<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 APRIL 30, 1996
-------------------------------------------------
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5050 WEST 78TH STREET, MINNEAPOLIS, MINNESOTA 55435
- --------------------------------------------- ---------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
612/832-3200
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 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 3,312,520 OUTSTANDING SHARES AS OF MAY 31, 1996.
<PAGE>
VAUGHN COMMUNICATIONS, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Balance Sheets - April 30, 1996 and January 31, 1996
Condensed Statements of Income - Three months ended April 30,
1996 and 1995
Condensed Statements of Cash Flows - Three months ended April 30,
1996 and 1995
Notes to Condensed Financial Statements - April 30, 1996
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>
April 30 January 31
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Trade accounts receivable, less allowance of $790,000
at April 30, 1996 and $556,000 at January 31, 1996. . . $14,034,644 $9,411,016
Inventories. . . . . . . . . . . . . . . . . . . . . . . 7,908,559 7,693,007
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 824,698 1,135,773
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . . 22,767,901 18,239,796
Property, plant and equipment. . . . . . . . . . . . . . . . 21,197,439 20,519,455
Less accumulated depreciation. . . . . . . . . . . . . . (13,029,605) (12,251,552)
----------- -----------
8,167,834 8,267,903
Intangible and other assets. . . . . . . . . . . . . . . . . 4,779,485 4,966,836
----------- -----------
$35,715,220 $31,474,535
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . $3,703,244 $2,572,849
Note payable to bank . . . . . . . . . . . . . . . . . . 6,038,497 3,632,907
Current portion of long-term debt and capital lease
obligations . . . . . . . . . . . . . . . . . . . . . . 4,310,688 2,778,552
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 2,260,106 1,607,774
----------- -----------
Total Current Liabilities. . . . . . . . . . . . . . 16,312,535 10,592,082
Long-term debt (less current portion). . . . . . . . . . . . 3,987,568 6,233,482
Capital lease obligations (less current portion) . . . . . . 1,359,016 1,293,545
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . 25,326 25,326
Shareholders' Equity
Common stock, par value $.10 per share:
Authorized 20,000,000 shares; issued and outstanding
April 30, 1996 - 3,307,775 shares; January 31, 1996 -
3,297,466 shares. . . . . . . . . . . . . . . . . . . . 330,777 329,747
Additional paid-in capital . . . . . . . . . . . . . . . 6,322,477 6,294,401
Retained earnings. . . . . . . . . . . . . . . . . . . . 7,377,521 6,705,952
----------- -----------
Total Shareholders' Equity . . . . . . . . . . . . . 14,030,775 13,330,100
----------- -----------
$35,715,220 $31,474,535
----------- -----------
----------- -----------
</TABLE>
Note: The balance sheet at January 31, 1996 has been derived from the audited
financial statements at that date.
See Notes to Condensed Financial Statements
- 2 -
<PAGE>
VAUGHN COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . $18,482,514 $12,373,415
Cost and Expenses:
Costs of goods sold . . . . . . . . . . . 12,531,530 8,533,146
Selling and administrative. . . . . . . . 4,483,632 2,984,748
Interest. . . . . . . . . . . . . . . . . 315,945 269,797
Other (Income). . . . . . . . . . . . . . (5,161) (8,577)
----------- -----------
17,325,946 11,779,114
----------- -----------
Income before income tax. . . . . . . . . . . 1,156,568 594,301
Income taxes. . . . . . . . . . . . . . . . . 485,000 245,000
----------- -----------
Net Income. . . . . . . . . . . . . . . . . . $ 671,568 $ 349,301
----------- -----------
----------- -----------
NET INCOME PER COMMON SHARE: $.18 $.10
---- ----
---- ----
</TABLE>
See Notes to Condensed Financial Statements
- 3 -
<PAGE>
VAUGHN COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $671,568 $349,301
Adjustments to reconcile net income to cash used in operations:
Depreciation and Amortization . . . . . . . . . . . . . . . 877,598 705,352
Receivables . . . . . . . . . . . . . . . . . . . . . . . . (4,507,073) (2,038,869)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . (215,552) (34,457)
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . 194,520 36,659
Accounts Payable. . . . . . . . . . . . . . . . . . . . . . 1,130,395 486,952
Other Liabilities . . . . . . . . . . . . . . . . . . . . . 652,332 (126,182)
----------- -----------
Net Cash used in Operating Activities . . . . . . . . . (1,196,212) (621,244)
INVESTING ACTIVITIES
Additions to Property, Plant, and Equipment . . . . . . . . . . (677,984) (683,340)
Purchase of Business less Cash acquired . . . . . . . . . . . . -- (5,327,601)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,806 27,768
----------- -----------
Net Cash used in Investing Activities . . . . . . . . . (590,178) (5,983,173)
FINANCING ACTIVITIES
Repayments of Long-Term Debt and Capital Leases . . . . . . . . (648,307) (354,648)
Borrowings under Revolver . . . . . . . . . . . . . . . . . . . 2,405,590 589,633
Lease Financing of Equipment. . . . . . . . . . . . . . . . . . -- 163,488
Increase in Bank Debt . . . . . . . . . . . . . . . . . . . . . -- 5,000,000
Common Stock Issued in Purchase of Business . . . . . . . . . . -- 1,170,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,107 35,944
----------- -----------
Net Cash provided by Financing Activities 1,786,390 6,604,417
Change 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>
See Notes to Condensed Financial Statements
- 4 -
<PAGE>
VAUGHN COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
April 30, 1996
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 month
period ended April 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending January 31, 1997. For further
information, refer to the audited consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended January 31, 1996.
