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 April 30, 1997
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 June 13, 1997, 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 April 30, 1997 and for the three
and nine month periods ended April 30, 1996 and 1997 relate to International
Post Limited and its subsidiaries.
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of
July 31, 1996 and April 30, 1997 3
Consolidated Statements of Income for the
three months ended April 30, 1996 and 1997 4
Consolidated Statements of Income for the
nine months ended April 30, 1996 and 1997 5
Consolidated Statements of Cash Flows for the
nine months ended April 30, 1996 and 1997 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4 SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
2
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of July 31, 1996 and April 30, 1997
(in thousands)
<TABLE>
<CAPTION>
July 31, April 30,
1996 1997
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 104 $ 522
Accounts receivable, net ........................ 10,308 11,199
Deferred income taxes ........................... 597 402
Prepaid expenses and other current assets ....... 1,654 1,770
------- -------
Total current assets........................ 12,663 13,893
Fixed assets, net ............................... 29,533 27,982
Excess of cost over fair value of
net assets acquired, net ........................ 22,397 22,429
Deferred income taxes ........................... 1,770 1,929
Other assets .................................... 1,498 3,600
------- -------
Total assets................................ $67,861 $69,833
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........... $ 5,070 $ 6,007
Due to related parties .......................... 408 -
Current portion of long-term debt ............... 3,856 4,008
Income taxes payable ............................ 2,283 491
------- -------
Total current liabilities................... 11,617 10,506
Long-term debt .................................. 19,797 21,718
Subordinated debt ............................... 5,096 5,227
Other liabilities ............................... 1,516 1,806
------- -------
Total liabilities........................... 38,026 39,257
------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.01 par value - 3,000
shares authorized; no shares outstanding
at July 31, 1996 and April 30, 1997............ - -
Common stock: $.01 par value - 15,000
shares authorized; 6,227 shares
outstanding at July 31, 1996 and
April 30, 1997, respectively................... 62 62
Additional paid-in-capital....................... 24,979 24,979
Retained earnings................................ 4,794 5,535
------- -------
Total stockholders' equity.................. 29,835 30,576
------- -------
Total liabilities and stockholders' equity.. $67,861 $69,833
======= =======
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months ended April 30, 1996 and 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
----------------------
1996 1997
----------------------
<S> <C> <C>
Revenues ............................................ $ 12,666 $ 14,142
Direct salaries and costs ........................... 6,110 7,208
Selling, general and administrative expenses ........ 3,252 3,576
Depreciation ........................................ 1,739 1,828
Amortization ........................................ 282 307
--------- ---------
Income from operations ......................... 1,283 1,223
Other expense (income):
Interest expense ............................... 558 573
Interest income and other ...................... (15) (2)
--------- ----------
Income before taxes ....................... 740 652
Provision for income taxes:
Income taxes .............................. 433 367
-------- ----------
Net income .......................................... $ 307 $ 285
======== ==========
Net income per share ................................ $ 0.05 $ 0.05
======== ==========
Weighted average number of shares outstanding ....... 6,225 6,227
======== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months ended April 30, 1996 and 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
----------------------
1996 1997
----------------------
<S> <C> <C>
Revenues ............................................ $ 37,155 $ 40,882
Direct salaries and costs ........................... 17,409 20,980
Selling, general and administrative expenses ........ 9,492 10,185
Depreciation ........................................ 4,963 5,405
Amortization ........................................ 847 892
--------- ---------
Income from operations ......................... 4,444 3,420
Other expense (income):
Interest expense ............................... 1,745 1,688
Interest income and other ...................... (1) 20
--------- ----------
Income before taxes ....................... 2,700 1,712
Provision for income taxes:
Income taxes .............................. 1,315 971
-------- ----------
Net income .......................................... $ 1,385 $ 741
======== ==========
Net income per share ................................ $ 0.22 $ 0.12
======== ==========
Weighted average number of shares outstanding ....... 6,218 6,227
======== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months ended April 30, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
