SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
Commission File Number 000-23388
INTERNATIONAL POST LIMITED
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
545 Fifth Avenue New York, NY 10017
(Address and zip code of principal executive offices)
13-3735647
(IRS Employer Identification Number)
(212) 986-6300
(Registrant's telephone number, including area code)
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 twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock, $.01 par value
per share, as of December 11, 1996, was 6,226,958.
<PAGE>
INTERNATIONAL POST LIMITED
PART I
FINANCIAL INFORMATION
The audited consolidated financial information at July 31, 1996 and the
unaudited consolidated financial information at October 31, 1996 and for the
three month period ended October 31, 1996 and 1995 relate to International Post
Limited and its subsidiaries.
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of
July 31, 1996 and October 31, 1996 3
Consolidated Statements of Income for the
three months ended October 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
three months ended October 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4 SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
2
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of July 31, 1996 and October 31, 1996
(in thousands)
<TABLE>
<CAPTION>
July 31, October 31,
1996 1996
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 104 $ 164
Accounts receivable, net ........................ 10,308 11,894
Deferred income taxes ........................... 597 597
Prepaid expenses and other current assets ....... 1,654 2,632
------- -------
Total current assets........................ 12,663 15,287
Fixed assets, net ............................... 29,533 29,038
Excess of cost over fair value of
net assets acquired, net ........................ 22,397 22,140
Deferred income taxes ........................... 1,770 1,897
Other assets .................................... 1,498 1,935
------- -------
Total assets................................ $67,861 $70,297
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........... $ 5,070 $ 5,845
Due to related parties .......................... 408 -
Current portion of long-term debt ............... 3,856 3,824
Income taxes payable ............................ 2,283 1,702
------- -------
Total current liabilities................... 11,617 11,371
Long-term debt .................................. 19,797 21,858
Subordinated debt ............................... 5,096 5,139
Other liabilities ............................... 1,516 1,499
------- -------
Total liabilities........................... 38,026 39,867
------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.01 par value - 3,000
shares authorized; no shares outstanding
at July 31, 1996 and October 31, 1996.......... - -
Common stock: $.01 par value - 15,000
shares authorized; 6,227 shares
outstanding at July 31, 1996 and
October 31, 1996, respectively................. 62 62
Additional paid-in-capital....................... 24,979 24,979
Retained earnings................................ 4,794 5,389
------- -------
Total stockholders' equity.................. 29,835 30,430
------- -------
Total liabilities and stockholders' equity.. $67,861 $70,297
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months ended October 31, 1995 and 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
----------------------
1995 1996
----------------------
<S> <C> <C>
Revenues ............................................ $ 12,202 $ 13,776
Direct salaries and costs ........................... 5,468 6,676
Selling, general and administrative expenses ........ 3,074 3,270
Depreciation ........................................ 1,571 1,798
Amortization ........................................ 276 293
--------- ---------
Income from operations ......................... 1,813 1,739
Other expense (income):
Interest expense ............................... 605 557
Interest income and other ...................... (15) (8)
--------- ----------
Income before taxes ....................... 1,223 1,190
Provision for income taxes:
Income taxes .............................. 550 595
-------- ----------
Net income .......................................... $ 673 $ 595
======== ==========
Net income per share ................................ $ 0.11 $ 0.10
======== ==========
Weighted average number of shares outstanding ....... 6,214 6,227
======== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months ended October 31, 1995 and 1996
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
---------------------
1995 1996
---------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ............................................. $ 673 $ 595
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 1,571 1,798
Amortization ....................................... 276 293
Provision for bad debts ............................ 24 35
(Gain) loss on disposal of fixed assets ............ (2) 3
Deferred taxes ..................................... 55 (127)
(Increase) decrease in operating assets:
Accounts receivable ................................ (638) (1,621)
Prepaid expenses and other current assets .......... (386) (878)
Other assets ....................................... (521) 34
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities ........... (160) 775
Income taxes payable ............................... (160) (581)
Other liabilities .................................. (25) (17)
-------- --------
Net cash provided by operating activities ...... 707 309
-------- --------
Cash Flows From Investing Activities:
Additions to fixed assets .......................... (2,211) (1,404)
Proceeds from sale of fixed assets ................. 2 98
Deposits on fixed assets ........................... (286) (607)
-------- --------
Net cash (used in) investing activities ........ (2,495) (1,913)
-------- --------
Cash Flows From Financing Activities:
Proceeds from revolving credit facility, net ....... 2,600 3,000
Proceeds from subordinated debt .................... 40 43
Proceeds from related parties ...................... 7 -
Repayments to related parties ...................... - (408)
Repayment of long-term debt ........................ (988) (971)
-------- --------
Net cash provided by financing activities ...... 1,659 1,664
-------- --------
Net (decrease) increase in cash .. (129) 60
Cash and cash equivalents, beginning of period ........... 368 104
-------- --------
Cash and cash equivalents, end of period ................. $ 239 $ 164
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
International Post Limited ("IPL" or the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from this report, as is permitted by such rules and
regulations; however, IPL believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Form 10-K for
the fiscal year ended July 31, 1996.
