<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, 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 0-18102
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MATTHEWS STUDIO EQUIPMENT GROUP
-------------------------------
(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.)
3111 NORTH KENWOOD STREET, BURBANK, CA 91505
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(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)
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 11,005,406 SHARES AS OF APRIL 30, 1998.
---------------------------------------------
<PAGE>
INDEX
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31, 1998 and
September 30, 1997
Condensed consolidated statements of operations - Three months
ended March 31, 1998 and 1997; Six months ended March 31, 1998 and
1997
Condensed consolidated statements of cash flows - Six months ended
March 31, 1998 and 1997
Notes to condensed consolidated financial statements - March 31,
1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. 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>
March 31, September 30,
1998 1997
----------- -----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 510 $ 393
Accounts receivable, less allowance for
doubtful accounts of $830 at March 31,
1998 and $745 at September 30, 1997 10,058 9,144
Current portion of net investment in finance
and sales-type leases 486 829
Inventories 8,587 7,844
Prepaid expenses and other current assets 859 923
Income tax refund receivable 1,294 645
Deferred income taxes 894 894
------------- -------------
Total current assets 22,688 20,672
Property and Equipment:
Rental equipment 53,386 47,169
Manufacturing equipment and tooling 1,768 1,952
Office furniture and equipment 4,049 3,627
Land and building 2,131 2,131
Leasehold improvements 1,327 1,112
------------- -------------
62,661 55,991
Less accumulated depreciation and amortization 23,886 20,804
------------- -------------
Property and equipment, net 38,775 35,187
Net investment in finance and sales-type leases,
less current portion 358 455
Goodwill (Note 4) 5,449 4,052
Other assets 1,658 1,505
------------- -------------
Total assets $ 68,928 $ 61,871
============= =============
</TABLE>
Note: The balance sheet at September 30, 1997 has been derived from the audited
financial statements at that date.
See accompanying notes.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
($ in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
-------------- --------------
(Unaudited) (Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 2,764 $ 5,241
Accrued liabilities 2,090 2,950
Current portion of long-term debt 516 693
Current portion of capital lease obligations 2,008 2,126
-------------- --------------
Total current liabilities 7,378 11,010
Long-term debt, less current portion 42,921 31,859
Notes payable to related parties 1,306 956
Capital lease obligations, less current portion 3,130 3,900
Deferred income taxes 2,976 2,976
Shareholders' equity:
Preferred stock - -
Common stock 7,088 6,168
Retained earnings 4,129 5,002
-------------- --------------
Total shareholders' equity 11,217 11,170
-------------- --------------
Total liabilities and shareholders' equity $ 68,928 $ 61,871
============== ==============
</TABLE>
Note: The balance sheet at September 30, 1997 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 Operations
(Unaudited)
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue from rental operations $ 6,265 $ 5,626 $ 14,036 $ 11,394
Net product sales 6,679 5,149 12,365 8,703
------------ ----------- ------------ ------------
12,944 10,775 26,401 20,097
Costs and expenses:
Cost of rental operations 4,140 2,982 8,202 6,380
Cost of sales 4,603 3,537 8,463 5,869
Selling, general and administrative 4,502 2,757 8,881 5,097
Provision for doubtful accounts receivable 37 71 78 138
Interest, net 1,135 564 2,245 1,130
------------ ----------- ------------ ------------
14,417 9,911 27,869 18,614
Income (loss) before income taxes (1,473) 864 (1,468) 1,483
Provision (benefit) for income taxes (597) 345 (595) 593
------------ ----------- ------------ ------------
Net income (loss) $ (876) $ 519 $ (873) $ 890
============ =========== ============ ============
Net income (loss) per common share, basic and
diluted (Note 3) ($0.08) $0.05 ($0.08) $0.09
============ =========== ============ ============
</TABLE>
See accompanying notes.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Six Months Ended March 31,
1998 1997
--------------- --------------
<S> <C> <C>
Operating activities:
Net income (loss) $ (873) $ 890
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for doubtful accounts 78 138
Depreciation & amortization 3,644 1,614
Gain on sale of assets (205) (146)
Changes in operating assets and liabilities net of
effects from acquisitions (Note 4):
Accounts receivable (548) (639)
Inventories 70 (921)
Net investment in leases 440 252
Prepaids and other assets (158) (238)
Income tax refund receivable (646) -
Accounts payable and accrued liabilities (2,591) 84
Income taxes payable - 158
--------------- --------------
Net cash provided by (used in) operating activities (789) 1,192
Investing activities:
Payments for acquisitions (1,800) (200)
Purchase of property and equipment (7,059) (2,254)
Proceeds from sale of property and equipment 640 364
--------------- --------------
Net cash used in investing activities (8,219) (2,090)
Financing activities:
Proceeds from exercise of stock options 36 5
Proceeds from borrowings 11,314 1,116
Repayment of borrowings (2,225) -
--------------- --------------
Net cash provided by financing activities 9,125 1,121
Net increase in cash and cash equivalents 117 223
Cash and cash equivalents at beginning of period 393 462
--------------- --------------
Cash and cash equivalents at end of period $ 510 $ 685
=============== ==============
</TABLE>
See accompanying notes.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1998 1997
------------ -------------
<S> <C> <C>
Schedule of noncash investing and financing
transactions:
Common stock issued for acquired company $ 884 $ -
Additional disclosures:
Cash paid during period for:
Interest 2,164 954
Income taxes 50 426
</TABLE>
See accompanying notes.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. General
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, 1998 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1998, 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,
1997.
