<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] 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 000-23388
VIDEO SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
13-3735647
(I.R.S. Employer Identification Number)
240 Pegasus Avenue Northvale, New Jersey 07647 (Address of
principal executive offices, including zip code)
(201) 767-1000
(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 12 months (or for such shorter period that the registrant was
required to filed such reports), and (2) has been subject to such filing
requirements for 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 May 15, 1998, was 13,264,307 shares.
<PAGE>
VIDEO SERVICES CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
The audited consolidated financial information at June 30, 1997 and the
unaudited consolidated financial information at March 31, 1998 and for the three
and nine month period ended March 31, 1997 and 1998 relate to Video Services
Corporation and its subsidiaries.
Item 1. FINANCIAL STATEMENTS PAGE
Condensed Consolidated Balance Sheet as of June 30, 1997
and March 31, 1998 3
Condensed Consolidated Statements of Operations for
the nine months ended March 31, 1997 and 1998 4
Condensed Consolidated Statements of Operations for
the three months ended March 31, 1997 and 1998 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended March 31, 1997 and 1998 6
Condensed Consolidated Statement of Stockholders' Equity for
the nine months ended March 31, 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.........................................18
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................18
Item 3. DEFAULTS UPON SENIOR SECURITIES...........................18
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS...................................................18
Item 5. OTHER INFORMATION.........................................18
Item 6. EXHIBITS AND REPORTS ON FORM 8-K..........................19
SIGNATURES..................................................................19
EXHIBIT INDEX...............................................................19
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 1997 and March 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS 1997 1998
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 390 $ 894
Accounts receivable, net ..................................... 6,173 13,144
Inventories .................................................. 688 1,100
Costs and estimated earnings in excess of billings on
uncompleted contracts ..................................... 363 699
Deferred income taxes ........................................ 674 1,652
Prepaid expenses and other current assets .................... 574 1,506
--------------- ---------------
Total current assets ............................... 8,862 18,995
Fixed assets, net ..................................................... 5,852 35,197
Excess of cost over fair value of net assets acquired, net ............ 449 20,615
Receivable from affiliates ............................................ 1,192 -
Receivable from officers .............................................. 211 -
Deferred income taxes ................................................. 622 3,929
Net assets to be disposed ............................................. 634 1,798
Other assets .......................................................... 2,979 1,774
--------------- ---------------
Total assets ....................................... $ 20,801 $ 82,308
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........................ $ 7,812 $ 5,135
Billings in excess of costs and estimated
earnings on uncompleted contracts .......................... 462 1,956
Current portion of long-term debt ............................ 149 4,781
Income taxes payable ......................................... - 968
Other current liabilities .................................... 1,789 3,352
--------------- ---------------
Total current liabilities .......................... 10,212 16,192
Long-term debt ........................................................ 5,330 33,328
Subordinated debt ..................................................... - 5,394
Deferred and other taxes payable ...................................... 2,017 3,348
Payable to affiliates ................................................. - 36
Other liabilities ..................................................... 509 2,624
--------------- ---------------
Total liabilities .................................. 18,068 60,922
--------------- ---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock: $.01 par value - 3,000,000 shares
authorized; no shares outstanding at June 30, 1997
and March 31, 1998 ........................................ - -
Common stock: $.01 par value - 7,500,000 and 25,000,000
shares authorized; 2,678,162 and 13,264,307 shares issued
and outstanding at June 30, 1997 and March 31, 1998
respectively .............................................. 103 132
Additional paid-in-capital ................................... 419 20,573
Retained earnings ............................................ 2,211 681
--------------- ---------------
Total stockholders' equity ......................... 2,733 21,386
--------------- ---------------
Total liabilities and stockholders' equity ......... $ 20,801 $ 82,308
=============== ===============
</TABLE>
See Accompanying Notes
