<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1995
------------------------------------------------
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 0-15424
-------
VAUGHN COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-0626191
- ----------------------------------------- -----------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYEE IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
5050 WEST 78TH STREET,
MINNEAPOLIS, MINNESOTA 55435
- ----------------------------------------- -----------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
612/832-3200
- -------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- -------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIODS 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
----- -----
COMMON STOCK, $.10 PAR VALUE 3,134,556 OUTSTANDING SHARES AS OF NOVEMBER 30,
1995.
<PAGE>
VAUGHN COMMUNICATIONS, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed balance sheets - October 31, 1995 and January 31, 1995
Condensed statements of operations - Three months ended
October 31,1995 and 1994; Nine months ended October 31, 1995
and 1994
Condensed statements of cash flow - Nine months ended October 31,
1995 and 1994
Notes to condensed financial statements - October 31, 1995
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Signatures
Exhibits
- 1 -
<PAGE>
PART 1-FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 31 January 31
---------- ----------
ASSETS 1995 1995
---- ----
<S> <C> <C>
Current Assets
Trade accounts receivable less allowance of $495,000 $8,579,221 $7,287,924
October 31, 1995 and $500,000 at January 31, 1995
Inventories 7,696,836 5,762,279
Other 1,443,116 489,418
----------- -----------
Total Current Assets 17,719,173 13,539,621
Property, plant and equipment 23,633,568 16,117,463
Less accumulated depreciation 15,435,082 9,650,652
----------- -----------
8,198,486 6,466,811
Intangible and Other Assets 4,484,345 1,249,939
----------- -----------
$30,402,004 $21,256,371
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $3,106,972 $2,440,566
Note payable to bank 3,587,688 4,691,699
Salaries, wages and payroll taxes 304,487 302,123
Current portion of long-term debt and capital lease obligations 2,577,134 1,361,486
Other 2,526,398 736,084
----------- -----------
Total Current Liabilities 12,102,679 9,531,958
Long-term debt (less current portion) 5,269,325 2,173,662
Capital lease obligations (less current portion) 1,737,472 1,109,130
Deferred taxes 38,870 21,178
Shareholders' Equity
Common stock, par value $.10 per share:
Authorized 20,000,000 shares; issued and outstanding
October 31, 1995-3,132,909 shares; January 31, 1995
- 2,832,298 shares 313,290 283,230
Additional paid-in capital 4,828,830 3,576,020
Retained earnings 6,111,538 4,561,193
----------- -----------
Total Shareholders' Equity 11,253,658 8,420,443
----------- -----------
$30,402,004 $21,256,371
----------- -----------
----------- -----------
</TABLE>
Note: The balance sheet at January 31, 1995 has been derived from the
audited financial statements at that date.
See Notes to Financial Statements
- 2 -
<PAGE>
VAUGHN COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31 October 31
---------- ----------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $14,879,359 $10,535,241 $41,294,321 $30,559,098
COST AND EXPENSES:
Costs of Goods Sold 10,058,097 7,272,408 27,966,813 20,737,346
Selling and Administrative 3,434,694 2,469,168 9,791,298 7,350,153
Interest 342,513 174,287 988,458 503,319
Other (Income) 8,233 22,616 463 64,389
----------- ----------- ----------- -----------
13,843,537 9,938,479 38,747,032 28,655,207
----------- ----------- ----------- -----------
Income from continuing
operations before income tax 1,035,822 596,762 2,547,289 1,903,891
Income taxes 450,000 230,000 1,095,000 730,000
----------- ----------- ----------- -----------
Income from
continuing operations 585,822 366,762 1,452,289 1,173,891
Income (loss) from
discontinued operations
net of taxes - (3,985) - 493,353
----------- ----------- ----------- -----------
Net Income $585,822 $362,777 $1,452,289 $1,667,244
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
INCOME PER COMMON SHARE:
Continuing Operations $.17 $.11 $.42 $.36
Discontinued Operations - - - .15
---- ---- ---- ----
Net Income $.17 $.11 $.42 $.51
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
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<PAGE>
VAUGHN COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended October 31
----------------------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,452,289 $1,667,244
Adjustments to reconcile net income to cash
provided by operations
Gain on sale of discontinued operations - (554,266)
Depreciation and amortization 2,303,532 1,592,921
Receivables 67,638 (1,144,522)
Inventories (1,368,672) (655,450)
Other assets (225,698) (11,344)
Accounts payable 33,925 (547,213)
Other liabilities 684,180 (90,420)
----------- -----------
Net cash provided by Operating Activities 2,947,194 256,950
INVESTING ACTIVITIES
Additions to property, plant, and equipment (1,938,260) (1,654,949)
Cash proceeds from sale of business unit - 800,000
Purchase of business less cash acquired (5,327,601) -
Other 49,973 198,778
----------- -----------
Net cash used in Investing Activities (7,215,888) (656,171)
FINANCING ACTIVITIES
Repayments of long-term debt and capital leases (1,831,636) (1,046,875)
Borrowings (repayments) under revolver (1,104,011) 444,123
Lease financing of equipment 921,471 924,881
Increase in bank debt 5,000,000 -
Common stock issued in purchase of business 1,170,000 -
Other 112,870 77,092
----------- -----------
Net cash provided in Financing Activities 4,268,694 399,221
Increase (Decrease) in cash -0- -0-
Cash and Cash Equivalents at beginning of year -0- -0-
----------- -----------
Cash and Cash Equivalents at end of period $ -0- $ -0-
----------- -----------
----------- -----------
</TABLE>
- 4 -
<PAGE>
VAUGHN COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
October 31, 1995
Note A - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. 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 only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
October 31, 1995 are not necessarily indicative of the results that may be
expected for the year ending January 31, 1996. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended January 31, 1995.
