7,125 $705,375 150,000 $750,000 $1,163,354 $2,625,854
======= ====== ======== ======= ======== ========== ==========
</TABLE>
See notes to consolidated financial statements.
- -4-
<PAGE>
FOUR STAR HOLDING, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,032,484
-----------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 3,452,139
Provision for doubtful accounts receivable 121,802
Decrease in deferred income taxes (112,281)
Decrease in other long-term assets 84,016
Gain on sale of equipment (52,742)
Increase in operating assets and liabilities:
Accounts receivable (366,927)
Inventories (83,251)
Current assets (4,351)
Accounts payable 1,379,795
Accrued liabilities 211,095
-----------
Total adjustments 4,629,295
-----------
Net cash provided by operating activities 5,661,779
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (4,525,354)
Proceeds from sale of equipment 66,075
-----------
Net cash used in investing activities (4,459,279)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable - bank (2,716,193)
Borrowings under notes payable - bank 1,560,000
Dividends paid (69,375)
-----------
Net cash used in financing activities (1,225,568)
-----------
NET DECREASE IN CASH (23,068)
CASH AT DECEMBER 31, 1996 91,162
-----------
CASH AT DECEMBER 31, 1997 $ 68,094
===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during period:
Interest $ 1,134,378
===========
Income taxes $ 921,577
===========
</TABLE>
See notes to consolidated financial statements.
- -5-
<PAGE>
FOUR STAR HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS
Four Star Holding, Inc. (the "Company") was incorporated on July 25, 1995
with the primary purpose of acquiring Four Star Lighting, Inc. On September
8, 1995 (the "Date of Acquisition"), the Company acquired 100% of Four Star
Lighting, Inc. Four Star Lighting, Inc. provides rentals of lighting and
other equipment for use in theater productions.
2. ACQUISITION
On September 8, 1995, the Company acquired Four Star Lighting, Inc. from its
former shareholders whereby the ownership of common stock was transferred to
Four Star Holding, Inc. ("1995 Acquisition"). The agreement provided for the
payment to the former Four Star Lighting Inc. shareholders following the
closing of the transaction.
The acquisition has been accounted for by the purchase method of accounting,
and accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
acquisition. The excess of the purchase price over the estimated fair values
of the net assets acquired plus various costs incurred associated with the
acquisition has been recorded as goodwill. The covenant not to compete will
be written off over five years and goodwill will be written off over 30
years.
The purchase price was financed by the issuance of 712,500 shares of the
Company's common stock, 150,000 shares of the Company's preferred stock, the
issuance of subordinated debt and the issuance of a long term note.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
all of the accounts of the Company and its wholly-owned subsidiary. All
material intercompany accounts and transactions have been eliminated in
consolidation.
INCOME RECOGNITION - The Company recognizes lease income under the operating
method of accounting for equipment under rental contracts and is reimbursed
for supplies relating to rental equipment. Under such method, income is
recognized as lease payments are due.
DEPRECIATION - Building and rental equipment are depreciated using the
straight-line method over the estimated useful lives of 25 years for the
building and five years for rental equipment.
OTHER NONCURRENT ASSETS - Other noncurrent assets include organizational and
deferred financing costs. Organizational costs are amortized over a 60-month
period on a straight-line basis. Deferred financing costs are amortized over
the period of the underlying debt on a straight-line basis.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company adopted Statement No. 121,
Accounting for the Impairment of Long-Lived Assets, of the Financial
Accounting Standards Board in 1995. This Statement requires that long-
<PAGE>
lived assets and certain identifiable intangibles held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amounts of an asset may not be recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Financial instruments include cash,
accounts receivable, accounts payable accruals and line of credit, it was
assumed that the carrying amount approximated fair value because of their
short maturity. The fair value of the company's long-term debt is estimated
using discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. At
December 31, 1997, the Company's fair value for long-term debt approximated
the current carrying value.
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 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.
4. PROPERTY, PLANT AND RENTAL EQUIPMENT
Property, plant and rental equipment consist of the following at December 31,
1997:
<TABLE>
<S> <C>
Land $ 30,000
Buildings and improvements 6,200
Rental equipment 18,402,042
-----------
18,438,242
Less accumulated depreciation 6,603,290
-----------
$11,834,952
===========
</TABLE>
Depreciation expense relating to property, plant and rental equipment
amounted to $3,244,660 for the year ended December 31, 1997.
5. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Organizational costs $ 3,250
Deferred financing costs 345,731
Covenant not to compete 105,000
Goodwill 3,382,578
Other noncurrent assets - miscellaneous 30,000
----------
3,866,559
Less accumulated amortization 448,489
----------
$3,418,070
==========
</TABLE>
Amortization expense relating to other noncurrent assets amounted to $207,479
for the year ended December 31, 1997, and is included within other expenses
on the statement of operations and stockholder's equity.
<PAGE>
During 1997, the Company recorded an adjustment to goodwill of approximately
$84,000 due to the settlement of certain pre-acquisition tax liabilities.
6. LINE OF CREDIT
The Company has a revolving line of credit with a bank, which allows the
Company to borrow up to $3,500,000 Borrowings under the line of credit are at
2% above the bank's reference rate (the bank's reference rate was 8.5% at
December 31, 1997.) At December 31, 1997 total borrowings on the line of
credit were $1,053,882.
The line of credit is collateralized by substantially all of the Company's
assets.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long term debt at December 31, 1997 consists of the following:
<S> <C>
Term-loan with bank with interest at 2 percent per annum above the
bank's reference rate. Principal is payable in 15 equal quarterly installments,
with interest payable monthly. The note is collateralized by substantially
all the Company's assets. $4,749,781
Capital expenditure loan with interest at 2 percent per annum above the
bank's reference rate. Principal is payable in 12 equal quarterly installments,
with interest payable monthly. The note is collateralized by substantially
all the Company's assets. 2,625,000
-----------
Total 7,374,781
Less current maturities 2,892,193
-----------
Long-term debt $4,482,588
===========
Scheduled maturities of long-term debt are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
1998 $2,892,193
1999 2,667,193
2000 1,815,395
-----------
$7,374,781
===========
</TABLE>
The loan agreement, for the long-term debt and the line of credit (Note 6),
has restrictive covenants, the most significant of which require the Company
to comply with certain net worth, working capital and annual capital
expenditure requirements. As of December 31, 1997 the Company was in default
of its Capital Expenditure covenant, on February 17, 1997 the Company
obtained a waiver from the bank related to this Covenant.
<PAGE>
8. SUBORDINATED DEBT
Subordinated debt due at December 31, 1997 consists of a $2,000,000 note due
in two installments with 50% due on September 8, 2004 and the remaining 50%
due one year later in 2005. Interest is at a rate of 9.25 percent per annum.
9. PREFERRED STOCK
The Company has 150,000 preferred shares issued and outstanding. The shares
carry a par value of $.01 and were issued at $5.00. Cumulative dividends on
these outstanding preferred shares are payable when and as declared by the
Board of Directors at a rate of 9.25 percent per annum payable semi-
annually. The Company shall redeem 50 percent of the preferred stock on
September 8, 2004 and the remaining 50 percent one year later in 2005 for
$5.00 per share.
10. INCOME TAXES
The Company has provided for deferred income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes," whereby deferred income taxes are determined based upon
the enacted income tax rates expected to apply to taxable income in the
periods in which the deferred tax liability or asset is expected to be
settled or realized. Deferred income taxes arise from temporary differences
resulting from a difference between the tax basis of an asset and its
reported amount in the financial statements.
The (benefit) provision for income taxes at December 31, 1996 consists of
the following:
<TABLE>
<S> <C>
Current:
Federal $ 678,088
State 213,634
---------
891,722
---------
Deferred:
Federal (87,718)
State (24,563)
---------
(112,281)
---------
Total income tax (benefit) provision $ 779,441
=========
</TABLE>
The differences between the provision (benefit) for income taxes and income
taxes computed using the U.S. Federal statutory tax rate of 34 percent are as
follows:
<TABLE>
<S> <C>
Federal income taxes (benefit) at statutory rates $ 616,055
Increase (decrease) in taxes resulting from:
State taxes net of Federal benefit 118,272
Goodwill amortization 46,367
Other (1,253)
---------
$ 779,441
=========
</TABLE>
<PAGE>
Significant components of the Company's deferred tax accounts are as follows:
<TABLE>
<S> <C>
Current deferred tax asset:
Accrued expenses $ 12,384
Allowances for accounts receivable 54,838
-----------
Current deferred tax asset 67,222
-----------
Noncurrent deferred tax asset (liability):
APP 16 fixed asset write-up (1,007,240)
Tax over book depreciation (398,770)
-----------
Noncurrent deferred tax liability, net $(1,406,010)
===========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse space in Mount Vernon, New York. It
is a five-year lease effective September 1, 1994 through August 31, 1999
with an option to renew for an additional three years. The lease was
executed June 11, 1997 retroactive to September 1, 1994.
