<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 June 30, 2000
-------------
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
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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.)
3111 North Kenwood Street, Burbank, CA 91505
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(Address of principal executive offices) (Zip Code)
(818) 525-5200
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(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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 9,997,252 shares as of August 4, 2000
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1
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Index
Matthews Studio Equipment Group and Subsidiaries
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - June 30, 2000 and
September 30, 1999
Condensed consolidated statements of operations - Three months ended
June 30, 2000 and 1999 - Nine months ended June 30, 2000 and 1999
Condensed consolidated statements of cash flows - Nine months ended June 30, 2000 and 1999
Notes to condensed consolidated financial statements - June 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Part II. Other Information
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures
</TABLE>
2
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Part I. Financial Information
Item I. Financial Statements (Unaudited)
Matthews Studio Equipment Group and Subsidiaries
(Debtors-In-Possession)
Condensed Consolidated Balance Sheets
($ in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
-------------- ---------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,390 $ 390
Accounts receivable, less allowance for
doubtful accounts of $2,091 at June 30,
2000 and $1,420 at September 30, 1999 4,602 9,893
Current portion of net investment in finance
and sales-type leases 257 264
Inventories 1,591 3,312
Prepaid expenses and other current assets 390 489
Income tax refund receivable - 36
----------------- -------------------
Total current assets 8,230 14,384
Property and equipment, net 37,910 54,168
Net investment in finance and sales-type leases,
less current portion 35 150
Goodwill less accumulated amortization of $19,758 at June 30,
2000 and $6,344 at September 30, 1999 3,944 17,358
Other assets 1,525 5,167
----------------- -------------------
Total assets $ 51,644 $ 91,227
================= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 115 $ 11,673
Accrued liabilities 334 7,610
Current portion of long-term debt and capital lease obligations 83 5,404
Prepetition liabilities subject to compromise 93,166 -
----------------- -------------------
Total current liabilities 93,698 24,687
Long-term debt and capital lease obligations less current portion 193 83,111
Shareholders' equity (accumulated deficit):
Preferred stock - -
Common stock 9,210 8,132
Accumulated deficit (51,457) (24,703)
----------------- -------------------
Total shareholders' equity (accumulated deficit) (42,247) (16,571)
----------------- -------------------
Total liabilities and shareholders' equity $ 51,644 $ 91,227
================= ===================
</TABLE>
Note: The balance sheet at September 30, 1999 has been derived from the audited
financial statements as of that date. The accompanying notes are an
integral part of these consolidated financial statements.
3
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Matthews Studio Equipment Group and Subsidiaries
(Debtors-In-Possession)
Condensed Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Revenue from rental operations $ 6,221 $ 9,491 $ 24,494 $ 28,826
Net product sales 703 4,242 8,451 14,554
-------------- -------------- -------------- --------------
6,924 13,733 32,945 43,380
Costs and expenses:
Cost of rental operations 3,581 6,078 15,517 18,125
Cost of sales 1,135 3,369 7,520 11,063
Selling, general and administrative 3,486 5,280 12,874 15,154
Goodwill and long-lived assets impairment 16,474 - 16,474 423
Interest, net 812 1,851 5,582 5,564
Reorganization items:
Professional fees 1,455 - 1,455 -
Interest income on short-term investments (10) - (10) -
-------------- -------------- -------------- --------------
26,933 16,578 59,412 50,329
Loss before income taxes (20,009) (2,845) (26,467) (6,949)
Benefit for income taxes - - - (600)
-------------- -------------- -------------- --------------
Loss before extraordinary item (20,009) (2,845) (26,467) (6,349)
Extraordinary loss on early extinguishment
of debt - - (287) -
-------------- -------------- -------------- --------------
Net loss $ (20,009) $ (2,845) $ (26,754) $ (6,349)
============== ============== ============== ==============
Loss per common share, basic and diluted:
Loss before extraordinary item ($2.00) ($0.31) ($2.65) ($0.69)
Extraordinary loss 0.00 0.00 (0.03) 0.00
-------------- -------------- -------------- --------------
Loss per common share, basic and diluted: ($2.00) ($0.31) ($2.68) ($0.69)
============== ============== ============== ==============
Weighted average number of common shares
Outstanding 9,997 9,321 9,996 9,230
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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Matthews Studio Equipment Group and Subsidiaries