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
For the Nine Months ended March 31, 1997 and 1998
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
March 31, March 31,
1997 1998
---------------- ---------------
<S> <C> <C>
Revenues:
Sales ............................................................ $ 9,595 $ 11,567
Services ......................................................... 7,431 38,003
Rentals .......................................................... 1,928 1,523
---------------- ---------------
18,954 51,093
Costs:
Costs of sales ................................................... 6,976 8,508
Costs of services ................................................ 3,533 19,545
Costs of rentals ................................................. 626 440
---------------- ---------------
11,135 28,493
Depreciation .......................................................... 1,267 5,024
---------------- ---------------
Gross profit .......................................................... 6,552 17,576
Selling, general and administrative expenses .......................... 4,710 12,067
Amortization .......................................................... 12 563
---------------- ---------------
Operating income from continuing operations ........................... 1,830 4,946
Other (expense) income:
Interest expense .......................................... (406) (2,618)
Interest income and other ................................. 550 101
---------------- ---------------
Income before income taxes and discontinued operations ................ 1,974 2,429
Income tax expense .................................................... 790 1,166
---------------- ---------------
Income from continuing operations ..................................... 1,184 1,263
Discontinued operations:
Loss from operations of Diversified Products segment and Consulting
Services (less applicable income tax benefit
of $474 and $73) ..................................... (682) (140)
Estimated loss on disposal of Diversified Products segment
( less applicable income tax benefit of $715) ........ (1,029)
---------------- ---------------
Net (loss) income $ (527) $ 1,123
================ ===============
Earnings per share:
Basic:
Income from continuing operations .............................. $ 0.17 $ 0.11
Loss from discontinued operations .............................. (0.25) (0.02)
---------------- ---------------
Net (loss) income .............................................. $ (0.08) $ 0.09
================ ===============
Diluted:
Income from continuing operations .............................. $ 0.17 $ 0.11
Loss from discontinued operations .............................. (0.25) (0.02)
---------------- ---------------
Net (loss) income .............................................. $ (0.08) $ 0.09
================ ===============
Dividend per share .................................................... $ - $ 0.22
================ ===============
Weighted average number of shares outstanding for basic earnings per share. 7,011,349 11,948,137
================ ===============
</TABLE>
See Accompanying Notes
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
For the Three Months ended March 31, 1997 and March 31, 1998
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, March 31,
1997 1998
---------------- ----------------
<S> <C> <C>
Revenues:
Sales ............................................................ $ 2,815 $ 4,096
Services ......................................................... 2,419 15,857
Rentals .......................................................... 464 503
---------------- ----------------
5,698 20,456
Costs:
Costs of sales ................................................... 1,989 3,359
Costs of services ................................................ 1,142 8,245
Costs of rentals ................................................. 156 142
---------------- ----------------
3,287 11,746
Depreciation .......................................................... 437 2,008
---------------- ----------------
Gross profit .......................................................... 1,974 6,702
Selling, general and administrative expenses .......................... 1,488 4,747
Amortization .......................................................... 5 255
---------------- ----------------
Operating income from continuing operations ........................... 481 1,700
Other (expense) income:
Interest expense .......................................... (161) (1,128)
Interest income and other ................................. 40 37
---------------- ----------------
Income before income taxes and discontinued operations ................ 360 609
Income tax expense .................................................... 128 292
---------------- ----------------
Income from continuing operations ..................................... 232 317
Discontinued operations:
Estimated loss on disposal of Diversified Products segment
( less applicable income tax benefit of $715) ........ (1,029) -
---------------- ----------------
Net (loss) income ..................................................... $ (797) $ 317
================ ================
Earnings per share:
Basic:
Income from continuing operations .............................. $ 0.03 $ 0.02
Loss from discontinued operations .............................. (0.14) -
---------------- ----------------
Net (loss) income .............................................. $ (0.11) $ 0.02