---------------------
1996 1997
---------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ............................................. $ 1,385 $ 741
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 4,963 5,405
Amortization ....................................... 847 892
Provision for bad debts ............................ 95 108
(Gain) loss on disposal of fixed assets ............ (48) 19
Deferred taxes ..................................... 397 36
(Increase) decrease in operating assets:
Accounts receivable ................................ (2,315) (999)
Prepaid expenses and other current assets .......... (1,033) (116)
Other assets ....................................... (172) (1,752)
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities ........... (783) 937
Income taxes payable ............................... 13 (1,792)
Other liabilities .................................. 215 290
-------- --------
Net cash provided by operating activities ...... 3,564 3,769
-------- --------
Cash Flows From Investing Activities:
Additions to fixed assets .......................... (4,429) (2,469)
Proceeds from sale of fixed assets ................. 79 135
Deposits on fixed assets ........................... (667) (1,274)
-------- --------
Net cash (used in) investing activities ........ (5,017) (3,608)
-------- --------
Cash Flows From Financing Activities:
Proceeds from revolving credit facility, net ....... 4,400 3,500
Proceeds from subordinated debt .................... 126 131
Proceeds from related parties ...................... 21 -
Repayments to related parties ...................... - (408)
Repayment of long-term debt ........................ (2,908) (2,966)
-------- --------
Net cash provided by financing activities ...... 1,639 257
-------- --------
Net increase in cash ............. 186 418
Cash and cash equivalents, beginning of period ........... 368 104
-------- --------
Cash and cash equivalents, end of period ................. $ 554 $ 522
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for:
Interest .......................................... $ 1,160 $ 1,555
Income taxes ...................................... 1,301 2,763
Equipment acquired under capital lease obligations .. - 1,539
</TABLE>
See notes to consolidated financial statements.
6
<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 year ended July 31, 1996.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. SFAS No. 121 also establishes
the procedures for review of recoverability, and measurement of impairment if
necessary, of long-lived assets and certain identifiable intangibles to be held
and used by an entity. The Company adopted SFAS No. 121 during the first quarter
of fiscal year 1997. Based on the provisions of SFAS No. 121, the Company
determined that no impairment provision of the carrying cost of its long-lived
assets was necessary.
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.
NOTE 2 - ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
July 31, April 30,
1996 1997
----------- -----------
<S> <C> <C>
Accounts Receivable, trade ..................... $11,032,078 $11,958,812
Less: Allowance for doubtful accounts ......... 724,565 759,811
----------- -----------
$10,307,513 $11,199,001
=========== ===========
</TABLE>
7
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, April 30,
1996 1997
----------- -----------
<S> <C> <C>
Machinery and Equipment .................... $34,727,448 $36,486,097
Leasehold Improvements ..................... 12,147,475 12,553,775
Furniture and Fixtures ..................... 1,918,573 2,000,050
Equipment under Capital Leases ............. 365,340 1,904,149
----------- -----------
49,158,836 52,944,071
Less: Accumulated Depreciation ............. 19,625,422 24,962,517
----------- -----------
$29,533,414 $27,981,554
=========== ===========
</TABLE>
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
July 31, April 30,
1996 1997
----------- -----------
<S> <C> <C>
Senior secured term loan ....................... $18,320,000 $15,560,000
Senior secured revolving credit loan ........... 5,000,000 8,500,000
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 1,666,449
----------- -----------
23,653,480 25,726,449
Less: Current Maturities .................. 3,856,292 4,008,401
----------- -----------
$19,797,188 $21,718,048
=========== ===========
</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 now
float at such Prime rate plus .375% or LIBOR plus 1.75%, and contain various
covenants limiting future debt, dividends and capital expenditures. In addition,
the Company must maintain certain cash flow and leverage ratios. Outstandings on
the Term Loan at April 30, 1997, currently bear interest at 7.5%.
8
<PAGE>
INTERNATIONAL POST LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 $8,500,000 under the
Revolving Loan at July 31, 1996 and April 30, 1997, 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 totaling $1,196,482 at July 31, 1996 and April 30, 1997.
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.
NOTE 5 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"),
which is effective for financial statements for periods ending after December
15, 1997, and requires retroactive restatement of all earnings per share data.
