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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
For the Fiscal Year Ended August 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8654
UNITEL VIDEO, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 23-1713238
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
555 WEST 57TH STREET, NEW YORK, NEW YORK 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 265-3600
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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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 Form10-K. [ ]
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 16, 1998 was approximately $7,857,333.
There were 2,714,116 shares of Common Stock outstanding at November 16, 1998.
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PART I
ITEM 1. BUSINESS
GENERAL
Unitel Video, Inc. (the "Company") provides a full range of services to the
video and film communications industry for the recording, editing, creation of
digital effects and duplication of television programs, commercials, corporate
communications and feature films. 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 generated
visual effects and videotape duplication.
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,
Pennsylvania with additional Mobile division facilities in Burbank, California,
and Montreal, Canada. The Mobile division provides "on-location" services (the
"Mobile Business"), including technical personnel, for videotape recording and
live telecasting of sports, entertainment, cultural and other events throughout
North America. In fiscal 1997, the Company established Unitel Video Canada Inc.,
a wholly owned subsidiary of the Company, to engage in the Mobile Business in
Canada.
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
1998, 1997 and 1996, the Company recognized a significantly greater proportion
of net earnings in the first quarter, when sales are traditionally higher, as
compared to the other quarters of the fiscal year. See Note M to Notes to
Consolidated Financial Statements.
SERVICES
The Company provides services in two broad categories, production services
and post production services. In 1995, the Company made a decision to refocus
its resources toward the entertainment and corporate communications areas, its
traditional strengths. As part of this strategy the Company has reduced its post
production assets that service the highly competitive commercial advertising
segment of the industry. As a result of this change, revenues generated from
post production services have declined from 63% of sales in 1995 to 44% of sales
in 1998, while revenues from the production area have increased from 37% of
sales in 1995 to 56% of sales in 1998. The Company anticipates that this trend
will continue in fiscal 1999.
PRODUCTION 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 five studios in
2
New York City. Among the programs produced at the Company's studio facilities
are "Inside Edition", "The Montel Williams Show" and" The Chris Rock Show".
Studio recording accounted for approximately 19%, 18% and 18% of the Company's
revenues during the fiscal years ended August 31, 1998, 1997 and 1996,
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 36%, 32% and 27% of the Company's revenues during the fiscal years
ended August 31, 1998, 1997 and 1996, respectively. Some of the events handled
by the Company's mobile production units include "Live from the Met", "The Miss
America Pageant", "The Grammy Awards", "The Emmy Awards", "The Academy Awards",
major golf and tennis tournaments, broadcasts of Pittsburgh Pirates baseball
games and Pittsburgh Penguin Hockey games and the international broadcast of the
"Super Bowl".
POST PRODUCTION SERVICES
FILM TO VIDEOTAPE TRANSFER. The Company provides the facilities and skilled
personnel for transferring of images and sound from 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 6%, 8% and 10% of the Company's revenues during the fiscal years
ended August 31, 1998, 1997 and 1996, respectively. The Company has performed
this service for major theatrical motion pictures such as "Armageddon",
"Pleasantville", "Ants", "Small Soldiers", "Doctor Doolittle", "Rush Hour" and
television programs such as "X-Files" and "Seven Days".
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. Editing accounted for approximately
24%, 26% and 30% of the Company's revenues during the fiscal years ended August
31, 1998, 1997 and 1996, respectively. Among the projects edited at the
Company's facilities are commercials for Toyota, Sears and Nike and programs
such as Disney's "Bear in the Big Blue House" and "Sesame Street".
COMPUTER GENERATED VISUAL EFFECTS. 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 for use in television programs and commercials and
feature films. These services accounted for approximately 9%, 7% and 8% of the
Company's revenues during the fiscal years ended August 31, 1998, 1997 and 1996,
respectively. The Company's projects in this area include various commercials
for Toyota, Sears and Nike and major theatrical motion pictures such as
"Armageddon", "Pleasantville", "Ants", "Small Soldiers", "Doctor Doolittle" and
"Rush Hour".
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%, 5% and 4% of the Company's revenues during the
fiscal years ended August 31, 1998, 1997 and 1996, respectively.
3
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,
management's efforts and through advertising in certain trade publications. The
Company has no material patents. The Company markets its services through the
use of the Unitel and Editel names.
Customers for editing services, film-to-tape transfer, computer generated
visual effects 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, 1998, 1997 and 1996.
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.
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. The Company
provides "on-location" video services throughout North America and competes with
companies providing similar services throughout that area.
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
On August 31, 1998 the Company had 232 full-time employees. The technical
personnel of the Company's Editel Los Angeles division (47 employees) are
represented by the International Alliance of Theatrical Stage Employees
("IATSE"). The contract between IATSE and the Company expires on November 30,
1998. Negotiations for a new contract are underway. The technical personnel of
the Company's Mobile division (34 employees) are represented by the
International Brotherhood of Electrical Workers, under a contract which expires
in August 2000.
The Company believes that its employee relations are generally satisfactory.
DEVELOPMENTS
During the fourth quarter of 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. As part of this
strategy, the Company decided to sell its Editel New York, Editel Chicago
4
and Editel Los Angeles divisions, which specialized in the highly competitive
commercial advertising portion of the video services industry. During the first
quarter of fiscal 1996, the Company began marketing these divisions to potential
buyers. 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.
In February 1996, the Company announced the closure of its Editel Chicago
division and subsequently distributed the majority of that division's assets
throughout the Company, with the balance sold in an auction. In March 1996, the
Company terminated the office lease for its Editel Chicago division and recorded
a restructuring charge of $1,246,000 in the quarter ended May 31, 1996, related
to the termination of the lease. During 1996 the Editel New York division was
closed and a portion of the editorial and computer graphics assets were
distributed throughout the Company. In November 1996, the Company sold a
majority of the undistributed assets to an unrelated third party for $1,400,000.
The balance of the assets were disposed of through an auction. Proceeds from the
sale of assets from both the Editel Chicago and Editel New York divisions were
used by the Company to repay outstanding debt. 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.
In June 1997, the Company merged its Unitel Hollywood and Editel Los Angeles
divisions, moving a significant portion of the Unitel Hollywood assets into the
Company owned Editel Los Angeles building. Additional equipment was moved to the
Company's New York based post production facilities. The balance of the
equipment was sold, with approximately $1,700,000 in proceeds used to repay long
term debt. As a result of the merger, the Company recorded a $1,055,000
restructuring charge in the third quarter of 1997.
Additionally, after a reassessment of the Company's New York post production
assets, the Company recorded an impairment charge of $300,000 in the fourth
quarter of 1997. Throughout fiscal year 1998, the Company continued to evaluate
its investment in its two New York based post production facilities, Unitel Post
57 and Unitel Post 38. In the third quarter of fiscal 1998, the Company closed
its Unitel Post 57 facility and relocated a significant portion of the Unitel
Post 57 client base, equipment and key personnel to Unitel Post 38.
Additionally, the space formerly used by the Unitel Post 57 facility was
repurposed into studio support space to accommodate a new multi year contract
with King World Productions, Inc. ("King World") for the production of the
"Inside Edition" television program. The Company had previously provided
facilities for King World in another location, the lease for which expired in
June 1998.
In fiscal 1998 the Company received unsolicited expressions of interest in
acquiring the Company from third parties. The Company incurred $685,000 of
advisory and legal fees in connection with its evaluation of these expressions
of interest. Since discussions have terminated, these advisory and legal fees
were expensed in the quarter ended May 31, 1998.
In August, 1998, the Company refinanced its owned New York City real estate
located at 515 West 57(th) Street and 433 West 53(rd) Street for a total of
$10,750,000. The proceeds of the refinancing were used to repay existing first
mortgages on the properties, for costs associated with the financings and
related escrows and to repay Term Loan D of the credit facility described in
Item 7 below, with the balance used for working capital purposes. The new
mortgages, in the amount of $7,550,000 and $3,200,000, respectively, bear
interest at 7.72%, on a 22 year amortization schedule with a term of 10 years,
maturing August, 2008 and require monthly principal and interest payments of
approximately $59,000 and $25,000, respectively. In connection with these
mortgages the Company established a liquidity reserve of $500,000 and is
required to increase the reserve by approximately $95,000 per annum, payable
monthly.
5
ITEM 2. PROPERTIES.
The following table sets forth, as of August 31, 1998, certain information
concerning the Company's facilities. The lease expiration dates exclude option
extension periods which exist in certain leases.
APPROXIMATE LEASE EXPIRATION
LOCATION SQUARE FEET PRIMARY USE DATE
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555 West 57th Street 3,000 Office space. Dec 2000
New York, New York
515 West 57 Street 43,000 Television studios and post-production facilities. Owned
New York, New York
508-510 West 57 Street 15,000 Television studio and support space. Jun 2001
New York, New York
841 Ninth Avenue 21,000 Television studio and support space. Aug 2003
New York, New York
503 West 33 Street 8,000 Television studio and support space. Apr 2001
New York, New York
5 West 37 Street 13,000 Post-production facilities and administrative Mar 2001
New York, New York offices.
8 West 38 Street 10,000 Post-production facilities and administrative Mar 2001
New York, New York offices.
222 East 44 Street 43,000 Former Editel New York facility. Dec 1999
New York, New York
433-435 West 53 Street 18,000 Television studio and support space. Owned
New York, New York
423 West 55 Street 21,000 Studio support space. Aug 1999
New York, New York
4100 Steubenville Pike 23,000 Mobile production headquarters and garage. Oct 2001
Pittsburgh, Pennsylvania
729 North Highland 26,000 Post-production, film-to-tape transfer and computer Owned
Los Angeles, California graphics facilities and administrative offices.
1101 Isabel Street 15,000 Mobile field shop and garage. Month to Month
Burbank, California
3540 Griffith Street 8,000 Mobile offices and garage. Jun 2002
Saint-Laurent, Quebec
Canada
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.
6
(b) No material pending legal proceeding was terminated during the fourth
quarter of the Company's fiscal year ended August 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders of the Company was held on July 28,
1998.
(b) At the Annual Meeting, Walter G. Arader and Philip S. Birsh were elected
as Directors for terms expiring in 2001. The term of office as a Director of
Herbert Bass, Alex Geisler, Barry Knepper and Richard Clouser continued after
the meeting.
(c) The total votes cast for, withheld or against, as well as the number of
abstentions and broker non-votes, as to the election of Directors, were as
follows:
TOTAL VOTES TOTAL VOTES
NOMINEE FOR WITHHELD
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Walter G. Arader......................................... 2,367,140 61,321
Philip S. Birsh.......................................... 2,367,140 61,321
There were no abstentions or broker non-votes for the election of Directors.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) The Company's Common Stock is traded on the American Stock Exchange
under the symbol UNV. The following table sets forth, for fiscal years 1998 and
1997, the high and low sales prices of the Common Stock as furnished by the
American Stock Exchange:
LOW HIGH
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Fiscal Year 1998:
First Quarter......................................................................................... 6 3/8 9
Second Quarter........................................................................................ 5 3/4 8 7/16
Third Quarter......................................................................................... 4 7/8 8 3/16
Fourth Quarter........................................................................................ 3 3/4 5 7/8
LOW HIGH
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Fiscal Year 1997:
First Quarter......................................................................................... 5 3/4 8 1/2
Second Quarter........................................................................................ 6 8 3/8
Third Quarter......................................................................................... 5 7/8 6 3/4
Fourth Quarter........................................................................................ 5 1/8 8
As of November 16, 1998 there were approximately 355 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 C to Notes to Consolidated Financial
Statements, and Management's Discussion and Analysis of Financial Condition and
Results of Operations).
(b) No Common Stock of the Company was sold by the Company within the past
three years which was not registered under the Securities Act of 1933.
