<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 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 1-10263
--------
T/SF COMMUNICATIONS CORPORATION
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-1341805
- - ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2407 East Skelly Drive, Tulsa, Oklahoma 74105
- - ---------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (918) 747-2600
--------------------------
N/A
- - ------------------------------------------------------------------------------
(Former Name of Registrant)
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.10
Par Value Per Share.
At November 13, 1996, there were 3,354,276 shares of the registrant's Common
Stock outstanding.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ____ No ____
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T/SF COMMUNICATIONS CORPORATION
INDEX
Page No.
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PART I Financial Information
Item 1
------
Consolidated Balance Sheets - September 30, 1996 4-5
(unaudited) and December 31, 1995
Consolidated Statements of Operations - Three Months 6
and Nine Months Ended September 30, 1996 and 1995
(unaudited)
Consolidated Statements of Cash Flows - Nine Months 7-8
Ended September 30, 1996 and 1995 (unaudited)
Notes to Consolidated Financial Statements 9-11
Item 2
------
Management's Discussion and Analysis of Financial 11-13
Condition and Results of Operations
PART II Other Information
Item 6
------
Exhibits and Reports on Form 8-K 13
2
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PART I
Item 1. Financial information
3
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T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,236 $ 13,383
Short-term investments - 1,000
Accounts receivable, less reserve for doubtful accounts
of $654 in 1996 and $516 in 1995 9,462 8,209
Inventories 192 181
Deferred tax assets 824 494
Current contract receivable and other current assets 3,698 3,050
Refundable income taxes 1,849 3,239
----------- ----------
Total current assets 21,261 29,556
----------- ----------
Contract and Notes Receivable and Investments 1,487 2,721
----------- ----------
Property, Plant and Equipment, at cost
Exposition equipment 3,147 2,987
Other 7,697 6,653
----------- ----------
10,844 9,640
Less - accumulated depreciation 6,121 4,739
----------- ----------
4,723 4,901
----------- ----------
Deferred Tax Assets 446 1,456
----------- ----------
Intangibles and Other Assets, net 31,437 14,810
----------- ----------
$ 59,354 $ 53,444
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,250 $ 4,200
Accrued liabilities 4,622 5,509
Deferred revenue 8,118 3,255
Current portion of long-term debt 888 1,266
----------- ----------
Total current liabilities 18,878 14,230
----------- ----------
Long-term Debt 3,769 4,529
----------- ----------
Deferred Contract Liabilities and Credits 1,703 2,199
----------- ----------
Stockholders' Equity:
Preferred stock, $10 par value, 1,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.10 par value, 10,000 shares authorized,
3,354 and 3,349 shares issued and outstanding 333 332
Additional paid-in capital 13,559 13,475
Retained earnings 21,112 18,679
----------- ----------
Total stockholders' equity 35,004 32,486
----------- ----------
$ 59,354 $ 53,444
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Unaudited)
Revenues:
Operating revenues $ 14,071 $ 11,526 $ 43,377 $ 41,160
Interest income and other 642 637 1,728 1,439
Gain on sale of trade journals - 11,739 - 11,739
-------- -------- -------- --------
14,713 23,902 45,105 54,338
-------- -------- -------- --------
Costs and Expenses:
Operating costs 9,166 8,527 27,549 28,938
General and administrative 3,713 2,393 10,289 8,055
Interest 125 217 413 651
Depreciation and amortization 1,045 829 2,843 2,735
-------- -------- -------- --------
14,049 11,966 41,094 40,379
-------- -------- -------- --------
Income before income taxes 664 11,936 4,011 13,959
Income tax provision ( 239) ( 1,306 ) ( 1,578 ) ( 2,201 )
Minority interest in consolidated
subsidiaries - - - ( 266 )
-------- -------- -------- --------
Income from continuing operations 425 10,630 2,433 11,492
Discontinued operation, net - ( 3 ) - ( 18 )
-------- -------- -------- --------
Net income $ 425 $ 10,627 $ 2,433 $ 11,474
======== ======== ======== ========
Earnings per common and
common equivalent share:
Continuing operations $ 0.12 $ 2.78 $ 0.69 $ 2.98
Discontinued operations - - - -
-------- -------- -------- --------
$ 0.12 $ 2.78 $ 0.69 $ 2.98
======== ======== ======== ========
Cash dividends per common share $ - $ - $ - $ 0.27
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
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T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,433 $ 11,474
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,843 2,735
Accretion of interest expense 177 83
Gain on sale of assets ( 328) ( 11,719)
Changes in assets and liabilities:
Accounts receivable ( 178) ( 566)
Inventories ( 11) 94
Other current assets ( 645) ( 1,939)
