<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) June 12, 1998
VDI MEDIA
(Exact Name of Registrant as Specified in Charter)
California 0-21917 95-4272619
(State or Other Jurisdiction (Commission) (I.R.S. Identification)
of Incorporation) File Number)
6920 Sunset Boulevard 90028
Hollywood, California (Zip Code)
(Address of Principal Executive Offices)
(323) 957-5500
Registrant's telephone number, including area code
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<PAGE>
The undersigned registrant (the "Registrant") hereby amends the following
items of its Current Report on Form 8-K dated June 12, 1998 (the "Report") as
follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The Registrant amends the information set forth in Items 7(a) and 7(b) of
the Report and restates such items in their entirety as set forth below.
(a) Financial Statements of Business Acquired
Report of Independent Auditors
The Board of Directors
All Post, Inc.
We have audited the accompanying balance sheets of the videotape
post-production division of All Post, Inc. as of May 31, 1998 and July 31,
1997, and the related statements of operations and divisional deficit, and
cash flows for the ten months ended May 31, 1998 and the year ended July 31,
1997. 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 financial statements referred to above present fairly, in
all material respects, the financial position of the videotape
post-production division of All Post, Inc. as of May 31, 1998 and July 31,
1997, and the results of its operations and its cash flows for the ten months
ended May 31, 1998 and the year ended July 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
August 19, 1998
2
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Balance Sheets
<TABLE>
<CAPTION>
MAY 31 JULY 31
1998 1997
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ - $ 146,675
Accounts receivable, less allowance for doubtful
accounts of $26,000 in 1998 and $33,000 in 1997 3,387,380 4,285,503
Inventories 790,613 981,135
Equipment held for sale 75,000 100,000
Other current assets 77,095 116,918
----------------------------
Total current assets 4,330,088 5,630,231
Property and equipment, at cost 29,634,797 29,378,171
Less accumulated depreciation (9,874,129) (7,403,837)
----------------------------
Net property and equipment 19,760,668 21,974,334
Other assets 364,378 431,045
----------------------------
Total assets $ 24,455,134 $28,035,610
----------------------------
----------------------------
LIABILITIES AND DIVISIONAL DEFICIT
Current liabilities:
Accounts payable $ 2,274,373 $ 1,117,693
Accrued expenses 958,025 1,199,776
Accrued interest 1,669,486 199,088
Current portion of long-term debt 9,633,608 11,329,789
Revolving line of credit 2,152,272 2,780,028
----------------------------
Total current liabilities 16,687,764 16,626,374
Long-term debt, less current portion 2,414,475 2,437,673
Notes payable to stockholders 14,061,441 12,761,440
Other long-term liabilities 3,367,797 3,263,997
Commitments and contingencies
Divisional deficit (12,076,343) (7,053,874)
----------------------------
Total liabilities and divisional deficit $ 24,455,134 $28,035,610
----------------------------
----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Statements of Operations and Divisional Deficit
<TABLE>
<CAPTION>
TEN MONTHS YEAR
ENDED ENDED
MAY 31 JULY 31
1998 1997
-----------------------------
<S> <C> <C>
Revenues $ 13,637,188 $ 22,347,522
Costs of services 9,946,504 15,840,810
Depreciation expense 1,987,202 2,230,697
-----------------------------
Gross profit 1,703,482 4,276,015
Selling, general and administrative expenses 4,366,659 6,879,931
-----------------------------
(2,663,177) (2,603,916)
Interest expense 2,557,777 2,681,036
Other expenses 734,181 262,293
-----------------------------
Net loss (5,955,135) (5,547,245)
Divisional deficit at beginning of period (7,053,874) (3,200,421)
Net change in advances from the Company 932,666 1,693,792
-----------------------------
Divisional deficit at end of period $ (12,076,343) $ (7,053,874)
-----------------------------
-----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Statements of Cash Flows
<TABLE>
<CAPTION>
TEN MONTHS YEAR
ENDED ENDED
MAY 31 JULY 31
1998 1997
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(5,955,135) $ (5,547,245)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 2,470,292 2,824,701
Loss on sale of assets - 257,000
Interest expense not paid to stockholders 1,357,000 1,150,000
Changes in assets and liabilities:
Accounts receivable 898,123 1,972,143
Inventories 190,522 592,667
Other assets 106,490 509,787
Accounts payable and accrued expenses 1,132,127 (1,100,835)
----------------------------
Net cash provided by operating activities 199,419 658,218
INVESTING ACTIVITIES
Purchase of equipment, furniture and fixtures (256,626) (3,408,643)
Proceeds from sale of assets 25,000 232,027
----------------------------
Net cash used in investing activities (231,626) (3,176,616)
FINANCING ACTIVITIES
Proceeds from debt and revolving line of credit - 54,722,300
Payment of debt and revolving line of credit (2,347,134) (58,048,000)
Proceeds from stockholder debt 1,300,000 5,100,042
Payment of stockholder debt - (972,000)
Net change in advances from the Company 932,666 1,693,792
----------------------------
Net cash (used in) provided by financing activities (114,468) 2,496,134
----------------------------
Net change in cash (146,675) (22,264)
Cash at beginning of period 146,675 168,939
----------------------------
Cash at end of period $ - $ 146,675
----------------------------
----------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,201,000 $ 1,867,000
----------------------------
----------------------------
Income taxes $ 1,600 $ 500
----------------------------
----------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Notes to Financial Statements
May 31, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
All Post, Inc. (the Company) was formed on August 3, 1993 through the
transfer of all of the operating assets and liabilities and the stock of the
predecessor All Post, Inc., together with the purchase of all of the
operating assets of AME, Inc. in an auction sale conducted by the U.S.