Note B - Discontinued Operations
On March 1, 1994, the Company sold the assets and operations of the operating
unit of the Company involved in the manufacture and sale of flag, float and
display products. The non-contingent selling price of $1,500,000 included
$800,000 of cash and a note receivable of $700,000. The net book value of the
assets sold included approximately $450,000 of inventory, $280,000 of fixed
assets, and $150,000 of accounts receivable. The gain on the sale after
settlement was approximately $554,000. The tax liability on the gain was
offset by capital loss carryforwards the Company has available.
Summarized results of operations data of the discontinued operations are as
follows:
<TABLE>
<CAPTION>
Year Ended
January 31, 1994
----------------
(000's)
<S> <C>
Net Sales $2,904
Cost of Sales 2,037
Selling and Administrative 722
Other 29
-------
Operating Income before taxes 116
Income taxes 43
-------
Net Earnings from discontinued operations $ 73
-------
-------
</TABLE>
- 5 -
<PAGE>
Note C - Acquisition of Centercom
On April 4, 1995, the Company completed the acquisition of all the capital
stock of Centercom, Inc. and Centercom South, Inc. (collectively "Centercom").
The effective date of acquisition was April 1, 1995, and will be accounted for
as a purchase.
The purchase price was $6,420,000 including $5,250,000 of cash and 180,000
shares of Vaughn Communications, Inc. common stock valued at $1,170,000. In
addition, the selling shareholders of Centercom collectively will be paid
$200,000 a year for seven years under non-complete and consulting agreements.
To fund the transaction, this Company entered into a new $13,000,000 credit
facility with its bank. The new agreement provides for $5,000,000 of long-term
financing was used for the Centercom acquisition. This long-term debt has
quarterly principal repayments and an interest rate of 1/4% over the prime
rate. The remaining $8,000,000 (at the prime interest rate) revolving credit
facility is to be used to finance working capital. Three million dollars
($3,000,000) of the revolving credit facility is available for long-term
financing to replace existing debt or finance new equipment purchases, of which
$850,000 has been applied to repay a like amount of Centercom long-term debt.
Centercom is a videotape duplicator with facilities in Milwaukee, Wisconsin;
Chicago, Illinois; and Tampa, Florida. Its sales for the fiscal years ended
June 30, 1994 and 1993 were $8,700,000 and $7,700,000 respectively, while net
income for the same periods was $645,000 and $412,000. The proforma unaudited
results of operations, assuming consummation of the purchase as of February 1,
1994 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ------------------
October 31 October 31
---------- ----------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $14,879,359 $13,397,712 $43,102,091 $37,837,445
Net Income $ 585,822 $ 561,896 $ 1,529,937 $ 1,321,395
Net Income per
Common Share $.17 $.16 $.44 $.38
</TABLE>
- 6 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net sales increased 41% in the third quarter of 1995 to $14,879,000, an
increase of $4,344,000 from the third quarter of 1994. For the first nine
months, net sales of $41,294,000 were $10,735,000, or 35% greater than the same
period last year. Gross margins in the third quarter were 32% in 1995 and 31%
in 1994. Year-to-date gross margins have remained constant at 32%. Operating
expenses as a percentage of sales for the first nine months have decreased
slightly from 24% in 1994 to 23.7% in 1995, while interest expense has
increased by 96% to $988,000, primarily due to additional borrowings associated
with the Centercom acquisition. The Company's tax rate in the first nine
months has increased from 38% in 1994 to 43% in 1995 due to the
nondeductability of certain expenses resulting from the Centercom acquisition.
