<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, 1997
------------------------------------------------
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 3,727,660 OUTSTANDING SHARES AS OF MAY 31, 1997.
<PAGE>
VAUGHN COMMUNICATIONS, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Balance Sheets - April 30, 1997 and January 31, 1997
Condensed Statements of Income - Three months ended April 30,
1997 and 1996
Condensed Statements of Cash Flows - Three months ended April 30,
1997 and 1996
Notes to Condensed Financial Statements - April 30, 1997
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
ASSETS 1997 1997
---- ----
<S> <C> <C>
Current Assets
Trade accounts receivable, less allowance of $723,000 at
April 30, 1997 and $650,000 at January 31, 1997 $13,923,842 $10,685,149
Inventories 10,093,558 9,256,455
Other 384,500 1,626,542
----------- -----------
Total Current Assets 24,401,900 21,568,146
Property, plant and equipment 25,434,844 24,953,876
Less accumulated depreciation 17,077,335 16,237,440
----------- -----------
8,357,509 8,716,436
Intangible and other assets 4,285,820 4,466,641
----------- -----------
$37,045,229 $34,751,223
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 3,742,022 $ 2,982,508
Note payable to bank 6,513,413 4,781,312
Salaries, wages and payroll taxes 241,198 696,894
Current portion of long-term debt and capital lease obligations 2,721,494 2,830,033
Other 1,218,823 1,009,306
----------- -----------
Total Current Liabilities 14,436,950 12,300,053
Long-term debt (less current portion) 4,209,784 4,563,880
Capital lease obligations (less current portion) 753,775 963,533
Deferred taxes 75,326 75,326
Shareholders' Equity
Common stock, par value $.10 per share:
Authorized 20,000,000 shares; issued and outstanding
April 30, 1997 - 3,726,978 shares; January 31, 1997 -
3,726,513 shares 372,697 372,652
Additional paid-in capital 7,579,783 7,578,406
Retained earnings 9,616,914 8,897,373
----------- -----------
Total Shareholders' Equity 17,569,394 16,848,431
$37,045,229 $34,751,223
----------- -----------
----------- -----------
</TABLE>
Note: The balance sheet at January 31, 1997 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)
Three Months Ended
April 30
---------------------------
1997 1996
---- ----
Net Sales $18,265,539 $19,315,765
Cost and Expenses:
Costs of goods sold 12,084,036 13,086,771
Selling and administrative 4,661,048 4,772,840
Interest 307,498 340,192
Other (Income) (21,576) (5,161)
----------- -----------
17,031,006 18,194,642
----------- -----------
Income before income tax 1,234,533 1,121,123
Income taxes 515,000 485,000
----------- -----------
Net Income $ 719,533 $ 636,123
----------- -----------
----------- -----------
NET INCOME PER COMMON SHARE: $.19 $.16
---- ----
---- ----
See Notes to Condensed Financial Statements
- 3 -
<PAGE>
VAUGHN COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30
-------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $719,533 $636,123
Adjustments to reconcile net income to cash used in operations:
Depreciation and Amortization 918,563 902,525
Receivables (3,170,631) (4,377,101)
Inventories (837,104) (236,907)
Other Assets 1,008,993 240,829
Accounts Payable 759,517 1,178,523
Other Liabilities (81,192) 604,493
---------- ----------
Net cash provided by (used in) operating activities (682,321) (1,051,515)
INVESTING ACTIVITIES
Additions to property, plant, and equipment (480,968) (678,109)
Purchase of business less cash acquired 0 0
Other 102,159 87,806
---------- ----------
Net cash used in investing activities (378,809) (590,303)
FINANCING ACTIVITIES
Repayments of long-term debt and capital leases (672,393) (792,877)
Borrowings under revolver 1,732,101 2,405,590
Other 1,422 29,105
---------- ----------
Net cash provided in financing activities 1,061,130 1,641,818
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, 1997
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,
1997 are not necessarily indicative of the results that may be expected for the
year ending January 31, 1998. 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, 1997. Prior
period financial statements have been restated to reflect the June 28, 1996
merger with Satastar Corporate Services, Inc., which was accounted for as a
pooling of interests (See Note B).
NOTE B - MERGER WITH SATASTAR CORPORATE SERVICES, INC.
Satastar Corporate Services, Inc. (dba PVS Corporate Services), a videotape
duplicator located in Chicago, Illinois, was merged with the Company on June 28,
1996 by the issuance of 165,357 shares of common stock, $.10 par value, in
exchange for all of the outstanding capital stock of Satastar Corporate
Services, Inc. The business combination has been accounted for as a pooling of
interest, and, accordingly, the financial statements have been restated to
include the combined results of operations from the date Satastar commenced
operations.
Included in the results of operations for the period ended April 30, 1996 are
the following results of the previously separate companies for the period of
February 1, 1996 to April 30, 1996:
Three Months Ended April 30, 1996
---------------------------------
Company Satastar Combined
------- -------- --------
Net Sales $18,482,500 $833,300 $19,315,800
Net Income (Loss) 671,600 (35,500) 636,100
NOTE C - EARNINGS PER SHARE
In February, 1997 the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in no change
in primary earnings per share for the first quarter ended April 30, 1997 and an
increase of $.02 per share in primary earnings per share for the first quarter
ended April 30, 1996. The impact of Statement 128 on the calculation of fully
diluted earnings per share for these quarters is not expected to be material.