8
ITEM 6. SELECTED FINANCIAL DATA
1998 1997 1996 1995 1994
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OPERATIONS:
Sales....................... $ 51,699,000 $ 58,767,000 $ 79,287,000 $ 83,285,000 $ 80,498,000
Cost of sales............... $ 44,707,000 $ 49,708,000 $ 65,501,000 $ 69,219,000 $ 64,391,000
Interest expense............ $ 4,127,000 $ 3,430,000 $ 3,686,000 $ 3,649,000 $ 2,388,000
Earnings(loss)before income
taxes..................... $ (5,372,000) $ (4,398,000) $ (5,084,000) $ (9,341,000) $ 1,519,000
Net earnings(loss)(a)....... $ (5,409,000) $ (4,436,000) $ (5,124,000) $ (6,547,000) $ 859,000
FINANCIAL POSITION:
Total assets................ $ 63,732,000 $ 63,083,000 $ 67,618,000 $ 74,186,000 $ 73,245,000
Working capital
(deficiency).............. $ (8,113,000)(f) $(10,004,000)(e) $ (8,356,000)(c) $ (3,467,000)(c) $ (8,055,000)(b)
Current ratio............... .46 to 1 .39 to 1 .60 to 1(c) .82 to 1(c) .64 to 1(b)
Property & equipment-net.... $ 50,941,000 $ 51,907,000 $ 50,466,000(d) $ 34,491,000(d) $ 55,425,000
Long-term debt, less current
maturities................ $ 32,679,000 $ 26,525,000 $ 19,706,000 $ 19,936,000 $ 14,142,000(b)
Stockholders' equity........ $ 8,203,000 $ 13,392,000 $ 17,810,000 $ 22,526,000 $ 28,828,000
DATA PER COMMON SHARE:
Net earnings(loss)per common
share-basic and diluted... $ (2.01) $ (1.66) $ (1.96) $ (2.53) $ .33
Weighted average number of
common shares
outstanding-basic and
diluted................... 2,687,000 2,665,000 2,613,000 2,582,000 2,617,000
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(a) Federal and state tax credits of approximately $13,000 in 1998, $14,000 in
1997, $15,000 in 1996, $28,000 in 1995 and $58,000 in 1994 have been applied
as a reduction of the provision for income taxes.
(b) 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.
(c) 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.
(d) The decrease in fiscal 1995 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.
(e) The increase in the working capital deficiency in fiscal 1997 is due
primarily to (1) the decrease in accounts receivable resulting from (i) the
closure of the Editel New York facility in August 1996, (ii) the merger of
the Los Angeles divisions in June 1997 and (iii) the reduction in sales of
the Company's Studio and Mobile divisions in fiscal 1997 (See Management's
Discussion and Analysis of Financial Condition and Results of Operations),
(2) the reduction in net assets held for sale in fiscal 1997 due to the
completion of the sale of such assets prior to August 31, 1997 and (3) an
increase in other current items, all of which was offset by a reduction in
the current portion of long-term debt.
(f) The decrease in the working capital deficiency in fiscal 1998 is due
primarily to proceeds of new financings which were used to repay a portion
of short term debt and the balance added to working capital.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES.
The Company has taken several steps to increase its liquidity which had been
significantly reduced by the losses incurred during the past several fiscal
years.
In August 1998, the Company refinanced its owned New York City real estate
generating funds of approximately $4,600,000 after repayment of the existing
first mortgages on such properties, closing costs and escrows. These funds were
used to repay Term Loan D of the credit facility described below in this item in
the amount of $1,600,000, with the balance used for working capital purposes.
Additionally, the holders of subordinated debt of the Company related to the
acquisition of the mobile facilities company GC & Co. by the Company in 1995,
which had been due in August 1998, agreed to a new payment schedule providing
for payments of fifty percent of the $640,000 in October 1998 and the balance in
six equal installments beginning in November 1998. The October payment and the
November installment have been paid as of November 1998.
In a third step, another holder of subordinated debt of the Company, agreed
to restructure its note with the Company by postponing the maturity date from
May 1999 to September 1999 and by eliminating principal payments that had been
due for the months of April 1998 through April 1999, totaling $450,000. The
holder also agreed to add $108,000 of accrued but unpaid interest to the
principal balance payable in September 1999. The new terms require that interest
only be paid on a current basis effective September 1, 1998 through the
September 30, 1999 maturity date. Interest for September, October and November
1998 has been paid as of November 1998.
Further, the Company recently negotiated amendments to certain covenants
contained in the credit facility described below in this item, including
revising the tangible net worth covenant, the fixed charge coverage covenant and
the capital expenditure covenant, adding an Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) covenant and deleting the leverage ratio
and interest coverage ratio covenants previously contained in the agreement,
which amendments to the agreement are based in part upon substantially meeting
the Company's fiscal 1999 operating plan. As a result of these amendments,
management is of the opinion that the Company will be in compliance with the
covenants contained in the Company's credit facility. However, in the event that
the Company is not in compliance with the terms of its credit facility, the
Company's ability to operate could be hampered.
The Company anticipates that the steps enumerated above, together with funds
generated by operations and sales of selected fixed assets no longer useful in
the Company's business, will be sufficient to meet the Company's anticipated
working capital and investment needs in fiscal 1999.
Capital expenditures were $8,208,000 (which includes equipment under
capitalized leases of $3,045,000) during fiscal 1998 as compared to $12,936,000
during fiscal 1997 and $9,134,000 during fiscal 1996. Expenditures made during
fiscal 1998 were primarily for the completion of the second digital mobile
teleproduction unit, for building improvements at a Company owned building in
New York City made to accommodate a multiyear contract with King World and for
equipment used in the production, post production and computer graphics service
areas throughout the Company. Completion of the second digital mobile
teleproduction unit was primarily financed from the proceeds of a second series
of industrial revenue bonds issued by the Allegheny County (Pennsylvania)
Industrial Development Authority. (See Note C to Notes to Consolidated Financial
Statements).
The net change in cash in the fiscal years ended August 31, 1998, 1997 and
1996 was $1,053,000, ($55,000) and $31,000, respectively. The net cash increase
in 1998 resulted from cash provided by operating activities of $2,892,000,
offset by cash used in investing activities of $4,790,000, (primarily capital
expenditures net of equipment sales) and $2,951,000 provided from financing
activities, primarily the refinancing of Company owned real estate and proceeds
from the Pennsylvania industrial revenue bonds
10
which were used to complete the second digital mobile teleproduction unit. The
net cash decrease in 1997 resulted from cash provided by operating activities of
$9,271,000, offset by cash used in investing activities of $9,132,000 and
$194,000 of cash used in financing activities. The 1997 net cash decrease was a
result of the closure of the Editel New York facility in August 1996, the merger
of the Editel Los Angeles and Unitel Hollywood divisions in June 1997 and the
reduction in sales of the Company's Studio and Mobile divisions in fiscal 1997
due to the cancellation of two television shows in 1996 and the non-recurring
nature of the Atlanta Summer Olympics and the Republican and Democratic National
Conventions in 1996 for which the Mobile division provided production services.
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
August 31, 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 were due to the refinancing of the
Company's debt in December of 1995. The majority of the proceeds generated from
the disposal of equipment was related to the closure of the Editel Chicago and
Editel New York divisions.
In December 1995, the Company entered into a $26 million revolving credit
and term loan agreement (the "credit facility") 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 equal monthly principal installments of $100,000 plus
interest, with the balance of $6,000,000 due March 2000. 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. The Company refinanced its New York owned real estate in
August 1998 and used a portion of the proceeds of the refinancing to repay Term
Loan D and other indebtedness and the balance of the proceeds for working
capital purposes. (see discussion below in this Item 7).
In July 1997 the credit facility was further amended by the issuance of a
$5,080,000 letter of credit to secure payment of principal and interest on
$5,000,000 in 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 to build a new digital mobile teleproduction unit. The letter of
credit requires quarterly principal payments of $179,000 commencing December
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 redeemed in full as
described in the prior sentence, are required to be repaid by the Company on
that date. In December 1997, a second series of Bonds were issued, in an amount
of $3,500,000. The proceeds of the second series of Bonds were used to finance
the construction of a second digital mobile unit. Quarterly principal payments
of $125,000 will begin in February 1999 on these bonds which also mature on July
1, 2009. The terms of the 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 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 promissory notes bear interest
at 1% over prime and are convertible into the Company's common stock at $10.00
per share. At August 31, 1998, $640,000 of the convertible notes were
outstanding. In October 1998, one half of this amount was repaid and noteholders
of $320,000 principal outstanding agreed to repayment of the balance then due in
six equal monthly installments beginning November 1998.
In connection with certain of its financings, the Company must adhere to
particular financial ratios and restrictions including restrictions on the
future payment of dividends. The Company anticipates that the restrictions will
not impair its ability to keep pace with technological developments.
11
See Note C to Notes to Consolidated Financial Statements with respect to
compliance with certain financial covenants.
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.
RESULTS OF OPERATIONS
Sales were $51,699,000, $58,767,000 and $79,287,000 for the fiscal years
ended August 31, 1998, 1997 and 1996, respectively. The sales decrease of
$7,068,000 in 1998 compared to 1997 was due primarily to the closure of Unitel
Post 57 in May 1998 and the Unitel Hollywood division in May 1997. The sales
decrease of $20,520,000 in 1997 compared to 1996 was primarily due to the
closing of the Editel New York and Editel Chicago divisions in 1996 and the
merging of the Unitel Hollywood and Editel Los Angeles divisions in 1997. Sales
from continuing operations were lower by approximately $5,000,000 in the
aggregate in fiscal 1997 due to lower studio sales as a result of the
cancellation of the "Mark Walberg" and "Rush Limbaugh" television shows in 1996
and from lower Mobile sales due in part to the non-recurring nature of the
Atlanta Summer Olympics and the Republican and Democratic National Conventions
in 1996.
The Company recorded net losses of $5,409,000, $4,436,000 and $5,124,000 in
the fiscal years ended August 31, 1998, 1997 and 1996, respectively. The net
loss of $5,409,000 in fiscal 1998 is attributable to the following significant
items:
- During the 1998 fiscal year the Company received unsolicited expressions
of interest in acquiring the Company from third parties. The Company
incurred $685,000 of advisory and legal fees in connection with its
evaluation of these expressions of interest. Since discussions have
terminated, these costs were expensed during the 1998 fiscal year.
- In the third quarter of fiscal 1998 the Company closed its Unitel Post 57
division, one of its two New York City based post production facilities. A
portion of the equipment, clients and personnel were relocated to Unitel
Post 38, the Company's other New York City based post production facility.
The Company incurred significant severance, relocation and closure costs
in connection with this consolidation.
- In August 1998, the Company refinanced its owned New York City real estate
for a total of $10,750,000. Part of the proceeds were used to repay
existing first mortgages on the properties, which necessitated the write
off of deferred financing costs related to the existing first mortgages in
an amount of $183,000.
- The Company experienced a loss of revenues related to the relocation of
the Company's studio client King World from a facility where the lease had
terminated to the Company's owned facility on West 57(th) Street in New
York City. In order to accommodate the client, extensive remodeling of the
building was required which necessitated the closure of three studios for
a two month period.
- Expenses at the Mobile division increased significantly due to the payroll
and occupancy expenses of a new field shop in Montreal, Canada, opened in
the third quarter of fiscal 1997 and from promotional expenses and
additional depreciation and interest costs related to two new digital
mobile teleproduction units introduced during fiscal 1998.
The net loss of $4,436,000 in 1997 was attributable to a loss in the
Company's post production operations and the merger related costs in Los
Angeles. The net loss of $5,124,000 incurred in fiscal 1996 was 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.
12
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 69.2%, 70.4% and 72.7%, for the
fiscal years ended August 31, 1998, 1997 and 1996, respectively. Production
costs decreased from fiscal 1997 primarily due to the merger of the Editel Los
Angeles and Unitel Hollywood divisions. The decrease in production costs in
fiscal 1997 was primarily due to the closure of the Company's Editel New York
and Editel Chicago divisions in fiscal 1996. Production costs as a percentage of
sales increased in fiscal 1996 due to the 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.
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 and amortization, as a percentage of sales, was 17.3%, 14.2%
and 9.9% in fiscal 1998, 1997 and 1996, respectively. Depreciation expenses
increased in fiscal 1998 due to the addition of the Mobile division's newest
digital mobile teleproduction units introduced in fiscal 1998 as well as
increased depreciation resulting from additions to property and equipment at
other divisions during fiscal 1997. This increase was offset from the merger of
the Editel Los Angeles and Unitel Hollywood divisions in fiscal 1997.
Depreciation expense increased in fiscal 1997 by approximately $500,000 compared
to 1996. In fiscal 1997, depreciation decreased approximately $1,500,000 (when
including the $2,000,000 1996 impairment charge) due to the closure in 1996 of
the Editel New York and Editel Chicago divisions. In fiscal 1996, $2,000,000 of
depreciation was reclassified to impairment charge in connection with the
closure of the Editel New York and Editel Chicago divisions. Depreciation in the
Company's other divisions in 1997 was approximately the same as in 1996.