================ ================
Diluted:
Income from continuing operations .............................. $ 0.03 $ 0.02
Loss from discontinued operations .............................. (0.14) -
---------------- ----------------
Net (loss) income .............................................. $ (0.11) $ 0.02
================ ================
Dividend per share .................................................... $ - $ -
================ ================
Weighted average number of shares outstanding for basic earnings per share. 7,011,349 13,254,196
================ ================
</TABLE>
See Accompanying Notes
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
For the Nine Months ended March 31, 1997 and 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
March 31, March 31,
1997 1998
---------------- ----------------
<S> <C> <C>
Operating Activities
Net cash provided by (used in) operating actvities .................... $ 2,234 $ (1,441)
Investing Activities
Additions to fixed assets ............................................. (2,653) (2,367)
Proceeds from sale of fixed assets .................................... 74 122
Decrease (increase) in receivable from affiliates ..................... 640 (108)
Real estate partnerships contributed .................................. - 60
---------------- ----------------
Net cash used in investing actvities .................................. (1,939) (2,293)
Financing Activities
Proceeds from borrowings .............................................. 2,878 45,100
Repayments of borrowings .............................................. (2,019) (41,070)
Cash contributed by merger ............................................ - 208
---------------- ----------------
Net cash provided by financing activites .............................. 859 4,238
Net increase in cash .................................................. 1,154 504
Cash and cash equivalents, beginning of period ........................ 520 390
---------------- ----------------
Cash and cash equivalents, end of period .............................. $ 1,674 $ 894
================ ================
See Accompanying Notes
</TABLE>
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months ended March 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Common Common
Stock Stock Paid-In Retained
Shares Amount Capital Earnings Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 ....................... 2,678,162 $ 103 $ 419 $ 2,211 $ 2,733
Exchange of common stock with merger of IPL .... 4,333,187 29 (29) - -
Common stock received in merger with IPL ....... 6,226,958 - 21,172 - 21,172
Real estate partnerships contributed ........... - - (1,263) - (1,263)
Issuance of stock options ...................... - - 199 - 199
Dividend to shareholders ....................... - - - (2,653) (2,653)
Issuance of common stock ....................... 26,000 - 75 - 75
Net income ..................................... - - - 1,123 1,123
------------------------------------------------------------------
Balance at March 31, 1998 ...................... 13,264,307 $ 132 $ 20,573 $ 681 $ 21,386
==================================================================
</TABLE>
See Accompanying Notes
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. Accordingly, they 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. Operating results for the three and nine
months ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ending June 30, 1998. The unaudited interim
financial information should be read in conjunction with the audited
consolidated financial statements of Video Services Corporation ("Old Video
Services Corporation") as of and for the year ended June 30, 1997 included in
the Form 8-K/A filed by the Company (as defined below).
On August 27, 1997, Old Video Services Corporation merged with and into
International Post Limited ("IPL") with IPL as the surviving corporation (the
"Merger"). At the effective time of the Merger, IPL changed its name to Video
Services Corporation. The "Company" refers to the surviving corporation after
the Merger. The Merger was accounted for as a reverse acquisition whereby
pre-Merger financial statements of Old Video Services Corporation became the
historical financial statements of the Company. As such, the net assets of IPL
have been recorded at fair value. An aggregate of 7,011,349 shares of Company
common stock were issued to the stockholders of Old Video Services Corporation
in the Merger (plus an additional 212,096 shares of common stock which were
issued to replace an equal number of shares of IPL common stock owned by Old
Video Services Corporation which were canceled upon the Merger). Such newly
issued shares in the aggregate represented approximately 54.6% of the
outstanding shares of common stock immediately after the Merger.
At the time of the Merger, IPL had combined assets of $43,996,
consisting of cash and cash equivalents ($216), net accounts receivable
($9,885), prepaid and other current assets ($1,349), net fixed assets ($29,474),
net deferred tax assets ($2,323), and other long-term assets ($749). The
combined liabilities consisted of accounts payable and accrued payables
($4,328), long-term debt ($30,464), other current liabilities ($1,901), and
other liabilities ($1,463).
The Company recorded goodwill of $20,659, in connection with the
Merger, which is being amortized over 25 years.