Net income increased 60% in the third quarter to $586,000. Year-to-date, net
income from continuing operations has increased 24%, from $1,174,000 in 1994 to
$1,452,000 in 1995. The contribution each division made to these results is
discussed below.
COMMUNICATIONS DIVISION
The Communications Division's sales for the third quarter of 1995 were
$13,731,000, a 48% increase over last year's third quarter. For the first nine
months sales were $35,552,000, a 43% increase over the previous year. The
increase is due to the inclusion of revenue from Centercom, which was acquired
April 1, 1995 (see Note C) and a 19% increase in growth from preexisting
operations.
Gross margins as a percentage of sales have increased from 31% in the first
quarter of 1995 to 34% in the third quarter of 1995. The improvement reflects
management's efforts to offset material cost increases by selectively
increasing prices to its customers and by implementing cost containment
programs. For the first nine months of 1995, the gross margins of 33.1% were a
slight improvement over last year's 32.6%. For the third quarter gross margins
increased from 32% in 1994 to 34% in 1995.
Operating expenses as a percentage of sales have remained at 24% for the first
nine months of 1995 and 1994, as additional costs associated with the
acquisition of Centercom have been offset by the leveraging of fixed operating
costs with additional sales volume.
Interest expense in the first nine months increased from $300,000 in 1994 to
$775,000 in 1995. The increase was due to increased borrowings which were used
to fund the Company's growth and an increase of $5,000,000 in bank debt used to
finance the Centercom acquisition.
The increase in sales, and the improvement in gross margins, resulted in a 51%
increase in pretax profit in the third quarter from $827,000 in 1994 to
$1,252,000 in 1995. For the first nine months, pretax income has increased 30%
to $2,502,000.
PRODUCTS DIVISION
Sales from the Products Division were $1,149,000 in the third quarter of 1995,
a 6% decrease from the previous year's third quarter. For the first nine
months of 1995 sales have increased 2% to $5,742,000. The Company's primary
customers are gift shops in tourist areas, and management believes the flat
sales reflect the overall market condition, not a loss of market share.
Gross margins have declined for the first nine months from 30% in 1994 to 27%
in 1995 due primarily to increases in the cost of raw materials which had not
been passed on to customers. For the third quarter, gross margins decreased
from 23% in 1994 to 17% in 1995. The Company has increased its prices and
expects the margins to
- 7 -
<PAGE>
increase in 1996. Offsetting the decrease in gross margins has been a decrease
in operating expenses. As a percentage of sales, operating expenses have
decreased from 28% in 1995 to 25% in 1995.
These factors result in pretax income remaining at $61,000 for the first nine
months of 1995 and 1994. For the third quarter, the loss was $206,000 in 1995,
compared to a loss of $202,000 in the previous year's third quarter.
DISCONTINUED OPERATIONS
The discontinued operations resulted from the Company's sale of the operating
unit involved in the manufacture and sale of flag, float and display products.
The sale was completed on March 1, 1994 and the net gain on the sale was
approximately $554,000.
ACQUISITION OF CENTERCOM
On April 4, 1995 the Company acquired the capital stock of Centercom, Inc. and
Centercom South, Inc. (collectively "Centercom"), a videotape duplicator with
facilities in Milwaukee, Wisconsin; Chicago, Illinois; and Tampa, Florida. The
purchase price was $6,420,000 including $5,250,000 of cash and 180,000 shares
of Vaughn Common Stock valued at $1,170,000. In addition, the selling
shareholders of Centercom will be paid $200,000 a year for seven years under
non-compete and consulting agreements.
For the fiscal years ended June 30, 1994 and 1993, Centercom had annual sales
of $8,700,000 and $7,500,000 respectively, and net income of $649,000 and
$415,000.
The cash consideration was made available under a new credit agreement with the
Company's bank. The new agreement provides for $5,000,000 of long-term
financing to be used for the Centercom acquisition. The note has quarterly
principal payments of $250,000 commencing July 1, 1995 and an interest rate of
1/4% over the prime rate. In addition, the agreement provides for a revolving
credit facility of up to $8,000,000 (at the prime interest rate) to be used to
finance working capital. Three million dollars ($3,000,000) of the revolving
facility is available for long-term financing to replace existing debt and to
finance new equipment purchases. Of this amount, $850,000 was applied to repay
a like amount of Centercom long-term debt. The interest rate on the long-term
financing is 1/2% over the prime rate.
