-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MwC7yvIsyBmVrequT6irLt/8uNs7OM3kU9C1Bpzlv1iu6zSz64kpCO91FMRAhVCh KVryALOS6+F4CHRRHJpHLQ== <SEC-DOCUMENT>0000912057-00-024915.txt : 20000516 <SEC-HEADER>0000912057-00-024915.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024915 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VDI MULTIMEDIA CENTRAL INDEX KEY: 0001014733 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 954272619 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21917 FILM NUMBER: 636091 BUSINESS ADDRESS: STREET 1: 7083 HOLLYWOOD CITY: HOLLYWOOD STATE: CA ZIP: 90028 BUSINESS PHONE: 2139575500 MAIL ADDRESS: STREET 1: 6920 SUNSET BLVD CITY: HOLLYWOOD STATE: CA ZIP: 90028 FORMER COMPANY: FORMER CONFORMED NAME: VDI MEDIA DATE OF NAME CHANGE: 19960516 </SEC-HEADER> <DOCUMENT> <TYPE>10-Q <SEQUENCE>1 <DESCRIPTION>FORM 10-Q <TEXT> <PAGE> - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q <TABLE> <C> <S> /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 </TABLE> FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 COMMISSION FILE NUMBER 0-21917 ------------------------ VDI MULTIMEDIA (Exact name of registrant as specified in its charter) <TABLE> <S> <C> CALIFORNIA 95-4272619 (State of or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 7083 HOLLYWOOD BOULEVARD, SUITE 200 90028 HOLLYWOOD, CALIFORNIA (Zip Code) (Address of principal executive offices) </TABLE> Registrant's telephone number, including area code (323) 957-7990 Securities registered pursuant to Section 12(b) of the Act NONE. Securities registered pursuant to Section 12(g) of the Act Common Stock, no par value. ------------------------ 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 / / As of May 12, 2000 there were 9,238,650 shares of Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- <PAGE> PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VDI MULTIMEDIA CONSOLIDATED BALANCE SHEET <TABLE> <CAPTION> DECEMBER 31, MARCH 31, 1999 2000 ------------ ----------- (UNAUDITED) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents................................. $ 3,030,000 $ 403,000 Accounts receivable, net of allowances for doubtful accounts of $971,000 and $1,101,000, respectively....... 19,736,000 20,458,000 Inventories............................................... 1,122,000 1,027,000 Prepaid expenses and other current assets................. 1,413,000 2,089,000 Deferred income taxes..................................... 1,096,000 857,000 ----------- ----------- Total current assets.................................... 26,397,000 24,834,000 Property and equipment, net............................... 21,860,000 23,166,000 Other assets, net......................................... 297,000 283,000 Goodwill and other intangibles, net....................... 26,510,000 26,385,000 ----------- ----------- Total Assets............................................ $75,064,000 $74,668,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 6,998,000 $ 6,116,000 Accrued expenses.......................................... 2,581,000 3,521,000 Income taxes payable...................................... 418,000 132,000 Borrowings under revolving credit agreement............... 5,888,000 5,888,000 Current portion of notes payable.......................... 8,309,000 8,300,000 Current portion of capital lease obligations.............. 217,000 180,000 ----------- ----------- Total current liabilities............................... 24,411,000 24,137,000 ----------- ----------- Deferred income taxes..................................... 1,408,000 1,455,000 Notes payable, less current portion....................... 16,433,000 14,983,000 Capital lease obligations, less current portion........... 68,000 44,000 Shareholders' equity: Preferred stock; no par value; 5,000,000 authorized; none outstanding............................................. -- -- Common stock; no par value; 50,000,000 authorized; 9,210,697 and 9,238,361 shares, respectively, issued and outstanding............................................. 17,935,000 18,100,000 Retained earnings......................................... 14,809,000 15,949,000 ----------- ----------- Total shareholders' equity.............................. 32,744,000 34,049,000 ----------- ----------- $75,064,000 $74,668,000 =========== =========== </TABLE> See accompanying notes to consolidated financial statements 2 <PAGE> VDI MULTIMEDIA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------- 1999 2000 ----------- ----------- <S> <C> <C> Revenues.................................................... $19,784,000 $19,181,000 Cost of goods sold.......................................... 11,605,000 10,832,000 ----------- ----------- Gross profit................................................ 8,179,000 8,349,000 Selling, general and administrative expense................. 4,975,000 4,518,000 Expenses related to terminated merger....................... -- 1,214,000 ----------- ----------- Operating income............................................ 3,204,000 2,617,000 Interest expense............................................ 504,000 685,000 Interest income............................................. 3,000 -- ----------- ----------- Income before income taxes.................................. 