(Debtors-In-Possession)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
2000 1999
----------------- --------------
<S> <C> <C>
Operating activities:
Net loss $ (26,754) $ (6,349)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Provision for doubtful accounts 833 53
Depreciation & amortization 8,183 8,862
Goodwill and long-lived asset impairment 16,474 -
Deferred income taxes - (887)
Gain on sale of assets (444) (656)
Extraordinary loss on early extinguishment of debt 287 -
Changes in operating assets and liabilities net of
effects from acquisitions and disposition:
Accounts receivable (5,350) (260)
Inventories 1,721 13
Net investment in leases 122 134
Prepaids and other assets 1,411 (2,251)
Income tax refund receivable 73 291
Accounts payable and accrued liabilities (2,985) 2,559
----------------- --------------
Net cash provided by (used in) operating activities (6,429) 1,509
Investing activities:
Purchase of property and equipment (2,992) (6,743)
Proceeds from sale of property and equipment 11,229 192
----------------- --------------
Net cash provided by (used in) investing activities 8,237 (6,551)
Financing activities:
Proceeds from exercise of stock options and warrants 35 587
Proceeds from borrowings 3,554 5,100
Repayment of borrowings (4,397) (976)
----------------- --------------
Net cash (used in) provided by financing activities (808) 4,711
Net decrease in cash and cash equivalents 1,000 (331)
Cash and cash equivalents at beginning of period 390 331
----------------- --------------
Cash and cash equivalents at end of period $ 1,390 $ -
================= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Matthews Studio Equipment Group and Subsidiaries
(Debtors-In-Possession)
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
2000 1999
---------------- ---------------
<S> <C> <C>
Schedule of noncash investing and financing
transactions:
Common stock issued for lawsuit settlement $ 1,175 $ -
Capital lease obligations incurred - 1,699
Note received for sale of assets - 1,289
Additional disclosures:
Cash paid during period for:
Interest 4,474 4,792
Income taxes 51 165
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
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Matthews Studio Equipment Group and Subsidiaries
(Debtors-In-Possession)
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 considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended June 30, 2000 are not necessarily indicative
of the results that may be expected for the year ending September 30, 2000. 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, 1999.
Petition For Relief Under Chapter 11
On April 6, 2000, the Company and its subsidiaries filed petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filing was
made in the U.S. Bankruptcy Court in the San Fernando Valley division of the
Central District of California. The case number assigned to the Company is SV
00-13471 KL. In Chapter 11, the Company will continue to manage its affairs and
operate its businesses as a debtor-in-possession while it attempts to develop a
reorganization plan that will restructure the Company and allow its emergence
from Chapter 11. The Chapter 11 proceedings are being jointly administered,
with the Company managing the business in the ordinary course as debtor-in-
possession subject to the control and supervision of the Bankruptcy Court.
As of the petition date, payment of pre-petition liabilities of the Company
and pending litigation against the Company are stayed while the Company
continues its business operation as debtors-in-possession.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Chapter 11 filing, such realization of assets and
liquidation of liabilities is subject to uncertainty. While under the
protection of Chapter 11, the Company, in the normal course of business, may
sell or otherwise dispose of assets and liquidate or settle liabilities for
amounts other than those reflected in the consolidated financial statements.
Further, a plan of reorganization could materially change the amounts and
classifications reported in the consolidated historical financial statements,
which do not give effect to any adjustments to the carrying value of assets or
amount of liabilities that might be necessary as a consequence of a plan of
reorganization. The propriety of using the going concern basis is dependent
upon, among other things, confirmation of a plan of reorganization, which must
be approved by the creditors and confirmed by the Bankruptcy Court, and the
Company's ability to meet its business plan and generate sufficient cash flows
from operations and financial sources.
Business
The Company sells, leases and rents theatrical, film and production equipment
and accessories to the motion picture, television, corporate, theatrical, video
and photography 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, camera mounts,
tripods, pedestals, fluid heads, camera dollies, portable camera cranes, power
generators and production trucks.
On January 21, 2000, the Company sold the video equipment rental operations
conducted by its Duke City Video, Inc. subsidiary ("Duke City" ) to Vitec DC
Holding Corp. ("Vitec") for a total purchase price of $12.25 million in cash.