SFAS 128 requires replacement of primary and fully diluted earnings per share
with basic and diluted earnings per share. For the current and comparative prior
nine and three-month periods, SFAS 128 would have had no impact on earnings per
share.
NOTE 6 - OTHER
On April 22, 1997 the Company and Video Services Corporation ("VSC"), a
privately-held company located in Northvale, New Jersey, announced that their
respective boards of directors approved the merger of the two companies.
Montgomery Securities, the Company's financial advisor, has rendered an opinion
to the Company's Board of Directors that the consideration to be paid by the
Company pursuant to the merger is fair to the Company from a financial point of
view. VSC, through its operating subsidiaries, is a leading provider of
value-added video services to a diverse base of customers within the television
network, cable and syndicated programming markets. These services include (i)
the commercial integration and distribution of broadcast quality video content
via a satellite and fiber optic transmission network routed through its
digital/analog switching center, and (ii) the design, engineering and production
of advanced digital and analog video systems for the television, cable,
post-production and corporate markets as well as the rental of professional
video equipment to sports, entertainment and other segments of the broadcast and
cable television and professional markets. Under the terms of the merger
approved by the respective Boards, the Company will issue approximately 7.0
million shares of its common stock ( an increase of approximately 250,000 shares
above the number of shares contemplated in the companies' executed letter of
intent) to VSC's shareholders, which will represent in excess of 50% of the
outstanding common stock of the Company after the merger, in exchange for 100%
of the common stock of VSC. The deal is contingent on, among other things, the
execution of a definitive merger agreement, completion of due diligence and
approval of the shareholders of each company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
THIRD QUARTERS ENDED APRIL 30, 1997 AND 1996
Revenues increased by $1,476,000 or 12% to $14,142,000 in the third quarter
of fiscal year 1997 compared to the third quarter of fiscal year 1996. The
growth in revenues was primarily attributable to increases in revenues at The
Post Edge, Inc. ("Post Edge"), and Manhattan Transfer/Edit Inc. ("Manhattan
Transfer"), and the additional revenues associated with Cognitive
Communications, LLC ("CCL"). These increases were partially offset by lower
revenues at CABANA corp. ("CABANA") and Audio Plus Video International, Inc.
("Audio Plus Video"). The increase at Post Edge, approximately $855,000, is
primarily due to additional network services at its South Beach Florida facility
and its new Hollywood Florida facility operating for the complete third quarter
of fiscal year 1997 versus its construction phase in the third quarter of fiscal
year 1996. The increase at Manhattan Transfer, approximately $432,000, is
primarily due to increased use of special effects utilizing 3D and
computer-generated graphics. The remaining growth in revenues, approximately
$562,000, was attributable to CCL, which commenced operations in January 1997.
The decrease at CABANA, approximately $293,000, was mainly a result of the
interruption of business associated with the consolidation of its operations
into one facility and the construction of that facility during the third
quarter. The decrease at Audio Plus Video, approximately $82,000, is primarily
due to lower standards conversion services.
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 51.0% in the third quarter of
fiscal year 1997 compared to 48.3% in the third quarter of the prior fiscal
year. This increase was a result of higher direct salaries and costs as a
percentage of revenues at CABANA, and Audio Plus Video and the start up of CCL.
At CABANA actual direct salaries and costs decreased from the third quarter of
fiscal year 1996, however, lower revenues caused costs to increase as a
percentage of revenues. The increase at Audio Plus Video, approximately $48,000,
was primarily due to additional salaries for technicians and also reflected the
decrease revenues which caused costs to increase as a percentage of revenues.
Although costs also increased at Post Edge the increase in revenues caused costs
to decrease as a percentage of revenues.
Selling, general and administrative expenses decreased as a percentage of
revenues to 25.3% in the third quarter of fiscal year 1997 compared to 25.7% in
the third quarter of the prior fiscal year. The ratio decrease was primarily
attributable to the increased revenues of the Company; while the increase in
costs was primarily attributable to increased occupancy costs.
Depreciation expense was $1,828,000 and $1,739,000 in the third quarter of
fiscal years 1997 and 1996, respectively. The increase was primarily the result
of capital expenditures made in fiscal 1996 and the first nine months of fiscal
1997.