Intangibles and other assets ( 150) ( 164)
Accounts payable and accrued liabilities 465 90
Deferred revenue 4,863 3,907
Minority interest - 266
Deferred income taxes 766 ( 514)
-------- --------
Total adjustments 7,802 ( 7,727)
-------- --------
Net cash provided by operating activities 10,235 3,747
-------- --------
Cash flows from investing activities:
Sale of short-term investments 1,000 1,000
Capital expenditures ( 1,955) ( 2,062)
Collections on contract and notes receivable 1,305 5,178
Payments on deferred contract liabilities ( 603) ( 499)
Additions to investments, net ( 27) ( 289)
Proceeds from the sale of assets 770 18,537
Payments for acquisitions, net of cash acquired ( 15,691) -
-------- --------
Net cash provided by (used in) investing activities ( 15,201) 21,865
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
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T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1996 1995
------- --------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Principal payments of long-term debt ( 3,265) ( 2,250)
Issuance of common stock 84 21
Acquisition of common stock retired - ( 5,113)
Purchase of parent stock - ( 7,861)
Dividends on common and preferred stock - ( 1,051)
------- --------
Net cash used in financing activities ( 3,181) ( 16,254)
------- --------
Net increase (decrease) in cash and cash equivalents ( 8,147) 9,358
Cash and cash equivalents at beginning of period 13,383 4,585
------- --------
Cash and cash equivalents at end of period $ 5,236 $ 13,943
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
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T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
For the three months and nine months ended September 30, 1996 and 1995
1. Basis of Presentation
The accompanying unaudited consolidated 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 of the Securities and Exchange Commission. Accordingly, the
financial statements do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the three months and nine months ended September 30,
1996, are not necessarily indicative of the results to be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements and related notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
On May 25, 1995, Tribune/Swab-Fox Companies, Inc. ("Tribune/Swab-Fox") was
merged (the "Merger") with and into the Company. While the Merger was
structured for legal purposes as a merger of Tribune/Swab-Fox with and into the
Company, for accounting purposes, the Merger has been treated as a
recapitalization of Tribune/Swab-Fox, with Tribune/Swab-Fox as the survivor
(downstream merger). Accordingly, the historical financial statements of the
Company, as the surviving entity, are the historical financial statements of
Tribune/Swab-Fox. Earnings per share for the period prior to the Merger have
been restated to reflect the number of equivalent shares giving effect to the
recapitalization.
2. Common Stock and Earnings Per Share
Weighted average common and common equivalent shares issued and outstanding
during the three months and nine months ended September 30, 1996, were 3,550,000
and 3,537,000, respectively, and the weighted average equivalent shares for the
three months and nine months ended September 30, 1995, were 3,817,000 and
3,852,000, respectively.
3. Income Taxes
The income tax provision for the three months and nine months ended
September 30, 1996 and 1995, does not bear a normal relationship to the
statutory federal income tax rate of 34%, mainly as a result of amortization of
goodwill related to acquisitions, a change in the valuation reserve related to a
net operating loss carryforward and state income taxes.
4. Significant Acquisition
On August 15, 1996, the Company acquired all of the issued and outstanding
capital stock of CORSEARCH, Inc., a Delaware corporation ("CORSEARCH"), based in
New York,
9
<PAGE>
New York. CORSEARCH is a leading provider of trademark and tradename research
and information services, utilizing both proprietary and public databases.
The Company paid $14,400,000 in cash and $900,000 in notes and assumed
approximately $1,300,000 in additional non-operating liabilities to acquire the
stock of CORSEARCH. In addition, the Company agreed to pay additional
consideration in the year 2000 to the two senior managers/stockholders of
CORSEARCH, predicated upon CORSEARCH achieving certain pre-tax income levels in
the years 1997, 1998 and 1999. The minimum agreed additional consideration of
$1,500,000 was recorded at the current discounted amount of approximately
$1,100,000. The Company used available working capital funds and a $3 million
advance under its bank credit facility to acquire CORSEARCH. Subsequently, the
Company has paid off the $3 million advance.
In connection with the closing of the acquisition, CORSEARCH entered into
employment agreements with its two senior managers which provide for base
salaries, bonuses based on achieving escalating "net income" targets and
covenants not to compete. These employment agreements run through December 31,
1999.