The sale was structured
7
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Matthews Studio Equipment Group and Subsidiaries
(Debtors-In-Possession)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
as a sale of assets whereby Duke City sold its assets to Vitec pursuant to an
Asset Purchase Agreement dated January 21, 2000, among the Company, Duke City
Holdings, Inc. ("Holdings"), Duke City and Vitec (the "Agreement").
Vitec has purchased the name "Duke City Video" and derivations thereof as part
of the sale. Excluded from the sale are Duke City's Albuquerque property, its
accounts receivable and certain other assets. Also, Duke City retains
responsibility for its liabilities.
$2.0 million of the $12.25 million purchase price was paid to Duke City on
closing. The purchase price has been adjusted downward by $856,000 due to
damaged or missing rental equipment. A portion of the purchase price was held by
Vitec to be applied against Duke City's trade and other accounts payable,
provided Duke City obtains certain financing statement terminations pursuant to
the terms of the Agreement. As of June 30, 2000, approximately $7.81 million
of this holdback has been paid to Duke City and its trade and other creditors,
and Duke City is working with Vitec to obtain the release of the last $280,000
of this holdback. The remaining $1.3 million of the purchase price is being
held by Vitec as security for certain indemnification obligations of Duke City
and will be paid to Duke City upon the expiration of certain time periods and
the satisfaction of certain conditions specified in the Agreement. The
Company, Holdings and Duke City are obligated to indemnify Vitec against losses
arising out of any inaccuracy of representations and warranties made in the
Agreement and against losses arising out of Duke City's liabilities.
As noted, the Company applied part of the sale proceeds to satisfy obligations
that specifically apply to the Duke City business. The Company used some of
the sale proceeds to reduce bank and other debt.
Financial Statement Presentation - Certain balances from the June 30, 1999
financial statements have been reclassified to conform to the June 30, 2000
presentation.
2. Prepetition Liabilities
Prepetition liabilities included substantially all current and long-term
liabilities of the Debtors as of April 6, 2000. These amounts may be subject to
future adjustments depending on Bankruptcy Court actions, further developments
with respect to disputed claims, whether or not such claims are secured and the
value of any security interest securing such claims or other events. As part
of the Chapter 11 reorganization process, the Company has notified all known or
potential claimants for the purpose of identifying all prebankruptcy claims
against the Company. Claimants have until November 23, 2000 to file claims or
to be barred from future action, except in instances of claims relating to any
future rejection of executory contracts as part of the bankruptcy proceedings.
3. Reorganization Items
Costs incurred by the Company with respect to the bankruptcy administrative
process (principally professional fees) have been classified as Reorganization
Items. The interest income earned by the Company on cash accumulated since the
Chapter 11 filings, and which was invested in marketable securities, also is
categorized as a component of the Reorganization Items.
4 Asset Impairment and Other Charges
During the nine months ended June 30, 2000 the Company incurred a net loss of
$26,754,000. This amount included approximately $16,474,000 of non-recurring
and non-cash charges. The significant charges relate to the write-down of
certain long-term assets (most significantly goodwill), the closing of some
Company sites and sale of the asset of an operation.
8
<PAGE>
Matthews Studio Equipment Group and Subsidiaries
(Debtors-In-Possession)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As a result of the Chapter 11 filings, Company management reviewed certain
acquisitions, including the current business environment and their continued
operating losses in fiscal year 2000, and performed an impairment review of its
long-lived assets. Based on this review and future revenue and cash flow
projections, the Company believes that certain long-lived assets have been
impaired. The Company determined that the estimated fair value was below the
carrying value of the long-lived assets. Accordingly, in the third quarter of
fiscal year 2000, The Company recorded impairment charges of $12,867,000, for
the write-down of goodwill and $3,607,000, for the write-down of software
development costs and deferred charges.
5 Equity
During the nine months ended June 30, 2000, the Company recorded in equity
warrants issued and to be issued (pursuant to the terms of the Company's Note
Purchase Agreement dated June 30, 1999) for approximately $2.7 million. These
warrants relate to certain of the Company's debt agreements and have been
capitalized as debt issue costs, to be amortized over the shorter of the
remaining life of the warrants or the related debt instrument. As a result of
the Chapter 11 petition, the unamortized balance of $2,370,000 was charged
against equity.