Interest expense was $573,000 and $558,000 in the second quarter of fiscal
years 1997 and 1996, respectively. The increase in interest expense was due to
the increase in the Revolving Loan and the additional capitalized equipment
lease obligation.
10
<PAGE>
The income tax rate applied against pre-tax income during the third quarter
of fiscal 1997 was 56%; while the income tax rate applied against pre-tax income
was 59% in the third quarter of fiscal year 1996. The prior year quarter's tax
rate had been adjusted to compensate for the increase in amortization of
intangibles, which are not deductible for income tax purposes, as a percentage
of taxable income.
The Company posted a net income of $285,000 in the third quarter of fiscal
year 1997 compared to net income of $307,000 in the prior year's third quarter.
This decrease is a result of the items discussed above.
NINE MONTHS ENDED APRIL 30, 1997 AND 1996
Revenues increased by $3,727,000 or 10% to $40,882,000 in the first nine
months of fiscal year 1997 compared to the first nine months of fiscal year
1996. The growth in revenues was primarily attributable to increases in revenue
at Post Edge, Audio Plus Video and Manhattan Transfer and the commencement of
CCL's operations. These increases were partially offset by lower revenues at
CABANA. The increase at Post Edge, approximately $2,262,000, is primarily due to
additional network services at its South Beach Florida facility and its new
Hollywood Florida facility which operated for the entire first nine months of
fiscal year 1997 versus its construction and implementation during the first
nine months of fiscal year 1996. The combined increases at Audio Plus Video,
Manhattan Transfer and the addition of CCL accounted for the remainder of the
revenue growth. The decrease at CABANA, approximately $754,000, was mainly a
result of the general slow down of the commercial market, and the interruption
of business associated with the consolidation of its operations into one
facility and the construction of that facility during the first nine months of
fiscal year 1997.
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 51.3% in the first nine months
of fiscal year 1997 compared to 46.9% in the first nine months of the prior
fiscal year. This increase was a result of higher direct salaries and costs as a
percentage of revenues at CABANA, Manhattan Transfer. At CABANA actual direct
salaries and costs were comparable to the first nine months of fiscal year 1996,
however, lower revenues caused costs to increase as a percentage of revenues.
The increase at Manhattan Transfer, approximately $954,000, was largely related
to (i) additional salaries of artists and technicians at Manhattan Transfer of
approximately $467,000 and (ii) approximately $447,000 of start-up costs for
outside labor and salaries for web site technologies which eventually were
contributed to CCL. At Audio Plus Video costs increased in direct proportion to
revenues. Although costs also increased at Post Edge the increase in revenues
caused costs to decrease as a percentage of revenues.
Selling, general and administrative expenses decreased as a percentage of
revenues to 24.9% in the first nine months of fiscal year 1997 compared to 25.6%
in the first nine months of the prior fiscal year. The decrease was primarily
attributable to the increased revenues of the Company.
Depreciation expense was $5,405,000 and $4,963,000 in the first nine months
of fiscal years 1997 and 1996, respectively. The increase was primarily the
result of capital expenditures made in fiscal 1996 and the first nine months of
fiscal 1997.
11
<PAGE>
Interest expense was $1,688,000 and $1,745,000 in the first nine months of
fiscal years 1997 and 1996, respectively. The decrease in interest expense was
due to the decrease in the Term Loan since the third quarter of fiscal year 1996
coupled with lower interest rates during the first six months of fiscal year
1997. These decreases were partially offset by an increase in the Revolving Loan
and the additional capitalized equipment lease obligation.
The income tax rate applied against pre-tax income was 57% and 49% in the
first nine months of fiscal years 1997 and 1996, respectively. The current
period's tax rate was higher because of the increase in amortization of
intangibles, which are not deductible for income tax purposes, as a percentage
of taxable income.
Net income decreased to $741,000 in the first nine months of fiscal year
1997 compared to $1,385,000 in the prior year's first half. This decrease is a
result of the items discussed above.