CORSEARCH's assets include proprietary databases, two large mini-computers
to access the databases, telecommunication equipment, furniture and office
equipment, and $200,000 of working capital.
The Company accounted for this acquisition under the purchase method and
recorded approximately $16,700,000 as costs in excess of assets acquired (i.e.
goodwill) which will be amortized over 30 years.
The results of operations of CORSEARCH are included in the Company's
results of operations since the August 15, 1996, acquisition date. If the
acquisition had been consummated as of January 1, 1995, the Company's unaudited
pro forma revenues and net income for the nine months ended September 30, 1996
and 1995, would have been as follows; however, such pro forma information is not
necessarily indicative of what actually would have occurred had the transactions
occurred on that date.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1996 1995
-------------------
(In thousands)
<S> <C> <C>
Revenues $49,279 $58,731
Net income $ 2,492 $10,817
Net income per share $ 0.70 $ 2.81
</TABLE>
10
<PAGE>
5. Reclassification
Certain reclassifications have been made to the 1995 financial statements to
conform to the presentation in the 1996 financial statements. These
reclassifications had no effect on results of operations for 1995.
6. Bank Financing
Effective June 30, 1996, the Company replaced its bank lines of credit
(totaling $3,750,000) with a $16,000,000 line of credit, interest at New York
prime rate, which can be used for acquisitions and working capital. The line of
credit includes the option to convert outstanding balances to term loans,
payable in semi-annual installments over four years, and is secured by the
pledge of the common stock of the Company's operating subsidiaries. No balance
was outstanding on the line of credit at September 30, 1996.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-----------------------------------
Results of Operations
- - ---------------------
Revenues of $14,713,000 for the three months and $45,105,000 for the nine
months ended September 30, 1996, were $9,189,000 and $9,233,000, respectively,
lower than for the same periods ended September 30, 1995. The revenue decrease
for both the three month and nine month periods in 1996 is mainly a result of
the $11,739,000 gain on sale of trade journals which occurred in the three
months ended September 30, 1995. Partially offsetting this decrease is revenue
from CORSEARCH of $896,000 from the date of its acquisition (August 15, 1996)
through September 30, 1996. In addition, exposition services revenue increased
$405,000 during the three months and $4,031,000 during the nine months ended
September 30, 1996, with substantial growth occurring in this division related
to new trade show customers, large bi-annual trade shows which have occurred in
1996 and the effect of the favorable economy resulting in an increase in trade
show registrations and exhibitors, along with the effect in 1996 of price
increases that were effective in mid-1995 for rental of Expocard reader boxes.
Publishing revenues increased slightly during the three months ended September
30, 1996, as a result of an increase in advertising pages in 1996, and decreased
$5,763,000 during the nine months in 1996, since the trade journals sold had
revenues of approximately $6,400,000 in 1995 through the date of sale.
Information services revenue increased $1,108,000 for the three months and
$3,070,000 for the nine months ended September 30, 1996, respectively,
attributable to continued growth in the volume of employment histories sold,
volume of criminal records sold, and pre-employment screening services outside
the trucking industry.
Interest income and other for the nine months ended September 30, 1996, is
higher than the same period in 1995, substantially all related to interest
earned on cash and short-term investments until the funds were substantially
used in the CORSEARCH acquisition.
11
<PAGE>
Operating costs and expenses were $639,000 higher for the three months and
$1,389,000 lower for the nine months ended September 30, 1996, as compared with
the same periods in 1995. The decrease for the nine months is related to
publishing costs in 1995 of approximately $3,200,000 for the period in 1995
until the three trade journals were sold. The increase for the three months and
a partial offset to the decrease for the nine months in 1996 include: an
increase in exposition services costs of approximately $250,000 for the three
months and $1,100,000 for the nine months ended September 30, 1996, consisting
of costs related to the increase in registration services volume and payroll
costs of operating personnel that had been hired mainly in the first quarter of
1995 at both operating units in the exposition services division; an increase in
information services costs of approximately $280,000 for the three months and
$1,070,000 for the nine months ended September 30, 1996, attributable to
criminal records volume increase and personnel for new products or expanded
markets reduced by lower costs related to non-trucking employment screening
services, which costs were pared back in late 1995 in connection with a more
focused marketing of these services; and operating expenses of CORSEARCH since
the date of acquisition, of approximately $300,000. Also, publishing costs at
International Gaming and Wagering Business have increased related to expansion
- - ------------------------------------------
into Europe, a new seminar in Mexico and additional personnel during 1996.