In the opinion of management, the information furnished reflects all
adjustments, all of which are of a normal recurring nature, necessary for a fair
presentation of the results for the reported interim periods.
In connection with the restructuring charge recorded by the Company in August
1992, the balance of the liability was $491,353 and $478,032 at July 31, 1996
and October 31, 1996, respectively. At October 31, 1996, it is estimated that
the remaining liability, consisting primarily of lease commitments, will be
settled during fiscal 1997. Management anticipates that funding for these
amounts will be provided by operations.
NOTE 2 - ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
July 31, October 31,
1996 1996
----------- -----------
<S> <C> <C>
Accounts Receivable, trade ..................... $11,032,078 $12,685,667
Less: Allowance for doubtful accounts ......... 724,565 791,246
----------- -----------
$10,307,513 $11,894,421
=========== ===========
</TABLE>
NOTE 3 - FIXED ASSETS
Fixed assets, at cost, including equipment under capitalized leases, summarized
by major categories consist of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1996 1996
----------- -----------
<S> <C> <C>
Machinery and Equipment .................... $35,092,788 $36,160,930
Leasehold Improvements ..................... 12,147,475 12,312,329
Furniture and Fixtures ..................... 1,918,573 1,947,017
----------- -----------
49,158,836 50,420,276
Less: Accumulated Depreciation ............. 19,625,422 21,382,386
----------- -----------
$29,533,414 $29,037,890
=========== ===========
</TABLE>
6
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
July 31, October 31,
1996 1996
----------- -----------
<S> <C> <C>
Senior secured term loan ....................... $18,320,000 $17,400,000
Senior secured revolving credit loan ........... 5,000,000 8,000,000
Collateralized by fixed assets
Notes payable to credit institutions
bearing interest at 8.0%
originally payable through 1996 .......... 4,815 -
Capitalized lease obligations ............. 328,665 281,833
----------- -----------
23,653,480 25,681,833
Less: Current Maturities .................. 3,856,292 3,823,526
----------- -----------
$19,797,188 $21,858,307
=========== ===========
</TABLE>
SENIOR SECURED LONG-TERM DEBT - The Company's $22,000,000 senior secured term
loan (the "Term Loan") and the Revolving Loan (as defined herein) with a
syndicate of financial institutions (the "Bank Syndicate") are secured by 1) all
assets of the Company and its existing and future directly and indirectly owned
subsidiaries and 2) the capital stock of all such subsidiaries. The Term Loan
and the Revolving Loan bore interest at the Bank of New York's Prime rate or
LIBOR (London Interbank Offered Rate) plus 1.375% through July 31, 1996 and will
float at such Prime rate plus .375% or LIBOR plus 1.75% thereafter, and contains
various covenants limiting future debt, dividends and capital expenditures. In
addition, the Company must maintain certain cash flow and leverage ratios. In
September 1996, the Company amended the Credit Agreement, pursuant to which
certain covenants were changed for fiscal year 1996 and prospective periods.