Bankruptcy Court for a total purchase price of approximately $18 million
which included the assumption of various liabilities and acquisition costs of
approximately $2,400,000. The purchase price was allocated entirely to the
assets acquired.
The Company's primary business is providing post-production services to the
filmed entertainment industry. The services consist of Telecine transfer
mastering, editing, audio post-production services, duplication of
professional format videotape, broadcast standards conversion and the
preservation and restoration of a wide variety of negative and print formats.
On June 11, 1998, the Company entered into an Asset Purchase Agreement (the
Agreement) with VDI Media (VDI) whereby VDI acquired substantially all of the
assets of the videotape post-production division of All Post, Inc. (All
Post). The aggregate purchase price was $13,000,000 plus the assumption of
certain liabilities. VDI purchased certain assets of All Post including the
accounts receivable, inventory, equipment, furniture and fixtures (excluding
buildings and improvements). The liabilities assumed include accounts payable
and other accrued liabilities. VDI did not purchase any of the assets nor
assume any liabilities of the Company's post optical services business
(Cinetech). VDI also did not assume any of the outstanding debt, related
accrued interest of All Post or advisory fees due to stockholders. Under the
Agreement, VDI was indemnified in connection with income taxes and
outstanding litigation related to the Company. The purchase price is subject
to adjustment for the twelve months following the purchase based on gross
profit, as defined in the Agreement.
The financial statements reflect the financial position, results of
operations and cash flows of All Post, which includes certain assets,
liabilities and operations of the Company which are not material. Divisional
deficit represents divisional equity after accumulated net losses and
intercompany balances. The financial statements of All Post do not
necessarily reflect the results of operations or financial position that
would have existed had All Post been an independent company.
6
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Post-production revenues are recognized as services are performed in
accordance with the underlying agreements.
INVENTORIES
Inventories consist principally of purchased video tapes, and are valued at
the lower of cost (first-in, first-out) or market.
DEPRECIATION
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful life of three to ten years. The building and
related improvements are being depreciated and amortized over 40 years.
EQUIPMENT HELD FOR SALE
Equipment held for sale represents certain post-production machinery no
longer used in the Company's operations. Such equipment is stated at the
lower of cost or net realizable value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject All Post to concentration of
credit risk consist principally of trade receivables.
All Post performs post-production services for various companies within the
entertainment industry. All Post performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral. At
May 31, 1998, substantially all of All Post's trade receivables were from
customers in the entertainment industry. Credit losses relating to customers
in the entertainment industry consistently have been within management's
expectations.
7
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK (CONTINUED)
For the ten months ended May 31, 1998 and the year ended July 31, 1997, All
Post earned revenues from four customers of approximately $7,823,000 (57%)
and $12,671,000 (57%), respectively.
FINANCIAL INSTRUMENTS
Financial instruments are carried at historical cost which approximates fair
value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MAY 31 JULY 31
1998 1997
---------------------------------
<S> <C> <C>
Building and land $ 11,337,000 $ 11,337,000
Post-production equipment 16,466,374 16,292,284
Furniture and fixtures 131,069 120,911
Office equipment 1,650,329 1,577,951
Vehicles 50,025 50,025
---------------------------------
29,634,797 29,378,171
Accumulated depreciation (9,874,129) (7,403,837)
---------------------------------
Net property and equipment $ 19,760,668 $ 21,974,334
---------------------------------
---------------------------------
</TABLE>
Effective August 1996, the Company transferred $2,795,000 of net equipment
from All Post to Cinetech.
