SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended February 28, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________________
Commission file number 1-8654
------
Unitel Video, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-1713238
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(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)
(212) 265-3600
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months and (2) has been subject to such requirements
for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
2,674,665 Common shares outstanding as of April 20, 1998.
(Number of shares) (Date)
UNITEL VIDEO, INC.
FORM 10-Q
QUARTER ENDED FEBRUARY 28, 1998
Page
INDEX Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
February 28, 1998 (Unaudited) and
August 31, 1997 3-4
Consolidated Statements of Operations
February 28, 1998 (Unaudited) and
February 28, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows
February 28, 1998 (Unaudited)
and February 28, 1997 (Unaudited) 6-7
Notes to Consolidated Financial
Statements (Unaudited) 8-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11-14
Item 3. Quantitive and Qualitative Disclosure
About Market Risk 15
Part II. OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
2
UNITEL VIDEO, INC.
FORM 10-Q
QUARTER ENDED FEBRUARY 28, 1998
Part 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
February 28, 1998 August 31, 1997
----------------- ---------------
(Unaudited) (Note)
ASSETS
- ------
Current Assets:
Cash $ 89,000 $ 137,000
Accounts receivable,
less allowance for
doubtful accounts of $575,000
and $412,000 5,949,000 5,139,000
Other receivables 207,000 19,000
Prepaid income taxes 107,000 75,000
Prepaid expenses 708,000 564,000
Deferred tax asset 495,000 495,000
------------ ------------
Total current assets 7,555,000 6,429,000
Property and equipment - at cost
Land, buildings
and improvements 21,260,000 20,799,000
Video equipment 81,338,000 87,745,000
Furniture and fixtures 2,065,000 2,591,000
------------ ------------
104,663,000 111,135,000
Less accumulated depreciation 52,391,000 59,228,000
------------ ------------
52,272,000 51,907,000
Deferred tax asset 1,974,000 1,974,000
Goodwill 1,652,000 1,721,000
Other assets 1,696,000 1,052,000
------------ ------------
$ 65,149,000 $ 63,083,000
============ ============
Note: The balance sheet at August 31, 1997 has been taken from the audited
consolidated financial statements at that date.
See notes to consolidated financial statements.
3
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED BALANCE SHEETS
(Continued)
February 28, 1998 August 31, 1997
----------------- ---------------
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 7,873,000 $ 6,754,000
Accrued expenses 1,099,000 998,000
Payroll, benefits and related taxes 1,069,000 2,038,000
Current maturities of long-term debt 4,300,000 3,530,000
Current maturities of subordinated debt 1,057,000 1,167,000
Current maturities of capital lease obligations 1,820,000 1,946,000
------------ ------------
Total current liabilities 17,218,000 16,433,000
Deferred rent 123,000 121,000
Long-term debt, less current maturities 30,550,000 26,525,000
Subordinated debt, less current maturities 1,682,000 1,770,000
Long-term leases, less current maturities 2,837,000 3,666,000
Accrued retirement 1,111,000 1,176,000
Stockholders' equity:
Common stock, par value
$.01 per share
Authorized 5,000,000 shares
Issued 3,540,954 and 3,540,954 shares
respectively, and outstanding 2,674,665
and 2,674,665 shares respectively 27,000 27,000
Additional paid-in capital 27,367,000 27,367,000
Accumulated deficit (7,792,000) (6,028,000)
Common stock held in treasury,
at cost (866,289 shares) (7,974,000) (7,974,000)
------------ ------------
Total stockholders' equity 11,628,000 13,392,000
------------ ------------
$ 65,149,000 $ 63,083,000
============ ============
Note: The balance sheet at August 31, 1997 has been taken from the audited
consolidated financial statements at that date.
See notes to consolidated financial statements.
