SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -------- SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended August 31, 1996
----------------------------------------
OR
- -------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
-------------- --------------
Commission file number 1-8654
------
UNITEL VIDEO, INC.
______________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 23-1713238
- ------------------------------ ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 West 57th Street, New York, New York 10019
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code: (212) 265-3600
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
------------------- -------------------
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ( ).
---
(Cover Page: 1 of 2 Pages)
The aggregate market value of the voting stock (based on the closing price of
such stock on the American Stock Exchange) held by non-affiliates of the
Registrant at November 22, 1996 was approximately $17,504,631.
There were 2,674,565 shares of Common Stock outstanding at November 22, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
PART III Certain portions of the Registrant's Proxy Statement
for the Registrant's 1996 Annual Meeting of Stockholders.
2
PART I
ITEM 1. BUSINESS
GENERAL
Unitel Video, Inc. (the "COMPANY") provides a full range of services to the
video communications industry for the recording, editing and duplication of
television programs, commercials and corporate and other communications on
videotape. The Company's services are provided primarily in the following
areas: studio videotape recording, mobile videotape recording and live
telecasting, film to videotape transfer, editing, computer graphics and
videotape duplication. The Company also designs and produces custom CD-ROM, CD-
I, videodisc and networked multimedia presentations.
The Company's services are provided at facilities located in New York City
and Los Angeles and through the Company's Mobile division based in Pittsburgh.
The Company's Mobile division provides "on-location" services, including
technical personnel, for videotape recording and live telecasting of sports,
entertainment, cultural and other events throughout North America.
As the Company is in a service industry, it does not use raw materials. It
does, however, use videotape. Videotape is readily available from numerous
sources and the Company has not experienced, nor does it anticipate
experiencing, difficulty in obtaining videotape for its operations. In
addition, the Company has service contracts with its customers, generally for
facilities and personnel at specific times or on a project or job-by-job basis
(as more fully described below under the caption "Marketing") and, accordingly,
does not have backlog as such.
The Company's cost structure is such that depreciation, selling expenses
and general and administrative expenses do not generally fluctuate from quarter
to quarter during a fiscal year based on sales volume. Furthermore, a majority
of production costs are fixed. Accordingly, relatively small variations in
quarterly sales historically have resulted in disproportionately greater
variations in net earnings. In part due to the foregoing, during fiscal years
1996, 1995 and 1994, the Company recognized a significantly greater proportion
of net earnings in the first quarter as compared to the other quarters of the
fiscal year. See Note K to Notes to Consolidated Financial Statements.
SERVICES
STUDIO VIDEOTAPE RECORDING. The Company provides the studios, equipment
and skilled technical personnel needed to record television programs,
commercials and corporate and other videotape communications. The equipment
provided by the Company includes color television cameras, videotape recorders,
sound monitoring and mixing equipment and lighting equipment. The Company does
not generally provide program direction or other artistic or non-technical
production services, such as the preparation of scripts, the hiring of
performers or the supplying of special props or scenery. The Company operates
eight studios in New York City.
3
Among the programs produced at the Company's studio facilities are "The
Sally Jessy Raphael Show", "Inside Edition", "The Montel Williams Show", "The
Rolonda Watts Show", "American Journal" and "The Gordon Elliot Show". Studio
recording accounted for approximately 18%, 16% and 15% of the Company's revenues
during the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
MOBILE VIDEOTAPE RECORDING AND LIVE TELECASTING. The Company's Mobile
division provides videotape recording and live telecasting services "on-
location" by transporting videotape and other related equipment in its mobile
vehicles. These vehicles have been designed to serve as the production control
center for events in sports arenas, concert halls, theaters and other locations.
The Company also arranges for the skilled technical personnel required to
perform these services. The Company's ten mobile vehicles are equipped to
travel on a continuous basis throughout North America and can be maintained in
the field. The Company's Mobile division accounted for approximately 27%, 21%
and 19% of the Company's revenues during the fiscal years ended August 31, 1996,
1995 and 1994, respectively. Some of the events handled by the Company's mobile
production units include "Live from the Met", "Live from Lincoln Center", "The
Grammy Awards", "The Emmy Awards", "The Academy Awards", major golf and tennis
tournaments, broadcast of Pittsburgh Pirates, Montreal Expos and Toronto Blue
Jays major league baseball games, Major League Baseball's Allstar game, the
international broadcast of the "Super Bowl," the 1996 Summer Olympics and the
1996 Democratic and Republican National Conventions.
FILM TO VIDEOTAPE TRANSFER. The Company provides the facilities and
technical personnel for transferring 16mm and 35mm motion picture positive and
negative film and slides to videotape. Through the use of computers, the color
of the picture may be corrected, altered or enhanced frame by frame to meet
client needs. Film to videotape transfer accounted for approximately 10%, 9%
and 9% of the Company's revenues during the fiscal years ended August 31, 1996,
1995 and 1994, respectively. The Company has performed this service for major
theatrical motion pictures such as "The Ghost and the Darkness", "Heat",
"Casino", and "City Hall", and television programs such as "Star Trek:Voyager",
"Star Trek: Deep Space Nine", "Murder She Wrote", and "The Simpsons".
EDITING. The Company provides editing equipment and skilled personnel
required to perform the editing, special optical and audio effects, titling and
other technical work necessary to produce a master videotape suitable for
broadcast, cablecast, duplication or other distribution. Using computer-
controlled electronic editing equipment, video and audio tape recorders and
special effects and titling equipment, videotape recorded by the Company or
others is processed into a finished product. Additionally, the Company provides
creative editorial and editorial supervision through the post production process
and consultative storyboard services directly to production companies and
advertising agencies. Editing accounted for approximately 30%, 35% and 37% of
the Company's revenues during the fiscal years ended August 31, 1996, 1995 and
1994, respectively. Among the programs edited at the Company's facilities are
"Star Trek:Voyager", "Star Trek: Deep Space Nine", "Cybill", and "The Nanny".
4
COMPUTER GRAPHICS. The Company offers creative consultation, technical
assistance and full-service facilities for the creation of computer-generated
graphics, special effects and animation in the digital format in both 2-D and 3-
D. These services accounted for approximately 8%, 9% and 10% of the Company's
revenues during the fiscal years ended August 31, 1996, 1995 and 1994,
respectively. The Company's projects in this area include various commercials
for Toyota, Sears and Nike.
VIDEOTAPE DUPLICATION. The Company furnishes videotape duplication
services in all formats, including formats available for broadcast and cablecast
in the United States as well as the multiple formats used abroad. Duplication
services accounted for approximately 4%, 4% and 5% of the Company's revenues
during the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
INTERACTIVE MULTIMEDIA PRODUCTION. The Company designs and produces custom
internet websites, CD-ROM, CD-I, videodisc and networked multimedia
presentations for clients in the publishing, financial services, pharmaceutical,
entertainment, advertising, retail, telecommunications and utility industries.
Extensive use of other Company resources are integrated into these productions,
including video compression, digital to video transfers, 3-D computer graphic
creation and studio and location recording. The Company also provides MPEG
services for Softkey, Sony Interactive, Grey Advertising and Muffinhead.
Interactive multimedia production accounted for approximately 1% of the
Company's revenues during each of the fiscal years ended August 31, 1996, 1995
and 1994.
MARKETING
The Company markets its services principally to cable television program
suppliers, independent producers, national television networks, local television
stations, motion picture studios, advertising agencies, and program syndicators
and distributors through the direct efforts of its internal sales personnel and
through advertising in certain trade publications. The Company has no material
patents. The Company markets its services through the use of the Unitel, Editel
and Windsor names.
Customers for editing services, film-to-tape transfer, computer graphics
and videotape recording of television commercials generally make arrangements
for the Company's services without significant advance notice, on a project or
job-by-job basis. Customers for studio and "on-location" videotape recording or
live telecasting of programs generally make arrangements longer in advance of
the time when the facilities and services are required. The Company has entered
into arrangements with several customers for periods ranging up to three years
to provide editing, mobile videotape recording and/or studio videotape recording
services. No customer accounted for more than 10% of the Company's total sales
for the fiscal years ended August 31, 1996, 1995 and 1994.
COMPETITION
The video services industry is highly competitive. Certain videotape
service businesses (both independent companies and divisions of diversified
companies) provide most of the same services provided by the Company, while
others specialize in one or several of these services. Editing and videotape
recording services are also subject to competition from the film industry.
While the Company does not perform any services directly on film it does provide
services for the motion picture industry including film to videotape transfer,
film in film out and special high resolution digital effects work on feature
films.
5
Many competitors of the Company, some with greater financial resources, are
located in the New York City and the Los Angeles areas, the principal markets
for the Company's services other than "on-location" video services. "On-
location" video services provided by the Company compete on a nationwide basis
with companies located throughout North America.
The Company competes on the basis of the overall quality of the services it
provides, state-of-the-art equipment, breadth of services, reputation in the
industry and location. The Company also competes on the basis of its ability to
attract and retain qualified, highly skilled personnel. The Company believes
that prices for its services are competitive within its industry, although some
competitors may offer certain of their services at lower rates than the Company.
The video services industry has been and is likely to continue to be subject to
technological change to which the Company must respond in order to remain
competitive.
EMPLOYEES
At August 31, 1996, the Company had 355 full-time employees. The Company's
Unitel New York division post-production personnel (23 employees) are members of
the National Association of Broadcast Employees and Technicians, AFL-CIO, under
a contract with the Company which expires in April 1997. The technical
personnel of the Company's Editel Los Angeles division (47 employees) are
represented by the International Alliance of Theatrical Stage Employees, under a
contract which expires in November 1997. The technical personnel of the
Company's Mobile division (39 employees) are represented by the International
Brotherhood of Electrical Workers, under a contract which expires in August
1997.
The Company believes that its employee relations are generally
satisfactory.
DEVELOPMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" ("FASB Statement No.
121") which provides guidance on when to assess and how to measure impairment of
long-lived assets, certain intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company adopted FASB Statement No. 121 as of August 31,
1995.