Business
The Company designs, manufactures, sells, leases and rents audio, video, film
and production equipment and accessories, to the motion picture, television,
corporate, video, photography and live theatrical industries. The Company
operates in one business segment and provides, as a single source, the necessary
production equipment which is otherwise only available by using many different
suppliers. The Company supplies equipment such as lights, grip lighting
supports, professional video equipment, camera mounts, tripods, pedestals,
fluid heads, camera dollies, portable camera cranes, power generation,
production trucks, and theatrical equipment. The Company's manufactured
products are distributed worldwide by its sales force and by independent dealers
and distributors located in North America, Europe, Asia and South America. In
addition, the Company has fully operational soundstages and studios which are
supplied with equipment.
2. Accounting Policies
Principles of Consolidation
The financial statements include the accounts of the Matthews Studio Equipment
Group and its subsidiaries. Material intercompany balances and transactions
have been eliminated.
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.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
2 Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Concentration of Credit Risk
The Company's customers are located around the world and are principally engaged
in motion picture and television production, theatrical production, corporate
video, commercial photography, or in providing rental equipment to companies in
these industries. The Company generally sells on credit terms of 30 days and
does not require collateral, except for items sold under capital leases in which
it retains a security interest. The Company rents equipment to customers under
short-term leases on credit terms of generally 30 days and retains a security
interest.
Inventories
Inventories are principally stated at the lower of first-in, first-out cost or
market.
Goodwill
The goodwill, which arose from acquisitions, is amortized over a period of
twenty five years.
Property and Equipment
Property and equipment, including capital leases, are stated at cost.
Depreciation and amortization is calculated using the straight-line method over
the estimated useful lives of the assets as follows:
Rental equipment 5-10 years
Buildings and improvements 10-40 years
Other equipment 5-10 years
Capital leases are amortized over the estimated useful lives using the
straight-line method and the amortization is included in depreciation expense.
Leasehold improvements are amortized over the estimated useful life of the
improvement, or the related lease term, whichever is shorter.
Costs incurred for major renewals and betterments that extend the useful life of
the assets are capitalized, whereas repair and maintenance costs are charged to
expense as incurred. When property is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Accounting Policies (continued)
Revenue Recognition
The Company recognizes revenue from rentals under operating leases in the period
in which they are earned and recognizes product sales upon shipment.
Interest income from non-cancelable lease contracts accounted for as direct
finance leases is recognized using the interest method over the term of the
related lease agreement.
Per Share Data
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Accounting for Earnings Per Share"
("FAS 128"). This statement establishes standards for computing and presenting
earnings per share (EPS) and applies to entities with publicly held common stock
or potential common stock. This statement simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15, Earnings
Per Share, and makes them comparable to international EPS standards.
Accordingly, the Company implemented FAS 128 in the quarter ended December 31,
1997. The retroactive application of the statement had no impact on the EPS for
the three month or six month periods ended March 31, 1997.
Income Taxes
The Company utilizes the liability method to determine the provision for 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. For the six months ended March 31, 1998
and 1997, an effective income tax rate of approximately 40% was utilized.
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.