- 5 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net sales decreased 5% in the first quarter from $19,316,000 in 1996 to
$18,266,000 in 1997. The decrease in sales was primarily attributable to the
Products Division, where sales declined by $980,000 from the previous year's
first quarter. Gross margins as a percentage of sales increased from 32% in the
first quarter of 1996 to 34% in the first quarter of 1997. Operating expenses
in the first quarter of 1997 declined by approximately $112,000, or 2%, from the
first quarter of 1996. Interest expense also declined slightly in the first
quarter of 1997 due to lower levels of borrowings. The Company's effective tax
rate in the first quarter of 1997 was approximately the same as the prior year's
first quarter. The improvement in gross margins, and the decrease in expenses
offset the decrease in sales and resulted in a 13% increase in net income, from
$636,000 in the first quarter of 1996 to $720,000 in the first quarter of 1997.
The contribution each division made to these results is outlined below.
COMMUNICATIONS DIVISION
The Communications Division's net sales of $13,970,000 in the first quarter of
1997 were approximately the same as the previous year's first quarter. The
Company has twelve duplication facilities throughout the United States, and the
sales performance from these facilities has been mixed. Six of the facilities
have had significant (34%) sales growth from the previous year, while the
remaining facilities are either even with or behind last year's sales. The
Company continues its efforts to improve the underperforming facilities and
maintain the growth in the other facilities.
Gross margins as a percentage of sales increased from 32% in the first quarter
of last year to 34% 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 administration expenses increased 3% in the first quarter of 1997
compared to the prior year's first quarter. The Company has instituted an
expense control program to ensure that operating expenses do not grow faster
than sales in the future.
The increase in operating expense was more than offset by the improvement in
gross margins and resulted in a 46% increase in pretax income, from $578,000 in
1996 to $844,000 in the first quarter of 1997.
PRODUCTS DIVISION
The Products Division's net sales decreased 19% in the first quarter of 1997,
from $5,273,000 to $4,293,000. The decrease can be attributed in part to the
seasonal nature of the business and the need to ship a great majority of its
products in a short period of time. Last year, the Company was shipping from
two facilities -- Minneapolis and Seattle. With the merger of the two
operations in Seattle, it has proven to be more difficult to ship the same
volume from the single facility compared to the volume which was shipped from
two facilities last year. The Company has orders that are approximately
equal to last year and expects to be able to at least partially make up the
sales short-fall in the next several months.
The gross margin percentage decreased from 32% in the first quarter of 1996 to
30% in 1997. The decrease can be attributed primarily to the decrease in sales.
Selling and administrative expenses decreased by 21% in the first quarter, from
$1,091,000 in 1996 to $862,000 in 1997, and reflects the Company's efforts at
cost control and the merger of the operations into one facility. The reduction
in operating expenses helped to partially offset the decrease in sales and gross
margins. However, pretax income in the first quarter of 1997 was $390,000, a
28% decrease from the prior year's first quarter pretax income of $543,000.
- 6 -
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
The Company used approximately $682,000 of cash in operating activities in the
first quarter of 1997 compared to $1,051,000 used in the same period in 1996.
The increase in net income for the period and improvement in working capital
accounts accounted for the improvements. Accounts receivable balances increased
$3,170,000 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 31, 1997, approximately $6,400,000 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, 1997, no definitive agreements have been reached regarding any
such acquisitions.
- 7 -
<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, 1997, 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 June 6, 1997 /s/ E. David Willette
-------------------- ---------------------------------------------
E. David Willette, CEO
(Principal Executive Officer)
Date June 6, 1997 /s/ M. Charles Reinhart
-------------------- ---------------------------------------------
M. Charles Reinhart, Controller
(Principal Accounting Officer)
- 8 -
<PAGE>
VAUGHN COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
April 30
------------------
1997 1996
---- ----
<S> <C> <C>
PRIMARY:
Average shares outstanding 3,726,832 3,466,544
Net effect of dilutive stock options based on the
treasury stock method using average market
price 140,465 401,724
---------- ----------
TOTAL 3,867,297 3,868,268
---------- ----------
---------- ----------
Net Income $ 719,533 $ 636,123
---------- ----------
---------- ----------
Net income per share $ .19 $ .16
----- -----
----- -----
FULLY DILUTED:
Average shares outstanding 3,726,832 3,466,544
Net effect of dilutive stock options based on the
treasury stock method using the quarter-end
market price if higher than average market price 140,482 402,988
---------- ----------
TOTAL 3,867,314 3,869,532
---------- ----------
---------- ----------
Net Income $ 719,533 $ 636,123
---------- ----------
---------- ----------
NET Income per Share: $ .19 $ .16
----- -----
----- -----
</TABLE>
- 9 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 14,646,842
<ALLOWANCES> 723,000
<INVENTORY> 10,093,558
<CURRENT-ASSETS> 24,401,900
<PP&E> 25,434,844
<DEPRECIATION> 17,077,335
<TOTAL-ASSETS> 37,045,229
<CURRENT-LIABILITIES> 14,436,950
<BONDS> 4,963,559
0
0
<COMMON> 372,697
<OTHER-SE> 17,196,697
<TOTAL-LIABILITY-AND-EQUITY> 37,045,229
<SALES> 18,265,539
<TOTAL-REVENUES> 18,265,539
<CGS> 12,084,036
<TOTAL-COSTS> 12,084,036
<OTHER-EXPENSES> 4,639,472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 307,498
<INCOME-PRETAX> 1,234,533
<INCOME-TAX> 515,000
<INCOME-CONTINUING> 719,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 719,533
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