General and administrative expenses were $1,320,000 higher for the three
months and $2,234,000 higher for the nine months ended September 30, 1996, as
compared with the same periods in 1995. The 1996 reduction in expenses
attributable to the trade journals sold in 1995 was more than offset by
increases in expenses at the other divisions related to continued growth, the
expenses of CORSEARCH since the date of acquisition, legal and accounting
consulting costs related to various income tax examinations which have been in
progress during 1996, a provision for losses of prepaid production costs, which
prepayments were made to a digital information vendor during 1995 and early
1996, and a $450,000 loss on the remaining amounts due from the buyer of
Shopper's Guide assets when a final payment of $200,000 was received in July,
1996, upon sale of the assets by the buyer to a third party.
Interest expense decreased $92,000 for the three months and $238,000 for
the nine months ended September 30, 1996, as compared with the same periods in
1995, resulting from the payoff of a note with a balance of approximately
$2,500,000 during the second quarter of 1996, and principal payments on other
debt during the past year. Also, in late May, 1995, the Company borrowed
$2,000,000 under one of its lines of credit in connection with the Merger and
the related acquisition of equivalent shares for cash (this borrowing was repaid
in early August, 1995), which increased interest expense in 1995.
Depreciation and amortization increased $216,000 for the three months and
$108,000 for the nine months ended September 30, 1996, as compared with the same
periods in 1995. Substantially all of the increase is related to the
depreciable assets of CORSEARCH which was acquired August 15, 1996, including
the amortization of goodwill related to the purchase costs. The increase in
depreciation and amortization of capital expenditures during the last year
substantially offset the decrease in depreciation and amortization of the assets
sold in August, 1995.
12
<PAGE>
Provision for income taxes as a percent of income before income taxes is
lower than the statutory federal income tax rate of 34% for 1995 mainly because
of the reduction in the valuation reserve related to a net operating loss
carryforward and is higher than the statutory Federal income tax rate of 34% for
1996 as a result of goodwill amortization related to acquisitions not being
deductible for income tax purposes and state income taxes.
Financial Condition
-------------------
The changes in the Company's financial condition during the nine months
ended September 30, 1996, are mainly related to cash used to acquire CORSEARCH,
cash used to pay certain long-term debt and the increase in intangible assets
related to the CORSEARCH acquisition. Deferred revenues include amounts related
to the World Gaming Congress held in October, 1996.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
2.1 Stock Purchase Agreement (CORSEARCH, Inc.), dated August 15, 1996
(incorporated by reference to Exhibit 2.1 to the Company's report
on Form 8-K dated August 15, 1996).
99.1 Employment Agreement, dated August 15, 1996, by and between
CORSEARCH, Inc., and Robert Frank (incorporated by reference to
Exhibit 99.1 to the Company's report on Form 8-K dated August 15,
1996).
27 Financial data schedule.
(b) Reports on Form 8-K.
On August 30, 1996, the Company filed a report on Form 8-K to report
under Item 2 the acquisition on August 15, 1996, of CORSEARCH, Inc. On
October 29, 1996, the Company amended this Form 8-K in order to include
financial statements as required by Item 7 with respect to the acquisition
of CORSEARCH, Inc.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T/SF COMMUNICATIONS CORPORATION
(Registrant)
Date: November 13, 1996 By: /s/ Howard G. Barnett, Jr.
----------------------------------------
Howard G. Barnett, Jr.
Chairman, Chief Executive Officer
and President
Date: November 13, 1996 By: /s/ J. Gary Mourton
----------------------------------------
J. Gary Mourton, Senior Vice
President-Finance and Chief
Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,236
<SECURITIES> 0
<RECEIVABLES> 10,116
<ALLOWANCES> 654
<INVENTORY> 192
<CURRENT-ASSETS> 21,261
<PP&E> 10,844
<DEPRECIATION> 6,121
<TOTAL-ASSETS> 59,354
<CURRENT-LIABILITIES> 18,878
<BONDS> 3,769
333
0
<COMMON> 0
<OTHER-SE> 34,671
<TOTAL-LIABILITY-AND-EQUITY> 59,354
<SALES> 43,377
<TOTAL-REVENUES> 45,105
<CGS> 27,549
<TOTAL-COSTS> 27,549
<OTHER-EXPENSES> 13,132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 413
<INCOME-PRETAX> 4,011
<INCOME-TAX> 1,578
<INCOME-CONTINUING> 2,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,433
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