Financial Statement Presentation
Certain balances from the March 31, 1997, financial statements have been
reclassified to conform to the March 31, 1998 presentation.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
3. Earnings Per Share
The following is a reconciliation of the computations for basic and diluted EPS:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
-----------------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------------
Income Shares Per -Share Income Shares Per -Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) available
to common stockholders $ (876) 10,997 $ (0.08) $ 519 10,335 $ 0.05
========== ==========
Effective of Dilutive
Options and warrants 203
----------- ------------- ---------- ------------
Diluted EPS:
Income (loss) available to
common stockholders and
assumed conversions $ (876) 10,997 $ (0.08) $ 519 10,538 $ 0.05
=========== ============= =========== ========== ============ ==========
<CAPTION>
For the Six Months Ended March 31,
-----------------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------------
Income Shares Per -Share Income Shares Per -Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income (loss) available
to common stockholders $ (873) 10,992 $ (0.08) $ 890 10,333 $ 0.09
========== ==========
Effect of Dilutive
Options and warrants 110
----------- ------------- ---------- ------------
Diluted EPS:
Income (loss) available to
common stockholders and
assumed conversions $ (873) 10,992 $ (0.08) $ 890 10,443 $ 0.09
=========== ============= ========== ========== ============ ==========
</TABLE>
Options to purchase 4,303,164 shares of common stock at a range of $1.00 to
$4.74 per share, for the three months and six months ended March 31, 1998, were
outstanding during the periods yet excluded from the computation of diluted EPS
because as a result of the net loss the options were anti-dilutive.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Options to purchase 1,034,650 shares of common stock at a range of $2.63 to
$4.13 per share, and 3,647,114 share of common stock at a range of $2.50 to
$4.13 per share, for the three months and six months ended March 31, 1997,
respectively, were outstanding during the periods yet excluded from the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares.
During the six months ended March 31, 1998, 19,100 shares of common stock were
issued upon exercise of stock options.
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees,"
and related Interpretations in accounting for its stock-based compensation
plans. Accordingly, no compensation cost has been recognized for its fixed
stock option plans. Had compensation cost for the Company's option plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, "Accounting for Stock-
Based Compensation," the Company's net loss and earnings per share on a pro
forma basis would have been as indicated below (in thousands, except per share
data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1998
------------------------ ------------------------
($ in thousands, except per share data)
<S> <C> <C>
Net income (loss)
As reported $ (876) $ (873)
Pro forma (898) (923)
Net income (loss) per share,
basic and diluted
As reported $ (0.08) $ (0.08)
Pro forma (0.08) (0.08)
</TABLE>
4. Acquisitions
The following acquisitions are included in the results of operations of the
Company beginning as of the effective date of the transactions.
Effective October 1, 1997, the Company purchased the assets and business of
Haehnle Dwertman, Inc. (HDI), a grip, lighting and video camera rental company
in Covington, Kentucky and Cincinnati, Ohio. The acquisition was made for cash
of $800,000 and 350,000 restricted and unregistered shares of the Company's
common stock in exchange for all of the common stock of HDI, in a transaction
exempt from registration under the Securities Act of 1933. In addition, the
Company incurred debt of $1,511,000 and recorded $842,000 of goodwill relating
to the transaction.
As part of the acquisition, the Company entered into real estate leases with an
affiliate of HDI, for facilities in Cincinnati, Ohio and Covington, Kentucky
from which HDI's business was conducted. The Company is continuing to operate
the business acquired from HDI at those facilities.
<PAGE>
MATTHEWS STUDIO EQUIPMENT GROUP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(Unaudited)
Effective November 1, 1997, the Company purchased the assets and business of
Olesen, a theatrical supply company in Hollywood, California. The acquisition
was made for cash of $1,450,000 of which $1,000,000 of cash was paid on
closing, with the remaining portion of the purchase price becoming due in two
equal installments on October 31, 1999 and October 31, 2000. In addition, the
Company incurred debt of $605,000 and recorded goodwill of $690,000 relating
to the transaction. As part of the acquisition, the Company entered into real
estate leases with an affiliate of Olesen, for facilities located in
Hollywood, California, from which Olesen's business was conducted. The Company
is continuing to operate the business acquired from Olesen from those
facilities.
The fair market value of the net assets acquired relating to the above
acquisitions was $1,153,000.
The acquisitions of both HDI and Olesen have been accounted for under the
purchase method of accounting for business combinations.
The pro forma results of operations for the six months ended March 31, 1998 and
1997, assuming consummation of the purchases as of October 1, 1996, are as
follows:
Six Months Ended
March 31,
1998 1997
------------- -------------
($ in thousands, except per share data)
Net revenue $ 26,652 $ 29,246
Net income (loss) (880) 593
Net income (loss) per common share,
basic and diluted (0.08) 0.06
The above pro forma information includes the operations of HDI and Olesen for
both periods and, for the 1997 period, other acquisitions completed in fiscal
year 1997.
5. Subsequent Event
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.
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.
The acquisition will be accounted for as a purchase and the operations of Four
Star will be included in the consolidated statements in the Company's third
fiscal quarter.