The Company has determined to focus its resources toward providing services
to the entertainment and corporate communications areas, which represent the
Company's strength. As part of this strategy, the Company decided to sell its
Editel New York, Editel Chicago and Editel Los Angeles divisions, which
specialize in the highly competitive commercial advertising portion of the video
facilities industry. During the 1995 fiscal year, the three Editel divisions
incurred a pretax loss of $3,682,000. As a result, the Company identified
property, plant and equipment associated with these divisions, which after an
impairment charge of $4,700,000 recorded as of August 31, 1995, had a carrying
value of approximately $19,300,000 that it no longer needed for its current and
future operations. During the fourth quarter of fiscal 1995, the Company
committed to a plan to dispose of the Editel divisions and in the first quarter
of fiscal 1996 began marketing these divisions to potential buyers.
6
Based on the Company's decision to sell the Editel divisions, the Company
recorded an impairment charge of approximately $2,000,000 in fiscal 1996
relating to the assets at all three Editel divisions. The impairment charge
recorded represents management's estimate of the decrease in value of these
assets during the period such assets were held for sale based upon the
depreciation method which the Company has used in the past and which management
has found to be reasonable and appropriate.
On February 22, 1996, the Company announced the closure of its Editel
Chicago division and subsequently distributed the majority of that division's
assets throughout the Company. The balance of the Editel Chicago division
equipment was sold in an auction which was held in May 1996. In March 1996, the
Company terminated the lease for its Editel Chicago division by making a lump
sum payment to the landlord of $1,600,000. The restructuring charge of
$1,246,000 recorded in the quarter ended May 31, 1996, reflects this payment
less the reversal of $354,000 of accrued rent which would have been due under
the terms of the lease. Previously, in May of 1995, the Company adopted a plan
to downsize the operations of its Editel Chicago division and reorganize and
reduce its corporate management which resulted in recording a restructuring
charge of $400,000 for severance and early retirement expense.
During the months of March through May 1996, the editorial and computer
graphics departments of the Editel New York division were closed. In May 1996,
the Company reached an agreement in principle to sell the film-to-tape transfer
business of Editel New York, which was the remaining operating department, to a
group of employees backed by a private investor. The Company operated the film-
to-tape transfer business through August 31, 1996, at which time discussions
with the employee led group were terminated and the business was closed. During
the negotiations, the majority of the editorial and computer graphics assets
were distributed throughout the Company. At August 31, 1996, the Company
estimated the revised value of the remaining assets held for sale to be
approximately $1,587,000 and classified them on the balance sheet as short-term.
In November 1996, the Company sold the majority of those assets to an unrelated
third party for $1,400,000. The balance of the assets will be redeployed
throughout the Company or disposed of through an auction. Proceeds from the
sale of assets are used by the Company to repay outstanding debt.
Also in May 1996, after reevaluating the potential of the Editel Los
Angeles division, the Company decided to retain and expand this division and,
accordingly, discontinued seeking a buyer for this business.
7
ITEM 2. PROPERTIES.
The following table sets forth, as of August 31, 1996, certain information
concerning the Company's facilities. The lease expiration dates exclude option
extension periods which exist in certain leases.
Lease
Approximate Expiration
Location Square Feet Primary Use Date
- ----------------------------------------------------------------------------------------------------------
515 West 57 Street 40,000 Television studios and post- Owned
New York, New York production facilities.
508-510 West 57 Street 15,000 Television studio and March 1999
New York, New York support space.
841 Ninth Avenue 21,000 Television studio and August 2003
New York, New York support space.
503 West 33 Street 8,000 Television studio and April 2001
New York, New York support space.
402 East 76 Street 30,000 Television studio and June 1998
New York, New York support space.
8 West 38 Street 20,000 Post-production, March 2001
New York, New York administrative offices
and production offices.
222 East 44 Street 43,000 Former Editel NY Dec. 1999
New York, New York facility subleased to
third parties.
433-435 West 53 Street 14,000 Television studio and Owned
New York, New York support space.
4100 Steubenville Pike 18,000 Mobile production Sept. 1997
Pittsburgh, Pennsylvania headquarters and garage.
729 North Highland 26,000 Post-production, Owned
Los Angeles, California film-to-tape transfer and
computer graphics facilities,
and administrative offices.
3330 Cahuenga Blvd. W. 15,000 Post-production, film- Dec. 1998
Los Angeles, California to-tape transfer and
administrative offices.
3330 Cahuenga Blvd. W. 15,000 Office space June 1997
Los Angeles, California
1101 Isabel Street 15,000 Mobile field shop and Month to
Burbank, California garage. Month
555 West 57th Street 3,000 Office space Dec. 2000
New York, New York
423 West 55th Street 21,000 Office Space Aug. 1999
New York, New York
8
All of the Company's facilities are well maintained structures, in good
physical condition and are adequate to meet the Company's current and reasonably
foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS.
(a) There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party or of which any of their property is the
subject.
(b) No material pending legal proceeding was terminated during the fourth
quarter of the Company's fiscal year ended August 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Officer
Name Age Since Positions with the Company
- ----------------------------------------------------------------------------
Barry Knepper 46 1982 President, Chief
Executive Officer and Director
Richard L. Clouser 56 1982 Senior Vice President -
Corporate, President of
the Mobile Division and
Director
Karen Ceil Lapidus 37 1994 Vice President, General
Counsel and Secretary
Mark Miller 48 1995 President of the Unitel
Hollywood Division
Jill Debin Cohen 44 1995 President of the Unitel NY
Post Division
Albert Walton 51 1995 President of the Editel
Los Angeles Division
Tom Eyring 44 1995 Chief Technology Officer
Edwin Levine 57 1996 President of the Unitel NY
Studios Division
George C. Horowitz 44 1996 Chief Financial Officer
9
CERTAIN INFORMATION CONCERNING THE EXECUTIVE OFFICERS OF THE COMPANY
Mr. Knepper has been President and CEO of the Company since April 1996. He was
Senior Vice President-Finance and Administration and Director since May 1995,
Chief Financial Officer of the Company since 1982 and has served as its
Treasurer since 1983.
Mr. Clouser has been President of the Mobile division of the Company since 1982,
Senior Vice President-Corporate since April 1996 and a Director since
October 1996.
Ms. Lapidus has been General Counsel and Secretary of the Company since 1994 and
a Vice President since 1996.
Mr. Miller has been President of the Unitel Hollywood division since April 1995.
From 1990 through April 1995 he was Vice President of Engineering and Operations
of the Unitel Hollywood division. From 1984 through 1990 he was Vice President
of Engineering of the Unitel Hollywood division.
Ms. Debin Cohen has been President of the Unitel NY Post division since August
1996. From June 1995 to August 1996 she was President of the Windsor Video
division which became a part of the Unitel NY Post division in August 1996.
From November 1993 to June 1995 she was the Vice President/General Manager of
the Windsor Video division. Ms. Debin Cohen was the Vice President of
Operations for the Editel New York division from 1988 through November 1993.
Mr. Walton has been President of the Editel Los Angeles division since July
1995. From May 1994 through July 1995 he was the Director of New Business
Development for the Editel Los Angeles division. He served as Vice President of
CIS from 1988 through 1994, a Hollywood based specialized visual effects
company.
Mr. Eyring has been Chief Technology Officer since June 1995. From 1991 to June
1995 he was Vice President of Engineering of the Editel New York division and
from 1982 through 1991 he was Director of Engineering Services for the Editel
New York division.
Mr. Levine has been President of the Unitel NY Studios division since August
1996. From June 1975 to August 1996, he was Vice President of Technical
Operations for the Unitel NY division of the Company.
Mr. Horowitz has been Chief Financial Officer of the Company since April 1996.
From May of 1993 through June of 1996 he was Director of Finance for the
Company.
The term of office of each executive director of the Company expires as
specified by the Board of Directors of the Company and when his or her
respective successor is elected and has qualified.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the American Stock Exchange under
the symbol UNV. The following table sets forth, for fiscal years 1996 and 1995,
the high and low sales prices of the Common Stock as furnished by the American
Stock Exchange:
Fiscal Year 1996: Low High
--- ----
First Quarter....................... 4 7/8 6 13/16
Second Quarter...................... 5 1/8 8
Third Quarter....................... 4 7/8 7 3/8
Fourth Quarter...................... 5 1/4 6 1/4
Fiscal Year 1995: Low High
--- ----
First Quarter....................... 4 7/8 6 1/2
Second Quarter...................... 4 7/8 7 3/4
Third Quarter....................... 5 7/8 7 1/2
Fourth Quarter...................... 5 3/4 8 1/2
As of November 22, 1996 there were approximately 382 holders of the
Company's Common Stock.
Since its inception in 1969, the Company has not declared or paid cash
dividends on its Common Stock, and it does not anticipate declaring or paying
cash dividends in the foreseeable future. The declaration, payment and amount
of future dividends will be determined by the Board of Directors in light of
conditions then existing, including the Company's earnings, financial condition,
capital requirements and other factors. In connection with its financing
arrangements, the Company is subject to certain restrictions which prohibit the
payment of cash dividends. (See Note B to Notes to Consolidated Financial
Statements, and Management's Discussion and Analysis of Financial Condition and
Results of Operations).
11
Item 6. Selected Financial Data
- -------
1996 1995 1994 1993 1992(b)
----------------------------------------------------------------------------------------------
OPERATIONS:
Sales $79,287,000 $83,285,000 $80,498,000 $79,390,000 $63,000,000
Cost of sales (c) $65,501,000 $69,219,000 $64,391,000 $62,418,000 $48,382,000
Interest expense, net $ 3,686,000 $ 3,649,000 $ 2,388,000 $ 2,815,000 $ 2,072,000
Earnings(loss)before
income taxes $(5,084,000) $(9,341,000) $ 1,519,000 $ 924,000 $ 3,097,000
Net earnings(loss)(a) $(5,124,000) $(6,547,000) $ 859,000 $ 711,000 $ 1,728,000
FINANCIAL POSITION:
Total assets $67,618,000 $74,186,000 $73,245,000 $69,052,000 $62,269,000
Working capital
(deficiency) $(8,356,000)(e) $(3,467,000)(e) $(8,055,000)(d) $ (705,000) $ 2,577,000
Current ratio .60 to 1 (e) .82 to 1(e) .64 to 1 (d) .95 to 1 1.22 to 1
Property & equipment-net $50,466,000(f) $34,491,000(f) $55,425,000 $51,166,000 $43,679,000
Long-term debt, less
current maturities $19,706,000 $19,936,000 $14,142,000(d) $21,835,000 $27,904,000
Stockholders' equity $17,810,000 $22,526,000 $28,828,000 $27,673,000 $17,727,000
DATA PER COMMON SHARE:
Net earnings(loss)per
common share $ (1.96) $ (2.53) $ .33 $ .30 $ 1.07
Weighted average number of
common and common equivalent
shares outstanding 2,613,000 2,582,000 2,617,000 2,066,000 1,580,000
(a) Federal and state tax credits of approximately $15,000 in 1996, $28,000 in
1995, $58,000 in 1994, $30,000 in 1993 and $211,000 in 1992 have been
applied as a reduction of the provision for income taxes.