In October 1999, the Company issued 400,000 shares of common stock to settle a
litigation matter which was accrued at September 30, 1999.
6 Per Share Data
Basic loss per share is calculated using the net loss divided by the weighted
average common shares outstanding. Shares from the assumed exercise of
outstanding warrants and options are omitted from the computations of diluted
loss per share because the effect would be antidilutive.
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees,"
and related Interpretations in accounting for its stock-based compensation
plans. Accordingly, no compensation cost has been recognized for its fixed
stock option plans. Had compensation cost for the Company's option plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, "Accounting for Stock-
Based Compensation," the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
2000 1999 2000 1999
--------- --------- --------- ----------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Net loss
As reported $ (20,009) (2,845) $ (26,754) (6,349)
Pro forma (20,060) (2,902) (26,912) (6,520)
Net loss per share, basic and diluted:
As reported ($2.00) ($0.31) ($2.68) ($0.69)
Pro forma (2.01) (0.31) (2.69) (0.71)
</TABLE>
9
<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.
Petition For Relief Under Chapter 11
On April 6, 2000, the Company and its subsidiaries filed petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filing was
made in the U.S. Bankruptcy Court in the San Fernando Valley division of the
Central District of California. The case number assigned to the Company is SV
00-13471 KL. In Chapter 11, the Company will continue to manage its affairs and
operate its businesses as a debtor-in-possession while it attempts to develop a
reorganization plan that will restructure the Company and allow its emergence
from Chapter 11. The Chapter 11 proceedings are being jointly administered,
with the Company managing the business in the ordinary course as debtor-in-
possession subject to the control and supervision of the Bankruptcy Court.
As of the petition date, payment of pre-petition liabilities of the Company
and pending litigation against the Company are stayed while the Company
continues its business operation as debtors-in-possession.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Chapter 11 filing, such realization of assets and
liquidation of liabilities is subject to uncertainty. While under the
protection of Chapter 11, the Company, in the normal course of business, may
sell or otherwise dispose of assets and liquidate or settle liabilities for
amounts other than those reflected in the consolidated financial statements.
Further, a plan of reorganization could materially change the amounts and
classifications reported in the consolidated historical financial statements,
which do not give effect to any adjustments to the carrying value of assets or
amount of liabilities that might be necessary as a consequence of a plan of
reorganization. The propriety of using the going concern basis is dependent
upon, among other things, confirmation of a plan of reorganization, which must
be approved by the creditors and confirmed by the Bankruptcy Court, and the
Company's ability to meet its business plan and generate sufficient cash flows
from operations and financial sources.
In accordance with the Bankruptcy Code, the Company can seek court approval for
the rejection of pre-petition executory contracts, including real property
leases. Any such rejection may give rise to a pre-petition claim for damages
pursuant to the Bankruptcy Code. In connection with the Chapter 11 proceedings,
the Company received approval to reject 8 real property leases. Subject to
Bankruptcy Court's approval, other real property leases and certain executory
contracts may be rejected in the future.
On the first day of the Chapter 11 filing, the Company sought and received
authorization from the Bankruptcy Court to continue certain employee policies
which the Company deemed necessary for its survival. These include its policies
related to employee wages, benefits and out-of-pocket business expenses.
Since the filing, most of the Company's vendors have continued to ship
merchandise to the Company. However, many of the Company's vendors have
requested changes in trade credit terms offered to the Company. Where
previously the Company
10
<PAGE>
was paying for most vendor shipment on an average of 75 days, the Company now is
being required in a majority of its shipments to make payment on a cash-in-
advance basis.
The Company's Board of Directors has authorized Imperial Capital, LLC, the
Company's financial advisor, to develop and implement a process to solicit
interest relating to the potential sale of all or part of the Company's assets
or stock by merger, tender offer, exchange offer, plan of reorganization, other
acquisition of debt or securities, or otherwise.