Also, in connection with the Four Star's acquisition certain amendments to the
Company's revolving credit facility were approved by the bank which increased
the facility to $80 million.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
- ------------------------------------------
The Company is including the following cautionary statement in this Form 10-Q
to make applicable and take advantage of safe harbor provisions of the Private
Security Reform Act of 1995 for any forward looking statements made by, or on
behalf of, the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than statements
of historical facts. From time to time, the Company may publish or otherwise
make available forward-looking statements of this nature. All such subsequent
forward-looking statements, whether written or oral, and whether made by or on
behalf of the Company, are also expressly qualified by these cautionary
statements. Certain statements contained herein are forward-looking statements
and accordingly involve risk and uncertainties which could cause actual results
or outcomes to differ materially from those expressed in the forward-looking
statements.
Results of Operations
- ---------------------
Overview
- --------
The expansion of the Company and its marketing and distribution network into
various select geographic marketplaces continued in the first six months of
fiscal 1998 with the completion of the acquisitions of two companies. In
addition, the Company continued to invest in the expansion of its core
businesses, as well as operations acquired in fiscal 1997. Revenues increased
$6,304,000 or 31% to $26,401,000 for the first six months of fiscal 1998, from
$20,097,000 for the first six months of fiscal 1997. In addition, EBITDA
(earnings before interest expense, income taxes, depreciation and amortization)
increased to $4,442,000 for the first six months of fiscal 1998, as compared to
$4,257,000 for the same period last year. However, the Company reported a net
loss of $873,000 for the first six months of fiscal 1998 compared to net income
of $890,000 for the comparable period in 1997.
Several factors contributed to the net loss in the first six months of fiscal
1998. As a result of a pending contract renewal for the members of the Screen
Actors Guild there was a threat of a potential strike if contract negotiations
were unsuccessful, which impaired the Company's rental activities. In April
1998, it was reported that a tentative agreement was reached with the Guild.
The rental activities in the Los Angeles area were also affected by inclement
weather, attributable to El Nino. Additionally, in the first six months of
fiscal 1997 a large-budget film project bolstered last year's results by
providing additional revenues without requiring a significant amount of
incremental cost and expenses. In addition, the Company incurred higher
expenses associated with the expansion of the operations and the cost to improve
systems and absorb new operations.
Three-Month Period ended March 31, 1998 and March 31, 1997
- ----------------------------------------------------------
Revenues From Rental Operations
- -------------------------------
Revenues from rental operations were $6,265,000 for the second quarter of fiscal
1998, compared to $5,626,000 for the same period last year, an increase of
$639,000 or 11%. Revenues generated by operations acquired subsequent to the
second quarter of fiscal year 1997 accounted for $3,261,000 of total revenues
for the second quarter of fiscal year 1998. Production equipment rentals,
primarily of lighting, grip, power generators and trucks, decreased to
approximately $2,889,000, a decrease of $2,687,000 or 48% from approximately
$5,576,000, 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.
<PAGE>
Net Product Sales
- -----------------
Net equipment and supply sales were $6,679,000 for the second quarter of fiscal
1998, an increase of approximately $1,530,000 or 30%, from $5,149,000 for the
second quarter of fiscal 1997. Sales of production equipment and accessories for
lighting support, camera support, lighting control and equipment sales to the
retail industry ("Equipment sales") increased to $3,828,000, an increase of
approximately $608,000, or 19%, from $3,220,000 in fiscal 1997. Sales of
expendable supply products increased in the second quarter of fiscal 1998 to
$2,851,000 from $1,929,000, an increase of approximately $922,000 or 48% over
the same period last year. The increase was primarily attributable to operations
acquired subsequent to the second quarter of fiscal year 1997.
Gross Profit - Rental
- ---------------------
Gross profit as a percentage of rental revenues was approximately 34% for the
second quarter of fiscal 1998 compared to 47% in fiscal 1997. Gross profit from
rental revenues decreased by $519,000 for the second quarter of fiscal 1998 as
compared to fiscal 1997. The decrease in gross profit is mainly due to the
decrease in revenues from production equipment rentals and the significant
amount of costs which are of a fixed nature.
Gross Profit - Sales
- --------------------
Gross profit as a percentage of sales was approximately 31% for the second
quarter of fiscal 1998 and 1997.
Selling, General and Administrative
- -----------------------------------
Selling, general and administrative expenses were $4,502,000 in the second
quarter of fiscal 1998 compared to $2,757,000 for the same period in fiscal
1997. As a percent of sales, selling, general and administrative expenses were
approximately 35% for the second quarter of fiscal 1998 compared to 26% for the
same period in fiscal 1997. The increase is due primarily to costs and expenses
incurred to expand the operations of the Company, including costs to pursue the
growth strategy, improve the foundation for the operations and improve and
integrate business systems. The dollar increase is also due to the acquisitions
completed subsequent to the second quarter of fiscal 1997.