(b) Includes the results of Editel-New York, Chicago and Los Angeles since
March 1, 1992.
(c) Gain on sale or disposal of equipment and amortization of goodwill have
been reclassified to depreciation expense to conform with fiscal 1994, 1995
and 1996 presentation. (See Note H to Notes to Consolidated Financial
Statements).
(d) The revolving credit portion of the long-term debt which expired in May
1995, was included in current liabilities. In December 1995, the Company
refinanced its revolving credit and term loans outstanding with its
bank lenders.
(e) The working capital deficiency is primarily due to the inclusion of
$3,750,000 in 1995 and $6,588,000 in 1996 of Term Loan B in current
liabilities.
(f) The decrease in property and equipment is due to the reclassification of
the Editel divisions' net assets to assets held for sale, a separate
line in the long-term asset section of the balance sheet. In 1996 the
Company decided to retain its Editel Los Angeles division and also
redeployed the majority of the assets of the Editel New York and Editel
Chicago divisions throughout the Company. These assets were no longer
considered assets held for sale and were reclassified to property and
equipment.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES.
The Company is committed to keeping pace with technological developments as
well as taking advantage of new business opportunities in the video
communications industry. Capital expenditures were $9,134,000 during fiscal
1996 as compared to $9,738,000 (exclusive of the acquisition of GC & Co.) and
$15,002,000 during fiscal years 1995 and 1994, respectively. Expenditures made
during fiscal 1996 were for equipment used in the production, post production
and computer graphics service areas throughout the Company.
The net change in cash in the fiscal years ended August 31, 1996, 1995 and
1994 was $31,000, $(1,132,000) and $285,000, respectively. The net cash
increase in fiscal 1996 was the result of net cash provided by operating
activities of $7,130,000 and financing activities of $884,000 which was offset
by $7,983,000 related to investing activities. For the year ended 1996, the
large reduction in accounts receivables and payables was primarily due to the
closing of the Company's Editel Chicago and Editel New York divisions. The
increase in deferred financing costs and the majority of the net cash provided
by financing activities are due to the refinancing of the Company's debt in
December of 1995. The majority of the proceeds generated from the disposal of
assets are related to the closure of the Editel Chicago and Editel New York
divisions. The decrease in fiscal 1995 was the result of cash provided by
operating activities of $8,134,000 and financing activities of $1,420,000 less
cash used in investing activities of $10,686,000. The net cash decrease in
fiscal 1995 was primarily due to the Company's fixed asset expenditures for the
year exceeding the cash generated by operations. The increase in fiscal 1994
was the result of cash provided by operating activities of $11,116,000 and
financing activities of $2,480,000 in excess of cash used in investing
activities of $13,311,000. The net cash increase in fiscal 1994 is primarily
due to the cash generated by the Company's operations and net loan proceeds
exceeding the net cash used to purchase capital assets.
In December 1995, the Company entered into a $26 million revolving credit
and term loan agreement with a financial institution, consisting of an $11
million revolving credit facility and two $7.5 million term loans. Term loan A
is payable in 59 monthly principal payments of $89,000 through November 2000 and
a payment of $2,249,000 at December 2000. Term loan B is repayable from the
proceeds of sales of fixed assets. As of August 31, 1996 $912,000, has been
repaid leaving a balance of $6,588,000 for term loan B. Subsequent to the
fiscal year end, the Company repaid an additional $1,943,000 from asset sales,
leaving a balance of $4,645,000 related to this portion of the term loan as of
November 25, 1996. The remaining balance of term loan B is due in full on
December 31, 1996.
Additionally, in December 1995, the Company obtained from a bank a
$4,000,000 mortgage on its property located on West 57th Street in New York
City. The mortgage is payable in equal monthly installments of $22,000 through
November 2002, with a final payment of $2,152,000 due in December 2002.
13
The proceeds of the $15 million term loan, the $4 million mortgage and $2.5
million drawn by the Company under the revolving credit facility were used to
refinance the term loan ($8,577,000) and revolving credit facility ($9,975,000)
and to repay the City of New York Industrial Revenue Bond obligation ($265,000)
all then outstanding to the Company's bank lenders. The remaining $2,683,000
was used for closing costs and for payment of prior capital expenditures. The
terms of the Company's new revolving credit and term loan agreement provide that
the lender receive a first lien on all property, equipment and accounts
receivable that are not encumbered by another lender. At August 31, 1996,
$5,706,000 was outstanding under the revolving portion of the credit facility.
See Note B to Notes to Consolidated Financial Statements with respect to
compliance with certain financial covenants.
In February 1995, the Company purchased the business and assets of GC & Co.
(formerly known as Greene, Crowe & Company), a Burbank, California based
supplier of "on-location" services for the videotaping and live telecasting of
concerts, cultural and other events, including the " The Academy Awards", the
"The Grammy Awards" and "The American Music Awards". The purchase price was
$6,750,000, consisting of $6,000,000 in cash and $750,000 of convertible
subordinated promissory notes. The notes bear interest at 1% over prime and are
due in full in August 1997 and are also convertible into the Company's common
stock at $10.00 per share. The cash portion of the purchase price was financed
by a $4,700,000 five year capital lease with a fixed rate of interest of 8.2%,
payable in sixty equal monthly payments of principal and interest of $82,000 and
a balloon payment at the end of the lease period of $940,000. Additionally, the
Company obtained a $1,800,000 loan with a fixed interest rate of 9.3% payable in
sixty equal monthly payments of principal and interest of $33,000 and a balloon
payment at the end of the five year period of $360,000. The $500,000 available
to the Company from these two financings after the payment of the cash portion
of the GC & Co. acquisition price was used to repay a $500,000 note payable to
Banta Corporation from the purchase of the Editel Los Angeles building.
In October 1993, the Company purchased a building located on West 53rd
Street in New York City for a purchase price of $2,800,000. The Company is
utilizing the building, which contains approximately 14,000 square feet, as a
videotape recording studio. The Company also entered into a $2,700,000
equipment financing agreement with a leasing company in October 1993. The
proceeds of this financing were used towards payment of the purchase price of
the 53rd Street property. The equipment financing is repayable in 60 monthly
installments of $53,000, including principal and interest, at a fixed rate of
7%. The Company obtained a $1,875,000 mortgage financing on this property in
June 1994 with a fixed rate of interest of 8.6%. The mortgage principal is
payable in equal monthly payments through June, 2004 with options to extend the
maturity date through June, 2019.
In connection with certain of its financings, the Company must adhere to
particular financial ratios and restrictions including restrictions on future
payment of dividends. The Company anticipates that the restrictions will not
impair its ability to keep pace with technological developments.
The enactment of the Tax Reform Act of 1986 has limited the Company's
ability to defer the payment of taxes due to the imposition of an alternative
minimum tax which effectively results in the treatment of certain timing
differences as tax preference items.
14
RESULTS OF OPERATIONS
Sales were $79,287,000, $83,285,000 and $80,498,000 for the fiscal years
ended August 31, 1996, 1995 and 1994, respectively. The sales decrease of
$3,998,000 was primarily due to the closing of the Company's Editel Chicago
division in February of 1996 and the restructuring during the year and
subsequent closure of the Company's Editel New York division. Sales increased
by approximately $4,000,000, in the aggregate, at the Company's other divisions,
but was offset by a reduction in sales of $8,000,000 at the Editel Chicago and
Editel New York divisions. The fiscal year 1995 sales increase of $2,787,000
was primarily due to revenues generated by the Company's studio production and
mobile facilities as a result of the addition of a studio in New York City and
the acquisition of the GC & Co. mobile units which was offset by declines in
sales at the Company's Editel divisions. In fiscal year 1994, sales increased
$1,108,000 which was primarily due to a higher demand for the Company's mobile
services. Sales remained flat for the Company's Editel-Chicago and both Los
Angeles divisions due to severe price competition in these markets.
The Company recorded net losses of $5,124,000 and $6,547,000 in the fiscal
years ended August 31, 1996 and 1995 and net income of $859,000 in fiscal 1994.
The net loss of $5,124,000 incurred in fiscal 1996 is attributable to costs
relating to the closure of the Company's Editel New York and Editel Chicago
divisions and the operating costs of running these divisions until they were
closed. The net loss of $6,547,000 incurred in fiscal 1995 is due primarily to
the pretax charge of $7,681,000 taken for the impairment of assets of the Editel
New York, Editel Chicago, Editel Los Angeles and Windsor Video divisions and the
pretax charge of $400,000 for the restructuring of the Editel Chicago division.
Production costs, the main component of cost of sales, consist primarily of
direct labor, equipment maintenance expenses and occupancy costs. The Company's
production costs, as a percentage of sales, were 72.7%, 71.1% and 68.4%, for the
fiscal years ended August 31, 1996, 1995 and 1994, respectively. The increase
in production costs as a percent of sales in fiscal 1996 is due to the decrease
in sales and incremental severance costs associated with the closure of the
Company's Editel New York and Editel Chicago divisions. During 1996, the
Company implemented a program to reduce production costs by closing unprofitable
divisions and streamlining operations wherever possible. The increase in
production costs for fiscal 1995 as compared with the prior years, is due
primarily to an increase in studio and mobile production revenues which incur
variable expenses at a higher rate than the Company's other services.
Production costs increased as a percentage of sales in fiscal 1994 because
production costs increased during that year while sales remained flat with the
prior year. Since most of the Company's costs are fixed and a large portion of
the costs are subject to price increases, flat sales from year to year result in
production costs which are an increased percentage of sales. This same dynamic
applies for both selling expenses and general and administrative expenses.
Depreciation, as a percentage of sales, was 9.9%, 12.1% and 11.5% in fiscal
1996, 1995 and 1994, respectively. Depreciation expense decreased in fiscal
1996 due to the reclassification of the net property and equipment of the Editel
divisions to net assets held for sale at August 31, 1995. The impairment charge
recorded represents management's estimate of the decrease in value of these
assets during the period such assets were held for sale in fiscal 1996 based
upon the method of depreciation which the Company has used in the past and which
management has found to be reasonable and appropriate.