Results of Operations
Overview
On April 6, 2000, the Company and its subsidiaries filed petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filing was made
in the U.S. Bankruptcy Court in the San Fernando Valley division of the Central
District of California. The case number assigned to the Company is SV 00-13471
KL. In Chapter 11, the Company will continue to manage its affairs and operate
its businesses as a debtor-in-possession while it attempts to develop a
reorganization plan that will restructure and allow its emergence from Chapter
11. The Chapter 11 proceedings are being jointly administered, with the Company
managing the business in the ordinary course as debtor-in-possession subject to
the control and supervision of the Bankruptcy Court.
Since the petition date, the Company has continued to be in possession of its
properties and, as debtor-in-possession, is authorized to operate and manage its
business and enter into all transactions (including obtaining services,
inventories, and supplies) that it could have entered into in the ordinary
course of business without approval of the Bankruptcy Court. A statutory
Creditors' Committee has been appointed.
In a Chapter 11 filing, substantially all liabilities as of the petition date
are subject to compromise or other treatment under a plan of reorganization.
Generally, actions to enforce or otherwise effect payment of all pre-petition
liabilities as well as all pending litigation against the Company are stayed
while the Company continues its business operations as debtor-in-possession.
The ultimate amount of and settlement terms for such liabilities are subject to
a plan of reorganization and accordingly are not presently determinable.
Under the Bankruptcy Code, the Company may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other pre-petition executory contracts, subject to Bankruptcy Court approval.
The Company will continue to analyze its executory contracts and may assume or
reject additional contracts.
The Company's revenues for the first nine months of fiscal 2000 decreased to
$32,945,000, a decrease of $10,435,000 or 24% over the first nine months of
fiscal 1999. In addition, EBITDA (earnings before interest expense, income
taxes, depreciation and amortization) decreased to $5,217,000 in the first nine
months of fiscal 2000 as compared to $7,477,000 in fiscal 1999. The EBITDA
excludes $16,474,000 of non-recurring charges and $1,455,000 of Chapter 11
reorganization costs. Net loss for the first nine months of fiscal 2000 was
$26,754,000 or $2.68 per share, compared to net loss of $6,349,000 or $0.69 per
share for the same period last year. Components of the Company's operating
results are discussed below. This loss resulted from a combination of factors,
the most significant of which were the Chapter 11 bankruptcy filing, "runaway
productions" (fewer feature films whose principal photography was conducted in
the United States), shrinking margins due to competition pressures and going
concern uncertainty.
11
<PAGE>
Three-Month Period ended June 30, 2000 and June 30, 1999
--------------------------------------------------------
Revenues From Rental Operations
-------------------------------
Revenues from rental operations were $6,221,000 for the third quarter of fiscal
2000, compared to $9,491,000 for the same period last year, a decrease of
$3,270,000 or 35%. The decrease is primarily due to the going concern
uncertainty from the Chapter 11 filing and sale of assets and operations of Duke
City during January 2000. Excluding Duke City's rental revenues from the prior
year, revenues from rental operations decreased by $181,000 or 3% in the third
quarter of fiscal 2000. Duke City generated approximately 33% or $3,089,000 of
rental revenues in the same period of fiscal 1999. Aggregate theatrical rental
operations accounted for approximately $2,953,00 or 47% of revenues from rental
operations, an increase of $178,000 or 6% from approximately $2,775,000 for the
same period last year. Production equipment rentals, primarily of lighting,
grip, power generators and trucks, consisted of approximately $3,248,000 or 52%
of revenues from rental operations, a decrease of $326,000 or 9% from
approximately $3,574,000 for the same period last year. Other operations
accounted for approximately 1% of the revenues from rental operations in the
third quarter of fiscal 2000.
Net Product Sales
-----------------
Net equipment and supply sales were $703,000 for the third quarter of fiscal
2000, a decrease of $3,539,000 or 83% from $4,242,000 for the third quarter of
fiscal 1999. The decrease is primarily due to the going concern uncertainty
from the Chapter 11 filing, and the closures of the Las Vegas, Nevada operation
on April 28, 2000 and of the Southeast expendable supply operation during the
fourth quarter of fiscal 1999.
Gross Profit - Rental
---------------------
Gross profit on rental revenues was $2,640,000 or 42% of revenues for the third
quarter of fiscal 2000 compared to $3,413,000 or 36% in fiscal 1999. Aggregate
theatrical rental operations accounted for approximately $1,431,000 of gross
profit on rental revenues. Production equipment rentals, primarily of lighting,
grip, power generators and trucks, accounted for approximately $1,198,000 of
such gross profit.