8
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Notes to Financial Statements (continued)
4. LONG TERM DEBT AND REVOLVING CREDIT LINE
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MAY 31 JULY 31
1998 1997
--------------------------------
<S> <C> <C>
Bank term loans $ 9,608,624 $ 11,304,805
Mortgage payable, due in monthly
installments of $18,711 through
October 2003, including interest
at 8%, secured by building 2,439,459 2,462,657
--------------------------------
12,048,083 13,767,462
Less current portion (9,633,608) (11,329,789)
--------------------------------
Long-term debt $ 2,414,475 $ 2,437,673
--------------------------------
--------------------------------
</TABLE>
On December 28, 1995, the Company entered into a loan and security agreement
with Sanwa Business Credit Corporation (the Loan Agreement). The facility
consists of a revolving line of credit (the Revolver) of a maximum of
$7,000,000 two term loans of $9,300,000 (Term Note A) and $3,000,000 (Term
Note B) and a capital expenditure (CAPEX) loan of $6,000,000.
The amount to be borrowed at any time under the Revolver is an amount equal
to 85% of eligible accounts as defined not to exceed $7,000,000. Such amounts
are repaid as collections occur on the eligible amounts. The line bears
interest at prime (8.50% at May 31, 1998) plus .375% or Euro-rate (LIBOR)
(5.69% at May 31, 1998) plus 2.875% and is payable monthly. The Company shall
pay an unused line fee equal to .25% of the difference between the maximum
revolving loan and the daily average outstanding balance during the previous
calendar quarter.
Term Note A is for a principal amount not to exceed $9,300,000. Term Note B
is in a principal amount not to exceed $3,000,000. Term Note A is repayable
in 53 equal monthly installments, plus a principal balloon payment in the
54th month (based on a 78 month amortization) commencing on July 1, 1996.
Term Note B is repayable in 53 equal consecutive monthly installments, plus a
balloon payment in the 54th month (based on a 114 month amortization)
commencing on July 1, 1996. If the Revolver is no longer available for any
reason, Term Notes A and B shall be due and payable on demand. Term Notes A
and B bear interest at prime (8.50% at May 31, 1998) plus.875% Euro-rate
(5.69% at May 31, 1998) plus 3.375% or the U.S. Treasury bond rate (5.4% at
May 31, 1998) plus 3%. Interest is payable monthly commencing on January 1,
1996.
9
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Notes to Financial Statements (continued)
4. LONG TERM DEBT AND REVOLVING CREDIT LINE (CONTINUED)
The maximum amount eligible to be outstanding at any one time under the CAPEX
loan is an amount equal to 85% of the cost of new equipment purchased by the
Company not to exceed $6,000,000. Initially, the maximum amount available
under the CAPEX loan will be $2,000,000, increasing by $2,000,000 on each
anniversary date of the Loan Agreement up to the maximum of $6,000,000. The
loan is repayable in 47 equal monthly installments, plus a principal balloon
payment in the 48th month (based on a 72 month amortization) commencing
January 1, 1997. If the Revolver is no longer available for any reason, the
CAPEX loan shall be due and payable on demand. Interest is payable monthly
commencing on January 1, 1996. The CAPEX loan bears interest at prime plus
.875% or Euro-rate (5.69% at May 31, 1998) plus 3.375%. Upon the second and
third anniversaries of the Loan Agreement, the Company shall pay a fee of 1%
of the $2,000,000 increase in the CAPEX loan.
The Loan Agreement requires the maintenance of certain financial ratios
including minimum tangible net worth, net profit after taxes and cash flow
coverage ratio. The Company is not in compliance with these covenants at May
31, 1998. The Loan Agreement is secured by substantially all of the Company's
assets. As a result of the non-compliance with loan covenants, $7,637,000 and
$9,333,000 of debt has been reclassified as a current liability as of May 31,
1998 and July 31, 1997, respectively.
The aggregate maturities of long term debt consists of the following:
<TABLE>
<S> <C>
Year ending July 31:
1998 (remaining two months) $ 9,633,608
1999 31,000
2000 33,000
2001 36,000
2002 39,000
Thereafter 2,275,475
------------
$ 12,048,083
------------
------------
</TABLE>
Subsequent to the purchase by VDI, the Company repaid all debt outstanding
with Sanwa. Under the Agreement, VDI did not assume any outstanding debt of
the Company.