15
The Editel Chicago division was closed in February 1996 and the Editel New York
division was closed in August 1996. Depreciation expense increased in 1995 as a
result of the $4,750,000 equipment portion of the GC & Co. acquisition and
capital expenditures made during the year totaling $9,738,000. Depreciation
expense increased as a percentage of sales in 1994 due to the purchase of
$15,002,000 in fixed assets during the year. Depreciation expense, during
fiscal 1996 included loss on disposal of assets of $58,000. Depreciation was
offset by a gain on disposal of assets of $352,000 and $817,000 in fiscal 1995
and 1994 respectively. Had the gain on disposal of assets been excluded from
depreciation expense, depreciation as a percentage of sales for 1995 and 1994
would have been 12.5%.
Selling expenses, as a percentage of sales, during fiscal years 1996, 1995
and 1994 were 2.9%, 3.4% and 3.5%, respectively. The decrease in selling
expenses during fiscal 1996 is primarily due to a decrease in the sales staff at
the Editel Chicago and Editel New York divisions. In 1995 and 1994, selling
expenses as a percentage of sales decreased due to significant cost reductions
which became effective in 1993.
General and administrative expenses as a percentage of sales during fiscal
years 1996, 1995 and 1994 were 12.2%, 10.6% and 11.8%, respectively. The
increase in general and administrative costs in fiscal 1996 is due primarily to
severance pay at the Editel Chicago and Editel New York divisions. Cost
reductions put into effect in 1994, including the addition of in-house counsel
and a resulting reduction in professional fee expense, were reflected in fiscal
years 1995 and 1994 by a decrease of approximately 1% from each of the prior
years.
Interest expense, as a percentage of sales, during fiscal years 1996, 1995,
and 1994 was 4.6%, 4.4% and 3.0%, respectively. Although interest expense
increased slightly in 1996, the percent to sales increase to 4.6% in 1996 versus
4.4% in 1995 is due to lower sales in the current fiscal year. The increase in
interest expense in fiscal 1995 was due to additional interest incurred relating
to the mortgage financings for the Editel Los Angeles building purchased by the
Company in June 1994 and financing obtained for the acquisition of GC & Co. in
February 1995. During fiscal 1995 the Company wrote off $214,000 of deferred
financing costs related to its bank debt which was refinanced in December 1995.
Additionally, interest rates were significantly higher in 1995 as compared with
the prior year resulting in higher interest payments on the floating rate
portion of the Company's debt. The decrease in interest expense in 1994 is due
to the renegotiation of the rate payable on the Company's indebtedness to its
primary bank lenders, a reduction in the amortization of deferred financing
costs charged to interest expense and the capitalization of approximately
$300,000 of interest relating to construction on the Editel Los Angeles and 53rd
Street, New York City locations.
The Company's effective tax rates were (1%), (30%) and 43.4% in fiscal
years 1996, 1995 and 1994, respectively. The 1996 effective tax rate reflects
the current year net operating loss for which no tax benefit was provided. The
effective tax rate in 1995 differs from prior years primarily due to the impact
of the nondeductible goodwill write off and the impairment of assets charge.
(See Note F to Notes to Consolidated Financial Statements.) During fiscal 1994,
the effective rate exceeded the Federal statutory rate of 34.0% due to state and
local income taxes, and the effect of certain non-deductible expenses.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
UNITEL VIDEO, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
REPORT OF GRANT THORNTON LLP INDEPENDENT ACCOUNTANTS.........18
CONSOLIDATED FINANCIAL STATEMENTS:
BALANCE SHEETS - AUGUST 31, 1996 AND 1995............. 19-20
STATEMENTS OF OPERATIONS - YEARS ENDED
AUGUST 31, 1996, 1995 AND 1994.................. 21
STATEMENT OF STOCKHOLDERS' EQUITY - YEARS ENDED
AUGUST 31, 1996, 1995 AND 1994................... 22
STATEMENTS OF CASH FLOWS - YEARS ENDED
AUGUST 31, 1996, 1995 AND 1994................... 23-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............ 26-37
SUPPLEMENTARY FINANCIAL SCHEDULE........................... 44
Selected Quarterly Financial Data is set forth in
Note K to Notes to the Consolidated Financial Statements.
17
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Unitel Video, Inc.
We have audited the accompanying consolidated balance sheets of Unitel Video,
Inc. (a Delaware corporation) at August 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended August 31, 1996. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Unitel
Video, Inc. as of August 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note J to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" during fiscal
1995.
We have also audited Schedule II of Unitel Video, Inc. for each of the three
years in the period ended August 31, 1996. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
/s/GRANT THORNTON LLP
- -----------------------------------
New York, New York
November 19, 1996
18
UNITEL VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
August 31,
ASSETS 1996 1995
Current assets:
Cash $ 192,000 $ 161,000
Accounts receivable, less
allowance for doubtful accounts
of $712,000 in 1996 and
$686,000 in 1995 8,701,000 12,700,000
Other receivables 333,000 362,000
Prepaid income taxes 142,000 567,000
Prepaid expenses 735,000 1,340,000
Net assets held for sale 1,587,000 --
Deferred tax asset 844,000 760,000
---------- ----------
Total current assets 12,534,000 15,890,000
Property and equipment - at cost
Land, buildings and
improvements 19,915,000 13,541,000
Video equipment 97,023,000 78,145,000
Automobiles -- 50,000
Furniture and fixtures 3,502,000 2,736,000
---------- ----------
120,440,000 94,472,000
Less accumulated depreciation
and amortization 69,974,000 59,981,000
---------- ----------
50,466,000 34,491,000
Net assets held for sale -- 19,270,000
Deferred tax asset 1,625,000 1,745,000
Goodwill 1,859,000 1,997,000
Other assets 1,134,000 793,000
---------- ----------
$67,618,000 $74,186,000
---------- ----------
---------- ----------
See accompanying notes.
19
UNITEL VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------ ---- ----
Current liabilities:
Accounts payable $ 4,967,000 $ 7,339,000
Accrued expenses 1,450,000 1,620,000
Payroll and related taxes 2,947,000 2,931,000
Current maturities of long-term
debt 8,362,000 5,492,000
Current maturities of subordinated debt 1,166,000 104,000
Current maturities of ESOP loan 166,000 186,000
Current maturities of capital lease
obligations 1,832,000 1,685,000
----------- ------------
Total current liabilities 20,890,000 19,357,000
Deferred rent 325,000 864,000
Long-term debt, less current maturities 19,706,000 19,936,000
Subordinated debt, less current
maturities 1,979,000 3,146,000
ESOP loan, less current maturities -- 152,000
Long-term leases, less current
maturities 5,604,000 7,064,000
Accrued retirement 1,304,000 1,141,000
Stockholders' equity:
Common stock, par value $.01 per
share:
Authorized-5,000,000 shares
Issued-3,532,554 shares in 1996
and 3,491,454 shares in 1995,
and outstanding 2,666,265 shares
in 1996 and 2,625,165 shares in
1995 26,000 26,000
Additional paid-in capital 27,545,000 27,351,000
Accumulated deficit/Retained earnings (1,592,000) 3,532,000
Common stock held in treasury, at cost
(866,289 shares in 1996 and 1995) (7,974,000) (7,974,000)
------------ ------------
18,005,000 22,935,000
Unearned employee benefit expense (195,000) (409,000)
------------ ------------
Total stockholders' equity 17,810,000 22,526,000
------------ ------------
$ 67,618,000 $74,186,000
------------ ------------
------------ ------------
See accompanying notes.
20
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended August 31,
1996 1995 1994
---- ---- ----
Sales $79,287,000 $83,285,000 $80,498,000
------------ ------------ ------------
Cost of sales:
Production costs 57,661,000 59,174,000 55,097,000
Depreciation and
amortization 7,840,000 10,045,000 9,294,000
------------ ------------ ------------
65,501,000 69,219,000 64,391,000
------------ ------------ ------------
Gross profit 13,786,000 14,066,000 16,107,000
Operating expenses:
Selling 2,275,000 2,843,000 2,852,000
General and
administrative 9,690,000 8,832,000 9,512,000
Interest 3,686,000 3,649,000 2,388,000
Restructuring charge 1,246,000 400,000 --
Impairment charge 2,000,000 7,681,000 --
------------ ------------ ------------
18,897,000 23,405,000 14,752,000
------------ ------------ ------------
Earnings(loss)from
operations (5,111,000) (9,339,000) 1,355,000
Other income (loss) 27,000 (2,000) 164,000
------------ ------------ ------------
Earnings(loss)before
income taxes (5,084,000) (9,341,000) 1,519,000
Income taxes (benefit) 40,000 (2,794,000) 660,000
Net earnings (loss) ------------ ------------ ------------
applicable to common
stock $ (5,124,000) $(6,547,000) $ 859,000
------------ ------------ ------------
------------ ------------ ------------
Net earnings (loss)
per common share $ (1.96) $ (2.53) $ .33
------------- ------------ -----------
------------- ------------ -----------
Weighted average number
of common and common
equivalent shares
outstanding 2,613,000 2,582,000 2,617,000
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes.
21
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
Common Stock Additional Common Stock
------------ Paid-In Retained Held in Unearned Employee
Shares Amount Capital Earnings Treasury Benefit Expense
------------------------------------------------------------------------------------------------
BALANCE, August 31, 1993 2,595,879 $26,000 $27,259,000 $9,220,000 $(7,974,000) $(858,000)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Net earnings 859,000
Exercise of stock options 250 1,000
Employee stock purchase plan 20,336 106,000
Repayment of loan to ESOP 169,000
Public offering expense
reimbursement 20,000
------------------------------------------------------------------------------------------------
BALANCE, August 31, 1994 2,616,465 26,000 27,386,000 10,079,000 (7,974,000) (689,000)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Net loss (6,547,000)
Exercise of stock options 5,000 32,000
Employee stock purchase plan 3,700 20,000
Allocation of ESOP shares (87,000) 280,000
------------------------------------------------------------------------------------------------
BALANCE, August 31, 1995 2,625,165 26,000 27,351,000 3,532,000 (7,974,000) (409,000)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Net loss (5,124,000)
Exercise of stock options 30,000 174,000
Employee stock purchase plan 11,100 49,000
Allocation of ESOP shares (29,000) 214,000
------------------------------------------------------------------------------------------------
BALANCE, August 31, 1996 2,666,265 $26,000 $27,545,000 $(1,592,000) $(7,974,000) $(195,000)
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
See accompanying notes.