LIQUIDITY AND SOURCES OF CAPITAL
The Company generated approximately $2,947,000 of cash from operating
activities in the first nine months of 1995 compared to $257,000 in 1994. A
portion of this cash was used to reduce the Company's bank debt by
approximately $1,100,000.
Approximately $7,216,000 was used in investing activities for the first nine
months of 1995. The largest portion of cash was used for the acquisition of
Centercom (see discussion above). The Company used the bank line of credit to
provide $5,000,000 for the acquisition.
The Company's principal sources of liquidity continue to be operating income,
long-term borrowings secured by specific equipment, and its revolving credit
facility. At October 31, 1995, approximately $3,900,000 of this facility was
available and the Company believes that the liquidity provided by the sources
described above will be adequate for its immediate foreseeable needs.
The Company continues to investigate future expansion and acquisition
opportunities. As of October 31, 1995, no definitive agreements have been
reached regarding any such activity.
- 8 -
<PAGE>
PART II - OTHER INFORMATION
VAUGHN COMMUNICATION, INC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following is a list and Exhibit Index of the Exhibits filed
herewith.
NO. DESCRIPTION
---- ------------
(11) Computation of earnings per share
(27) Financial data schedule
(b) Reports on Form 8-K
During the quarter ended October 31, 1995 for which this Form 10-Q
is filed, the Company did not file with the Securities and Exchange
Commission any current reports on Form 8-K
- 9 -
<PAGE>
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.
Vaughn Communications, Inc.
--------------------------------------------
Date
----------------- ---------------------------------------------
E. David Willette, CEO and Treasurer
(Principal Executive and Financial Officer)
Date
----------------- ---------------------------------------------
M. Charles Reinhart, Controller
(Principal Accounting Officer)
- 10 -
<PAGE>
VAUGHN COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
October 31 October 31
---------- ----------
1995 1994 1995 1994
---- ---- ---- ----
PRIMARY:
<S> <C> <C> <C> <C>
Average shares outstanding 3,055,951 2,787,314 3,127,040 2,808,853
Net effect of dilutive stock options
based on the treasury stock method
using average market price 390,017 426,221 411,082 441,941
----------- ----------- ----------- ----------
TOTAL 3,445,968 3,213,535 3,538,122 3,250,795
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Income from continuing operations $ 1,452,289 $ 1,173,891 $ 585,822 $ 366,762
Income (loss) from discontinued
operations (net of tax benefit) - 493,353 - (3,985)
----------- ----------- ----------- ----------
Net Income $ 1,452,289 $ 1,667,244 $ 585,822 $ 362,777
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
PER SHARE AMOUNTS:
Income from continuing operations $ .42 $ .37 $ .17 $ .11
Income from discontinued operations - .15 - -
------ ------ ------ ------
$ .42 $ .52 $ .17 $ .11
------ ------ ------ ------
------ ------ ------ ------
FULLY DILUTED:
Average shares outstanding 3,055,951 2,787,314 3,127,040 2,808,853
Net effect of dilutive stock options
based on the treasury stock method
using the quarter-end market price
if higher than average market price 419,621 481,786 411,138 472,538
----------- ----------- ----------- ----------
TOTAL 3,475,572 3,269,100 3,538,178 3,281,391
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Income from continuing operations $ 1,452,289 $ 1,173,891 $ 585,822 $ 366,762
Income (loss) from discontinued
operations (net of tax benefit) - 493,353 - (3,985)
----------- ----------- ----------- ----------
Net Income $ 1,452,289 $ 1,667,244 $ 585,822 $ 362,777
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
PER SHARE AMOUNTS:
Income from continuing operations $ .42 $ .36 $ .17 $ .11
Income from discontinued operations - .15 - -
------ ------ ------ ------
$ .42 $ .51 $ .17 $ .11
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
EXHIBIT 11
- 11 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> OCT-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 9,074,221
<ALLOWANCES> 495,000
<INVENTORY> 7,696,836
<CURRENT-ASSETS> 17,719,173
<PP&E> 23,633,568
<DEPRECIATION> 15,435,082
<TOTAL-ASSETS> 30,402,004
<CURRENT-LIABILITIES> 12,102,679
<BONDS> 7,006,797
<COMMON> 0
0
313,290
<OTHER-SE> 10,940,368
<TOTAL-LIABILITY-AND-EQUITY> 30,402,004
<SALES> 41,294,321
<TOTAL-REVENUES> 41,294,321
<CGS> 27,966,813
<TOTAL-COSTS> 27,966,813
<OTHER-EXPENSES> 9,790,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 988,458
<INCOME-PRETAX> 2,547,289
<INCOME-TAX> 1,095,000
<INCOME-CONTINUING> 1,452,289
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,452,289
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