The present value of the future minimum lease payments at December 31, 1997
is as follows:
<TABLE>
<S> <C>
MINIMUM PAYMENTS
1998 $197,554
1999 134,311
</TABLE>
Rental expense, inclusive of miscellaneous rental costs, was $191,799 for
the year ended December 31, 1997.
12. RELATED PARTY TRANSACTIONS
The Company retains an affiliated entity, to provide management and advisory
services in connection with the organization, management and operations of
the Company.
The Company can pay the affiliated entity up to $100,000 per annum.
Management fees amounted to $100,000 for the year ended December 31, 1997
and is included in other expenses on the consolidated statement of
operations and stockholder's equity.
13. LITIGATION
The shareholders and certain of the directors of the Company have been named
in a civil lawsuit filed in federal court in the Southern District of New
York by a third-party alleging that it had an agreement to purchase the
Company and as a result of actions taken by the shareholders and directors
it was damaged. The Company's bylaws indemnify the shareholders and
directors for any damages which might result from this action. In the
opinion of management and the board of directors, the lawsuit is without
merit and will not result in a material liability to the Company.
14. SUBSEQUENT EVENTS
The shareholders of the Company are in negotiations for sale of their stock
in the Company. No definitive purchase agreement has been entered into.
******
<PAGE>
ADDENDUM II.
- ------------
Pro forma combined financial data
The following unaudited pro forma combined statements of operations for the year
ended September 30, 1997 (December 31, 1997 for Four Star), and the three months
ended December 31, 1997 give effect to the acquisition of Four Star by the
Company. The pro forma information is based on the historical financial
statements of the Company and Four Star giving effect to the combination under
the purchase method of accounting and the assumptions and adjustments described
in the accompanying notes to the unaudited pro forma financial statements. The
following unaudited pro forma combined balance sheet also gives effect to the
combination under the purchase method of accounting.
The unaudited pro forma statements have been prepared by the management of the
Company and Four Star based upon the historical information included herein and
other financial information. These pro forma statements do not purport to be
indicative of the results of operations or financial position which would have
occurred had the acquisition been made at the beginning of the periods or as of
the date indicated or of the financial position or results of operations which
may be obtained in the future.
The Company will account for the transaction under the purchase method of
accounting. Accordingly, the cost to acquire Four Star will be allocated to
the assets acquired and liabilities assumed according to their respective fair
values. The final allocation of the purchase price is dependent upon completion
of certain studies that are not yet complete. Accordingly, the purchase
allocation adjustments are preliminary and have been made solely for the purpose
of preparing such pro forma statements.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
-------------------------------------
Matthews Four Star
-------------- ---------------
For the Year Ended
September 30, December 31, Pro forma Pro forma
1997 1997 Adjustments Combined (3)
-------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues from rental operations $ 25,589 $ 11,669 $ $ 37,258
Net product sales 20,769 20,769
----------- ----------- ---------- -----------
46,358 11,669 58,027
Costs and expenses:
Cost of rental operations 14,519 6,765 21,284
Cost of sales 14,081 14,081
Selling, general and administrative 12,629 1,959 504 (1) 15,092
Interest 2,675 1,134 1,384 (4) 5,193
----------- ----------- ---------- -----------
43,904 9,858 1,888 55,650
Income before income taxes 2,454 1,811 (1,888) 2,377
Provision for income taxes 748 779 (513) 1,014
----------- ----------- ---------- -----------
Income before extraordinary item $ 1,706 $ 1,032 $ (1,375) $ 1,363
Extraordinary loss on early extinguishment
of debt net of income tax benefit of $130 (194) (194)
----------- ----------- ---------- -----------
Net income $ 1,512 $ 1,032 $ (1,375) $ 1,169
=========== =========== ========== ===========
Income per common share basic (Note 2):
Income before extraordinary item $ 0.16 $ 0.13
Extraordinary loss on early
extinguishment of debt (0.02) (0.02)
----------- -----------
Net Income per share $ 0.14 $ 0.11
=========== ===========
Income per common share diluted (Note 2):
Income before extraordinary item $ 0.15 $ 0.13
Extraordinary loss on early
extinguishment of debt (0.02) (0.02)
----------- -----------
Net Income per share $ 0.13 $ 0.11
=========== ===========
</TABLE>
See notes to pro forma condensed consolidated statements of operations
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statements of Operations
For the Three Months Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
------------------------- Pro forma Pro forma
Matthews Four Star Adjustments Combined (3)
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues from rental operations $ 7,771 $2,938 $ $10,709
Net Product Sales 5,686 5,686
-------- ------- -------- --------
13,457 2,938 16,395
Costs and expenses:
Cost of rental operations 4,062 1,954 6,016
Cost of sales 3,860 3,860
Selling, general and administrative 4,379 584 126 (1) 5,089
Interest 1,151 272 346 (4) 1,769
-------- ------- -------- --------
13,452 2,810 472 16,734
Income (loss) before income taxes 5 128 (472) (339)
Provision (benefit) for income taxes 2 (63) (145) (206)
-------- ------- -------- --------
Net income (loss) $ 3 $ 191 $ (327) $ (133)
======== ======= ======== ========
Net income (loss) per common share,
basic and diluted (Note 2) $ 0.00 $ (0.01)
======== ========
</TABLE>
See notes to pro forma condensed consolidated statements of operations
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
1. To record the estimated goodwill amortization attributable to the
transaction. Goodwill is amortized over a period of twenty five years.