22
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended August 31,
1996 1995 1994
---- ---- ----
Cash Flows From Operating
Activities:
Net (loss) earnings $(5,124,000) $(6,547,000) $859,000
Adjustments to reconcile ------------ ------------ ------------
net (loss) earnings to
net cash provided by
operating activities:
Depreciation and
amortization 7,782,000 10,397,000 10,111,000
Net loss (gain) on disposal
of assets 58,000 (352,000) (817,000)
Impairment charge 2,000,000 7,681,000 --
Amortization of deferred
financing costs 252,000 603,000 500,000
Accretion of subordinated
debt -- -- 317,000
Recognition of
deferred gain -- (117,000) (200,000)
Royalties received in
equipment -- -- (189,000)
Payments made on accrued
acquisition costs -- -- (75,000)
Deferred rent (539,000) (123,000) (44,000)
Accrued retirement
expense 163,000 172,000 206,000
Accrued restructuring -- 273,000 --
Deferred income taxes 36,000 (2,520,000) 140,000
Decrease (increase), net
of acquired assets and
liabilities, in:
Accounts receivable, net 3,999,000 (1,928,000) 720,000
Other receivables 29,000 20,000 (336,000)
Prepaid expenses 605,000 213,000 (309,000)
Prepaid taxes 425,000 (486,000) 438,000
Other assets (30,000) (222,000) 14,000
Increase (decrease), net
of acquired assets and
liabilities, in:
Accounts payable (2,372,000) 835,000 (1,486,000)
Accrued expenses (170,000) 559,000 533,000
Payroll and related
taxes 16,000 (324,000) 734,000
------------ ------------ ------------
12,254,000 14,681,000 10,257,000
------------ ------------ ------------
Net cash provided by operating
activities 7,130,000 8,134,000 11,116,000
------------ ------------ ------------
23
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year Ended August 31,
1996 1995 1994
---- ---- ----
Cash Flows From Investing
Activities:
Capital expenditures $(9,134,000) $(9,738,000) $(15,002,000)
Acquisition of GC & Co.
assets -- (1,300,000) --
Proceeds from disposal
of assets 1,151,000 352,000 1,691,000
--------- ---------- ----------
Net cash used in investing
activities (7,983,000) (10,686,000) (13,311,000)
--------- ---------- ----------
Cash Flows From Financing
Activities:
Reimbursement of public
offering expenses -- -- 20,000
Proceeds from long-term
financing 25,717,000 6,120,000 9,518,000
Principal repayments (24,495,000) (4,187,000) (7,060,000)
Deferred Financing Costs (574,000) (90,000) (122,000)
Repayment of note to Banta -- (500,000) --
Proceeds from issuance of
common stock 223,000 52,000 107,000
Repayment of loan to ESOP (172,000) (168,000) 17,000
Release of ESOP quarterly
shares 185,000 193,000 --
--------- ---------- ----------
Net cash provided by
financing activities 884,000 1,420,000 2,480,000
Net Increase(Decrease) In Cash 31,000 (1,132,000) 285,000
Cash, Beginning of Year 161,000 1,293,000 1,008,000
--------- ---------- ----------
Cash, End of Year $ 192,000 $ 161,000 $ 1,293,000
--------- ---------- ----------
--------- ---------- ----------
Schedule of income taxes and
interest paid:
Income Taxes Paid $ 85,000 $ 162,000 $ 155,000
Interest Paid 3,374,000 3,256,000 1,713,000
--------- ---------- ----------
$ 3,459,000 $ 3,418,000 $ 1,868,000
--------- ---------- ----------
--------- ---------- ----------
24
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended August 31,
1996 1995 1994
Supplemental schedule of non-
cash investing and financing
activities:
Capital lease obligations: $2,622,000 $ 2,690,000
------------ ------------
------------ ------------
Detail of acquisition of GC & Co.:
Fair value of assets acquired $6,750,000
Subordinated note to seller (750,000)
Capital lease obligation (4,700,000)
------------
Net cash paid for acquisition $1,300,000
------------
------------
See accompanying notes.
25
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Business -- The Company provides facilities for studio production,
videotape editing, mobile production, computer graphics, film-to-tape transfer
and duplication of videotape in all formats, to the entire video communications
industry. The Company's facilities are used to produce television programs,
corporate communications and commercials on videotape. The Company's mobile
division provides "on-location" services for the videotape recording and live
telecasting of sports, cultural and other events throughout the United States.
The Company also designs and produces custom CD-ROM, CD-I, videodisc and
networked multimedia presentations. Customers for the Company's services
include cable television program suppliers, independent producers, national
television networks, local television stations and advertising agencies.
(2) Consolidation -- The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary. Significant intercompany
accounts and transactions have been eliminated.
(3) Depreciation -- Depreciation is provided on a straight-line basis over the
estimated useful lives of assets which are: 30-40 years for buildings; 15-30
years for building improvements; length of lease for leasehold improvements; 5-7
years for video equipment; 5-7 years for furniture and fixtures; and 3 years for
automobiles. Gain on disposal of assets is included in depreciation and
amortization expense for all years reported.
(See Note H to Notes to Consolidated Financial Statements).
(4) Goodwill -- Goodwill relating to acquisitions represents the excess of cost
over the fair value of net assets acquired and is amortized over 15 years.
Accumulated amortization at August 31, 1996, 1995 and 1994 totaled $207,000,
$69,000 and $266,000, respectively. (See Note J to Notes to Consolidated
Financial Statements).
(5) Deferred Financing Costs -- Costs incurred in obtaining long-term debt
financing are included in other assets. These costs are being amortized using
the interest method over the term of the related obligations.
(6) Interest Cost -- The Company had capitalized construction period
interest costs of $303,000 in 1994.
(7) Income Taxes -- Deferred income taxes arise primarily from the use of
different depreciation methods and lives for tax and financial
statement purposes, differences in the timing of the deduction for the
impairment charge and net operating loss and alternative minimum tax credit
carryforwards.
(8) Receivables -- The Company grants credit to customers, substantially all of
whom are in the entertainment, advertising or corporate communications
industries.
(9) Earnings per common share were determined by dividing net earnings by the
weighted average of common and common equivalent shares outstanding.
(10) Revenue Recognition -- Revenue is recorded when services are provided.
26
(11) Financial Instruments -- The Company's principal financial instruments
consist of accounts receivable, accounts payable and long-term debt. The
Company believes that the carrying amount of such instruments approximates fair
value.
(12) Use of Estimates -- In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(13) Stock-Based Compensation -- Statement of Financial Accounting Standards No.
123 (SFAS No. 123), "Accounting for Stock Based Compensation," provided
companies a choice in the method of accounting used to determine stock-based
compensation. Companies may account for such compensation either by using the
intrinsic value-based method provided by APB Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees," or the fair market value-based
method provided in SFAS No. 123. This statement is required to be adopted by
the Company during its fiscal year ending August 31, 1997. The Company intends
to use the intrinsic value-based method provided in APB No. 25 to determine
stock-based compensation. The sole effect of the adoption of SFAS No. 123 is
the obligation imposed on the Company to comply with the new disclosure
requirements provided thereunder.
27
B. LONG-TERM DEBT
AUGUST 31,
1996 1995
---- ----
Notes payable to financial institution:
Term portion A payable in monthly
installments of $89,000 through November
2000 plus interest on the declining
balance at Prime plus 1.00% or LIBOR
plus 2.75% and final payment of
$2,249,000 due December 2000. $6,787,000 $7,500,000
Term portion B payable from the sale of
assets with interest payable monthly at
Prime plus 1.25% or LIBOR plus 3.00%
due December 1996. 6,588,000 7,500,000
Revolving portion payable in full in
December 2000 with interest payable monthly
at Prime plus .75% or LIBOR plus 2.50%. 5,706,000 860,000
Mortgage payable to a bank, due in monthly
installments of principal of $22,000
through November 2002, plus interest on
the declining balance at Prime plus .75%
or LIBOR plus 2.50% with a final payment
of $2,152,000 due December 2002. 3,822,000 4,000,000
Mortgage payable to a bank, at a fixed interest
rate of 8.6%, due in monthly installments
of principal of $6,250, plus interest on the
declining balance, through June 2019. 1,719,000 1,794,000
Mortgage payable to an insurance company, at a
fixed interest rate of 8.9%, due in monthly
installments of $22,000 through July 2009. 2,010,000 2,090,000
Note payable to an insurance company, at a
fixed rate of 9.3%, due in monthly installments
of $33,000 through February 2000. 1,436,000 1,684,000
Subordinated debt consisting of convertible
subordinated promissory notes payable to prior
owners of GC & Co. at an interest rate of Prime
plus 1% due in full August 1997 and a
subordinated promissory note payable to
Scanline Communications at an interest rate
of Prime plus 2% due in monthly installments
of principal of $35,000 with a final payment
of $1,250,000 due May 1999. 3,145,000 3,250,000
------------ ------------
31,213,000 28,678,000
Less current maturities 9,528,000 5,596,000
------------ ------------
$21,685,000 $23,082,000
------------ ------------
------------ ------------
28
In December 1995, the Company entered into a $26 million revolving credit
and term loan agreement with a financial institution, consisting of an $11
million revolving credit facility and two $7.5 million term loans. Term loan A
is payable in 59 monthly principal payments of $89,000 through November 2000 and
a payment of $2,249,000 at December 2000. Term loan B is repayable from the
proceeds of sales of fixed assets. As of August 31, 1996 $912,000 has been
repaid, leaving a current balance of $6,588,000 for term loan B. Subsequent to
the fiscal year-end, the Company repaid an additional $1,943,000 from asset
sales, leaving a balance of $4,645,000 related to this portion of the term loan
as of November 25, 1996. The terms of the agreement provide that the lender
receive a first lien on all property and equipment and accounts receivable that
are not encumbered by another lender.
Additionally, in December 1995, the Company obtained a $4,000,000 mortgage
on its property located on West 57th Street in New York City, from the Company's
bank lender. The mortgage is payable in equal monthly installments of $22,000
through November 2002, with a final payment of $2,152,000 due in December 2002.