10
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Notes to Financial Statements (continued)
5. NOTES PAYABLE TO STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
During 1993, the Company received $5,182,000 from certain stockholders
evidenced by 12% Subordinated Promissory Notes (the Notes) originally due
August 3, 1997. The Notes are subordinate to all other Company debt. The
holders of the Notes have stated that they will not demand payment of
interest amounts due on the Notes prior to August 1, 1999 and, therefore,
such interest has been classified as other long-term liabilities. In
connection with the issuance of the Notes, the Company issued 150,490
warrants to purchase common stock at an exercise price of $.79 to the
stockholders expiring on November 5, 1998.
During 1995, 1996 and 1997, certain stockholders loaned the Company
$6,168,000 evidenced by Demand Promissory Notes (the Demand Notes) which bear
interest at the lower of the prime rate plus 2% or 13%. The holders of the
Demand Notes have stated that they will not demand payment on the Demand
Notes prior to August 1, 1999 and, therefore, the Demand Notes have been
classified as long-term. The holders of the Demand Notes have stated that
they will not demand payment of interest amounts due on the Demand Notes
prior to August 1, 1998 and therefore such interest has been classified as
other long-term liabilities.
Interest expense to related parties amounted to approximately $1,357,000 and
$1,150,000 for the ten months ended May 31, 1998 and the year ended July 31,
1997, respectively.
6. INCOME TAXES
The Company has applied the provisions of Financial Accounting Standards
Board Statement No. 109 "Accounting for Income Taxes" (Statement 109) to
account for deferred income taxes which utilizes the liability method.
Deferred income taxes under the liability method reflect the net tax effects
of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes.
11
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
MAY 31 JULY 31
1998 1997
--------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax in excess of book depreciation $ 2,061,000 $ 2,001,000
Deferred tax assets:
Net operating loss carryforwards 8,926,000 6,485,000
Other 32,000 30,000
--------------------------------
Net deferred tax asset 6,897,000 4,514,000
Valuation allowance (6,897,000) (4,514,000)
--------------------------------
$ - $ -
--------------------------------
--------------------------------
</TABLE>
At May 31, 1998, the Company, for tax purposes, had available federal and
state net operating loss carryforwards of approximately $23,173,000 and
$11,254,000, respectively, expiring through July 2011.
Section 382 of the Internal revenue Code (the Code) provides rules limiting
the utilization of a corporation's net operating loss carryovers following a
specified change in the ownership of a corporation's equity (and Ownership
Change). Following an Ownership Change, the amount of taxable income of a
corporation that can be offset by pre-Ownership Change net operating loss
carryovers generally cannot exceed an amount equal to the fair market value
of the corporation's stock immediately before the Ownership Change (subject
to certain adjustments) multiplied by the federal long-term tax-exempt rate
in effect on the date of the Ownership Change (the Annual Limitation). If the
Annual Limitation for a taxable year exceeds the taxable income for such
year, the Annual Limitation for the next taxable year is increased by the
amount of such excess. Approximately $2,740,000 (federal) and $1,037,000
(state) net operating losses are attributable to a predecessor company and
are subject to an annual limitation imposed by Section 382 of the Code. The
annual limitation has not yet been determined.
12
<PAGE>
All Post, Inc.
(Videotape Post-Production Division)
Notes to Financial Statements (continued)
7. COMMITMENTS
All Post occupies office space in buildings owned by the Company. Subsequent
to May 31, 1998, VDI entered into a ten-year operating lease agreement with
the Company for this office space (the VDI Lease). In addition, All Post is
obligated under various operating leases for other office space, as well as
operating leases for telephone equipment and vehicles. The majority of these
leases require that All Post perform all necessary repairs and maintenance,
provide insurance and pay taxes assessed against the leased property. The
terms of the leases range from two to five years, some of which have renewal
options. The office rentals may be adjusted annually, pursuant to the terms
of each lease agreement. Minimum future obligations under all leases at May
31, 1998 including the VDI Lease, are summarized as follows:
Fiscal year ended July 31,
--------------------------
1998 (remaining two months) $ 114,000
1999 540,000
2000 588,000
2001 525,000
2002 508,000
2003 530,000
Thereafter 2,778,000
----------
Total minimum lease payments $5,583,000
----------
----------
Rent expense under the operating leases was approximately $251,000 and
$431,000 for the ten months ended May 31, 1998 and the year ended July 31,
1997, respectively.
8. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company has developed a plan to modify its information technology to be
ready for the year 2000 and is in the process of converting critical data
processing systems. The Company does not expect its year 2000 compliance to
have a significant effect on its operations or financial results.
13
<PAGE>
(b) Pro Forma Financial Information
The following unaudited pro forma financial statements give effect to the
acquisition of the videotape duplication facilities of All Post, Inc. (All
Post). The unaudited pro forma combined balance sheet presents the combined
financial position of VDI Media (the "Company") and All Post at March 31, 1998
as if the Company had acquired All Post on that date. Such pro forma
information is based upon the unaudited historical balance sheet data of the
Company and All Post on March 31, 1998. The unaudited pro forma combined
statements of operations for the three month period ended March 31, 1998 and
the most recently completed fiscal year ended December 31, 1997, reflect
adjustments as if the transaction had occurred on January 1, 1997. The
acquisition is being accounted for as a purchase.
The unaudited pro forma combined financial statements reflect the Company's
allocation of the purchase price of approximately $13 million to the assets and
liabilities of All Post based upon the Company's current estimates of the
relative values of the assets acquired and liabilities assumed. The final
allocation of the purchase price may vary as additional information is obtained,
and differ from that used in the unaudited pro forma combined financial
statements.
The unaudited pro forma combined financial statements should be read in
conjunction with the separate historical financial information and related notes
of All Post, appearing in Item 7 (a) of this current report on Form 8-K and the
historical financial statements, related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Company for
the year ended December 31, 1997, and the three months ended March 31, 1998,
previously filed with the Securities and Exchange Commission. The pro forma
information is not necessarily indicative of the future results of the combined
companies.
PRO FORMA COMBINED BALANCE SHEET
14
<PAGE>
The following unaudited pro forma combined balance sheet presents the combined
financial position of the Company and All Post as of March 31, 1998. Such
unaudited pro forma information is based on the combined historical balance
sheets of the Company and All Post as of March 31, 1998, giving effect to the
pro forma adjustments described in the accompanying Notes to Pro Forma Combined
Financial Statements.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------------------------------
VDI ALL COMBINED
MEDIA POST Adjustments PRO-FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,249,000 $ - $ 3,249,000
Accounts receivable, net 10,709,000 3,519,000 14,228,000
Inventories 505,000 827,000 1,332,000
Deferred income taxes 619,000 - 619,000
Prepaid expenses and other current assets 367,000 91,000 458,000
------------ ------------ ------------ ------------
Total current assets 15,449,000 4,437,000 - 19,886,000
Property and equipment, net 8,519,000 9,134,000 (4,634,000)(A) 13,019,000
Deferred income taxes - - -
Other assets, net 276,000 3,000 279,000
Goodwill and other intangibles, net 9,798,000 - 5,292,000(A) 15,090,000
------------ ------------ ------------ ------------
Total Assets $ 34,042,000 $ 13,574,000 $ 658,000 $ 48,274,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,460,000 1,208,000 5,668,000
Other accrued liabilities 1,717,000 24,000 1,741,000
Income taxes payable 487,000 - 487,000
Borrowings under revolving credit agreement 2,172,000 - 13,000,000(A) 15,172,000
Current portion of notes payable 28,000 - 28,000
Current portion of capital lease obligation 682,000 - 682,000
------------ ------------ ------------ ------------
Total current liabilities 9,546,000 1,232,000 13,000,000 23,778,000
------------ ------------ ------------ ------------
Deferred income taxes 24,000 - 24,000
Notes payable, less current portion - - -
Capital lease obligation, less current portion 496,000 - 496,000
Shareholders' equity:
Preferred stock - - - -
Common stock 20,206,000 - - 20,206,000
Retained earnings 3,770,000 12,342,000 (12,342,000)(A) 3,770,000
------------ ------------ ------------ ------------
Total shareholders' equity 23,976,000 12,342,000 (12,342,000) 23,976,000
------------ ------------ ------------ ------------
Total liabilities and shareholders'
equity $ 34,042,000 $ 13,574,000 $ 658,000 $ 48,274,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations presents the
combined results of operations of the Company and All Post for the year ended
December 31, 1997 by combining the historical statements of operations of the
Company and All Post for the period, giving effect to the pro forma adjustments
described in the accompanying Notes to Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------
COMBINED
VDI ALL STATEMENT OF
MEDIA POST Adjustments OPERATIONS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 40,772,000 $ 18,306,000 $ 59,078,000