2,703,000 1,932,000 Provision for income taxes.................................. 1,108,000 792,000 ----------- ----------- Net income.................................................. $ 1,595,000 $ 1,140,000 =========== =========== Earnings per share: Basic: Net income per share...................................... $ 0.17 $ 0.12 Weighted average number of shares......................... 9,664,531 9,214,808 Diluted: Net income per share...................................... $ 0.16 $ 0.12 Weighted average number of shares including the dilutive effect of stock options (65,442 for 1999 and 634,188 for 2000)................................................... 9,729,973 9,848,996 </TABLE> See accompanying notes to consolidated financial statements. 3 <PAGE> VDI MULTIMEDIA CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------------- 1999 2000 ---------- ---------- <S> <C> <C> Cash flows from operating activities: Net income................................................ $1,595,000 $1,140,000 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 1,202,000 1,381,000 Deferred taxes.......................................... 404,000 286,000 Provision for doubtful accounts......................... 324,000 144,000 Changes in assets and liabilities: Increase in accounts receivable........................... (1,227,000) (866,000) (Increase) decrease in inventories........................ (92,000) 95,000 Increase in prepaid expenses and other current assets..... (256,000) (676,000) (Increase) decrease in other assets....................... (2,000) 14,000 Decrease in accounts payable.............................. (723,000) (882,000) Increase in accrued expenses.............................. 517,000 940,000 Decrease in income taxes payable.......................... (505,000) (286,000) ---------- ---------- Net cash provided by operating activities................... 1,237,000 1,290,000 ---------- ---------- Cash used in investing activities: Capital expenditures...................................... (2,402,000) (2,275,000) Proceeds from sale of assets.............................. -- 12,000 Net cash paid for acquisitions............................ (479,000) (299,000) ---------- ---------- Net cash used in investing activities....................... (2,881,000) (2,562,000) Cash flows from financing activities: Change in revolving credit agreement...................... 5,505,000 -- Repurchase of common stock................................ (2,293,000) -- Proceeds from exercise of stock options................... -- 165,000 Repayment of notes payable................................ (1,469,000) (1,459,000) Repayment of capital lease obligations.................... (163,000) (61,000) ---------- ---------- Net cash provided by financing activities................... 1,580,000 (1,355,000) Net decrease in cash........................................ (64,000) (2,627,000) Cash at beginning of period................................. 2,048,000 3,030,000 ---------- ---------- Cash at end of period....................................... $1,984,000 $ 403,000 ========== ========== Supplemental disclosure of cash flow information: Cash paid for: Interest.................................................. $ 504,000 $ 685,000 ========== ========== Income tax................................................ $1,210,000 $ 820,000 ========== ========== </TABLE> See accompanying notes to consolidated financial statements 4 <PAGE> VDI MULTIMEDIA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 NOTE 1--THE COMPANY VDI Multimedia ("VDI" or the "Company") is a leading provider of video and film asset management services to owners, producers and distributors of entertainment and advertising content. The Company provides the services necessary to edit, master, reformat, archive and ultimately distribute its clients' video content. The Company provides physical and electronic delivery of commercials, movie trailers, electronic press kits, infomercials and syndicated programming to thousands of broadcast outlets worldwide. The Company provides worldwide electronic distribution, using fiber optics and satellites, through its Broadcast One-Registered Trademark- network. Additionally, the Company provides a broad range of video services, including the duplication of video in all formats, element storage, standards conversions, closed captioning and transcription services and video encoding for air play verification purposes. The Company also provides its customers value-added post production and editing services. The Company seeks to capitalize on growth in demand for the services related to the distribution of entertainment content, without assuming the production or ownership risk of any specific television program, feature film or other form of content. The primary users of the Company's services are entertainment studios and advertising agencies that generally choose to outsource such services due to the sporadic demand of any single customer for such services and the fixed costs of maintaining a high-volume physical plant. Since January 1, 1997, the Company has successfully completed seven acquisitions of companies providing similar services. The latest of these acquisitions occurred in November 1998 when the Company acquired the assets of Dubs, Inc. ("Dubs"), one of the Company's largest direct competitors in Hollywood. The Company will continue to evaluate acquisition opportunities to enhance its operations and profitability. As a result of these acquisitions, VDI believes it is one of the largest and most diversified providers of technical and distribution services to the entertainment industry, and is therefore able to offer its customers a single source for such services at prices that reflect the Company's scale economies. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles and the Securities and Exchange Commission's rules and regulations for reporting interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company's Form 10-K for the year ended December 31, 1999, as amended. NOTE 2--STOCK REPURCHASE In February 1999, the Company commenced a stock repurchase program. The board of directors authorized the Company to allocate up to $4,000,000 to purchase its common stock at suitable market prices. As of May 12, 2000, the Company has repurchased 573,000 shares of the Company's common stock in connection with this program. 5 <PAGE> VDI MULTIMEDIA MANAGEMENT'S DISCUSSION AND ANALYSIS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In connection with the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company, in its Form 10-K for the year ended December 31, 1999, as amended, outlined cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by, or on behalf of, the Company. Such forward-looking statements, as made within this Quarterly Report on Form 10-Q, should be considered in conjunction with the information included in the Company's Form 10-K for the year ended December 31, 1999, as amended, and the risk factors set forth in the Company's Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 19, 1997 and Registration Statement on Form S-3 filed with the Securities and Exchange Commission on June 29, 1998. Factors that could cause future results to differ from the Company's expectations include, but are not limited to, the following: competition, customer and industry concentration, dependence on technological developments, risks related to expansion and acquisition of new businesses, dependence on key personnel, fluctuating results and seasonality and control by management. THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999. REVENUES. Revenues decreased by $0.6 million or 3.0% to $19.2 million for the three month period ended March 31, 2000 compared to $19.8 million for the three month period ended March 31, 1999. This decrease in revenue was due to a decrease in demand for the Company's advertising and publicity services and a decrease in the use of its services by certain customers resulting from the integration of its two largest facilities. Revenues were also negatively impacted by the discontinuation of certain business lines which were either unprofitable or shut down to accommodate the rollout of VDI's high definition television services. GROSS PROFIT. Gross profit increased $0.1 million or 2.1% to $8.3 million for the three month period ended March 31, 2000 compared to $8.2 million for the three month period ended March 31, 1999. As a percent of revenues, gross profit increased from 41.3% to 43.5%. The increase in gross profit as a percentage of revenues was due primarily to the lower cost of direct materials resulting from volume purchasing discounts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense decreased $0.5 million, or 9.2%, to $4.5 million for the three month period ended March 31, 2000 compared to $5.0 million for the three month period ended March 31, 1999. As a percentage of revenues, selling, general and administrative expense decreased to 23.6% for the three month period ended March 31, 2000 compared to 25.1% for the three month period ended March 31, 1999. This decrease was due to lower administrative wages and a decrease in the Company's bad debt provision. EXPENSES RELATED TO TERMINATED MERGER. In the quarter ended March 31, 2000, the Company accrued $1.2 million in expenses related to the recent termination of their proposed merger with an affiliate of Bain Capital. OPERATING INCOME. Operating income decreased $0.6 million or 18.3% to $2.6 million for the three month period ended March 31, 2000 compared to $3.2 million for the three month period ended March 31, 1999. 6 <PAGE> VDI MULTIMEDIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) INTEREST EXPENSE. Interest expense increased $0.2 million, or 35.9%, to $0.7 million for the three month period ended March 31, 2000 compared to $0.5 million for the three month period ended March 31, 1999. This increase was due to increased borrowings under the Company's debt agreements and an increase in the cost of funds due to higher interest rates. INCOME TAXES. The Company's effective tax rate was 41% for the first quarter of 2000 and 1999. NET INCOME. Net income for the three month period ended March 31, 2000 decreased $0.5 million or 28.5% to $1.1 million compared to $1.6 million for the three month period ended March 31, 1999. LIQUIDITY AND CAPITAL RESOURCES This discussion should be read in conjunction with the notes to the financial statements and the corresponding information more fully described in the Company's Form 