4
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
February 28, February 28, February 28, February 28,
1998 1997 1998 1997
---- ---- ---- ----
Sales $ 12,429,000 $ 15,000,000 $ 26,197,000 $ 31,370,000
Cost of sales:
Production costs 8,784,000 10,228,000 18,063,000 20,944,000
Depreciation 2,190,000 2,258,000 4,341,000 4,309,000
------------ ------------ ------------ ------------
10,974,000 12,486,000 22,404,000 25,253,000
------------ ------------ ------------ ------------
Gross profit 1,455,000 2,514,000 3,793,000 6,117,000
Operating expenses:
Selling 406,000 509,000 769,000 994,000
General and administrative 1,484,000 1,751,000 3,104,000 3,121,000
Interest 946,000 933,000 1,845,000 1,774,000
------------ ------------ ------------ ------------
2,836,000 3,193,000 5,718,000 5,889,000
------------ ------------ ------------ ------------
Earnings (loss) from operations (1,381,000) (679,000) (1,925,000) 228,000
Other income 73,000 76,000 163,000 154,000
------------ ------------ ------------ ------------
Earnings (loss) before
income taxes (1,308,000) (603,000) (1,762,000) 382,000
Income taxes -- (31,000) 2,000 19,000
------------ ------------ ------------ ------------
Net earnings (loss) available to
common stockholders $ (1,308,000) $ (572,000) $ (1,764,000) $ 363,000
============ ============ ============ ============
Earnings (loss) Per Common
Share - Basic and Diluted $ (.49) $ (.21) $ (.66) $ .13
============ ============ ============ ============
Weighted average of common and
common equivalent shares
outstanding 2,675,000 2,695,000 2,675,000 2,694,000
============ ============ ============ ============
See notes to consolidated financial statements.
5
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
----------------
February 28, 1998 February 28, 1997
----------------- -----------------
Cash Flows From Operating Activities:
Net income (loss) $(1,764,000) $ 363,000
Adjustments to reconcile
net income (loss) to net cash
provided by operating
activities:
Depreciation and amortization 4,374,000 4,505,000
Net gain on disposal of equipment (33,000) (196,000)
Deferred financing costs (395,000) --
Amortization of deferred financing costs 137,000 74,000
Deferred rent 2,000 (215,000)
Accrued retirement expense (65,000) (64,000)
Deferred advisory and legal costs (326,000) --
Decrease (Increase) in:
Accounts receivable (973,000) 2,020,000
Allowance for doubtful accounts 163,000 (277,000)
Other receivables (188,000) 147,000
Prepaid expenses (144,000) (5,000)
Prepaid taxes (32,000) 2,000
Other assets (60,000) (88,000)
Increase (Decrease) in
Accounts payable 1,119,000 (683,000)
Accrued expenses 101,000 (483,000)
Payroll and related taxes (969,000) (1,228,000)
----------- -----------
Total adjustments 2,711,000 3,509,000
----------- -----------
Net cash provided by operating
activities 947,000 3,872,000
Cash Flows From Investing
Activities:
Capital expenditures (4,670,000) (3,422,000)
Proceeds from disposal of equipment 33,000 2,204,000
----------- -----------
Net cash used in
investing activities (4,637,000) (1,218,000)
(Continued)
6
UNITEL VIDEO, INC.
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Six Months Ended
----------------
February 28, 1998 February 28, 1997
----------------- -----------------
Cash Flows From Financing Activities:
Proceeds from long-term financing 11,257,000 2,091,000
Proceeds from issuance of common stock -- 39,000
Repayment of loan to ESOP -- (91,000)
Principal repayments (7,615,000) (4,931,000)
Release of ESOP quarterly shares -- 78,000
------------ ------------
Net cash (used) provided by
financing activities 3,642,000 (2,814,000)
------------ ------------
Net (Decrease)/Increase in Cash (48,000) (160,000)
Cash Beginning of Year 137,000 192,000
------------ ------------
Cash End of Six Months $ 89,000 $ 32,000
============ ============
Schedule of income taxes and interest
paid:
Income Taxes Paid $ -0- $ 17,000
Interest Paid 1,639,000 1,757,000
------------ ------------
$ 1,639,000 $ 1,774,000
============ ============
See notes to consolidated financial statements.
7
UNITEL VIDEO, INC.
FORM 10-Q
SIX MONTHS ENDED FEBRUARY 28, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The condensed consolidated balance sheet as of February 28, 1998, the
consolidated statements of operations for the six months and quarters ended
February 28, 1998 and February 28, 1997, and the consolidated statements of cash
flows for the six months then ended have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, and cash flows at February 28, 1998 and for all periods
presented have been made.
Certain information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto in the Company's August 31, 1997 Form 10-K filed
with the Securities and Exchange Commission. The results of operations for the
six months ended February 28, 1998 are not necessarily indicative of the
operating results for the full year.