- 5 -
<PAGE>
NOTE B - ACQUISITIONS
On April 4, 1995, the Company completed the acquisition of all 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 effective date of acquisition was
April 1, 1995, and was accounted for by the purchase method of the accounting
and, accordingly, results from operations have been included in the
consolidated financial statements from April 1, 1995.
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-compete and consulting agreements.
Goodwill recorded in this transaction will be amortized over 15 years using
the straight-line method.
On January 1, 1996, the Company completed the acquisition of substantially
all of the assets of Advanced Audio/Video Productions, Inc., a video tape
duplicator located in Denver, Colorado. The acquisition has been accounted
for by the purchase method of accounting and the consolidated statement of
income for the year ended January 31, 1996 includes the results of Advanced
Audio/Video from January 1, 1996.
The purchase price was approximately $282,000 including a cash payment by the
Company of approximately $182,000 and long-term debt to the seller of
$100,000. Goodwill recorded in this transaction will be amortized over 15
years using the straight-line method.
On January 31, 1996, the Company acquired the assets and assumed certain
liabilities of Indian Arts and Crafts, Inc., a gift products business located
in Seattle, Washington. The acquisition has been accounted for by the
purchase method of accounting, and the consolidated financial statements for
the year ended January 31, 1996 reflect the purchase of the business, but do
not include any results from operations since the transaction was completed
on the last day of the fiscal year.
The purchase price was approximately $2,332,000 including approximately
$82,000 of cash, 145,138 shares of Vaughn Communications, Inc. common stock
valued at $1,250,000, and long-term debt to the seller of $1,000,000.
Goodwill recorded in this transaction will be amortized over 10 years using
the straight-line method.
The pro forma unaudited results of operations, assuming consummation of all
acquisitions as of February 1, 1995, are as follows:
<TABLE>
<CAPTION>
Three Months Ended April 30
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net Sales. . . . . . . . . . . . . . $18,483,000 $16,171,000
Net Income . . . . . . . . . . . . . 672,000 421,000
Net Income per Common Share. . . . . $.18 $.11
</TABLE>
- 6 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net sales increased 49% in the first quarter of 1996 to $18,483,000, up
$6,110,000 over the first quarter 1995. Factors contributing to the sales
increase include continuing growth in the sale of videotape duplication and
additional sales associated with the acquisition of Indian Arts and Crafts,
Inc. ("IAAC") which was completed January 31, 1996. Gross margins as a
percentage of sales increased from 31% in the first quarter of 1995 to 32% in
the first quarter of 1996. Operating expenses for the first quarter of 1996
remained at 24% as a percentage of sales, while interest expense increased
$46,000 (or 17%) from last year due to higher levels of bank borrowings
necessitated by growth. The Company's effective tax rate in the first quarter
of 1996 remained approximately the same as the prior year's first quarter.
Net income for the first quarter of 1996 was $672,000, a 92% increase from
the prior year's first quarter. The contribution each division made to these
results is discussed below.
COMMUNICATIONS DIVISION
The Communication Division's net sales of $13,210,000 in the first quarter of
1996 were $3,130,000, or 31% higher than the previous year's first quarter.
Approximately $1,400,000 of the increase can be attributed to the inclusion
of three months of revenues associated with the acquisition of Centercom,
compared to one month of revenue in the first quarter of 1995. Excluding the
additional sales from the acquisition, sales increased by 20% for the quarter.
Gross margins as a percentage of sales increased from 31% in the first
quarter of last year to 32% for the current year's first quarter. The
improvement in gross margins reflects the Company's continued efforts of cost
containment and improvements in operating efficiencies.
Selling and administrative expenses increased slightly as a percentage of net
sales in the first quarter of 1996 compared to the first quarter of 1995 as a
result of additional expenses associated with the sales growth and
acquisitions.