Liquidity and Capital Resources:
NINE MONTHS ENDED APRIL 30, 1997
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. On April 22, 1997, the Company and
Video Services Corporation ("VSC"), a privately-held company located in
Northvale, New Jersey, announced that their respective boards of directors
approved the merger of the two companies. Montgomery Securities, the Company's
financial advisor, has rendered an opinion to the Company's Board of Directors
that the consideration to be paid by the Company pursuant to the merger is fair
to the Company from a financial point of view. VSC, through its operating
subsidiaries, is a leading provider of value-added video services to a diverse
base of customers within the television network, cable and syndicated
programming markets. These services include (i) the commercial integration and
distribution of broadcast quality video content via a satellite and fiber optic
transmission network routed through its digital/analog switching center, and
(ii) the design, engineering and production of advanced digital and analog video
systems for the television, cable, post-production and corporate markets as well
as the rental of professional video equipment to sports, entertainment and other
segments of the broadcast and cable television and professional markets. Under
the terms of the merger approved by the respective Boards, the Company will
issue approximately 7.0 million shares of its common stock ( an increase of
approximately 250,000 shares above the number of shares contemplated in the
companies' executed letter of intent) to VSC's shareholders, which will
represent in excess of 50% of the outstanding common stock of the Company after
the merger, in exchange for 100% of the common stock of VSC. The terms of the
merger were negotiated and approved by a special committee of the Company's
board of directors consisting of three independent directors. On January 22,
1997, Cognitive Communications, LLC, a Delaware limited liability company
("CCL") which is a majority-owned indirect subsidiary of the Company, purchased
substantially all of the operating assets of Cognitive Communications, Inc., a
corporation principally engaged in providing strategic consulting services in
the area of communications and content strategy for, and research relating to
the implementation of, and the design and production of, intranets, extranets
and internets ("CCI"), for an aggregate purchase price of $600,000.
12
<PAGE>
During 1995, the Company entered into the Term Loan. In addition, the
Company maintains a 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 ($15,560,000 at April 30, 1997)
currently bear interest at 7.50%. The Term Loan and Revolving Loan are secured
by all the 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.
Capital expenditures were $4,008,000 in the first nine months of fiscal
year 1997. The expenditures, were used to purchase new digital technology and
software, upgrade/replace existing equipment, and complete the consolidation at
Post Edge. In addition, 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 $3,769,000 in the first
nine months of fiscal year 1997. Net cash used in investing activities to
purchase capital equipment was $2,469,000 and to make deposits on fixed assets
was $1,274,000. Cash provided by financing activities was $257,000 consisting of
an increase in the Revolving Loan less repayments of long-term debt, including
amounts paid to related parties. These activities resulted in a net increase in
cash of $418,000.
The Company's capital structure remains strong. Total long-term debt
(excluding current portion of long-term debt), including subordinated debt at
April 30, 1997, was $26,945,000. The Company's stockholders' equity was
$30,576,000 at April 30, 1997. Loans outstanding under the Company's Revolving
Loan were $8,500,000 at April 30, 1997. 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, entertainment and television and video industries; the
international economic and political climate which could impact the sale of
domestic programming overseas; significant changes in video technology in the
post-production, video and communications industries; the loss of key personnel;
and the loss of key customers.
13
<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) None.
(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: June 13, 1997 BY: /s/ MARTIN IRWIN
------------------------
Martin Irwin
President and
Chief Executive Officer
</TABLE>
14
<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> APR-30-1997
<CASH> 522
<SECURITIES> 0
<RECEIVABLES> 11,959
<ALLOWANCES> 760
<INVENTORY> 0
<CURRENT-ASSETS> 13,893
<PP&E> 52,944
<DEPRECIATION> 24,963
<TOTAL-ASSETS> 69,833
<CURRENT-LIABILITIES> 10,506
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 30,514
<TOTAL-LIABILITY-AND-EQUITY> 69,833
<SALES> 14,142
<TOTAL-REVENUES> 14,142
<CGS> 7,208
<TOTAL-COSTS> 7,208
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 573
<INCOME-PRETAX> 652
<INCOME-TAX> 367
<INCOME-CONTINUING> 285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