REVOLVING CREDIT FACILITY - The Company maintains a $10,000,000 senior secured
revolving credit facility (the "Revolving Loan") with the Bank Syndicate. The
Company had outstanding direct borrowings of $5,000,000 and $8,000,000 under the
Revolving Loan at July 31, 1996 and October 31, 1996, respectively. The Company
is being charged a commitment fee equal to 0.375% on the unused amount of the
Revolving Loan. The Company also had outstanding under the Revolving Loan
letters of credit $1,196,482 at each of July 31, 1996 and October 31, 1996.
SUBORDINATED DEBT - the Company, in connection with the acquisition of The Big
Picture Editorial, Inc. and Even Time Ltd. in May 1995, issued $6,350,000
principal amount of eight year convertible subordinated notes, due May 4, 2003,
with an interest rate of 4.0%, convertible at $14 per share after five years and
redeemable after six years. The debt was valued at $4,890,000 at the date of
acquisition using an effective rate of 8.34%. The valuation discount is being
amortized over the life of the notes.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
FIRST QUARTERS ENDED OCTOBER 31, 1996 AND 1995
Revenues increased by $1,574,000 or 13% to $13,776,000 in the first quarter of
fiscal year 1997 compared to the first quarter of fiscal year 1996. The growth
in revenues was primarily attributable to increases in revenue at The Post Edge,
Inc. ("Post Edge"), Audio Plus Video International, Inc. ("Audio Plus Video"),
and Manhattan Transfer/Edit Inc. ("Manhattan Transfer"). These increases were
partially offset by lower revenues at Big Picture/Even Time Limited ("Big
Picture/Even Time").
Direct salaries and costs (consisting primarily of salaries and benefits paid to
artists, technicians and engineers, outside labor, occupancy costs, direct costs
including tape stock, equipment rental and commissions and client costs)
increased as a percentage of revenues to 48.5% in the first quarter of fiscal
year 1997 compared to 44.8% in the first quarter of the prior fiscal year. This
increase was a result of higher direct salaries and costs as a percentage of
revenues at Big Picture/Even Time and Manhattan Transfer. At Big Picture/Even
Time actual direct salaries and costs were comparable to the first quarter of
fiscal year 1996, however, lower revenues caused costs to increase as a
percentage of revenues. The increase was also a result of increased costs at
Manhattan Transfer largely related to salaries of artists and technicians.
Selling, general and administrative expenses decreased as a percentage of
revenues to 23.7% in the first quarter of fiscal year 1997 compared to 25.2% in
the first quarter of the prior fiscal year. The decrease was primarily
attributable to the increased revenues of the Company.
Depreciation expense was $1,798,000 and $1,571,000 in the first quarter of
fiscal years 1997 and 1996, respectively. The increase was primarily the result
of capital expenditures made in fiscal 1996 and the first quarter of fiscal
1997.
Amortization of intangibles was $293,000 and $276,000 in the first quarter of
fiscal years 1997 and 1996, respectively. The increase in amortization expense
relates to contingent payments associated with the acquisition of The Big
Picture Editorial, Inc. and Even Time Limited.
Interest expense was $557,000 and $605,000 in the first quarter of fiscal years
1997 and 1996, respectively. The decrease was due to the decrease in the Term
Loan during fiscal year 1996 coupled with lower interest rates during the first
quarter of fiscal year 1997.
The income tax rate applied against pre-tax income was 50% and 45% in the first
quarter of fiscal years 1997 and 1996, respectively. The current quarter's tax
rate was higher because of the increase in amortization of intangibles, which
are not deductible for income tax purposes.
Net income decreased to $595,000 in the first quarter of fiscal year 1997
compared to $673,000 in the prior year's first quarter. This decrease is a
result of the items discussed above.