2. Stockholders' Equity
During the six months ended February 28, 1998, stockholders' equity decreased
due to a net loss of ($1,764,000).
3. Per Share Data
Per share data for the quarter and six months ended February 28, 1998 and
February 28, 1997 is based on the weighted average number of common shares
outstanding. In the quarter and six months ended February 28, 1997 unreleased
Employee Stock Ownership Plan shares are not considered outstanding for earnings
per share calculations. (See Note 4). There were no unreleased employee stock
ownership shares in the quarter and six months ended February 28, 1998.
4. 401(k) Employee Savings and Stock Ownership Plan
The Company sponsors a 401(k) savings and stock ownership plan (the "Plan")
which 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. Effective September 1, 1994, the Company has adopted the
provisions of Statement of Position 93-6, "Employer's Accounting for Employee
Stock Ownership Plans" ("SOP 93-6").
8
The Company reports compensation expense based on the dollar value of the 401(k)
match expense. The Plan's compensation expense was $35,000 and $70,000 for the
quarter and six months ended February 28, 1998.
5. 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.
In fiscal 1995 the Company determined to focus its resources toward providing
services to the entertainment and corporate communications areas, which
represent the Company's strength, and decided to sell its three Editel divisions
which did not specialize in these areas. The Company recorded the carrying value
of the assets related to these divisions as net assets held for sale, and a
corresponding impairment charge, since these assets were no longer needed for
the current and future operations of the Company.
In fiscal 1996 the Company began marketing these divisions to potential buyers.
In the first six months of fiscal 1996 the Company recorded an impairment charge
of $1,739,000 relating to the assets at all three Editel divisions. The
impairment charge recorded represented 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 found to be reasonable and
appropriate.
In February 1996 the Company closed its Editel Chicago division, distributed the
majority of its assets to other divisions throughout the Company and sold the
remaining assets at an auction held in May 1996. Also in May 1996, after
reevaluating the potential of the Editel Los Angeles division and primarily due
to increasing sales and profitability at that division, the Company decided to
retain and expand the Editel Los Angeles division. In August 1996 the Company
closed its Editel New York division and distributed the majority of its
editorial and computer graphics assets throughout the Company. In November 1996
the Company sold the majority of this division's remaining net assets held for
sale of $1,587,000 to an unrelated third party for $1,400,000. The balance of
the assets were redeployed throughout the Company or disposed of through an
auction. Proceeds from the sale of these assets were used by the Company to
repay outstanding debt. In June 1997 the Company determined that a single
facility in California would significantly reduce its costs and adequately meet
the demand for its services in that location and, accordingly, the Company
merged its Unitel Hollywood and Editel Los Angeles divisions in the Company's
owned Editel Los Angeles facility. A significant portion of the equipment from
Unitel Hollywood was moved to the Editel Los Angeles location. Additionally, a
portion of the equipment was transferred to the Company's New York Post
Production division for future use. The balance of the equipment was sold and
the proceeds, in the amount of $1,700,000, were used to repay outstanding debt.
The positive result of the decision to merge the Editel Los Angeles and Unitel
Hollywood divisions is reflected in the results of operations for the merged
operation in the six months ended February 28,
9
1998. As a result of the merger and sale, the Company recorded a restructuring
charge of $1,055,000 in the third quarter of 1997. The restructuring charge
consisted primarily of the write off of assets sold and the costs of moving
equipment and personnel to Editel Los Angeles. Severance and related payroll
costs were expensed as incurred. There is no continuing liability in connection
with the closure of the Unitel Hollywood division. Additionally, after a
reassessment of its New York post production assets, the Company recorded an
impairment charge of $300,000 in the fourth quarter of 1997 with respect to
those assets.
6. Stock Based Compensation
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock Based Compensation," provides 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 was 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.
10
Item 2. 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 $4,670,000 during the six months ended
February 28, 1998, and primarily consisted of video equipment for the company's
two new digital mobile teleproduction units as well as the purchase of
production, post production and graphics equipment for use throughout the
Company.