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. The Editel Chicago division was closed in February 1996 and the
Editel New York division was closed in August 1996. Depreciation includes a gain
(loss) on disposal of equipment of $(31,000), $220,000 and $(58,000) in fiscal
1998, 1997 and 1996, respectively. Had the gain (loss) on disposal of equipment
been excluded from depreciation expense and the 1996 impairment charge of
$2,000,000 been included, depreciation as a percentage of sales would have been
17.2%, 14.5% and 12.3% in fiscal 1998, 1997 and 1996, respectively.
Selling expenses, as a percentage of sales, during fiscal years 1998, 1997
and 1996 were 2.6%, 3.0%, and 2.9%, respectively. Selling expense in 1998
decreased $395,000 primarily as a result of the merger of the Unitel Hollywood
and Editel Los Angeles divisions in June 1997. Selling expense decreased
$541,000 in 1997 compared to 1996 as a result of the closure of the Editel New
York and Editel Chicago divisions in 1996 and the merger of the Unitel Hollywood
and Editel Los Angeles divisions in 1997. 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.
General and administrative expenses as a percentage of sales during fiscal
years 1998, 1997 and 1996 were 12.7%, 12.4% and 12.2%, respectively. General and
administrative expenses decreased $706,000 in 1998, principally from the merger
of the Unitel Hollywood and Editel Los Angeles divisions in 1997 offset by
severance costs accrued. General and administrative expenses decreased
$2,426,000 in 1997 principally from reduced administrative payroll in 1997 due
to the closure of the Editel New York and Editel Chicago divisions and the
recognition in 1996 of severance pay and other costs in connection with the
closure. In addition, there were decreases in allowance for doubtful accounts
and corporate expenses.
13
Interest expense, as a percentage of sales, during fiscal years 1998, 1997
and 1996 was 8.0%, 5.8% and 4.6%, respectively. Interest expense increased
approximately $700,000 in fiscal 1998 primarily as a result of new financing
including the Bonds, increased costs on the Company's credit facility and
deferred finance charges expensed in connection with the refinancing of existing
mortgages on the Company's owned real estate in New York City. Since sales
decreased in fiscal 1998 and interest expense is higher, interest increased as a
percentage of sales. Although interest expense decreased $256,000 in 1997, it
increased as a percentage of sales due to the significant decrease in sales in
1997 resulting from the closing of the Editel Chicago and Editel New York
divisions in 1996 and the merger of the Hollywood and Los Angeles divisions in
June, 1997.
The Company's effective tax rate was (1%) in fiscal years 1998, 1997 and
1996. This effective tax rate reflects current year net operating losses for
which no tax benefit was provided. (See Note G to Notes to Consolidated
Financial Statements.)
YEAR 2000 UPDATE
General
The Company's company-wide Year 2000 Project (the "Project") is proceeding
on schedule. The purpose of the Project is to evaluate the ability of computer
programs (software) and embedded chips to distinguish between the year 1900 and
the year 2000. The Project has been underway since the middle of calendar year
1998, is proceeding on schedule and is expected to be completed by the middle of
calendar year 1999. While many different types of equipment and software
products may be prone to the Year 2000 problem, major emphasis is being placed
on those items considered to be material to the operation of the Company's
business.
The Company's primary business is to provide services to the video and film
communications industry for the recording, editing, creation of digital effects
and duplication of television programs, commercials, corporate communications
and feature films. Because the various operating divisions of the Company share
much of the software and hardware necessary to provide these services, Year 2000
research done at one division is largely applicable at the Company's other
divisions. This fact will greatly simplify the process of evaluating the impact
of Year 2000 issues on the Company's business and minimize the costs to the
Company involved in becoming Year 2000 compliant.
Project
The Company's Project is divided into four major sections:
1. Administrative Functions--accounts payable, accounts receivable, client
scheduling, purchasing and payroll.
2. Technical Services--equipment/systems, software packages, interconnectivity
issues.
3. Infrastructure--personal computers (PC's and MAC's), owned telephone system
equipment, networks (Novell, Microsoft), office equipment, etc.
4. External Services Vendors--401K/health care management, payroll services,
property/liability insurance providers, etc.
Administrative Functions:
The accounts payable, accounts receivable and client scheduling tasks at
most divisions of the Company are provided by industry standard software
applications, for example J.D. Edwards Accounting Package or Xytech Systems
(Xymox), or both, depending on the division. Both J.D. Edwards and Xytech
Systems have available Year 2000 upgrade programs and the Company anticipates
these will be installed in early calendar year 1999. Standard PC based
applications, used for these and other applications, are either currently
compliant or are expected to have suitable upgrades available in early calendar
year 1999.
14
Similarly, the payroll services vendor expects to have Year 2000 software
available early in calendar year
1999. These will be purchased by the Company as soon as they become available.
Technical Services:
The Company utilizes technical hardware from various vendors to provide a
wide range of services to its clients. All divisions have been compiling lists
of equipment considered critical to their operations. Based on written responses
from various vendors, the Company has been advised that the majority of these
items are either Year 2000 compliant or not affected by Year 2000 issues. Some
software packages utilized on Silicon Graphics and Apple platforms are still
being evaluated with respect to Year 2000 issues, but since these items are
routinely upgraded by the Company as part of its ongoing operations to insure
that the Company is staying current with technology it is anticipated that the
Year 2000 issues in such cases should be minimal. Furthermore, the products
produced by the Company for its clients are delivered to the client at the
conclusion of a job and such products are not thereafter affected by Year 2000
issues. Therefore, Year 2000 compliance is not considered a material issue for
already completed client work. All critical equipment and software products
utilized in the production of client material will have been certified, either
through testing by the Company or vendor representation, to be Year 2000
compliant or not affected by Year 2000 issues by the middle of calendar year
1999.
Infrastructure:
It is expected that general purpose PC workstations purchased within the
past 12 months should be able to recognize the date change to the Year 2000. A
comprehensive checklist is being prepared that will assist each division in
determining which PCs need to have some form of upgrade. Some older PCs may
require replacement, or may be upgraded through inexpensive after-market clock
upgrades. Also being evaluated are Company owned telephone systems which contain
embedded chips which may be date sensitive. To date, all telephone systems
checked have been found to be either Year 2000 compliant or not affected by the
Year 2000 issue. Novell or Microsoft computer network products have upgrades
available supplied and represented by the vendor to be Year 2000 compliant which
will be installed by the Company by the middle of calendar 1999. Other general
purpose office equipment such as copy machines and fax machines are being
evaluated but are not considered to be material.
External Services Vendors:
The Company utilizes numerous outside vendors for management of such
services as payroll, health care benefits, 401K administration and insurance
coverages. All of these vendors are being asked to supply a written statement
concerning Year 2000 compliance and a general scope of appropriate needed
actions, costs, and time-frames. This part of the Project is expected to be
completed by the middle of calendar 1999.
Costs
The total cost of the Year 2000 Project is not expected to be material to
the Company's financial position. Because some investigation is still ongoing,
total costs can only be estimated. Based on mission critical hardware and
software upgrade costs that are known, and reasonable expectations of results
from further testing, the total cost of the Project is not expected to exceed
$100,000 Company-wide and will be expensed as incurred.
Risks
The Company supplies a wide range of services to its clients. Once those
services are delivered, whether on videotape, CD Rom, computer disk, or other
media, Year 2000 compliance is no longer a concern. Since it has already been
determined that much of the hardware and software material to the internal
operation of the Company's business is or will be compliant, there appears to be
minimal risk to the internal operations of the Company due to the Year 2000
issue. This does not include any serious problems or outages caused by Year 2000
problems that could exist at local utilities that supply telephone,
15
electrical, natural gas and similar services or with external services vendors.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of outside vendors or
clients, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. However, the Company's
internal Project is expected to significantly reduce the level of uncertainty
about the Year 2000 problem particularly with respect to the effect on the
Company of the readiness of its vendors. It is the opinion of the Company that,
with the installation of new equipment which the Company is advised to be Year
2000 compliant and the completion of the Project as scheduled, the possibility
of significant interruptions of normal operations should be significantly
reduced.
Contingency Plan
Based on the Company's expectation that Year 2000 issues will be adequately
addressed by the scheduled completion of the Project, no contingency plans have
been formulated. In the event an unexpected Year 2000 problem is discovered that
will affect either the completion or delivery of client material, the Company
expects that a sufficient number of alternative production methods exist in the
industry to mitigate any substantial problems.
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAINS 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
HEREBY CAUTIONED THAT THESE STATEMENTS MAY BE IMPACTED BY SEVERAL FACTORS, AND,
CONSEQUENTLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED HEREIN.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to interest rate change market risk with respect to
its credit facility with a financial institution which is priced based on the
prime rate of interest. At August 31, 1998 $12,226,000 was outstanding under the
credit facility. Changes in the prime interest rate during fiscal 1999 will have
a positive or negative effect on the Company's interest expense. Each 1%
fluctuation in the prime interest rate will increase or decrease interest
expense for the Company by approximately $122,000.
In addition, the Company is exposed to interest rate change market risk with
respect to the Bonds in the amount of $8,500,000. The Bonds bear interest at a
floating rate established weekly by the remarketing agent. During fiscal 1998
the interest rate on the Bonds approximated 3.5%. Each 1% fluctuation in
interest rates will increase or decrease interest expense on the Bonds by
approximately $85,000.
The impact of interest rate fluctuations on other floating rate debt of the
Company and foreign exchange fluctuation on the Company's Canadian subsidiary is
not material.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
UNITEL VIDEO, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
---------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........................................................ 18
CONSOLIDATED FINANCIAL STATEMENTS:
BALANCE SHEETS--AUGUST 31, 1998 AND 1997.............................................................. 19
STATEMENTS OF OPERATIONS--YEARS ENDED
AUGUST 31, 1998, 1997 AND 1996...................................................................... 20
STATEMENT OF STOCKHOLDERS' EQUITY--YEARS ENDED
AUGUST 31, 1998, 1997 AND 1996...................................................................... 21
STATEMENTS OF CASH FLOWS--YEARS ENDED
AUGUST 31, 1998, 1997 AND 1996...................................................................... 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................ 23-36
SUPPLEMENTARY FINANCIAL SCHEDULE.......................................................................... 50
Selected Quarterly Financial Data is set forth in Note M 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, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended August 31, 1998. 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, 1998 and 1997, and the consolidated results
of its operations and its consolidated cash flows for each of the three years in
the period ended August 31, 1998, in conformity with generally accepted
accounting principles.
We have also audited Schedule II of Unitel Video, Inc. for each of the three
years in the period ended August 31, 1998. 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 25, 1998
18
UNITEL VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
AUGUST 31,
------------------------
1998 1997
----------- -----------
ASSETS
Current assets:
Cash............................................................. $ 1,190,000 $ 137,000
Accounts receivable, less allowance for doubtful accounts of
$400,000 in 1998 and $412,000 in 1997.......................... 4,784,000 5,139,000
Other receivables................................................ 93,000 19,000
Prepaid income taxes............................................. 62,000 75,000
Prepaid expenses................................................. 498,000 564,000
Deferred tax asset............................................... 312,000 495,000
----------- -----------
Total current assets......................................... 6,939,000 6,429,000
Property and equipment--at cost
Land, buildings and improvements................................. 23,490,000 20,799,000
Video equipment.................................................. 78,113,000 87,745,000
Furniture and fixtures........................................... 1,758,000 2,591,000
----------- -----------
103,361,000 111,135,000
Less accumulated depreciation and amortization..................... 52,420,000 59,228,000
----------- -----------
50,941,000 51,907,000
Deferred tax asset................................................. 2,157,000 1,974,000
Goodwill........................................................... 1,583,000 1,721,000
Other assets....................................................... 2,112,000 1,052,000
----------- -----------
$63,732,000 $63,083,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 5,282,000 $ 6,754,000
Accrued expenses................................................. 2,056,000 998,000
Payroll and related taxes........................................ 1,434,000 2,038,000
Current maturities of long-term debt............................. 3,563,000 3,530,000
Current maturities of subordinated debt.......................... 640,000 1,167,000
Current maturities of capital lease obligations.................. 2,077,000 1,946,000
----------- -----------
Total current liabilities.................................... 15,052,000 16,433,000
Deferred rent...................................................... 112,000 121,000
Long-term debt, less current maturities............................ 32,679,000 26,525,000
Subordinated debt, less current maturities......................... 2,171,000 1,770,000
Long-term leases, less current maturities.......................... 4,468,000 3,666,000
Accrued retirement................................................. 1,047,000 1,176,000
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized-5,000,000 shares Issued 3,541,754 shares in 1998 and
3,540,954 shares in 1997, and outstanding 2,711,016 shares in
1998 and 2,674,665 shares in 1997............................ 27,000 27,000
Additional paid-in capital......................................... 27,275,000 27,367,000
Accumulated deficit................................................ (11,454,000) (6,028,000)
Common stock held in treasury, at cost (830,738 in 1998 and 866,289
in 1997)......................................................... (7,645,000) (7,974,000)
----------- -----------
Total stockholders' equity......................................... 8,203,000 13,392,000
----------- -----------
$63,732,000 $63,083,000
----------- -----------
----------- -----------
The accompanying notes are an integral part of these statements.