8
<PAGE>
Liquidity and Capital Resources:
The Company's strategy is to continue to expand the range of video-related
services which it provides to existing clients and to increase its customer base
through internal growth and acquisition. The Company is considering expanding
its territorial markets by acquiring post-production businesses in other areas
with a high concentration of production companies and advertising agencies, such
as Los Angeles, subject to its ability to obtain financing.
During 1995, the Company entered into a $22,000,000 six year Term Loan. In
addition, the Company maintains a $10,000,000 Revolving Loan for working capital
with the same Bank Syndicate. Pricing is at the Bank of New York's Prime rate
plus .375% or LIBOR plus 1.75%. Outstandings on the Term Loan ($17,400,000 at
October 31, 1996) currently bear interest at 6.875%. The Term Loan and Revolving
Loan are secured by all assets of the Company and contain covenants limiting
future debt, dividends and capital expenditures. In addition, the Company must
maintain certain cash flow and leverage ratios. During September 1996, the
Company amended the Credit Agreement, pursuant to which certain covenants were
changed for fiscal year 1996 and prospective periods.
Capital expenditures were $1,404,000 in the first three months of fiscal year
1997. The expenditures were used to purchase new revenue producing digital
technology and software, upgrade/replace existing equipment, and complete the
consolidation at Post Edge. Audio Plus Video and Manhattan Transfer purchased
equipment and software to replace and make technological enhancements to
existing equipment.
The Company generated net cash from operations of $309,000 in the first three
months of fiscal year 1997. Net cash used in investing activities to purchase
capital equipment was $1,404,000 and to make deposits on fixed assets was
$607,000. New cash provided by financing activities was $1,664,000 consisting of
an increase in the revolving credit facility less repayments of long-term debt,
including amounts paid to related parties. These activities resulted in a net
increase in cash of $60,000.
The Company's capital structure remains strong. Total long-term debt (excluding
current portion of long-term debt), including subordinated debt at October 31,
1996, was $26,997,000. The Company's stockholders' equity was $30,430,000 at
October 31, 1996. Outstandings under the Company's $10,000,000 Revolving Loan
were $8,000,000 at October 31, 1996; in addition, there was $1,196,482
outstanding for letter of credits issued. The Company's capital budget for
fiscal year 1997 is $5,269,000, a decrease from fiscal years 1996 and 1995.
Capital projects of approximately $340,000, approved in fiscal year 1996, will
be incurred in fiscal year 1997 bringing total capital outlays to approximately
$5,609,000 in fiscal year 1997. Management believes that these expenditures can
be financed either by internally generated funds or by the Revolving Loan.
The above discussion contains forward-looking statements. There are certain
important factors that could cause results to differ materially from those
anticipated by the statements made above. These factors include, but are not
limited to: general performance of the economy, specifically as it affects the
advertising industry; the international economic and political climate which
could impact the sale of domestic programming overseas; significant changes in
video technology in the post-production industry and the loss of key personnel.
9
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 27 - Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission for
information only and not filed.
(b) None.
SIGNATURE(S)
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.
INTERNATIONAL POST LIMITED
(Registrant)
<TABLE>
<S> <C>
DATED: December 11, 1996 BY: /s/ JEFFREY J. KAPLAN
---------------------------
Jeffrey J. Kaplan
Executive Vice President
and Chief Financial Officer
</TABLE>
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
INCOME.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 164
<SECURITIES> 0
<RECEIVABLES> 12,686
<ALLOWANCES> 791
<INVENTORY> 0
<CURRENT-ASSETS> 15,287
<PP&E> 50,420
<DEPRECIATION> 21,382
<TOTAL-ASSETS> 70,297
<CURRENT-LIABILITIES> 11,371
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 30,368
<TOTAL-LIABILITY-AND-EQUITY> 70,297
<SALES> 13,776
<TOTAL-REVENUES> 13,776
<CGS> 6,676
<TOTAL-COSTS> 6,676
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 557
<INCOME-PRETAX> 1,190
<INCOME-TAX> 595
<INCOME-CONTINUING> 595
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 595
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