Cost of goods sold 24,898,000 15,950,000 (488,000)(B) 40,360,000
------------ ------------ ------------ ------------
Gross profit 15,874,000 2,356,000 488,000 18,718,000
Selling, general and administrative expense 9,253,000 5,642,000 (973,000)(B),(C),(D) 13,922,000
------------ ------------ ------------ ------------
Operating income 6,621,000 (3,286,000) 1,461,000 4,796,000
Interest (income) expense (68,000) - (68,000)
Other (income) expense - (261,000) (261,000)
------------ ------------ ------------ ------------
Income before income taxes 6,553,000 (3,547,000) 1,461,000 4,603,000
Provision for income taxes 2,572,000 2,000 (687,000)(E) 1,887,000
------------ ------------ ------------ ------------
Net income $ 3,981,000 $ (3,549,000) $ 2,148,000 $ 2,716,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per share:
Basic:
Net income per share $ 0.44 $ 0.30
Weighted average number of shares 9,122,575 9,122,575
Diluted:
Net income per share $ 0.43 $ 0.29
Weighted average number of shares including
the dilutive effect of stock options 9,207,940 9,207,940
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations presents the
combined results of operations of the Company and All Post for the three months
ended March 31, 1998 by combining the historical statements of operations of the
Company and All Post for the period, giving effect to the pro forma adjustments
described in the accompanying Notes to Pro Forma Combined Financial Statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-------------------------------------------------------------------
COMBINED
VDI ALL STATEMENT OF
MEDIA POST Adjustments OPERATIONS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 11,643,000 $ 4,093,000 $ 15,736,000
Cost of goods sold 7,138,000 3,315,000 (122,000)(B) 10,331,000
------------ ------------ ------------ ------------
Gross profit 4,505,000 778,000 122,000 5,405,000
Selling, general and administrative expense 2,523,000 1,029,000 (243,000)(B),(C),(D) 3,309,000
------------ ------------ ------------ ------------
Operating Income 1,982,000 (251,000) 365,000 2,096,000
Interest (income) expense 87,000 87,000
Other (income) expense - (27,000) (27,000)
------------ ------------ ------------ ------------
Income before income taxes 1,895,000 (278,000) 365,000 1,982,000
Provision for income taxes 777,000 36,000(E) 813,000
------------ ------------ ------------ ------------
Net income $ 1,118,000 $ (278,000) $ 329,000 $ 1,169,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per share:
Basic:
Net income per share $ 0.12 $ 0.12
Weighted average number of shares 9,635,199 9,635,199
Diluted:
Net income per share $ 0.11 $ 0.12
Weighted average number of shares including
the dilutive effect of stock options 9,734,705 9,734,705
</TABLE>
See accompanying Notes to Pro Forma Combined Financial Statements.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
The following significant adjustments were made to the historical balance sheets
of the Company and All Post at March 31, 1998 or historical statements of
operations of the Company and All Post, as applicable, to arrive at the pro
forma combined balance sheet and pro forma combined statements of operations:
15
<PAGE>
(A) Pro forma adjustments have been made to (i) write down the book value
of recorded assets to their estimated fair market value (ii) record
estimated goodwill of $5.3 million equal to the excess of the initial
consideration over the fair market value assigned to specific assets less
liabilities assumed, (iii) eliminate the equity of All Post and (iv)
reflect the use of borrowings under the Company's revolving credit
agreement to purchase All Post.
(B) Pro forma adjustments have been made to reflect a reduction for
salaries of employees terminated in connection with the acquisition of All
Post which were effected immediately thereafter. These adjustments totaled
$488,000 and $123,000 to cost of goods sold and $486,000 and $121,000 to
selling, general and administrative expenses for the year ended December
31, 1997 and the three months ended March 31, 1998, respectively. The
related severance costs were not significant.
(C) A pro forma adjustment has been made to marketing, general and
administrative expenses to reflect the amortization over 20 years of the
goodwill related to the acquisition of All Post.
(D) Pro forma adjustments have been made to selling, general and
administrative expenses to reflect a reduction for rent related to
facilities no longer used by the Company after the purchase. These
adjustments totalled $752,000 and $188,000 for the year ended December 31,
1997 and the three months ended March 31, 1998, respectively.
(E) A pro forma adjustment has been made to reflect the effective tax rate
of the combined company.
16
<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, the
undersigned, thereunto duly authorized, in Los Angeles, California on August 21,
1998.
DATE: August 26, 1998 VDI Media
By: /s/ Donald Stine
----------------------------------------
Name: Donald Stine
Title: Chief Financial Officer
17