The closure of the Company's Editel Chicago and Editel New York divisions
and the sale of related assets necessitated the waiver at August 31, 1996 of
compliance with certain financial covenants, and amendment of those covenants,
by the Company's lenders of its $26,000,000 revolving credit and term loan
facility and its $4,000,000 mortgage on the Company's property on West 57th
Street, New York City.
In June 1994, the Company purchased for $3,500,000 from Scanline the
building occupied by the Editel Los Angeles division. Financing for the
purchase consisted of a $2,175,000, 15-year mortgage payable to an insurance
company lender, a $500,000 note payable to the seller, Scanline Communications,
and the balance from working capital. The note was paid in full in February
1995.
In October 1993, the Company purchased for $2,800,000 land and a building
located on West 53rd Street, New York City, which has been converted into a
videotape recording studio. In June 1994, the Company obtained a mortgage on
the West 53rd Street property in the amount of $1,875,000 from a bank. The
mortgage loan is payable in equal monthly principal payments through June 2004
with options to extend the maturity date through June 2019. Proceeds from this
mortgage were used for working capital purposes.
In February 1995, the Company purchased the business and assets of GC & Co.
The purchase price was $6,750,000, consisting of $6,000,000 in cash and $750,000
of convertible subordinated promissory notes. The cash portion of the purchase
price was financed by a $4,700,000, five-year capital lease and a $1,800,000
loan with a fixed interest rate of 9.3% payable in sixty equal monthly payments
of principal and interest of $33,000 and a balloon payment at the end of the
five-year period of $360,000.
Property, equipment and accounts receivable with a carrying value of
$60,754,000 at August 31, 1996 are pledged as collateral for all long-term debt
outstanding.
29
The agreements relating to certain of these long-term obligations include
covenants which, among other terms, place restrictions on the Company's capital
expenditures, the maintenance of certain financial ratios (including minimum
levels of net worth and debt-to-equity restrictions, all as defined in the
agreements) and the payment of dividends.
At August 31, 1996, maturities of long-term debt for the next five years
are as follows:
Year Ended August 31,
----------------------
1997 $ 9,528,000
1998 2,224,000
1999 3,408,000
2000 7,770,000
2001 2,968,000
2002 and thereafter 5,315,000
----------
$31,213,000
-----------
-----------
C. OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS
The Company has entered into various capital lease agreements for video
equipment. The leases expire at various times through 2000.
Property recorded under capital leases includes the following:
August 31,
1996 1995
---- ----
Video equipment $10,447,000 $10,012,000
Accumulated depreciation (2,496,000) (1,240,000)
------------ ------------
$ 7,951,000 $ 8,772,000
------------ ------------
------------ ------------
Future minimum lease payments, as of August 31, 1996 are as follows:
Year Ended Capital
August 31, leases
- ---------- ----------
1997 $ 2,382,000
1998 2,344,000
1999 1,815,000
2000 2,157,000
2001 18,000
---------
Net minimum lease payments 8,716,000
Amount representing interest (1,280,000)
------------
Obligation under capital
lease agreements $ 7,436,000
------------
------------
Current portion $ 1,832,000
Long-term portion 5,604,000
------------
$ 7,436,000
------------
------------
30
D. STOCK OPTION PLANS
In January 1986, the Company's Board of Directors approved a Non-Statutory
Stock Option Plan (the "Non-Statutory Plan") to grant as many as 50,000 shares
to the Company's non-employee directors. Under the Non-Statutory Plan options
to purchase 10,000 shares were outstanding at August 31, 1996.
In July 1988, the Company's Board of Directors approved a Non-Qualified
Stock Option Plan (the "Non-Qualified Plan") to grant as many as 125,000 shares
primarily to key employees. Options to purchase 10,000 shares granted to
several officers under the Non-Qualified Plan were outstanding at August 31,
1996.
In July 1992, the Company's shareholders approved adoption of the 1992
Stock Option Plan (the "1992 Plan") to grant as many as 350,000 shares primarily
to key employees and non-employee directors. Prior to July 1992, the Company
granted options under the plans described above. All future grants will be
granted under the 1992 Plan. Options to purchase 195,500 shares were
outstanding to key employees and non-employee directors under the 1992 Plan at
August 31, 1996.
Under all plans, options have generally been granted to purchase stock at
the fair market value of the shares at the date of grant as determined by the
Board of Directors. Under the Non-Qualified Plan, the options expire five years
after the date of grant and under the Incentive Plan and Non-Statutory Plan,
options expire ten years after the date of grant.
The status of stock options under the Company's stock option plans is
summarized below:
Number of Option Price
Shares Per Share
------ ---------
Options Outstanding, August 31, 1993 326,950 $5.75 - $13.18
Granted 5,000 $6.00
Exercised (250) $5.75
Expired and canceled (92,000) $5.875 - $10.81
----------
Options Outstanding, August 31, 1994 239,700 $5.75 - $13.18
Granted 34,000 $6.625 - $ 7.25
Exercised (5,000) $6.50
Expired and canceled (43,000) $5.875 - $13.18
----------
Options Outstanding, August 31, 1995 225,700 $5.75 - $13.18
Granted 111,500 $5.13 - $ 5.28
Exercised (30,000) $5.75 - $ 5.87
Expired and canceled (91,700) $5.75 - $10.81
----------
Options Outstanding, August 31, 1996 215,500
----------
----------
At August 31, 1996, a total of 309,500 shares were reserved for future
option grants for all plans and options to purchase 215,500 shares were
outstanding.
31
E. EMPLOYEE STOCK OWNERSHIP PLAN
In June 1987, the Employee Stock Ownership Plan (the "ESOP") obtained
financing from a bank amounting to $1,250,000, which was used in acquiring
115,849 shares of newly issued Company stock. The bank loan bears interest at a
fixed rate of 10% and is guaranteed by the Company. The ESOP is funded by
Company contributions as required to provide the ESOP with the funds necessary
to meet its debt service requirements.
The loan obligation of the ESOP is considered unearned employee benefit
expense and is recorded as a separate reduction of the Company's
shareholders' equity. Both the loan obligation and the unearned benefit expense
are reduced by the amount of any loan repayments made by the ESOP. The loan
requires monthly payments of principal of $15,000 and interest at a fixed rate
of 10% through June 1997. The aggregate principal maturities of the ESOP
obligation subsequent to August 31, 1996 are as follows:
1997.............................. $166,000
In fiscal 1991, the ESOP purchased 25,810 shares of the Company's Common
Stock. These purchases have been financed by a ten-year loan from the Company
for $229,193. The loan requires monthly payments of principal and interest at
10%. The Company's related receivable from the ESOP has been classified as a
reduction of shareholders' equity.
401(K) EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
Effective July 1, 1992, the ESOP merged into the Unitel Video, Inc.
Retirement Investment Plan (a 401(k) Plan), which became the Unitel Video, Inc.
401(k) Employee Savings and Stock Ownership Plan (the "Plan"). The Plan
requires the Company to match employee contributions to the 401(k) portion of
the Plan in shares of the Company's Common Stock up to the maximum amount set
forth in the Plan. The minimum contribution required to be made each year by
the Company is the amount necessary to meet its debt service requirements. The
Plan combines a 401(k) plan with certain features of an employee stock ownership
plan.
Total contributions to the ESOP and the Plan for each of the years ended
August 31 are as follows:
1996 ............................. $248,000
1995 ............................. $336,000
1994 ............................. $253,000
The Company adopted Statement of Position 93-6 (SOP 93-6), "Employers'
Accounting for Employee Stock Ownership Plans" during 1995. In accordance with
SOP 93-6, compensation cost and liabilities associated with providing the
employer's 401(k) match are recognized the way they would be if an ESOP had not
been used to fund the benefit.
32
The Plan's compensation expense was $158,000 and $191,000 for the years ended
August 31, 1996 and 1995, respectively. A summary of the Plan's shares is as
follows:
1996 1995
------ ------
Allocated shares 96,666 75,095
Shares released for allocation 8,608 19,234
Unreleased shares 27,575 42,939
-------- --------
132,849 137,268
-------- --------
Fair value of unreleased shares
at August 31 $155,000 $274,000
-------- --------
-------- --------
Prior to adoption of SOP 93-6, the unreleased shares were considered outstanding
for the earnings per share computation. Accordingly, for the years ended August
31, 1996 and 1995, shares were no longer considered outstanding. The effect of
adopting SOP 93-6 was not material on the net loss, and resulted in a decrease
of approximately 1% on the net loss per share for years ended August 31, 1996
and 1995.
F. INCOME TAXES
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets are as follows:
August 31,
1996 1995
---- ----
Current portion of deferred
tax assets (liabilities)
Employee medical benefits $ 449,000 $ 308,000
Bad debt reserves 395,000 452,000
---------- ----------
844,000 760,000
---------- ----------
Long-term portion of deferred
tax assets (liabilities)
Accrued rent 139,000 371,000
Accrued retirement 560,000 491,000
Net assets held for sale 1,646,000 2,534,000
Net operating loss
carryforwards 997,000 330,000
ITC carryforwards-Federal
and State (net of valuation
allowance) 467,000 386,000
AMT credit carryforwards 2,540,000 2,570,000
Other - net 362,000 211,000
Tax over book depreciation (5,086,000) (5,148,000)
--------- ---------
1,625,000 1,745,000
--------- ---------
Net deferred tax asset
(liability) $2,469,000 $2,505,000
---------- ----------
---------- ----------
33
The provision for income taxes is comprised of the following:
Year Ended August 31,
1996 1995 1994
---- ---- ----
Current:
Federal $ -0- $(270,000) $454,000
State 40,000 36,000 215,000
--------- --------- --------
40,000 (234,000) 669,000
Deferred:
Federal -0- (1,610,000) 3,000
State -0- (950,000) (12,000)
--------- ----------- ---------
-0- (2,560,000) (9,000)
--------- --------- --------
$ 40,000 $(2,794,000) $660,000
--------- ----------- ---------
--------- ----------- ---------
The Company's effective tax rate was (1%) in 1996, (30%) in 1995 and 43.4% in
1994. The components of the reconciliation of the Company's effective tax rate
to the U.S. statutory rate of 34% are as follows:
Year Ended August 31,
1996 1995 1994
------- ------- -------
Tax expense computed
at statutory rate $(1,729,000) $(3,176,000) $ 516,000
State income tax, net of
Federal income tax
benefit 26,000 (607,000) 157,000
Loss without benefit 1,634,000 -0- -0-
Goodwill 47,000 649,000 17,000
Other 62,000 340,000 (30,000)
----------- ----------- ----------
Actual tax expense $ 40,000 $(2,794,000) $ 660,000
----------- ------------ ----------
----------- ----------- ----------
The Company's total alternative minimum tax credit carryforward is
approximately $2,400,000, which can be used against the Company's future regular
tax liability.