19
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED AUGUST 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
Sales............................................................... $ 51,699,000 $ 58,767,000 $ 79,287,000
------------- ------------- -------------
Cost of sales:
Production costs.................................................. 35,769,000 41,380,000 57,661,000
Depreciation and amortization..................................... 8,938,000 8,328,000 7,840,000
------------- ------------- -------------
44,707,000 49,708,000 65,501,000
------------- ------------- -------------
Gross profit........................................................ 6,992,000 9,059,000 13,786,000
Operating expenses:
Selling........................................................... 1,339,000 1,734,000 2,275,000
General and administrative........................................ 6,558,000 7,264,000 9,690,000
Interest.......................................................... 4,127,000 3,430,000 3,686,000
Restructuring charge.............................................. -- 1,055,000 1,246,000
Impairment charge................................................. -- 300,000 2,000,000
Merger Related Costs.............................................. 685,000
------------- ------------- -------------
12,709,000 13,783,000 18,897,000
------------- ------------- -------------
Loss from operations................................................ (5,717,000) (4,724,000) (5,111,000)
Other income........................................................ 345,000 326,000 27,000
------------- ------------- -------------
Loss before income taxes............................................ (5,372,000) (4,398,000) (5,084,000)
Income taxes........................................................ 37,000 38,000 40,000
------------- ------------- -------------
Net loss applicable to common stock-basic and diluted............... $ (5,409,000) $ (4,436,000) $ (5,124,000)
------------- ------------- -------------
------------- ------------- -------------
Net loss per common share-basic and diluted......................... $ (2.01) $ (1.66) $ (1.96)
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding................ 2,687,000 2,665,000 2,613,000
------------- ------------- -------------
------------- ------------- -------------
The accompanying notes are an integral part of these statements.
20
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
UNEARNED
COMMON STOCK ADDITIONAL COMMON STOCK EMPLOYEE
---------------------- PAID-IN ACCUMULATED HELD IN BENEFIT
SHARES AMOUNT CAPITAL DEFICIT TREASURY EXPENSE
----------- -------- ------------ -------------- -------------- --------------
BALANCE, September 1,
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)
----------- -------- ------------ -------------- -------------- --------------
----------- -------- ------------ -------------- -------------- --------------
Net loss.............. (4,436,000)
Employee stock
purchase plan....... 8,400 1,000 38,000
Allocation of ESOP
shares.............. (216,000) 195,000
----------- -------- ------------ -------------- -------------- --------------
BALANCE, August 31,
1997................ 2,674,665 $27,000 $ 27,367,000 $ (6,028,000) $(7,974,000) $ -0-
----------- -------- ------------ -------------- -------------- --------------
----------- -------- ------------ -------------- -------------- --------------
Net loss.............. $ (5,409,000)
Treasury stock issued
to 401(K) Plan...... 35,551 (94,000) 329,000
Translation
Adjustment.......... (17,000)
Employee stock
purchase plan....... 800 -- 2,000
----------- -------- ------------ -------------- -------------- --------------
BALANCE, August 31,
1998................ 2,711,016 $27,000 $ 27,275,000 $ (11,454,000) $(7,645,000) $ -0-
----------- -------- ------------ -------------- -------------- --------------
----------- -------- ------------ -------------- -------------- --------------
The accompanying notes are an integral part of these statements.
21
UNITEL VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31,
--------------------------------------
1998 1997 1996
----------- ------------ -----------
Cash Flows From Operating
Activities:
Net loss.................... $(5,409,000) $ (4,436,000) $(5,124,000)
----------- ------------ -----------
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and
amortization.............. 8,907,000 8,548,000 7,782,000
Net loss (gain) on disposal
of equipment.............. 31,000 (220,000) 58,000
Impairment and restructuring
charge.................... -- 1,080,000 2,000,000
Amortization of deferred
financing costs........... 509,000 153,000 252,000
Deferred rent and other..... (26,000) (204,000) (539,000)
Accrued retirement
expense................... (129,000) (128,000) 163,000
Deferred income taxes....... -- -- 36,000
Changes in operating assets
and liabilities:
Accounts receivable,
net..................... 355,000 3,562,000 3,999,000
Other receivables......... (74,000) 314,000 29,000
Prepaid expenses.......... 66,000 171,000 605,000
Prepaid taxes............. 13,000 67,000 425,000
Other assets.............. (568,000) (63,000) (30,000)
Accounts payable.......... (1,472,000) 1,788,000 (2,372,000)
Accrued expenses.......... 1,058,000 (452,000) (170,000)
Payroll and related
taxes................... (369,000) (909,000) 16,000
----------- ------------ -----------
8,301,000 13,707,000 12,254,000
----------- ------------ -----------
Net cash provided by operating
activities.................. 2,892,000 9,271,000 7,130,000
----------- ------------ -----------
Cash Flows From Investing
Activities:
Capital expenditures........ $(5,163,000) $(12,936,000) $(9,134,000)
Proceeds from disposal of
equipment................. 373,000 3,804,000 1,151,000
----------- ------------ -----------
Net cash used in investing
activities................ (4,790,000) (9,132,000) (7,983,000)
----------- ------------ -----------
Cash Flows From Financing
Activities:
Proceeds from long-term
financing................. 22,115,000 15,976,000 25,717,000
Principal repayments........ (18,165,000) (16,022,000) (24,495,000)
Deferred Financing Costs.... (1,001,000) -- (574,000)
Proceeds from issuance of
common stock.............. 2,000 39,000 223,000
Repayment of loan to ESOP... -- (166,000) (172,000)
Release of ESOP quarterly
shares.................... -- (21,000) 185,000
----------- ------------ -----------
Net cash (used) provided by
financing activities........ 2,951,000 (194,000) 884,000
----------- ------------ -----------
Net Increase(Decrease) In
Cash........................ 1,053,000 (55,000) 31,000
Cash, Beginning of Year....... 137,000 192,000 161,000
----------- ------------ -----------
Cash, End of Year............. $ 1,190,000 $ 137,000 $ 192,000
----------- ------------ -----------
----------- ------------ -----------
Schedule of income taxes and
interest paid:
Income Taxes Paid........... $ 32,000 $ 38,000 $ 85,000
Interest Paid............... 3,670,000 3,685,000 3,374,000
----------- ------------ -----------
$ 3,702,000 $ 3,723,000 $ 3,459,000
----------- ------------ -----------
----------- ------------ -----------
Supplemental schedule of
non-cash investing and
financing activities:
Issuance of treasury
stock..................... $ 235,000
-----------
-----------
Equipment under capital
leases...................... $ 3,045,000
-----------
-----------
The accompanying notes are an integral part of these financial statements.
22
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Business--The Company provides a full range of services to the video and
film communications industry for studio production, videotape editing,
mobile production, computer generated visual effects, film-to-tape transfer
and duplication. The Company's facilities are used to produce television
programs, corporate communications, commercials and feature films. The
Company's mobile division provides "on-location" services for the videotape
recording and live telecasting of sports, cultural and other events
throughout North America. Customers for the Company's services include cable
television program suppliers, independent producers, national television
networks, local television stations, motion picture studios, program
syndicators and distributors and advertising agencies.
(2) Consolidation--The consolidated financial statements include the accounts of
the Company and its two wholly-owned subsidiaries. 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; 15-40
years for building improvements; length of lease for leasehold improvements;
5-7 years for video equipment and 5-7 years for furniture and fixtures.
Accelerated methods are used for tax purposes. Gain or loss on disposal of
equipment is included in depreciation and amortization expense for all years
reported. (See Note I 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, 1998, 1997 and 1996 totaled $483,000,
$345,000 and $207,000, respectively.
(5) Long Lived Assets--The Company reviews for the impairment of long-lived
assets and certain identifiable intangibles (including goodwill and property
and equipment) whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from
the use of the asset and its eventual disposition is less than its carrying
amount.
(6) 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.
(7) Interest Cost--The Company had capitalized construction period interest
costs of $129,000 in 1998 and $211,000 in 1997.
(8) Income Taxes--Deferred income taxes are recognized for temporary differences
between financial statement and income tax bases of assets and liabilities
and loss carryforwards for which income tax benefits are expected to be
realized in future years. A valuation allowance has been established to
offset the deferred tax assets as it is more likely than not at all, or some
portion, of such deferred tax assets will not be realized. The effect on
deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
(9) Receivables--The Company grants credit to customers, substantially all of
whom are in the entertainment, advertising or corporate communications
industries.
23
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(10) Net Loss Per Common Share--In fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share", which supercedes Accounting Principles Board Opinion No. 15.
Pursuant to SFAS No. 128, earnings (loss) per common share is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of shares outstanding during the period. Diluted earnings per
share reflect the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock. For the fiscal years
ended August 31, 1998, 1997 and 1996, there is no difference between basic
and diluted net loss per share or between the basic and diluted net loss per
share as previously reported. Potential common shares from stock options,
warrants and convertible preferred stock are excluded in computing basic and
diluted net loss per share as their effects would be antidilutive.
(11) Revenue Recognition--Revenue is recorded when services are provided.
(12) 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.
(13) 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.
(14) Stock Compensation--The Company measures stock-based awards using the
intrinsic value method. As provided in Note E, proforma disclosure of the
effect on net loss and loss per share has been computed as if the fair
value-based method had been applied in measuring compensation expense.
(15) New Accounting Pronouncements--In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). The Company will implement SFAS 130 and
SFAS 131 in fiscal 1999, which requires the Company to report and display
certain information related to comprehensive income and operating segments,
respectively. Adoption of SFAS 130 and SFAS 131 will not impact the
Company's financial position or results of operations.
(16) Reclassifications--Certain amounts in 1997 have been reclassified to
conform to 1998 presentation.
B. LIQUIDITY
The Company recorded net losses of $5,409,000, $4,436,000 and $5,124,000 in
the fiscal years ended August 31, 1998, 1997 and 1996, respectively, and at
August 31, 1998 had stockholders equity of $8,203,000 and a working capital
deficiency of $8,113,000. The Company has taken the following steps to improve
operations and provide for adequate resources to fund the Company's capital
needs for the next twelve months:
In the third quarter of fiscal 1998 the Company closed its Unitel
Post 57 division, one of its two New York City based post
production facilities. A portion of the equipment,
24
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
B. LIQUIDITY (CONTINUED)
clients and personnel were relocated to Unitel Post 38, the
Company's other New York City based post production facility.
In August 1998, the Company refinanced its owned New York City
real estate generating funds of approximately $4,600,000 after
repayment of the existing first mortgages on such properties,
closing costs and escrows. These funds were used to repay Term
Loan D of the Company's credit facility in the amount of
$1,600,000, with the balance used for working capital purposes.
The holders of subordinated debt of the Company related to the
acquisition of the mobile facilities company GC & Co. by the
Company in 1995, which had been due in August 1998, agreed to a
new payment schedule providing for payments of fifty percent of
the $640,000 in October 1998 and the balance in six equal
installments beginning in November 1998. The October payment and
the November installment have been paid as of November 1998.
Another holder of subordinated debt of the Company agreed to
restructure its note with the Company by postponing the maturity
date from May 1999 to September 1999 and by eliminating principal
payments that had been due for the months of April 1998 through
April 1999, totaling $450,000. The holder also agreed to add
$108,000 of accrued but unpaid interest to the principal balance
payable in September 1999. The new terms require that interest
only be paid on a current basis effective September 1, 1998
through the September 30, 1999 maturity date. Interest for
September, October and November 1998 has been paid as of November
1998.
In addition, the Company recently negotiated amendments to certain covenants
contained in the Company's credit facility with a financial institution,
including revising the tangible net worth covenant, the fixed charge coverage
covenant and the capital expenditure covenant, adding an Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) covenant and deleting
the leverage ratio and interest coverage ratio covenants previously contained in
the agreement, which amendments to the agreement are based in part upon
substantially meeting the Company's fiscal 1999 operating plan. As a result of
these amendments, management is of the opinion that the Company will be in
compliance with the covenants contained in the Company's credit facility.
However, in the event that the Company is not in compliance with the terms of
its credit facility, the Company's ability to operate could be hampered.