Net cash provided by operating activities during the six months ended February
28, 1998 was $947,000 and during the six months ended February 28, 1997 was
$3,872,000. Net cash provided by operating activities for the six months ended
February 28, 1998 was offset by $4,637,000 of cash used in investing activities,
which consisted of capital expenditures (net of proceeds from asset dispositions
of $33,000), and was supplemented by net cash provided by financing activities
of $11,257,000 on new debt financing less $7,615,000 of debt repayments,
resulting in a net decrease in cash available of $48,000.
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 Loans A and B).
In May 1997, Term Loan A was revised by the inclusion of $2,500,000 of the
original Term Loan B and the advance of $518,000 of new funds, resulting in a
revised Term Loan A balance of $9,000,000. Term Loan A is payable in fifty two
(52) equal monthly principal installments of $100,000 plus interest, with the
balance of $3,800,000 due December 2001. In November 1997 Term Loan B was
repaid, in part from the proceeds of a new Term Loan D in the amount of
$2,500,000. $3,742,000 of the original Term Loan B was repaid from sales of
equipment from the Company's Editel Chicago, Editel New York and Unitel
Hollywood divisions. In February 1998 Term Loan D was extended and is payable
in eighteen (18) monthly installments of $140,000 commencing May 1, 1998.
In July 1997 the credit facility was further amended by the issuance of a
$5,080,000 letter of credit (the "Letter of Credit") to secure payment of
principal and interest on $5,000,000 principal amount of Allegheny County
(Pennsylvania) Industrial Development Authority Variable Rate Demand Revenue
Bonds (the "Bonds"). The proceeds from the sale of the Bonds were loaned to the
Company and were used by the Company, together with other available funds, to
build a new digital mobile teleproduction unit. The Letter of Credit requires
quarterly principal payments of $179,000 commencing August 1998 to be applied to
the redemption in equal principal amount of the Bonds. The Bonds mature on July
1, 2009 and, to the extent not previously redeemed in full as provided in the
prior sentence, are required to be repaid by the Company on that date.
In December 1997 the credit facility was further amended by increasing the
Letter of Credit to $8,636,000 to secure payment of principal and interest on an
additional $3,500,000 principal amount of Allegheny County (Pennsylvania)
Industrial Development Authority Variable Rate Demand Revenue Bonds ("the
Additional Bonds"). The proceeds from the sale of the Additional Bonds were
loaned to the Company and were used by the
11
Company, together with other available funds, to build a second new digital
mobile teleproduction unit. The amended Letter of Credit requires additional
quarterly principal payments of $125,000 commencing February 1999 to be applied
to the redemption in equal principal amount of the Additional Bonds. The
Additional Bonds mature on July 1, 2009 and, to the extent not previously
redeemed in full as provided in the prior sentence, are required to be repaid by
the Company on that date. The Company is currently in negotiations to refinance
or sell certain of its owned real estate and anticipates using the proceeds of
the refinancing or sale to repay certain of its outstanding debt, including the
mortgages on the subject properties, with the balance used for working capital
purposes.
The terms of the overall credit facility with the financial institution provide
that the lender receive a first lien on all property and equipment and accounts
receivable that are not encumbered by another lender. In addition, under certain
circumstances the Company is required to prepay the loans under the credit
facility from funds generated by the sale of assets and to prepay Term Loan D
from excess cash flow. The Company has at certain times not been in compliance
with the tangible net worth, fixed charge coverage, leverage ratio and interest
coverage ratio financial covenants (the "Financial Covenants") in the credit
facility and the lender has waived such non-compliance and is currently revising
the Financial Covenants to a level such that it is expected that the Company
will be in compliance with the Financial Covenants on a going forward basis. It
is not expected that in the future the Financial Covenants will be revised to
their initial levels on the date of execution of the credit facility. The
Company anticipates that funds generated from operations together with funds
available under its existing credit facility and proceeds from the refinancing
or sale of certain of its owned real estate currently being negotiated and noted
above in this item will be sufficient to meet the Company's anticipated working
capital and investing needs in fiscal 1998.