At August 31, 1996, the Company had available for tax purposes in excess of
$2,000,000 of State of New York tax credits that will expire from August 31,
1996 through August 31, 2002. The State of New York limits the use of these
credits on an annual basis. For financial reporting purposes, a valuation
allowance of $1,900,000 has been recognized to offset the deferred tax assets
related to those carryforwards for the fiscal year ended August 31, 1995.
The deferred tax asset relating to the net operating loss carryforward is
attributable to the unused portions of Federal net operating losses generated in
fiscal 1996 and 1993 of $665,000 and $515,000, respectively, which are scheduled
to expire in 2011 and 2008, respectively, as well as state net operating losses
generated in fiscal 1995 of various amounts scheduled to expire at various times
through 2008. A valuation allowance of $2,065,000 has been recognized to offset
the deferred tax asset related to the remaining net operating loss carryforward
for the fiscal year ending August 31, 1996.
34
Internal Revenue Code Section 382 places a limitation on the utilization of
Federal net operating loss and other credit carryforwards when an ownership
change, as defined by the tax law, occurs. Generally, this occurs when a
greater than 50 percentage point change in ownership occurs. Accordingly, the
actual utilization of the alternative minimum tax credit carryforwards and other
deferred tax assets for tax purposes may be limited annually to the percentage
(about 6%) of the fair market value of the Company at the time of any such
ownership changes.
G. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The following is a schedule by years of future minimum
rental payments under operating leases that have an initial non-cancelable lease
term in excess of one year:
1997 $ 4,275,000
1998 4,230,000
1999 3,030,000
2000 1,739,000
2001 956,000
2002 and thereafter $ 1,000,000
------------
$ 15,230,000
------------
------------
The aggregate rental expense for the years ended August 31, 1996, 1995,
and 1994 was $3,874,000, $3,867,000 and $3,381,000, respectively.
The Company maintains cash balances at financial institutions located in
New York, New York, Pittsburgh, Pennsylvania, and Los Angeles, California.
These balances are insured by the Federal Deposit Insurance Corporation up to
$100,000. At August 31, 1996, uninsured amounts held at these financial
institutions were approximately $19,000.
The Company has contracts with several unions that expire in April, August
and November 1997.
There are various lawsuits claiming amounts against the Company. It is the
opinion of the Company's management that the ultimate liabilities, if any, in
these cases will not have a material effect on the Company's financial
statements.
H. NET GAIN ON DISPOSITION OF FIXED ASSETS
In June 1990, the Company sold to CBS Inc. a building it owned at 508-510
West 57th Street, New York, New York. The sale price of the property was
$4,650,000 payable in cash at the closing. As part of the transaction, the
Company entered into an Indenture of Lease with CBS, pursuant to which the
Company, as tenant, leased back the premises. The Company recognized a net gain
on the disposition of $2,277,000. In addition, under the provisions of
Statement of Financial Accounting Standards No. 98, the Company deferred
$922,000 of additional gain from the sale, representing the present value of the
future minimum rental payment under the portion of the lease which was not
subject to early termination. The remaining balance of the deferred gain of
$117,000 was recognized in the year ended August 31, 1995 as a reduction of rent
expense.
The Company has accelerated its efforts to sell equipment which is not
fully utilized. In order to properly reflect the sale of equipment as part of
the Company's operations, in 1996, 1995 and 1994, $(58,000), $352,000 and
$817,000, respectively, of (loss)/gain on disposal of assets was included in
depreciation expense.
35
I. ACCRUED RETIREMENT
Under the terms of employment agreements with two former officers of the
Company, retirement payments are due commencing September 1, 1996. At August
31, 1996, a liability of approximately $1,304,000 has been recorded, based upon
the present value of these payments. Approximately $163,000, $172,000 and
$206,000 has been charged to operations for the years ended August 31, 1996,
1995 and 1994, respectively.
J. IMPAIRMENT AND RESTRUCTURING CHARGES
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" ("FASB Statement No.
121") which provides guidance on when to assess and how to measure impairment of
long-lived assets, certain intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company adopted FASB Statement No. 121 as of August 31,
1995.
The Company has determined to focus its resources toward providing services
to the entertainment and corporate communications areas, which represent the
Company's strength. As part of this strategy, the Company decided to sell its
Editel New York, Editel Chicago and Editel Los Angeles divisions, which
specialize in the highly competitive commercial advertising portion of the video
facilities industry. During the 1995 fiscal year, the three Editel divisions
incurred a pretax loss of $3,682,000. As a result, the Company identified
property, plant and equipment associated with these divisions, which after an
impairment charge of $4,700,000 recorded as of August 31, 1995, had a carrying
value of approximately $19,300,000 that it no longer needed for its current and
future operations. During the fourth quarter of fiscal 1995, the Company
committed to a plan to dispose of the Editel divisions and in the first quarter
of fiscal 1996 began marketing these divisions to potential buyers.
Additionally, the Company reevaluated its investment in the Windsor division in
the fourth quarter of fiscal 1995 and determined that, based upon this
division's operating results, the goodwill associated with the purchase of this
division and certain property, plant and equipment that will not provide any
future benefits to the Company were impaired. The Company recognized an
impairment charge of approximately $3,000,000 included in impairment charges
during the fourth quarter of fiscal 1995 which represents the remaining balances
of these assets.
Based on the Company's decision to sell the Editel divisions, the Company
recorded an impairment charge of approximately $2,000,000 in fiscal 1996
relating to the assets at all three Editel divisions. The impairment charge
recorded represents management's estimate of the decrease in value of these
assets during the period such assets were held for sale based upon the
depreciation method which the Company has used in the past and which management
has found to be reasonable and appropriate.
On February 22, 1996, the Company announced the closure of its Editel
Chicago division and subsequently distributed the majority of that division's
assets throughout the Company. The balance of the Editel Chicago division
equipment was sold in an auction which was held in May 1996. In March 1996, the
Company terminated the lease for its Editel Chicago division by making a lump-
sum payment to the landlord of $1,600,000. The restructuring charge of
$1,246,000 recorded in the quarter ended May 31, 1996, reflects this payment
less the reversal of $354,000 of accrued rent which would have been due under
36
the terms of the lease. Previously, in May of 1995, the Company adopted a plan
to downsize the operations of its Editel Chicago division and reorganize and
reduce its corporate management which resulted in recording a restructuring
charge of $400,000 for severance and early retirement expense.
During the months of March through May 1996, the editorial and computer
graphics departments of the Editel New York division were closed. In May 1996,
the Company reached an agreement in principle to sell the film-to-tape transfer
business of Editel New York, which was the remaining operating department, to a
group of employees backed by a private investor. The Company operated the film-
to-tape transfer business through August 31, 1996, at which time discussions
with the employee-led group were terminated and the business was closed. During
the negotiations, the majority of the editorial and computer graphics assets
were distributed throughout the Company. At August 31, 1996, the Company
estimated the revised value of the remaining assets held for sale to be
approximately $1,587,000 and classified them on the balance sheet as short-term.
In November 1996, the Company sold the majority of those assets to an unrelated
third party for $1,400,000. The balance of the assets will be redeployed
throughout the Company or disposed of through an auction. Proceeds from the
sale of assets are used by the Company to repay outstanding debt.
Also in May 1996, after reevaluating the potential of the Editel Los
Angeles division, the Company decided to retain and expand this division and,
accordingly, discontinued seeking a buyer for this business.
K. QUARTERLY FINANCIAL DATA (UNAUDITED)
Year Ended Primary Net
August 31, Gross Net Earnings Loss
1996 Sales Profit Earnings(Loss) Per Share
------------------------------------------------------------------------
1st quarter $22,940,000 $5,805,000 $ 522,000 $ .20
2nd quarter 20,529,000 3,171,000 (1,379,000) (.53)
3rd quarter 19,281,000 3,166,000 (2,290,000) (.88)
4th quarter 16,537,000 1,644,000 (1,977,000) (.75)
Year Ended Primary Net
August 31, Gross Net Earnings(Loss)
1995 Sales Profit Earnings(Loss) Per Share
----------------------------------------------------------------------
1st quarter $21,233,000 $4,548,000 $439,000 $ .17
2nd quarter 20,581,000 3,560,000 50,000 .02
3rd quarter 20,831,000 3,345,000 (798,000) (.31)
4th quarter 20,640,000 2,613,000 (6,238,000) (2.41)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not Applicable.
37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT.
The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the
Registrant's 1996 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the
Registrant's 1996 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the
Registrant's 1996 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.
The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the
Registrant's 1996 Annual Meeting of Stockholders to by filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. The following financial statements of the Company are
included in Part II, Item 8:
Page
----
Report of Grant Thornton LLP Independent Accountants....................18
Consolidated Balance Sheets - August 31, 1996 and 1995...............19-20
Consolidated Statements of Operations - Years Ended
August 31, 1996, 1995, and 1994.......................................21
Consolidated Statement of Stockholders' Equity - Years
Ended August 31, 1996, 1995 and 1994..................................22
Consolidated Statements of Cash Flows -
Years Ended August 31, 1996, 1995 and 1994.........................23-25
Notes to Consolidated Financial Statements...........................26-37
2. The following schedule is included
in Part IV:
Consolidated Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves...44
All other schedules are omitted because they are not applicable, not
required or the required information is included in the consolidated financial
statements or notes thereto.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by
the Company during the three months ended August 31, 1996.
(c) Exhibits required to be filed by Item 601 of Regulation S-K:
1. Exhibit 3(A). Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3(A) of the Registrant's Annual Report on
Form 10-K filed November 24, 1992 (File No. 1-8654)).
2. Exhibit 3(B). Amended and Restated By-laws (incorporated by
reference to Exhibit 3(ii) of the Registrant's Quarterly Report on form 10-Q
filed April 15, 1996 (file No. 1-8654)).
3. Exhibit 4(A). Specimen of Stock Certificate (incorporated by
reference to Exhibit 4 of the Registrant's Annual Report on form 10-K filed
November 29, 1984 (File No. 1-8654)).