C. LONG-TERM DEBT
AUGUST 31,
------------------------
1998 1997
----------- -----------
Notes payable to financial institution:
Term portion A payable in monthly installments of
$100,000 through March 2000 plus interest on the
declining balance at Prime plus 2% and final
payment of $6,000,000 due March 2000............ $ 7,800,000 $ 8,701,000
Term portion D payable from the sale of assets.
Repaid August 1998.............................. -- 1,259,000
25
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
C. LONG-TERM DEBT (CONTINUED)
AUGUST 31,
------------------------
1998 1997
----------- -----------
Revolving portion payable in full in March 2000
with interest payable monthly at Prime plus
2%.............................................. 4,426,000 5,871,000
Mortgage payable to a financial institution at a
fixed interest rate of 7.72%, due in monthly
installments of $25,000 through August 2008..... 3,200,000 --
Mortgage payable to a financial institution, at a
fixed interest rate of 7.72%, due in monthly
installments of $59,000 through August, 2008.... 7,550,000 --
Mortgage payable to a bank. Repaid August, 1998... -- 3,555,000
Mortgage payable to a bank. Repaid August, 1998... -- 1,644,000
Mortgage payable to an insurance company, at a
fixed interest rate of 8.9%, due in monthly
installments of $22,000 through July 2009....... 1,835,000 1,930,000
Note payable to an insurance company, at a fixed
rate of 9.3%, due in monthly installments of
$33,000 through February 2000................... 864,000 1,164,000
Note payable to a financial institution at a fixed
rate of 10.6%, due in monthly installments of
$25,000 through April, 2001..................... 706,000 923,000
Subordinated debt, consisting of $640,000 of
convertible subordinated promissory notes
payable to prior owners of GC & Co. at an
interest rate of Prime plus 1%, one half of
principal outstanding payable in October 1998
and the balance in six equal monthly payments
beginning November 1998 and a subordinated
promissory note payable to Scanline
Communications at an interest rate of Prime plus
2%, due monthly, with a principal payment of
$2,171,000 due September, 1999.................. 2,811,000 2,937,000
Note payable to a financial institution at a fixed
rate of 11.20%, due in monthly installments of
$23,000 through September 2002.................. 906,000 --
Note payable to Commonwealth of Pennsylvania
machinery and equipment loan fund at a fixed
rate of 5.25%, due in monthly installments of
$7,000 through October, 2004.................... 455,000 --
Allegheny County Industrial Development Authority
Variable Rate Demand Revenue Bonds. Interest
payable monthly based on a weekly remarketing
rate, estimated currently at 3.8%. Quarterly
principal payments of $179,000, commencing
December 1998, to be applied to the redemption
of bonds which mature July, 2009................ 5,000,000 5,008,000
Allegheny County Industrial Development Authority
Variable Rate Demand Revenue Bonds. Interest
payable monthly based on a weekly remarketing
rate, estimated currently at 3.8%. Quarterly
principal payments of $125,000, commencing
February, 1999, to be applied to the redemption
of bonds which mature July, 2009................ 3,500,000 --
----------- -----------
39,053,000 32,992,000
26
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
C. LONG-TERM DEBT (CONTINUED)
AUGUST 31,
------------------------
1998 1997
----------- -----------
Less current maturities........................... 4,203,000 4,697,000
----------- -----------
$34,850,000 $28,295,000
----------- -----------
----------- -----------
In December 1995, the Company entered into a $26 million revolving credit
and term loan agreement (the "credit facility") 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 equal monthly principal installments of $100,000 plus
interest, with the balance of $6,000,000 due March 2000. 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. The Company refinanced its New York owned real estate in
August 1998 and used a portion of the proceeds of the refinancing to repay Term
Loan D and other indebtedness and the balance of the proceeds for working
capital purposes.
In July 1997 the credit facility was further amended by the issuance of a
$5,080,000 letter of credit to secure payment of principal and interest on
$5,000,000 in 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 to build a new digital mobile teleproduction unit. The letter of
credit requires quarterly principal payments of $179,000 commencing December
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 redeemed in full as
described in the prior sentence, are required to be repaid by the Company on
that date. In December 1997, a second series of Bonds was issued, in an amount
of $3,500,000. The proceeds of the second series of Bonds were used to finance a
second digital mobile unit. Quarterly principal payments of $125,000 will begin
in February 1999 and these bonds also mature on July 1, 2009. The terms of the
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.
The terms of the 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. The Company has at certain
times not been in compliance with certain financial covenants contained in
certain of its loan documents and the lenders have waived such non-compliance
and have revised such financial covenants to a level such that it is expected
that the Company will be in compliance with such covenants on a going forward
basis.
In August, 1998, the Company refinanced its owned New York City real estate
facilities located at 515 West 57(th) Street and 433 West 53(rd) Street for a
total of $10,750,000. The proceeds of the refinancing were used to repay the
existing first mortgages, closing expenses and required reserves and escrow
deposits and repayment of Term Loan D as described above, with the balance used
for working capital purposes. The new mortgages, in the amount of $7,550,000 and
$3,200,000, respectively, bear interest at 7.72%, on a
27
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
C. LONG-TERM DEBT (CONTINUED)
22 year amortization schedule, with a term of 10 years maturing August, 2008 and
require monthly payments of $59,000 and $25,000 to be applied to interest and
principal, respectively. In connection with these mortgages the Company
established a liquidity reserve of $500,000 and is required to increase the
reserve by approximately $95,000 per annum, payable monthly.
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 promissory notes bear interest
at 1% over prime and are convertible into the Company's common stock at $10.00
per share. At August 31, 1998, $640,000 of the convertible notes were
outstanding. In October 1998, one half of this amount was repaid and noteholders
of $320,000 principal outstanding agreed to repayment of the balance then due in
six equal monthly installments beginning November 1998.
Property, equipment and accounts receivable with a carrying value of
$55,725,000 at August 31, 1998 are pledged as collateral for all long-term debt
outstanding.
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, 1998, maturities of long-term debt for the next five years are
as follows:
YEAR ENDED
AUGUST 31,
- ------------
1999............................................................................... $ 4,203,000
2000............................................................................... 15,806,000
2001............................................................................... 2,054,000
2002............................................................................... 1,919,000
2003............................................................................... 1,748,000
2004 and thereafter................................................................ 13,323,000
-------------
$ 39,053,000
-------------
-------------
D. OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS
The Company has entered into various capital lease agreements for video
equipment. The leases expire at various times through 2003.
Property recorded under capital leases includes the following:
AUGUST 31,
------------------------
1998 1997
----------- -----------
Video equipment............... $13,358,000 $10,312,000
Accumulated depreciation...... (6,477,000) (4,539,000)
----------- -----------
$ 6,881,000 $ 5,773,000
----------- -----------
----------- -----------
28
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
D. OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS (CONTINUED)
Future minimum lease payments, as of August 31, 1998 are as follows:
YEAR ENDED CAPITAL
AUGUST 31, LEASES
- ------------ ------------
1999................................................................................................ $ 2,572,000
2000................................................................................................ 2,914,000
2001................................................................................................ 793,000
2002................................................................................................ 758,000
2003................................................................................................ 541,000
------------
Net minimum lease payments.......................................................................... 7,578,000
Amount representing interest........................................................................ 1,033,000
------------
Obligation under capital lease agreements........................................................... $ 6,545,000
------------
------------
Current portion..................................................................................... $ 2,077,000
Long-term portion................................................................................... 4,468,000
------------
$ 6,545,000
------------
------------
E. 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 options to purchase up to
50,000 shares of the Company's Common Stock to the Company's non-employee
directors. Under the Non-Statutory Plan options to purchase 10,000 shares were
outstanding at August 31, 1998.
In July 1988 the Company's Board of Directors approved a Non-Qualified Stock
Option Plan (the "Non-Qualified Plan") to grant options to purchase up to
125,000 shares of the Company's Common Stock primarily to key employees. Options
to purchase 10,000 shares granted to several officers under the Non-Qualified
Plan were outstanding at August 31, 1998.
In July 1992 the Company's shareholders approved the adoption of the 1992
Stock Option Plan (the "1992 Plan") to grant options to purchase up to 350,000
shares of the Company's Common Stock primarily to key employees and non-employee
directors. Prior to July 1992, the Company granted options under the plans
described above. All future stock option grants will be made under the 1992
Plan. Options to purchase 227,500 shares were outstanding to key employees and
non-employee directors under the 1992 Plan at August 31, 1998.
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. Options expire ten years after the date of grant.
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." Accordingly, no compensation cost has
been recognized for the stock options granted to employees and directors. Had
compensation cost been determined based on the fair value at the grant date for
stock option awards in fiscal 1996,1997 and 1998, consistent with the provisions
of SFAS No. 123 the Company's net loss and loss per share for the years ended
August 31, 1996, 1997 and 1998
29
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
E. STOCK OPTION PLANS (CONTINUED)
would have been increased by approximately $427,570, $69,230 and $17,746 or
($.16), ($.03) and $(.01) per share, respectively. The weighted average fair
value at date of grant for options granted during 1996, 1997 and 1998 was $3.73,
$4.07 and $4.03 per option, respectively. The fair value of each option at date
of grant was estimated using the Black--Scholes option pricing model with the
following weighted average assumptions for grants in:
1996 1997 1998
----- ----- -----
Expected stock price volatility.......................................... 50% 45% 50%
Expected lives of options................................................ 10 10 10
Risk-free interest rate.................................................. 6.9% 6.9% 6.9%
Expected dividend yield.................................................. 0% 0% 0%
The following table summarizes option activity for the years ended August
31, 1996, 1997 and 1998:
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE EXERCISE
SHARES PER SHARE PRICE
----------- --------------- --------------
Options Outstanding, September 1, 1995............................ 225,700 $ 5.75--$13.18 $8.05
Granted........................................................... 111,500 $ 5.13--$5.28 $5.25
Exercised......................................................... (30,000) $ 5.75--$5.87 $5.81
Expired and canceled.............................................. (91,700) $ 5.75--$10.81 $9.15
-----------
Options Outstanding, August 31, 1996.............................. 215,500 $ 5.13--$13.18 $6.27
Granted........................................................... 25,000 $ 5.28--$6.13 $5.79
Expired and canceled.............................................. (5,000) $5.25 $5.25
-----------
Options Outstanding, August 31, 1997.............................. 235,500 $ 5.13--$13.18 $6.40
Granted........................................................... 22,000 $ 4.75--$6.25 $5.87
Expired and canceled.............................................. (10,000) $5.25 $5.25
-----------
Options Outstanding, August 31, 1998.............................. 247,500 $ 4.75--$13.18 $6.40
-----------
-----------
At August 31, 1998, a total of 277,500 shares were reserved for future
option grants for all plans and options to purchase 247,500 shares were
outstanding.