Gross Profit - Sales
--------------------
Gross profit on sales decreased from $873,000 in the third quarter of 1999 to a
loss of $432,000 in the third quarter of 2000. The lower gross profit was
primarily attributable to expendable supply and equipment sale shortfall as a
result of the going concern uncertainty from the Chapter 11 filing, and the
closures of the Las Vegas, Nevada operation on April 28, 2000 and of the
Southeast expendable supply operation during the fourth quarter of fiscal 1999.
Some margin erosion has also resulted due to competition within the industry.
Selling, General and Administrative
-----------------------------------
Selling, general and administrative expenses were $3,486,000 for the third
quarter of fiscal 2000 compared to $5,280,000 for the same period in fiscal
1999, a decrease of $1,794,000. As a percentage of sales, selling, general and
administrative expenses were 50% for the third quarter of fiscal 2000 compared
to 38% for the same period in fiscal 1999. The percentage increase is due
primarily to a decrease in revenues, and costs and expenses incurred to dispose
of, close or relocate operations, which more than offset the cost cutting
measures began in the fourth quarter of fiscal 1999.
12
<PAGE>
Interest
--------
Interest decreased to $812,000 in the third quarter of fiscal 2000 from
$1,851,000 in the third quarter of fiscal 1999. As a result of the Chapter 11
filing, the accrual of interest on the Company's bank line and senior
subordinated notes issued to ING Equity Partners, L.P. I ("ING") was suspended
on April 5, 2000.
Nine-Month Period ended June 30, 2000 and June 30, 1999
-------------------------------------------------------
Revenues From Rental Operations
-------------------------------
Revenues from rental operations were $24,494,000 for the nine months of fiscal
2000, compared to $28,826,000 for the same period last year, a decrease of
$4,332,000 or 15%. The decrease is primarily due to the sale of Duke City during
January 2000. Excluding Duke City's rental revenues from the nine months of
fiscal 2000 and 1999, revenues from rental operations actually increased by
$805,000 or 4%. Aggregate theatrical rental operations accounted for
approximately $9,473,000 or 39% of revenues from rental operations, an increase
of $541,000 or 6% from approximately $8,932,000 for the same period last year.
Production equipment rentals, primarily of lighting, grip, power generators and
trucks, increased to approximately $11,350,000 or 46% of revenues from rental
operations, an increase of $175,000 or 2% from approximately $11,175,000 for the
same period last year. Approximately 14% or $3,428,000 of rental revenues was
generated from the video rental operation (i.e. Duke City) and other operations
accounted for approximately 1%.
Net Product Sales
-----------------
Net equipment and supply sales were $8,451,000 for the first nine months of
fiscal 2000, a decrease of $6,103,000 or 42% from $14,554,000 for the same
period of fiscal 1999. The decrease is primarily due to the going concern
uncertainty as a result of the Chapter 11 filing, and the closure of the Las
Vegas, Nevada operation and expendable supply sale operation located in the
southeastern part of the U.S. during the fourth quarter of fiscal 1999.
Excluding the equipment and expendable supply sales from these locations (which
accounted for $2,639,000 or 31% and $6,682,000 or 46% of the net equipment and
expendable supply sales for the nine months of fiscal 2000 and 1999
respectively), sales decreased by $2,060,000 or 26% over the first nine months
of fiscal 1999.
Gross Profit - Rental
---------------------
Gross profit on rental revenues was $8,977,000 or 37% as a percentage of
revenues for the first nine months of fiscal 2000 compared to $10,701,000 or 37%
in fiscal 1999. Aggregate theatrical rental operations accounted for
approximately $4,880,000 of gross profit on rental revenues. Production
equipment rentals, primarily of lighting, grip, power generators and trucks
accounted for approximately $4,142,000 of gross profit on rental revenues in
fiscal 2000. Video equipment rental operation's "cost of rental revenues"
exceeded revenues by approximately $168,000 in fiscal 2000. The assets and
operation of the video rental operation were sold on January 21, 2000.