Pretax income increased 30% in the first quarter of 1996 to $613,000, up
$143,000 over the first quarter of 1995. The improvement in pretax income is
the result of improved sales and gross margins being somewhat offset by an
increase in operating expenses. Interest expense increased in the first
quarter from 194,000 in 1995 to $222,000 in 1996.
PRODUCTS DIVISION
The Products Division's net sales increased 130% in the first quarter of
1996, from $2,293,000 to $5,273,000. The increase was due to the acquisition
of IAAC on January 31, 1996. Sales from the IAAC product line totaled
$3,160,000 for the first quarter of 1996 and offset a slight decrease in
sales (8%) from the preexisting operations. The operations of IAAC are
seasonal, with approximately 80% of the sales occurring in the first half of
the year to serve the summer tourist industry.
The gross margin percentage increased from 29% in the first quarter of 1995
to 32% in 1996. The improvement can be attributed to a slight decrease in
raw material costs and the increased sales volume which improved the leverage
of fixed costs.
The increased sales and the acquisition resulted in an 109% increase in
operating expenses, from $522,000 to $1,091,000 in the first quarter of 1996.
As a percentage of sales, operating expenses declined from 23% in the first
quarter of 1995 to 21% in 1996.
As a result of the increase in sales and the improvement in gross margins,
pretax income increased 338% from $124,000 in the first quarter of 1995 to
$543,000 in the first quarter of 1996.
- 7 -
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
The Company used approximately $1,196,000 of cash in operating activities in
the first quarter of 1996 compared to $621,000 used in the same period in
1995. The increase in net income for the period was offset by increases in
working capital accounts. Accounts receivable balances increased $4,500,000
from year end as a result of the sales growth in the Products Division which
grants its customers extended credit terms.
The Company's principal sources of liquidity continue to be operating income,
long-term debt secured by specific equipment, and its revolving credit
facility. At April 30, 1996, approximately $6,500,000 of this facility was
available, and the Company believes that the liquidity provided by the
sources described above will be adequate to meet its normal operating
requirements over the near term. The Company continues to investigate
potential acquisitions, and depending on the size and structure of the
transaction, additional funding may be required. As of May 31, 1996, no
definitive agreements have been reached regarding any such acquisitions.
- 8 -
<PAGE>
PART II - OTHER INFORMATION
VAUGHN COMMUNICATIONS, 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 PAGE
---- ----------- ----
(11) Computation of earnings per share
(27) Financial data schedule
(b) Reports on Form 8-K
During the quarter ended April 30, 1996, 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.
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)
- 9 -
<PAGE>
VAUGHN COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended April 30
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
PRIMARY:
Average Shares Outstanding . . . . . . . . . . 3,301,187 2,921,696
Net effect of dilutive stock options based on
the treasury stock method using average
market price . . . . . . . . . . . . . . . . 401,724 486,386
----------- -----------
TOTAL. . . . . . . . . . . . . . . . . . . 3,702,911 3,408,082
----------- -----------
----------- -----------
Net Income . . . . . . . . . . . . . . . . . . $ 671,568 $ 349,301
----------- -----------
----------- -----------
NET INCOME PER SHARE $ .18 $ .10
----- -----
----- -----
FULLY DILUTED:
Average shares outstanding . . . . . . . . . . 3,301,187 2,921,696
Net effect of dilutive stock options based on
the treasury stock method using the quarter-
end market price if higher than average
market price . . . . . . . . . . . . . . . . 402,988 486,821
----------- -----------
TOTAL. . . . . . . . . . . . . . . . . . . 3,704,175 3,408,517
----------- -----------
----------- -----------
Net Income . . . . . . . . . . . . . . . . . . $ 671,568 $ 349,301
----------- -----------
----------- -----------
NET INCOME PER SHARE: $ .18 $ .10
----- -----
----- -----
</TABLE>
- 10 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 14,824,644
<ALLOWANCES> 790,000
<INVENTORY> 7,908,559
<CURRENT-ASSETS> 22,767,901
<PP&E> 21,197,439
<DEPRECIATION> 13,029,605
<TOTAL-ASSETS> 35,715,220
<CURRENT-LIABILITIES> 16,312,535
<BONDS> 5,346,584
0
0
<COMMON> 330,777
<OTHER-SE> 13,699,998
<TOTAL-LIABILITY-AND-EQUITY> 35,715,220
<SALES> 18,482,514
<TOTAL-REVENUES> 18,482,514
<CGS> 12,531,530
<TOTAL-COSTS> 12,531,530
<OTHER-EXPENSES> 4,478,471
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315,945
<INCOME-PRETAX> 1,156,568
<INCOME-TAX> 485,000
<INCOME-CONTINUING> 671,568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 671,568
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