The following table summarizes information about stock options outstanding
as of August 31, 1998:
OPTIONS OUTSTANDING
------------------------------ OPTIONS EXERCISABLE
WEIGHTED AVERAGE --------------------------------
REMAINING NUMBER WEIGHTED
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE AUGUST 31, 1998 EXERCISE PRICE
- -------------------- ----------- ---------------- ---------------- --------------- --------------
$4.75--$7.13........ 176,500 8 years $ 5.57 105,600 $ 5.58
$7.25--$10.88....... 69,000 5 years $ 8.32 66,000 $ 8.37
$13.18 2,000 5 years $13.18 2,000 $13.18
30
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
F. 401(k) EMPLOYEE SAVINGS AND STOCK OWNERSHIP 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:
1998.............................................................. $ 231,000
1997.............................................................. $ 223,000
1996.............................................................. $ 248,000
The Plan's compensation expense was $121,000 and $167,000 for the years
ended August 31, 1998 and 1997, respectively. A summary of the Plan's shares is
as follows:
YEAR ENDED
AUGUST 31,
--------------------
1998 1997
--------- ---------
Allocated shares.................................................... 113,174 116,881
Shares released for allocation...................................... -0- 6,807
--------- ---------
113,174 123,688
--------- ---------
31
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
G. 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:
YEAR ENDED
AUGUST 31,
----------------------------
1998 1997
------------- -------------
Current portion of deferred tax assets
Employee medical benefits....................................................... $ 141,000 $ 231,000
Bad debt reserve................................................................ 171,000 264,000
------------- -------------
312,000 495,000
------------- -------------
Long-term portion of deferred tax assets (liabilities)
Accrued retirement.............................................................. 449,000 504,000
Net operating loss carryforwards................................................ 6,333,000 3,242,000
ITC carryforwards-Federal and State (net of ITC valuation allowance)............ 467,000 467,000
AMT credit carryforwards........................................................ 3,400,000 2,540,000
Other--net...................................................................... 548,000 228,000
Fixed assets basis difference between book and tax.............................. (767,000) (1,166,000)
------------- -------------
10,430,000 5,815,000
Valuation Allowance............................................................. (8,273,000) (3,841,000)
------------- -------------
2,157,000 1,974,000
------------- -------------
Net deferred tax asset.......................................................... $ 2,469,000 $ 2,469,000
------------- -------------
------------- -------------
The provision for income taxes is comprised of the following:
YEAR ENDED AUGUST 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
Current:
Federal...................................................... $ -0- $ -0- $ -0-
State........................................................ 37,000 38,000 40,000
--------- --------- ---------
37,000 38,000 40,000
Deferred:
Federal...................................................... -0- -0- -0-
State........................................................ -0- -0- -0-
--------- --------- ---------
-0- -0- -0-
--------- --------- ---------
$ 37,000 $ 38,000 $ 40,000
--------- --------- ---------
--------- --------- ---------
32
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
G. INCOME TAXES (CONTINUED)
The Company's effective tax rate was (1%) in 1998, 1997 and 1996,
respectively. 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,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
Tax expense (benefit) computed at statutory rate..................... $ (1,826,000) $ (1,495,000) $ (1,729,000)
State income tax, net of Federal income tax benefit.................. 24,000 25,000 26,000
Loss without benefit................................................. 1,751,000 1,410,000 1,634,000
Goodwill............................................................. 47,000 47,000 47,000
Other................................................................ 41,000 51,000 62,000
------------- ------------- -------------
Actual tax expense................................................... $ 37,000 $ 38,000 $ 40,000
------------- ------------- -------------
------------- ------------- -------------
The Company's total alternative minimum tax credit carryforward is
approximately $3,400,000, which can be used against the Company's future regular
tax liability.
The Company has net operating loss carryforwards as of August 31, 1998 of
$14,700,000 which will expire at various times throughout 2018. 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.
H. 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:
FISCAL YEAR ENDED AMOUNT
- ------------------ -------------
1999........................................................................... $ 3,430,000
2000........................................................................... 4,609,000
2001........................................................................... 2,005,000
2002........................................................................... 1,264,000
2003 and thereafter............................................................ 500,000
-------------
$ 11,808,000
-------------
-------------
The aggregate rental expense for the years ended August 31, 1998, 1997, and
1996 was $3,683,000, $3,385,000 and $3,874,000, respectively.
The Company maintains cash balances at financial institutions located in New
York, New York, Pittsburgh, Pennsylvania, Los Angeles, California and Montreal,
Canada. These balances are insured by the Federal Deposit Insurance Corporation
up to $100,000 in the United States and by the Canada Deposit Insurance
Corporation up to $60,000 (Canadian) in Canada. At August 31, 1998, uninsured
amounts held at these financial institutions were approximately $110,000 (USD).
33
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
H. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has contractual obligations with several employees in respect of
salary, bonus and severance compensation.
The Company has a contract with a union that expires on November 30, 1998.
The Company and the union are negotiating a new contract.
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 adverse effect on the Company's financial
statements.
I. NET GAIN ON DISPOSITION OF EQUIPMENT
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 1998, 1997 and 1996, $(31,000), $220,000 and $(58,000),
respectively, of (loss) gain on disposal of assets was included in depreciation
expense.
J. ACCRUED RETIREMENT
Under the terms of employment agreements with two former officers of the
Company, retirement payments commenced September 1, 1996. At August 31, 1998, a
liability of approximately $1,047,000 has been recorded, based upon the present
value of these payments. Approximately $55,000, $55,000 and $163,000 has been
charged to operations for the years ended August 31, 1998, 1997 and 1996,
respectively.
K. IMPAIRMENT AND RESTRUCTURING CHARGES
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
specialized in the highly competitive commercial advertising portion of the
video facilities industry.
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.
In February 1996, the Company announced the closure of its Editel Chicago
division and subsequently distributed the majority of that division's assets
throughout the Company with the balance of the Editel Chicago division assets
sold in an auction. In March 1996, the Company terminated the office lease for
its Editel Chicago division and recorded a restructuring charge of $1,246,000 in
the quarter ended May 31, 1996. During 1996, the Company's Editel New York
division was closed and a majority of the editorial and computer graphics assets
were distributed throughout the Company. In November 1996, the Company sold the
majority of the remaining assets to an unrelated third party for $1,400,000. The
balance of the assets were disposed of through an auction. Proceeds from the
sale of assets were used by the Company to repay outstanding debt. In May 1996,
after reevaluating the potential of the Editel Los Angeles division, the
34
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
K. IMPAIRMENT AND RESTRUCTURING CHARGES (CONTINUED)
Company decided to retain and expand this division and, accordingly,
discontinued seeking a buyer for this business.
In June 1997 the Company merged its Unitel Hollywood and Editel Los Angeles
divisions. 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 operation
for future use. The balance of the equipment was sold and the proceeds in the
amount of $1,700,000 were used to repay long term debt. As a result of the
merger and sale, the company recorded a restructuring charge of $1,055,000 in
the fourth quarter of 1997.
Additionally, after a reassessment of the Company's New York post production
assets, the Company recorded an impairment charge of $300,000 in the fourth
quarter of 1997. Throughout fiscal year 1998, the Company continued to evaluate
its investment in its two New York based post production facilities, Unitel Post
57 and Unitel Post 38. In the third quarter of fiscal 1998, the Company closed
its Unitel Post 57 facility and relocated a portion of the Unitel Post 57 client
base, equipment and key personnel to Unitel Post 38. Additionally, the space
formerly used by the Unitel Post 57 facility was repurposed into studio support
space to accommodate a new multi year contract with King World for the
production of the "Inside Edition" television show. The Company had previously
provided facilities for King World in another location, the lease for which
expired in June 1998.
L. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 1997, the Company recorded certain
adjustments which resulted in restructuring ($1,055,000) and impairment
($300,000) charges being recorded in the amount of $1,355,000. $1,055,000 of
these adjustments or $.39 per share, related to previously issued quarterly data
for the third quarter of 1997--See Note M to Consolidated Financial Statements.
35
UNITEL VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1998, 1997 AND 1996
M. QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED PRIMARY NET
AUGUST 31, GROSS NET EARNINGS(LOSS)
1998 SALES PROFIT EARNINGS(LOSS) PER SHARE
- --------------------- --------------------- --------------------- --------------------- ---------------------
1(st) quarter $ 13,768,000 $ 2,338,000 $ (456,000) $ (.17)
2(nd) quarter 12,429,000 1,455,000 (1,308,000) (.49)
3(rd) quarter 13,957,000 2,636,000 (677,000) (.25)
4(th) quarter 11,545,000 563,000 (2,968,000) (1.10)
YEAR ENDED PRIMARY NET
AUGUST 31, GROSS NET EARNINGS LOSS
1997 SALES PROFIT EARNINGS(LOSS) PER SHARE
- --------------------- --------------------- --------------------- --------------------- ---------------------
1(st) quarter $ 16,370,000 $ 3,603,000 $ 935,000 $ .35
2(nd) quarter 15,000,000 2,514,000 (572,000) (.21)
3(rd) quarter 15,840,000 2,746,000 (1,579,000) (.59)
4(th) quarter 11,557,000 196,000 (3,220,000) (1.21)
YEAR ENDED PRIMARY NET
AUGUST 31, GROSS NET EARNINGS LOSS
1996 SALES PROFIT EARNINGS(LOSS) PER SHARE
- --------------------- --------------------- --------------------- --------------------- -----------------------
1(st) quarter $ 22,940,000 $ 5,805,000 $ 522,000 $ .20
2(nd) quarter 20,529,000 3,171,000 (1,379,000) (.53)
3(rd) quarter 19,281,000 3,166,000 (2,290,000) (.88)
4(th) quarter 16,537,000 1,644,000 (1,977,000) (.75)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
NAME AGE TITLE
- ----------------------------------------------------- --- -----------------------------------------------------
Barry Knepper........................................ 48 President, Chief Executive Officer and Director
Richard L. Clouser................................... 58 Senior Vice President--Corporate, President of the
Mobile Division and Director
Karen Ceil Lapidus................................... 41 Vice President, General Counsel and Secretary
Edwin Levine......................................... 59 President of the Unitel New York Studios Division
Albert Walton........................................ 53 President of the Editel Los Angeles Division
Tom Eyring........................................... 46 Chief Technology Officer
Neil Marcus.......................................... 56 Chief Financial Officer
Michael Granowsky.................................... 32 President of the Unitel New York Post Production
Division
Herbert Bass......................................... 69 Director
Alex Geisler......................................... 75 Director
Philip S. Birsh...................................... 40 Director
Walter G. Arader..................................... 78 Director
There are no family relationships among any of the persons listed above.
Mr. Knepper has been President and Chief Executive Officer of the Company
since April 1996, a Director of the Company since May 1995 and its Treasurer
since 1983. He has served as Senior Vice President-Finance and Administration
from May 1995 to April 1996 and as Chief Financial Officer from January 1982 to
April 1996.
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
January 1994 and a Vice President since April 1996. From 1984 until joining the
Company, Ms. Lapidus was an associate attorney at Mudge Rose Guthrie Alexander &
Ferdon, a New York law firm.
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 New York Studios division since
August 1996. From June 1975 to August 1996 he was Vice President of Technical
Operations for the Unitel New York division of the Company.
Mr. Marcus has been Chief Financial Officer of the Company since May 1998
and a financial consultant to the Company from August 1997 to April 1998. From
1973 until joining the Company, Mr. Marcus served as Chief Financial Officer of
Kavanau Real Estate Trust, a publicly traded company, and Sanford Nalitt and
Associated Companies, a Staten Island real estate developer.
37
Mr. Granowsky has been President of the Unitel New York Post Production
Division since July 1998. From October 1994 Mr. Granowsky was General Manager of
the Unitel Post 38 division of the Company. From April 1992 until October 1994
he held other operational positions at such division.
Messrs. Bass and Geisler have served as Directors of the Company since its
founding in 1969. Mr. Bass served as President of the Company and Mr. Geisler as
Executive Vice President of the Company from 1969 until 1989, when they became
Co-Chairmen and Co-Chief Executive Officers. In August 1993, they relinquished
their duties as Co-Chief Executive Officers and, from that date through August
1996 they each served as consultants to the Company. Messrs. Bass and Geisler
have been private investors since September 1996.
Mr. Arader has been a Director of the Company since March 1981 and has been
Chairman and Chief Executive Officer of Walter G. Arader & Associates, a
financial and management consulting firm, since January 1993. For more than five
years prior thereto, Mr. Arader was Chairman and Chief Executive Officer of the
financial and management consulting firm of Arader, Herzig & Associates, Inc.
Mr. Arader is a former Commissioner of the Pennsylvania Securities Commission
and a former Secretary of Commerce of the Commonwealth of Pennsylvania. Mr.
Arader is a Director of HMG/Courtland, Inc.
Mr. Birsh has been a Director of the Company since April 1992 and Publisher
of Playbill Incorporated, which publishes "Playbill" Magazine, and President and
Publisher of Racing Today Publishing Inc., which publishes a variety of racing
magazines, since March 1992. In January 1992, Mr. Birsh became President of AJP
Realty Corp., a real estate investment company. From May 1989 to February 1992,
Mr. Birsh was Senior Vice President and Director of the private business group
of Kidder Peabody & Co. Incorporated, and for the nine years prior to May 1989,
Mr. Birsh was with Drexel Burnham Lambert Incorporated. At his departure in
1989, Mr. Birsh was a vice president in the mergers and acquisitions department.
The Company's Board of Directors presently consists of six Directors divided
into three classes. Walter G. Arader and Philip S. Birsh serve as Class I
Directors, Barry Knepper and Richard Clouser serve as Class II Directors and
Herbert Bass and Alex Geisler serve as Class III Directors. The term of office
of Class I Directors continues until the Company's 2001 Annual Meeting of
Stockholders, the term of office of Class II Directors continues until the
Company's 1999 Annual Meeting of Stockholders and the term of office of Class
III Directors continues until the Company's 2000 Annual Meeting of Stockholders.
Each officer of the Company serves, at the pleasure of the Board of
Directors, for a term of one year and until his successor is elected and
qualified.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Michael Granowsky, President of the Company's Unitel New York Post
Production division, filed late his Initial Statement of Beneficial Ownership on
Form 3. In addition, Walter Arader, Philip Birsh and Herbert Bass, Directors of
the Company, and Neil Marcus, Chief Financial Officer of the Company, filed late
their Annual Statement of Changes in Beneficial Ownership on Form 5.