Interest
- --------
Interest increased to $1,135,000 in the second quarter of fiscal 1998 from
$564,000 in the second quarter of fiscal 1997. The increase in interest costs is
mainly due to additional debt incurred and assumed in the acquisitions the
Company completed since the second quarter of fiscal 1997, and to the
substantial amount of capital investment made in certain of the acquired, as
well as the existing, operations.
Six-Month Period ended March 31, 1998 and March 31, 1997
- --------------------------------------------------------
Revenues From Rental Operations
- -------------------------------
Revenues from rental operations were $14,036,000 for the first six months of
fiscal 1998, compared to $11,394,000 for the same period last year, an increase
of $2,642,000 or 23%. The increase is mainly due to revenues generated by
operations acquired
<PAGE>
subsequent to the second quarter of fiscal year 1997, also a substantial amount
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.
Net Product Sales
- -----------------
Net equipment and supply sales increased to $12,365,000 for the first six months
of fiscal 1998, compared to $8,703,000 for the first six months of fiscal 1997.
Equipment sales increased to $6,854,000 for the first six months of fiscal 1998,
an increase of $1,082,000 or 19% from $5,772,000 for the same period last year.
Sales of expendable supplies increased by approximately $2,580,000 for the six
months ended March 31, 1998 compared to the first six months of 1997, primarily
as a result of operations acquired subsequent to the first and second quarters
of fiscal 1997.
Gross Profit - Rental
- ---------------------
Gross profit as a percentage of rental revenues was approximately 42% for the
first six months of fiscal 1998, compared to 44% in fiscal 1997. A decrease in
the gross profit of the production equipment rental business was substantially
offset by higher margins in the Company's other rental markets from acquisitions
completed subsequent to the second quarter of fiscal 1997.
Gross Profit - Sales
- --------------------
Gross profit as a percentage of sales was approximately 32% for the first six
months of fiscal 1998, compared to approximately 33% for the same period in
fiscal 1997.
Selling, General and Administrative
- -----------------------------------
Selling, general and administrative expenses were $8,881,000 for the first six
months of fiscal 1998, compared to $5,097,000 for the same period in fiscal year
1997. As a percent of sales, selling, general and administrative expenses were
34% for the first six months of fiscal 1998, compared to 25% for the same period
in fiscal 1997. The increase is due primarily to costs and expenses incurred to
expand the operations of the Company, including costs to pursue the growth
strategy, improve the foundation for the operations and improve and integrate
business systems. The dollar increase is also due to the acquisitions completed
subsequent to the second quarter of fiscal 1997.
Interest
- --------
Interest increased to $2,245,000 for the first six months of fiscal 1998,
compared to $1,130,000 for the first six months of fiscal 1997. The increase in
interest costs is mainly due to additional debt incurred and assumed in the
acquisitions the Company completed since the second quarter of fiscal 1997, and
to the substantial amount of capital investment made in certain of the acquired,
as well as the existing, operations.
Liquidity and Capital Resources
- -------------------------------
During the six months ended March 31, 1998, the Company financed its operations
primarily from bank borrowings.
<PAGE>
At March 31, 1998 the Company's working capital was $15,310,000 which was an
increase of $5,648,000 from its working capital at September 30, 1997.
In the six months ended March 31, 1998, the Company primarily applied cash from
additional borrowings from the Company's bank line of $11,314,000 to pay for
approximately $7,059,000 of property and equipment additions, primarily for
rental equipment, to consummate the acquisitions of Haehnle Dwertman, Inc.,
("HDI"), and the business of Olesen, for $1,800,000 cash, to retire certain debt
assumed in the acquisition of HDI and to pay down capital lease obligations
incurred in a fiscal year 1997 acquisition. The major capital equipment
additions were for the Company's video equipment rental operations and
production equipment rental operations.
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
control costs and is also exploring various external financing including, but
not limited to, existing and additional bank financing, joint ventures,
partnerships and placement of debt or equity securities of the Company. The
Company expects to finance a portion of its capital acquisition program through
cash generated from operations.
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, 4,and 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 March 31, 1998.
<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, 1998, to be signed on its behalf by the undersigned hereunto
duly authorized.
MATTHEWS STUDIO EQUIPMENT GROUP
(Registrant)
Date: May 15, 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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR PERIOD ENDED MARCH 31, 1998 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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
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<RECEIVABLES> 10,888
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0
<COMMON> 7,088
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