2. For the three months ended December 31, 1997 the number of shares used to
calculate basic and diluted earnings per share were 10,987,000 and
12,580,000, respectively.
For the twelve months ended September 30, 1997, the number of shares used
to calculate basic and diluted earnings per share were 10,456,000, and
11,108,000, respectively.
3. The three month period ended December 31, 1997 for Four Star is included in
both the pro forma condensed statements of operations for the twelve month
period and the three month period ended December 31, 1997.
4. To record the effect of pro forma adjustments related to interest expense
on borrowings incurred by the Company to fund the acquisition and to pay
off all long-term debt of Four Star, in accordance with the purchase
agreement.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheets
December 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
Historical
------------------------------ Pro forma Pro forma
Matthews Four Star Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 567 $ 68 $ $ 635
Accounts receivable 8,715 911 9,626
Current portion of net investment in leases 796 796
Inventories 9,242 215 9,457
Prepaid expenses and other current assets 2,313 84 2,397
-------- -------- ------- -------
Total current assets 21,633 1,278 22,911
Property, plant and equipment 61,041 11,835 72,876
Less accumulated depreciation (22,544) (22,544)
-------- -------- ------- -------
Net property, plant and equipment 38,497 11,835 50,332
Investment in leases, less current portion 405 405
Other assets 7,118 3,418 13,778 (2) 24,314
-------- -------- ------- -------
Total assets $ 67,653 $ 16,531 $13,778 $97,962
======== ======== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 3,799 $ 1,811 $ $ 5,610
Accrued liabilities 2,393 259 2,652
Current portion of long-term debt and capital
lease obligations 2,758 3,946 (3,946) (1) 2,758
-------- -------- ------- -------
Total current liabilities 8,950 6,016 (3,946) 11,020
Long-term debt and capital leases 43,658 6,483 20,350 (1) 70,491
Deferred income taxes 2,976 1,406 4,382
Shareholders' equity:
Preferred stock 750 (750) -
Common stock 7,064 713 (713) 7,064
Retained earnings 5,005 1,163 (1,163) 5,005
-------- -------- ------- -------
Total shareholders' equity 12,069 2,626 (2,626) 12,069
-------- -------- ------- -------
Total liabilities and shareholders' equity $ 67,653 $ 16,531 $13,778 $97,962
======== ======== ======= =======
</TABLE>
See notes to pro forma condensed consolidated balance sheets
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
1. To record the effect of pro forma adjustments related to borrowings
incurred by the Company to fund the acquisition and to pay off all long-
term debt of Four Star, in accordance with the purchase agreement.
2. To record as unallocated assets, the net effect of pro forma adjustments
for the excess purchase price over the fair value of net assets acquired.
The fair value of the total assets acquired is estimated at $12,361,000.
<PAGE>
Exhibit 23.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement No.
333-3446 of Matthews Studio Equipment Group on Form S-8 of our reports dated
March 6, 1998 (relating to Four Star Holding, Inc. and Four Star Lighting,
Inc.), appearing in the Current Report on Form 8-K/A of Matthews Studio
Equipment Group dated April 1, 1998.
/s/ Deloitte & Touche LLP
New York, New York
April 20, 1998