38
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
compensation with respect to each person who served as the Company's Chief
Executive Officer during the fiscal year ended August 31, 1998 and each of the
Company's four other most highly compensated executive officers:
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------- SECURITIES
NAME AND BONUS UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY $ (1) $ OPTIONS(#) COMPENSATION $
- ---------------------------------------- ---- -------- ------- ------------ --------------
Barry Knepper........................... 1998 $204,115 $ 870(2)
President and 1997 $183,365 $1,568
Chief Executive Officer 1996 $159,413 25,000 $1,389
Richard Clouser......................... 1998 $210,809 $ 870(2)
Senior Vice President 1997 $206,654 $1,568
Corporate and 1996 $191,083 $73,405 12,500 $1,389
President, Mobile Division
Edwin Levine............................ 1998 $133,039 $ 870(2)
President of the Unitel 1997 $124,999 $17,250 $1,568
New York Studios Division (3) 1996 $121,432 $17,250 5,000 $1,389
Albert Walton........................... 1998 $190,000 $ 870(2)
President, Editel- 1997 $207,231(3) $40,000 $1,568
Los Angeles Division 1996 $152,454 10,000 $ 141
Thomas Eyring........................... 1998 $162,878 $10,000 $ 870(2)
Chief Technology Officer 1997 $162,254 $1,568
1996 $157,587 $ 8,100 7,500 $ 776
- ------------------------
(1) Bonus compensation is shown for the fiscal year in which earned.
(2) Includes the value, as at August 31, 1998, of shares of the Company's Common
Stock allocated to such executive officer under the Company's 401(k)
Employee Savings and Stock Ownership Plan (the "Savings Plan") during the
fiscal year ended August 31, 1998.
(3) Includes $24,957 in respect of salary earned in fiscal 1996 and paid in
fiscal 1997.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
During fiscal 1998, Mr. Albert Walton was a party to an employment agreement
with the Company pursuant to which he served as President of the Editel Los
Angeles division of the Company. Under the agreement, the term of which ended on
August 31, 1998, Mr. Walton received a base salary at the rate of $190,000 per
annum. In addition, Mr. Walton received bonus compensation during the term of
the agreement equal to 5% of the pre-tax net income of the Editel Los Angeles
division for the Company's 1997 and 1998 fiscal years and a one time $40,000
bonus payment. Under the agreement, Mr. Walton was provided with an automobile
and related expense allowance.
Commencing September 1, 1997, Mr. Barry Knepper has an employment agreement
with the Company pursuant to which he serves as President and Chief Executive
Officer of the Company. Under
39
the agreement, the term of which is one year with automatic one-year renewals
unless either party gives 90 days notice of termination, Mr. Knepper receives a
base salary at the rate of $200,000 per annum with a consumer price index
increase each May 1(st) (a minimum of 5%) during the term. In addition, Mr.
Knepper is entitled to receive bonus compensation for all fiscal years of the
Company during the term of the agreement equal to 2 1/2% of consolidated pretax
profits of the Company. Under the Agreement Mr. Knepper is also provided with an
automobile and related expense allowance. In the event of a change in control
(as defined in the agreement) of the Company and the termination of Mr.
Knepper's employment in certain circumstances, under the agreement the Company
will pay to Mr. Knepper severance in an amount equal to the greater of one
year's base salary and the remaining base salary for the employment term plus a
pro-rata portion of the current year's bonus amount.
The Company has entered into severance agreements with Messrs. Clouser,
Eyring, Walton and Levine through December 31, 1998 which automatically renew on
such date and on every one-year anniversary thereafter unless terminated by the
Company. In the event of a change of control (as defined in such agreements) of
the Company and the termination of the officer's employment in certain
circumstances, the Company will pay to such officer severance in an amount equal
to one-half of his annual base salary.
STOCK OPTIONS
The Company currently grants stock options to employees and directors under
the Company's 1992 Stock Option Plan (the "1992 Plan"). During the fiscal year
ended August 31, 1998, no stock options were granted to or exercised by any of
the executive officers named in the Summary Compensation Table. The following
table sets forth certain information with respect to the number and value of
unexercised options held by such officers as of August 31, 1998.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND
FISCAL 1998 YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES ACQUIRED AT FY-END(#) AT FY-END($)
ON EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ------------------- ------------------- --------------- ---------------
Barry Knepper.................................... -- -- 45,000/12,000 --/--
Richard Clouser.................................. -- -- 37,500/ 5,000 --/--
Edwin Levine..................................... -- -- 3,000/ 2,000 --/--
Albert Walton.................................... -- -- 6,000/ 4,000 --/--
Thomas Eyring.................................... -- -- 5,000/ 2,500 --/--
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $2,500 each fiscal
quarter and $1,000 for each Board of Directors' meeting and each committee
meeting attended. Pursuant to the terms of the 1992 Plan, each director of the
Company who is not an employee of the Company or any subsidiary of the Company
is automatically granted an option to purchase 3,000 shares of the Company's
Common Stock on May 1 of each year during the term of the 1992 Plan. During
fiscal 1998, Messrs. Arader, Birsh, Bass and Geisler were granted an option
under the 1992 Plan to purchase 3,000 shares of the Company's Common Stock at an
exercise price of $6.25, the fair market value per share of Common Stock of the
Company on the date of grant.
40
ITEM 12. SHARE OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The following table sets forth information on November 11, 1998 (except as
indicated below) with respect to each person (including any "group" as that term
is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), who is known by the Company to be the beneficial owner or
more than 5% of the Company's Common Stock. Unless otherwise indicated, each
beneficial owner named below has sole voting and dispositive power with respect
to the shares of Common Stock indicated as beneficially owned by such owner.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------------------------------------- -------------------- ---------------
Herbert Bass................................................................... 184,379(1) 6.8%
146 Waters Edge
Admiral's Cove
Jupiter, Florida 33477
Alex Geisler................................................................... 215,353(2) 7.9%
131 Regatta Drive
Admiral's Cove
Jupiter, Florida 33477
Dimensional Fund Advisors Inc. ................................................ 176,500(3) 6.5%
1299 Ocean Avenue
Santa Monica, California 90401
Investment Counselors of Maryland.............................................. 175,000(4) 6.4%
803 Cathedral Street
Baltimore, Maryland 21201
Metro Networks, Inc. .......................................................... 165,360(5) 6.1%
2800 Post Oak Boulevard
Suite 4000
Houston, Texas 77056
- ------------------------
(1) Includes 11,000 shares subject to presently exercisable stock options.
(2) Includes 11,000 shares subject to presently exercisable stock options,
57,193 shares held by Jean Z. Geisler (Mr. Geisler's wife) as trustee for
the benefit of the Geisler's children and 67,234 shares held by Mrs.
Geisler, with respect to all of which shares Mr. Geisler has sole voting and
dispositive power. Mr. and Mrs. Geisler disclaim beneficial ownership as to
the 57,193 shares held by Mrs. Geisler as trustee.
(3) Pursuant to a Schedule 13G, dated February 9, 1998, filed by Dimensional
Fund Advisors Inc. ("DFA") with the Securities and Exchange Commission (the
"SEC"), DFA has indicated that all shares listed in the table above opposite
its name are owned by advisory clients of DFA, no one of which, to DFA's
knowledge, owns more than 5% of the Company's Common Stock. DFA has
indicated that it has sole dispositive power with respect to all such shares
of Common Stock, that it has sole voting power with respect to 123,100 of
such shares and that certain of its officers, who also serve as officers of
DFA Investment Dimensions Group Inc. (the "Fund") and The DFA Investment
Trust Company (the "Trust"), each an open-end management investment company
registered under the Investment Company Act of 1940, vote 23,200 additional
shares of the Company's Common Stock
41
which are owned by the Fund and 30,200 shares of the Company's Common Stock
which are owned by the Trust.
(4) Pursuant to a Schedule 13G, dated March 19, 1998, filed by Investment
Counselors of Maryland Inc., an investment advisor registered under the
Investment Advisor's Act of 1940 ("ICM"), with the SEC, ICM has indicated
that all of the shares listed in the table above opposite its name are owned
by advisory clients of ICM, no one of which, to ICM's knowledge, owns more
than 5% of the Company's Common Stock. ICM has indicated that it has sole
dispositive power with respect to all of such shares and sole voting power
as to 130,000 of such shares of Common Stock.
(5) Pursuant to a Schedule 13D, dated January 29, 1998, filed by Metro Networks,
Inc. ("Metro Networks") with the SEC, Metro Networks indicated that it has
sole dispositive power and sole voting power with respect to all of the
shares listed in the table above opposite its name.
The following table sets forth information at November 16, 1998 with respect
to the beneficial ownership of the Company's Common Stock by (a) each director
(b) each executive officer named in the Summary Compensation Table under the
caption "EXECUTIVE COMPENSATION" and (c) all directors and executive officers of
the Company as a group (12 persons). Unless otherwise indicated, each person
named below and each person in the group named below has sole voting and
dispositive power with respect to the shares of the Company's Common Stock
indicated as beneficially owned by such person or group.
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------------------------------------------- -------------------- ---------
Herbert Bass...................................... 184,379(1) 6.8%
Alex Geisler...................................... 215,353(2) 7.9%
Walter G. Arader.................................. 31,000(3) 1.0%
Philip S. Birsh................................... 20,400(4) *
Barry Knepper..................................... 69,768(5) 2.5%
Richard Clouser................................... 44,840(6) 1.6%
Edwin Levine...................................... 14,232(7) *
Thomas Eyring..................................... 9,194(8) *
Albert Walton..................................... 10,082(9) *
All directors and executive officers as a group
(12 persons).................................... 617,882(10) 21.3%
- ------------------------
* Less than one percent.
(1) See footnote (1) above to the first table under the caption "Share Ownership
of Certain Beneficial Owners and Management" for information as to the
beneficial ownership by Mr. Bass of the Company's Common Stock.
(2) See footnote (2) above to the first table under the caption "Share Ownership
of Certain Beneficial Owners and Management" for information as to the
beneficial ownership by Mr. Geisler of the Company's Common Stock.
(3) Includes 23,000 shares issuable to Mr. Arader pursuant to presently
exercisable stock options.
(4) Includes 13,000 shares issuable to Mr. Birsh pursuant to presently
exercisable stock options.
(5) Includes 45,000 shares issuable to Mr. Knepper pursuant to presently
exercisable stock options, 4,868 shares allocated to Mr. Knepper and held in
his account under the Savings Plan and 2,100 shares held by Mr. Knepper in
an Individual Retirement Account.
(6) Includes 37,500 shares issuable to Mr. Clouser pursuant to presently
exercisable stock options, 2,146 shares allocated to Mr. Clouser and held in
his account under the Savings Plan and 3,600 shares purchasable by Mr.
Clouser under the Company's Employee Stock Purchase Plan (the "Purchase
42
Plan"). Also includes 1,594 shares allocated to Mr. Clouser's wife and held
in her account under the Savings Plan.
(7) Includes 3,000 shares issuable to Mr. Levine pursuant to presently
exercisable stock options, 3,632 shares allocated to Mr. Levine and held in
his account under the Savings Plan and 3,600 shares purchasable by Mr.
Levine under the Purchase Plan.
(8) Includes 5,000 shares issuable to Mr. Eyring pursuant to presently
exercisable stock options, 594 shares allocated to Mr. Eyring and held in
his account under the Savings Plan and 3,600 shares purchasable by Mr.
Eyring under the Purchase Plan.
(9) Includes 6,000 shares issuable to Mr. Walton pursuant to presently
exercisable stock options, 482 shares allocated to Mr. Walton and held in
his account under the Savings Plan and 3,600 shares purchasable by Mr.
Walton under the Purchase Plan.
(10) Includes 163,500 shares issuable to executive officers and directors of the
Company pursuant to presently exercisable stock options and 21,600 shares
purchasable by executive officers of the Company under the Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company is a party to an agreement (each, an "Agreement") with each of
Messrs. Herbert Bass and Alex Geisler, Directors and former Co-Chairmen and
Co-Chief Executive Officers of the Company. Under the Agreements, Messrs. Bass
and Geisler served as consultants to the Company through August 31, 1996.
Beginning September 1, 1996, Mr. Bass and Mr. Geisler are each entitled to
receive retirement benefits for the rest of his life at an annual rate of
$92,061 per annum. These retirement benefits are payable for a minimum of 10
years and will be paid to the person's estate in the event of his death prior to
August 31, 2006. They are also entitled to receive non-competition payments of
$50,000 per annum for the 10 years following the terms of the Agreements.