Gross Profit - Sales
--------------------
Gross profit on sales decreased from $3,491,000 in the first nine months of
fiscal 1999 to $931,000 in the first nine months of fiscal 2000. The lower gross
profit was primarily attributable to expendable supply and equipment sale
shortfall as a result of the going concern uncertainty from the Chapter 11
filing, and the closures of the Las Vegas, Nevada operation on April 28, 2000
and Southeast expendable supply operation during the fourth quarter of fiscal
1999. Some margin erosion has also resulted due to competition within the
industry.
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Selling, General and Administrative
-----------------------------------
Selling, general and administrative expenses were $12,874,000 for the first nine
months of fiscal 2000 compared to $15,154,000 for the same period in fiscal
1999, a decrease of $2,280,000 or 15%. As a percentage of sales, selling,
general and administrative expenses were 39% for the first nine months of fiscal
2000 compared to 35% for the same period in fiscal 1999. The percentage increase
is due primarily to decrease in revenues, and costs and expenses incurred to
dispose of, close or relocate operations, which more than offset the cost
cutting measures began in the fourth quarter of fiscal 1999.
Interest
--------
Interest increased to $5,582,000 in the first nine months of fiscal 2000 from
$5,564,000 in the same period of fiscal 1999. As a result of the Chapter 11
filing, the accrual of interest on the Company's bank line and senior
subordinated notes issued to ING Equity Partners, L.P. I ("ING") was suspended
on April 5, 2000.
Liquidity and Capital Resources
-------------------------------
As indicated above, on April 6, 2000, the Company and its subsidiaries filed a
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
The Company primarily applied cash from investing activities and additional
borrowings from the Company's bank line of approximately $8,000,000 and
$3,500,000 respectively to pay down capital lease obligations and other debt.
The major component of the net capital equipment additions was equipment for the
Company's theatrical rental operations of approximately $2,288,000.
The Company's bank debt of $13,250,000 and $56,222,000 due June 1, 2000 and
January 31, 2001, respectively, were reclassified as prepetition liabilities
subject to compromise.
The Company's liquidity, capital resources and result of operations may be
affected from time to time by a number of factors and risks, including the
ability to arrange debtor in possession financing, operating successfully under
a Chapter 11 proceeding, obtain shipments and negotiate terms with vendors and
service providers for current orders, fund and execute a new operating plan for
the Company, attract and retain key executive and associates and meet
competitive pressures, which may affect the nature and viability of the
Company's business strategy, generate cash flow, attract and retain customers
and manage its business notwithstanding the potential adverse publicity.
NASDAQ Listing
--------------
Effective April 24, 2000, NASDAQ delisted the Company's security which had been
suspended from trading since March 30, 2000, from the NASDAQ SmallCap market.
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<PAGE>
PART II. Other Information
Items 1,2, 4 and 5 are not applicable.
Item 3. Defaults Upon Senior Securities.
On April 6, 2000, the Company and its subsidiaries filed a
petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. This constituted an event of default under both
the Purchase Agreement dated July 27, 1995, as amended to date,
between the Company and ING Equity Partners, L.P. I ("ING"),
pursuant to which ING holds a $100,000 Senior Subordinated Note,
and the Note Purchase Agreement dated June 30, 1999 between the
Company and ING, pursuant to which ING holds a $10 million
Convertible Senior Subordinated Note.
The same event constituted a default under the Amended and
Restated Credit Agreement dated as of April 1, 1998, as amended
to date, among the Company and its subsidiaries, The Chase
Manhattan Bank , as agent for the lenders, and the lenders named
therein.
In a Chapter 11 filing, substantially all liabilities as of the
petition date are subject to compromise or other treatment under
a plan of reorganization. See Part I, Item 2, Management's
Discussion and Analysis of Financial Condition and results of
operations.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
27 Financial Data Schedule (in Edgar filing only)
(b) Not applicable
15
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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
ended June 30, 2000, to be signed on its behalf by the undersigned hereunto
duly authorized.
MATTHEWS STUDIO EQUIPMENT GROUP
(Registrant)
Date: August 14, 2000 By: /s/ Carlos D. De Mattos
----------------------------------------
Carlos D. De Mattos
Chairman of the Board, and Chief Executive
Officer
By: /s/ Miles R. Stover
----------------------------------------
Miles R. Stover
Chief Operating Officer and Chief
Financial Officer
16