4. Exhibit 4(B). Amended and Restated Loan and Security
Agreement dated as of December 12, 1995 among Unitel Video, Inc., R Squared,
Inc., and Heller Financial, Inc. as agent and lender (incorporated by reference
to Exhibit 4(B) of the Registrant's Annual Report on form 10-K filed December
14, 1995 (File No. 1-8654)).
39
5. Exhibit 4(C). Second Amended and Restated Credit Agreement
dated as of December 12, 1995 between Unitel Video, Inc. and The Chase Manhattan
Bank, N.A. (incorporated by reference to Exhibit 4(C) of the Registrant's Annual
Report on form 10-K filed December 14, 1995 (File No. 1-8654)).
6. Exhibit 4(D). First Amendment and Limited Waiver to Loan and
Security Agreement.
7. Exhibit 4(E). Waiver and Agreement to Amend Financial
Covenants dated November 27, 1996.
8. Exhibit 10. Material Contracts:
10(A) Amended Non-Qualified Stock Option Plan of Unitel Video,
Inc.
10(B) Lease Agreement between Unitel Video, Inc. and Educational
Broadcasting Corporation dated July 16, 1993 (incorporated by reference to
Exhibit 10(B) of the Registrant's Annual Report on Form 10-K filed November 26,
1993 (File No. 1-8654)).
10(C) Amended Non-Statutory Stock Option Plan of Unitel Video,
Inc.
10(D) Amended Employee Stock Purchase Plan of Unitel Video, Inc.
10(E) Employment & Consulting Agreement between Unitel Video,
Inc. and Herbert Bass dated as of May 26, 1988 (incorporated by reference to
Exhibit 10(R) of the Registrant's Annual Report on Form 10-K filed December 13,
1989 (File No. 1-8654)).*
10(F) Employment & Consulting Agreement between Unitel Video,
Inc. and Alex Geisler dated as of May 26, 1988 (incorporated by reference to
Item 14(C)4(S) of the Registrant's Annual Report on form 10K filed December 13,
1989 (File No. 1-8654)).*
10(G) Amendment to Employment and Consulting Agreement dated as
of February 14, 1996 between Unitel Video, Inc. and Alex Geisler.*
10(H) Lease Agreement between UNV, Inc. and HBWC Limited
Partnership dated as of August 12, 1988 (incorporated by reference to Exhibit
10(U) of the Registrant's Annual Report on Form 10-K filed December 13, 1989
(File No. 1-8654)).
10(I) Lease Agreements between Windsor Video, Inc. and Time
Equities Inc. dated as of September 4, 1986 (incorporated by reference to
Exhibit 10(V) of the Registrant's Annual Report on form 10-K filed December 13,
1989 (File No. 1-8654)).
10(J) Amendment to each Lease Agreement between Windsor Video,
Inc. and Time Equities Inc. dated as of July 13, 1994 and July 18, 1994
(incorporated by reference to Exhibit 10(K) of the Registrant's Annual Report on
form 10-K filed November 28, 1994 (File No. 1-8654)).
10(K) Lease Agreement between Unitel Video, Inc. and CBS, Inc.
dated as of June 15, 1990 (incorporated by reference to Exhibit 10(Y) of the
Registrant's Annual Report on Form 10-K filed November 26, 1990 (File No. 1-
8654)).
10(L) Amendment to Lease Agreement dated July 11, 1996 between
Unitel Video, Inc. and CBS, Inc.
40
10(M) Assumption and Assignment of Lease between Unitel Video,
Inc. and VCA/Teletronics Inc. dated May 19, 1990 (incorporated by reference to
Exhibit 10(AA) of the Registrant's Annual Report on Form 10-K filed November 26,
1990 (File No. 1-8654)).
10(N) Amendment to Lease between Unitel Video, Inc. and Stage 57
Co. dated May 14, 1990 (incorporated by reference to Exhibit 10(BB) of the
Registrant's Annual Report on Form 10-K filed November 26, 1990 (File No. 1-
8654)).
10(O) Second Amendment to Lease between Unitel Video, Inc. and
Stage 57 Co. dated as of May 1, 1994 (incorporated by reference to Exhibit 10(O)
of the Registrant's Annual Report on Form 10-K filed November 28, 1994 (File No.
1-8654)).
10(P) Amended 1992 Stock Option Plan.*
10(Q) Lease Termination and Release Agreement dated as of March
13, 1996 between Unitel Video, Inc. and Putman Publishing Company.
10(R) Assignment, Assumption and Acceptance of Lease between
Scanline Communications and Unitel Video, Inc. (incorporated by reference to
Exhibit 10(V) of the Registrant's Annual Report on Form 10-K filed November 24,
1992 (File No. 1-8654)).
10(S) Asset Purchase Agreement dated as of May 5, 1992 between
Unitel Video, Inc. and Scanline Communications (incorporated by reference to
Exhibit 2.1 of the Registrant's Current Report on Form 8-K dated May 15, 1992
(File No. 1-8654)).
10(T) Amendment dated as of October 29, 1992 to Asset Purchase
Agreement dated as of May 5, 1992 between Unitel Video, Inc. and Scanline
Communications (incorporated by reference to Exhibit 10(X) of the Registrant's
Annual Report on Form 10-K filed November 24, 1992 (File No. 1-8654)).
10(U) Lease Agreement between First East Associates and Unitel
Video, Inc. dated May 26, 1993 and Sublease dated May 26, 1993 between Unitel
Video, Inc. and KingWorld Productions, Inc.(incorporated by reference to Exhibit
10(U) of the Registrant's Annual Report on Form 10-K filed November 26, 1993
(File No. 1-8654)).
10(V) Sublease Agreement dated April 1, 1987 between R.E.
Graphics, Inc. (f/k/a Micor, Inc.) and Scanline Communications, together with
Modification dated February 1989 of Sublease Agreement (incorporated by
reference to Exhibit 10(AA) of the Registrant's Annual Report on Form 10-K filed
November 24, 1992 (File No. 1-8654)).
10(W) Sublease Agreement dated January 1, 1982 between Columbia
Pictures Industries, Inc. and Bell & Howell/Columbia Pictures Video Services,
together with letter dated April 3, 1989 from Columbia Pictures to Scanline
Communications and undated Letter from Columbia Pictures to 43rd Street Estates
Corp. (incorporated by reference to Exhibit 10(BB) of the Registrant's Annual
Report on Form 10-K filed November 24, 1992 (File No. 1-8654)).
10(X) Third Tier Sublease, dated May 14, 1996, between Unitel
Video, Inc. and Photo-Magnetic Sound Studios Inc.
41
10(Y) Sublease Agreement dated as of July 3, 1996 between Unitel
Video, Inc. and Henry Dreyfuss Associates and Second Tier Sublease dated as of
July 3, 1996 between Unitel Video, Inc. and Paramount Pictures Corporation.
10(Z) 401K Employee Savings and Stock Ownership Plan of Unitel
Video, Inc. effective July 1, 1992 (incorporated by reference to Exhibit 10(X)
of the Registrant's Annual Report on Form 10-K filed November 26, 1993 (File No.
1-8654)).*
10(AA) Asset Purchase Agreement dated as of February 24, 1995
between Jee See & Co., Inc. and Unitel Video, Inc. (incorporated by reference to
Exhibit 2-1 of the Registrant's Current Report on Form 8-K dated February 24,
1995 (File No. 1-8654)).
10(BB) Two Third Tier Sublease agreements dated November 22,
1996 between Unitel Video, Inc. and Digital Universe II, Inc.
9. Exhibit 23. Accountant's consent.
10. Exhibit 24. Power of Attorney from officers and directors to
Barry Knepper (included on signature page).
11. Exhibit 27. Financial Data Schedule.
* Management contract or compensatory plan or arrangement required to be noted
as provided in Item 14(a)(3).
42
UNDERTAKING
The Company hereby undertakes to furnish to the Securities and Exchange
Commission, upon request, all constituent instruments defining the rights of
holders of long-term debt of the Company and its consolidated subsidiaries not
filed herewith. Such instruments have not been filed since none are, nor are
being, registered under Section 12 of the Securities and Exchange Act of 1934
and the total amount of securities authorized under any of such instruments does
not exceed 10% of the total assets of the Company and its subsidiary on a
consolidated basis.
43
UNITEL VIDEO, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C1 COLUMN D COLUMN E
-------- -------- --------- -------- --------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
----------- --------- -------- ---------- ---------
YEAR ENDED AUGUST 31, 1996
Allowance for doubtful
accounts $686,000 $407,000 $381,000 $712,000
-------- -------- -------- --------
-------- -------- -------- --------
YEAR ENDED AUGUST 31, 1995
Allowance for doubtful
accounts $690,000 $125,000 $129,000 $686,000
-------- -------- -------- --------
-------- -------- -------- --------
YEAR ENDED AUGUST 31, 1994
Allowance for doubtful
accounts $676,000 $386,000 $372,000 $690,000
-------- -------- -------- --------
-------- -------- -------- --------
COLUMN D
Uncollectible accounts written off.
COLUMN E
Deducted in balance sheet from accounts receivable.
44
For the purposes of complying with the amendments to the rules governing Form S-
8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statement on form S-8 Nos. 33-7306
(filed July 15, 1986), 33-13660 (filed April 20, 1987),
33-14654 (filed May 28, 1987) and 33-00613 (filed February 8, 1996).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such directors, officers or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1993 and will be governed by the final adjudication of such issue.
45
SIGNATURE AND POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITEL VIDEO, INC.
November 26, 1996 By: /s/ Barry Knepper
- ------------ -------------------------
Barry Knepper
Chief Executive Officer
46
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry Knepper, his true and lawful attorney-in-
fact and agent, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes he might or could do in person, hereby ratifying and confirming all
that said attorney-in fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
47
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
/s/ Barry Knepper Chief Executive Officer; November 26, 1996
- ------------------------- President and Director
Barry Knepper
/s/ Richard L. Clouser Senior Vice President - November 26, 1996
- ------------------------- Corporate, President
Richard L. Clouser of the Mobile Division
and Director
/s/ Herbert Bass
- ------------------------- Director November 26, 1996
Herbert Bass
/s/ Alex Geisler
- ------------------------- Director November 26, 1996
Alex Geisler
/s/ Walter G. Arader
- ------------------------- Director November 26, 1996
Walter G. Arader
/s/ Philip Birsh
- ------------------------- Director November 26, 1996
Philip Birsh
48