During fiscal 1998, Ms. Susan Devlin, wife of Richard Clouser, Senior Vice
President--Corporate and President of the Company's Mobile division, was a party
to an employment agreement with the Company pursuant to which she served as Vice
President-General Manager of the Company's Mobile division. In fiscal 1998, Ms.
Devlin received compensation of $196,593 under such agreement and was provided
with an automobile. Ms. Devlin's employment with the Company terminated in
August 1998.
43
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, 1998 and 1997..................................................... 19
Consolidated Statements of Operations--Years Ended August 31, 1998, 1997, and 1996........................ 20
Consolidated Statement of Stockholders' Equity--Years
Ended August 31, 1998, 1997 and 1996.................................................................... 21
Consolidated Statements of Cash Flows--Years Ended August 31, 1998, 1997 and 1996......................... 22
Notes to Consolidated Financial Statements................................................................ 23-36
2. The following schedule is included in Part IV:
Consolidated Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Reserves.......................... 50
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, 1998.
(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)).
5. Exhibit 4(C). First Amendment and Limited Waiver to Loan and Security
Agreement dated November 26, 1996 (incorporated by reference to Exhibit 4(C) of
the Registrant's Annual Report on Form 10-K filed December 15, 1997 (File No.
1-8654)).
6. Exhibit 4(D). Second Amendment to Loan and Security Agreement and Limited
Waiver dated as of February 24, 1997 (incorporated by reference to Exhibit 4(A)
of the Registrant's Quarterly Report on Form 10-Q filed July 9, 1997 (File No.
1-8654)).
7. Exhibit 4(E). Third Amendment and Limited Waiver to Amended and Restated
Loan and Security Agreement dated as of March 21, 1997 (incorporated by
reference to Exhibit 4(B) of the Registrant's Quarterly Report on Form 10-Q
filed July 9, 1997 (File No. 1-8654)).
8. Exhibit 4(F). Fourth Amendment to Amended and Restated Loan and Security
Agreement dated as of May 7, 1997 (incorporated by reference to Exhibit 4(C) of
the Registrant's Quarterly Report on Form 10-Q filed July 9, 1997 (File No.
1-8654)).
44
9. Exhibit 4(G). Fifth Amendment to Amended and Restated Loan and Security
Agreement dated as of July 24, 1997 (incorporated by reference to Exhibit 4(G)
of the Registrant's Annual Report on Form 10-K filed December 15, 1997 (File No.
1-8654)).
10. Exhibit 4(H). Reimbursement Agreement dated as of July 1, 1997 between
Unitel Video, Inc. and Heller Financial, Inc., as agent (incorporated by
reference to Exhibit 4(H) of the Registrant's Annual Report on Form 10-K filed
December 15, 1997 (File No. 1-8654)).
11. Exhibit 4(I). Waiver to Loan and Security Agreement dated April 12, 1996
(incorporated by reference to Exhibit 4(D) of the Registrant's Annual Report on
Form 10-K filed November 27, 1996 (File No. 1-8654)).
12. Exhibit 4(J). Loan Agreement dated as of July 1, 1997 between Unitel
Video, Inc. and the Allegheny County Industrial Development Authority
(incorporated by reference to Exhibit 4(M) of the Registrant's Annual Report on
Form 10-K filed December 15, 1997 (File No. 1-8654)).
13. Exhibit 4(K). Pledge Agreement dated as of July 1, 1997 among Unitel
Video, Inc., PNC Bank, National Association and Heller Financial, Inc., as
agent. (incorporated by reference to Exhibit 4(N) of the Registrant's Annual
Report on Form 10-K filed December 15, 1997 (File No. 1-8654)).
14. Exhibit 4(L). 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. (incorporated by reference to Exhibit 4(A) of
the Registrant's Quarterly Report on Form 10-Q filed April 14, 1998 (File No.
1-8654)).
15. Exhibit 4(M). Letter Agreement amending Amended and Restated Loan and
Security Agreement, dated December 11, 1997, from Heller Financial, Inc.
(incorporated by reference to Exhibit 4(B) of the Registrant's Quarterly Report
on Form 10-Q filed April 14, 1998 (File No. 1-8654)).
16. Exhibit 4(N). 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. (incorporated by reference to Exhibit
4(C) of the Registrant's Quarterly Report on Form 10-Q filed April 14, 1998
(File No. 1-8654)).
17. Exhibit 4(O). 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. (incorporated by reference to Exhibit 4(D) of
the Registrant's Quarterly Report on Form 10-Q filed April 14, 1998 (File No.
1-8654)).
18. Exhibit 4(P). Loan Agreement, dated October 27, 1997, between Unitel
Video, Inc. and the Commonwealth of Pennsylvania. (incorporated by reference to
Exhibit 4(E) of the Registrant's Quarterly Report on Form 10-Q filed April 14,
1998 (File No. 1-8654)).
19. Exhibit 4(Q). First Supplemental Loan Agreement, dated as of December
15, 1997, between the Allegheny County Industrial Development Authority and
Unitel Video, Inc. (incorporated by reference to Exhibit 4(F) of the
Registrant's Quarterly Report on Form 10-Q filed April 14, 1998 (File No.
1-8654)).
20. Exhibit 4(R). First Amendment to Pledge Agreement, dated as of December
15, 1997, among Unitel Video, Inc., Heller Financial, Inc. and PNC National
Bank, National Association. (incorporated by reference to Exhibit 4(G) of the
Registrant's Quarterly Report on Form 10-Q filed April 14, 1998 (File No.
1-8654)).
21. Exhibit 4(S). First Amendment to Reimbursement Agreement, dated as of
December 15, 1997, between Unitel Video, Inc. and Heller Financial, Inc.
(incorporated by reference to Exhibit 4(H) of the Registrant's Quarterly Report
on Form 10-Q filed April 14, 1998 (File No. 1-8654)).
45
22. Exhibit 4(T). Consolidation, Modification, Spreader and Extension
Agreement dated as of August 31, 1998 between Unitel 57 LLC and Bear Stearns
Funding, Inc.
23. Exhibit 4(U). Ninth Amendment to Amended and Restated Loan and Security
Agreement dated as of July 9, 1998 among Unitel Video, Inc., R Squared, Inc. and
Heller Financial, Inc.
24. Exhibit 10. Material Contracts:
10(A). Amended Non-Qualified Stock Option Plan of Unitel Video, Inc.
(incorporated by reference to Exhibit 10(A) of the Registrant's Annual Report on
Form 10-K filed November 27, 1996 (File No. 1-8654)).*
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.
(incorporated by reference to Exhibit 10(C) of the Registrant's Annual Report on
Form 10-K filed November 27, 1996 (File No. 1-8654)).*
10(D). Amended Employee Stock Purchase Plan of Unitel Video, Inc.
(incorporated by reference to Exhibit 10(D) of the Registrant's Annual Report on
Form 10-K filed November 27, 1996 (File No. 1-8654)).*
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. (incorporated by reference
to Exhibit 10(G) of the Registrant's Annual Report on Form 10-K filed November
27, 1996 (File No. 1-8654)).*
10(H). 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(I). 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(J). 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(K). Amendment to Lease Agreement dated July 11, 1996 between Unitel
Video, Inc. and CBS, Inc. (incorporated by reference to Exhibit 10(L) of the
Registrant's Annual Report on Form 10-K filed November 27, 1996 (File No.
1-8654)).
10(L). 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)).
46
10(M). 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(N). 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(O). Amended 1992 Stock Option Plan. (incorporated by reference to Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q filed April 7, 1997 (File
No. 1-8654)).*
10(P). 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(Q). 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(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). 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(T). Third Tier Sublease, dated May 14, 1996, between Unitel Video, Inc.
and Photo-Magnetic Sound Studios Inc. (incorporated by reference to Exhibit
10(X) of the Registrant's Annual Report on Form 10-K filed November 27, 1996
(File No. 1-8654)).
10(U). 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 (incorporated
by reference to Exhibit 10(Y) of the Registrant's Annual Report on Form 10-K
filed November 27, 1996 (File No. 1-8654)).
10(V). 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(W). 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(X). Deed of Lease dated June 16, 1997 between Olymbec Construction Inc.
and Unitel Video Canada Inc. (incorporated by reference to Exhibit 10(DD) of the
Registrant's Annual Report on Form 10-K filed December 15, 1997 (File No.
1-8654)).
10(Y). Remarketing Agreement, dated as of July 1, 1997, among Allegheny
County Industrial Development Authority, PNC Bank, National Association, Unitel
Video, Inc. and RRZ Public Markets, Inc. (incorporated by reference to Exhibit
10(EE) of the Registrant's Annual Report on Form 10-K filed December 15, 1997
(File No. 1-8654)).
47
10(Z). Employment Agreement dated as of September 1, 1997 between Unitel
Video, Inc. and Barry Knepper (incorporated by reference to Exhibit 10(FF) of
Amendment No. 1 to the Registrant's Annual Report on Form 10-K filed December
29, 1997 (File No. 1-8654)).*
10(AA) Agreement dated December 8, 1997 between Unitel Video, Inc. and
Richard Clouser (incorporated by reference to Exhibit 10(GG) of Amendment No. 1
to the Registrant's Annual Report on Form 10-K filed December 29, 1997 (File No.
1-8654)).*
10(BB) Agreement dated December 8, 1997 between Unitel Video, Inc. and
Thomas Eyring (incorporated by reference to Exhibit 10(HH) of Amendment No. 1 to
the Registrant's Annual Report on Form 10-K filed December 29, 1997 (File No.
1-8654)).*
10(CC) Agreement dated December 8, 1997 between Unitel Video, Inc. and Edwin
Levine.*
10(DD) Amendment to Lease, dated February 16, 1998, between Unitel Video
Canada Inc. and Olymbec Construction Inc. (incorporated by reference to Exhibit
10(A) of the Registrant's Quarterly Report on Form 10-Q filed April 14, 1998
(File No. 1-8654)).
10(EE) Agreement dated December 8, 1997 between Unitel Video, Inc. and
Albert Walton.*
18. Exhibit 23. Accountant's consent.
19. Exhibit 24. Power of Attorney from officers and directors to Barry
Knepper (included on signature page).
20. Exhibit 27. Financial Data Schedule.
- ------------------------
* Management contract or compensatory plan or arrangement required to be noted
as provided in Item 14(a)(3).
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.
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.
THIS FORM 10-K CONTAINS 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 HEREBY CAUTIONED THAT THESE STATEMENTS MAY BE IMPACTED BY SEVERAL
FACTORS, AND, CONSEQUENTLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
EXPRESSED HEREIN.
48
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 30, 1998 By: /s/ BARRY KNEPPER
-----------------------------------------
Barry Knepper
Chief Executive Officer
November 30, 1998 By: /s/ NEIL MARCUS
-----------------------------------------
Neil Marcus
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry Knepper and Neil Marcus, and each of them,
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
attorneys-in-fact and agents 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 as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
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; President and
- ---------------------------------- Director
Barry Knepper November 30, 1998
/s/ RICHARD L. CLOUSER Senior Vice President--Corporate, President
- ---------------------------------- of the Mobile Division and Director
Richard L. Clouser November 30, 1998
/s/ HERBERT BASS Director
- ----------------------------------
Herbert Bass November 30, 1998
/s/ ALEX GEISLER Director
- ----------------------------------
Alex Geisler November 30, 1998
/s/ WALTER G. ARADER Director
- ----------------------------------
Walter G. Arader November 30, 1998
/s/ PHILIP BIRSH Director
- ----------------------------------
Philip Birsh November 30, 1998
49
UNITEL VIDEO, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN B COLUMN C1 COLUMN E
------------ ------------- ------------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE
- --------------------------------------------------------- BEGINNING COSTS AND ------------ AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- --------------------------------------------------------- ------------ ------------- ------------ ------------
YEAR ENDED AUGUST 31, 1998
Allowance for doubtful accounts.......................... $ 412,000 $ (38,000) $ (26,000) $ 400,000
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
YEAR ENDED AUGUST 31, 1997
Allowance for doubtful accounts.......................... $ 712,000 $ (10,000) $ 290,000 $ 412,000
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
YEAR ENDED AUGUST 31, 1996
Allowance for doubtful accounts.......................... $ 686,000 $ 407,000 $ 381,000 $ 712,000
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
COLUMN D
Uncollectible accounts written off.
COLUMN E
Deducted in balance sheet from accounts receivable.
50