Results of Operations
Sales were $12,429,000 and $15,000,000 for the quarters ended February 28, 1998
and February 28, 1997, respectively. Sales were $26,197,000, and $31,370,000 for
the six months ended February 28, 1998 and February 28, 1997, respectively. The
decrease in sales in the six month period ending February 28, 1998 was due
primarily to the merger of the Company's Unitel Hollywood and Editel Los Angeles
divisions in fiscal 1997. The Company's Mobile division commenced operating its
two newest and most sophisticated mobile teleproduction units during the six
months ended February 1998. However, sales for the Mobile division were flat
during such period as compared to the same period of the prior year as a result
of delays in the completion of such mobile units. The completion of the units
was delayed in order to incorporate technical design changes made to maximize
the flexibility and capability of the units to take advantage of new Interstate
Commerce Commission regulations regarding length and weight. Uncertainly as to
the completion date made premarketing of the units difficult, since mobile units
are typically booked several months in advance. Sales for the Company's Studio
division were lower during the six months ended February 28, 1998 as compared
with the six months ended February 28, 1997 due to the non-renewal of the
"Gordon Elliott" and "Rolanda" shows. This loss was partially offset by revenues
from the addition of the "Chris Rock" show. Sales for the Company's New York
Post Production division were lower during the six months ended February 28,
1998 as compared with the six months ended February 28, 1997 as a result of a
continuing industry wide decline in revenues and profitability from analog
editing.
12
The Company is currently reducing its New York post production assets and is
repurposing the related space for use in its New York Studio division. An
auction of excess analogue equipment will be held in April 1998.
The merger of the Editel Los Angeles and Unitel Hollywood divisions in fiscal
1997 resulted in a significant decrease in sales during the six months ended
February 28, 1998. However, the Editel Los Angeles division's merged operations
resulted in a profit during the six months ended February 28, 1998 as compared
to a substantial operating loss for the two divisions during the six months
ended February 28, 1997. The Company's net loss for the quarter ended February
28, 1998 was $(1,308,000), compared to the net loss of ($572,000) for the
comparable quarter of fiscal year 1997. The Company's net loss was $(1,764,000)
for the six months ended February 28, 1998, compared with net income of $363,000
for the same period of the prior fiscal year. The second quarter of the fiscal
year has historically been the slowest. The comparative increase in net loss of
approximately ($736,000) and ($2,127,000) for the quarter and six months ended
February 28, 1998 compared to the quarter and six months ended February 28, 1997
is principally due to a decrease in sales in the Company's New York Studio and
Post Production divisions and an increase in expenses in the Mobile division.
The increase in expenses in the Mobile division is primarily due to a new field
shop in Montreal, Canada, promotional expenses in connection with the new
digital mobile teleproduction units, as well as increased depreciation and
interest expense generated by the new units.
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 70.7% for the quarter ended
February 28, 1998, as compared to 68.2% for the quarter ended February 28, 1997.
Although production expenses decreased during the quarter ended February 28,
1998 as compared with the quarter ended February 28, 1997, the percentage to
sales was higher due to the substantial portion of fixed costs that do not
decrease when sales decrease.
Depreciation, as a percentage of sales, was 17.6% and 15.1% for the quarters
ended February 28, 1998 and 1997, respectively, and 16.6% and 13.7% for the six
months ended February 28, 1998 and February 28, 1997, respectively. The increase
in the quarter and six months ended February 28, 1998 compared to the same
periods in the prior year was a result of depreciation on the Mobile division's
newest digital mobile teleproduction units introduced in the six months ended
February 28, 1998 and increased depreciation resulting from additions to
property and equipment at other divisions during fiscal 1997. This increase was
offset by a reduction in depreciation on the Editel Los Angeles division
resulting from the merger of the Editel Los Angeles and Unitel Hollywood
divisions in fiscal 1997. Since sales were down and depreciation was
approximately the same in the quarter and six months ended February 28, 1998,
depreciation as a percentage of sales increased for such periods.
Selling expenses, as a percentage of sales, for the quarters ended February 28,
1998 and February 28, 1997 were 3.3% and 3.4%, respectively, and 2.9% and 3.2%
for the six months ended February 28, 1998 and February 28, 1997, respectively.
The percent of sales in the quarter and six months ended February 28, 1998 was
comparable to the prior year periods since selling expense as well as sales
decreased proportionately. The decrease in selling expenses in the quarter and
six months ended February 28, 1998 as
13
compared to the same periods in the prior year is mainly due to a decrease in
sales staff resulting from the merger of the Unitel Hollywood and Editel Los
Angeles divisions in fiscal 1997.