10-K, as amended, for the year ended December 31, 1999. At March 31, 2000 the Company's cash and cash equivalents aggregated $0.4 million. The Company's operating activities provided cash of $1.3 million for the three months ended March 31, 2000. The Company's investing activities used cash of $2.6 million for the three months ended March 31, 2000. The Company spent approximately $2.3 million for the addition and replacement of capital equipment necessary to accommodate increased customer demands for the Company's services, and for investments in digital equipment and management information systems. The Company's business is equipment intensive, requiring periodic expenditures of cash or the incurrence of additional debt to acquire additional fixed assets in order to increase capacity or replace existing equipment. The Company expects to spend approximately $8.5 million on capital expenditures during the last three quarters of 2000 to upgrade and replace equipment, upgrade the Company's management information systems and invest in high definition television and other digital equipment. The Company's financing activities used cash of $1.4 million in the three months ended March 31, 2000. Cash flows from financing activities include debt repayments of $1.5 million. The Company has a $6.0 million revolving credit agreement with Union Bank of California (the "Bank"), which expires on November 1, 2000. There was $5.9 million outstanding under the credit agreement at March 31, 2000. The Company also had $23.3 million outstanding on term loans with the Bank at March 31, 2000. Subsequent to March 31, 2000, the Company increased the amount of its revolving credit agreement with the Bank to $8.5 million. The Company is also in the process of negotiating a larger credit facility, which it expects to complete by the end of the second quarter of 2000. Management believes that cash generated from its credit facilities, as proposed to be amended, and its ongoing operations and existing working capital will fund necessary capital expenditures and provide adequate working capital for at least the next twelve months. The Company, from time to time, considers the acquisition of businesses complementary to its current operations. Consummation of any such acquisition or other expansion of the business conducted by the Company may be subject to the Company securing additional financing. 7 <PAGE> VDI MULTIMEDIA MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) YEAR 2000 COMPLIANCE ISSUE The risks posed by Year 2000 issues, which arise because computer systems and software products may be unable to distinguish 21(st) century dates from 20(th) century dates, could harm the Company's business. Prior to the end of 1999 the Company completed a review of the Year 2000 compliance of its IT infrastructure, business and operational systems and third-party suppliers. The Company's review included testing to determine how their systems would function at and beyond the Year 2000. To date, the Company has not experienced any material Year 2000 related problems with its IT infrastructure, business systems or operational systems. Additionally, the Company is not aware of any failure by its third-party suppliers to be Year 2000 compliant that could impact its business or operations. However, there is an ongoing risk that such problems or failures could arise or become apparent in the future. Any such problems or failures experienced by the Company or its customers could have negative consequences for the Company, including decreasing the demand for its products and interrupting its operations. As a result, the Company's supply chain and revenue could be harmed. 8 <PAGE> PART II--OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K <TABLE> <CAPTION> <S> <C> <C> (a) Exhibit No. Description 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K on or about January 11, 2000 relating to its proposed merger with an affiliate of Bain Capital. </TABLE> 9 <PAGE> SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. <TABLE> <S> <C> <C> VDI MULTIMEDIA By: /s/ CLARKE W. BREWER ----------------------------------------- Clarke W. Brewer CHIEF FINANCIAL OFFICER AND TREASURER (DULY AUTHORIZED OFFICER AND PRINCIPAL FINANCIAL OFFICER) </TABLE> Date: May 15, 2000 </TEXT> </DOCUMENT> <DOCUMENT> <TYPE>EX-27 <SEQUENCE>2 <DESCRIPTION>EXHIBIT 27 <TEXT> <TABLE> <S> <C> <PAGE> <ARTICLE> 5 <S> <C> <PERIOD-TYPE> 3-MOS <FISCAL-YEAR-END> DEC-31-2000 <PERIOD-END> JAN-31-2000 <CASH> 403,000 <SECURITIES> 0 <RECEIVABLES> 21,559,000 <ALLOWANCES> (1,101,000) <INVENTORY> 1,027,000 <CURRENT-ASSETS> 24,834,000 <PP&E> 41,220,000 <DEPRECIATION> (18,054,000) <TOTAL-ASSETS> 74,668,000 <CURRENT-LIABILITIES> 24,137,000 <BONDS> 0 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 18,100,000 <OTHER-SE> 0 <TOTAL-LIABILITY-AND-EQUITY> 74,668,000 <SALES> 19,181,000 <TOTAL-REVENUES> 19,181,000 <CGS> 10,832,000 <TOTAL-COSTS> 10,832,000 <OTHER-EXPENSES> 5,732,000 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 685,000 <INCOME-PRETAX> 1,932,000 <INCOME-TAX> 792,000 <INCOME-CONTINUING> 1,140,000 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 1,140,000 <EPS-BASIC> 0.12 <EPS-DILUTED> 0.12 </TABLE> </TEXT> </DOCUMENT> </SEC-DOCUMENT> -----END PRIVACY-ENHANCED MESSAGE-----