General and administrative expenses, as a percentage of sales, for the quarters
ended February 28, 1998 and February 28, 1997 were 11.9% and 11.7%,
respectively, and 11.8% and 9.9% for the six months ended February 28, 1998 and
February 28, 1997, respectively. The decrease in general and administrative
expenses is primarily due to the merger of the Company's Editel Los Angeles and
Unitel Hollywood divisions. Also included in the decrease in general and
administrative expenses from the comparable period in the prior year is the
impact of the reduction of certain cost estimates related to the closure of the
Editel New York and Editel Chicago divisions. Since sales decreased in the
periods ended February 28, 1998, the percentage to sales remained constant in
the quarter and increased in the six months ended February 28, 1998,
respectively.
Interest expense, as a percentage of sales, for the quarters ended February 28,
1998 and February 28, 1997 was 7.6% and 6.2%, respectively, and 7.0% and 5.7%
for the six months ended February 28, 1998 and February 28, 1997. The level of
outstanding debt in the first six months of fiscal 1998 increased compared with
the same period of the prior year and sales decreased in the first six months of
fiscal 1998, resulting in an increase in interest expense as a percentage of
sales in fiscal 1998 when compared with the same periods of the prior year.
The Company's effective tax rate was 0% and 5% for the first six months of
fiscal years 1998 and 1997, respectively. The effective tax rate for the first
six months of fiscal 1998 and 1997 is less than the federal statutory rate of
34% due to the utilization of net operating loss carryforwards generated by the
losses incurred in fiscal 1995, 1996 and 1997.
As previously announced, the Company has received unsolicited expressions of
interest in acquiring the Company. The Company has incurred $326,000 of deferred
advisory and legal fees in connection with its evaluation of these expressions
of interest.
Year 2000
The Company has been actively reviewing all of its financial and operational
software for Year 2000 issues. In discussions with the vendors of such software
the Company has been assured that all Year 2000 issues will be addressed in a
timely manner without significant cost to the Company.
14
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
PART II OTHER INFORMATION
Item 5. Other Information
This report contains certain forward-looking statements which are based upon
current expectations and involve certain risks and uncertainties. Under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995,
readers are cautioned that these statements may be impacted by several factors,
and, accordingly, the Company's actual performance and results may vary from
those stated herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K.
1. Exhibit 4(A). Sixth Amendment to Amended and Restated Loan and
Security Agreement, dated as of November 13, 1997, among
Unitel Video, Inc., R Squared, Inc. and Heller Financial, Inc.
2. Exhibit 4(B). Letter Agreement amending Amended and Restated
Loan and Security Agreement, dated December 11, 1997, from
Heller Financial, Inc.
3. Exhibit 4(C). Seventh Amendment to Amended and Restated Loan
and Security Agreement, dated as of December 15, 1997, among
Unitel Video, Inc., R Squared, Inc. and Heller Financial, Inc.
4. Exhibit 4(D). Eighth Amendment to Amended and Restated Loan
and Security Agreement, dated as of February 12, 1998, among
Unitel Video, Inc., R Squared, Inc. and Heller Financial, Inc.
5. Exhibit 4(E). Loan Agreement, dated October 27, 1997, between
Unitel Video, Inc. and the Commonwealth of Pennsylvania.
6. Exhibit 4(F). First Supplemental Loan Agreement, dated as of
December 15, 1997, between the Allegheny County Industrial
Development Authority and Unitel Video, Inc.
7. Exhibit 4(G). First Amendment to Pledge Agreement, dated as of
December 15, 1997, among Unitel Video, Inc., Heller Financial,
Inc. and PNC National Bank, National Association.
8. Exhibit 4(H). First Amendment to Reimbursement Agreement,
dated as of December 15, 1997, between Unitel Video, Inc. and
Heller Financial, Inc.
9. Exhibit 10(A). Amendment to Lease, dated February 16, 1998
between Unitel Video Canada, Inc. and Olymbec Construction
Inc.
10. Exhibit 27. Financial Data Schedule.
(b) There were no reports filed on Form 8-K during the quarter ended
February 28, 1998.
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SIGNATURES
Pursuant to the requirements 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.
By: /s/ Barry Knepper
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Barry Knepper
President and Chief Executive Officer
By: /s/ George Horowitz
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George Horowitz
Chief Financial Officer
Dated: April 20, 1998
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