In connection with, and as a condition to the Merger, immediately prior
to the Merger, the Diversified Products segment was spun-off to the stockholders
of Old Video Services Corporation in a non-cash dividend of approximately
$2,653. Immediately prior to the Merger, the principal stockholders of Old Video
Services Corporation contributed (the "Contribution") the stock of two S
corporations holding all of the general and limited partnership interests in Mal
Partners and L.I.M.A. Partners, which partnerships owned real estate and
equipment which was leased solely to Old Video Services Corporation and IPL. The
Contribution, which represents a transfer between entities under common control,
has been recorded at the lower of historical amortized cost or fair value.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 1 - Basis of Presentation (continued)
The S corporations, through their ownership of MAL Partners and
L.I.M.A. Partners, at the time of the Contribution had combined assets of
$3,793, consisting of cash and cash equivalents ($-8), net accounts receivable
($9), prepaid expenses and other current assets ($73), buildings, satellite
equipment and land ($3,198), and other long-term assets ($521). The combined
liabilities consisted of accounts payable and accrued expenses ($54), mortgage
obligations ($3,588), deferred taxes ($18), and other current liabilities ($29).
The following presents the unaudited combined pro forma results of
operations for the nine month periods ended March 31, 1997 and 1998, as if the
Merger and Contribution had occurred as of July 1, 1996 and July 1, 1997,
respectively. The unaudited combined pro forma results of operations are not
necessarily indicative of the results of operations that would have occurred had
IPL and Old Video Services Corporation actually combined during the periods
presented or of future results of operations of the combined operations.
1997 1998
------------------------
Revenues $58,585 $58,484
Income from continuing operations 2,381 1,398
Income from continuing operations per share .18 .11
Net income 670 1,199
Net Income per share .05 .09
Pro forma income from continuing operations and net income per share are
based on the weighted average number of shares outstanding after the Merger of
13,238,307. Included in the net income for the period ended March 31, 1997 is
approximately $1,711 of loss from discontinued operations relating to certain
subsidiaries (Diversified Products segment) of Old Video Services Corporation
which were discontinued in connection with the Merger. Included in the net
income for the period ended March 31, 1998 is approximately $199 of loss from
the discontinued operations relating to the consulting company (see Note 8).
The Company entered into an interest-rate swap agreement to modify the
interest characteristics of its outstanding debt (see Note 7). The interest-rate
swap agreement is designated with all or a portion of the principal balance and
term of a specific debt obligation. This agreement involves the exchange of
amounts based on a variable interest rate for amounts based on fixed interest
rate over the life of the agreement without an exchange of the notional amount
upon which the payments are based. The differential to be paid or received as
interest rates change is accrued and recognized as an adjustment of interest
expense related to the debt (the accrual accounting method). The related amount
payable to or receivable from the counterparty is included in other liabilities
or assets. The fair value of the swap agreement and changes in the fair value as
a result of changes in market interest rates are not recognized in the financial
statements.
Gains and losses on terminations of interest-rate swap agreements are
deferred as an adjustment to the carrying amount of the outstanding debt and
amortized as an adjustment to interest expense related to the debt over the
remaining term of the original contract life of the terminated swap agreement.
In the event of the early extinguishment of a designated debt obligation, any
realized or unrealized gain or loss from the swap would be recognized in income
coincident with the extinguishment gain or loss.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(continued)
Note 2 - Inventories
Inventories, which consist of system components and equipment are
valued at the lower of specific cost or market and inventory which consists of
tape stock which is valued at the lower of cost or market on a FIFO basis.
Note 3 - Accounts Receivable
<TABLE>
<CAPTION>
June 30, March 31,
1997 1998
------------------- --------------------
<S> <C> <C>
Accounts Receivable, trade $ 6,475 $ 13,995
Less: Allowance for doubtful accounts 302 851
=================== ====================
$ 6,173 $ 13,144
=================== ====================
</TABLE>
Note 4 - Fixed Assets
Fixed assets, at cost, including equipment under capitalized leases,
summarized by major categories consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1998
--------------------- ---------------------
<S> <C> <C>
Machinery and equipment $ 17,539 $ 61,395
Leasehold improvements 2,461 15,999
Furniture and fixtures 597 2,737
Transportation equipment 195 292
Building - 3,531
Land 1,000 1,967
Equipment under capital leases 170 2,074
--------------------- ---------------------
21,962 87,995
Less: Accumulated depreciation 16,110 52,798
===================== =====================
$ 5,852 $ 35,197
===================== =====================
</TABLE>
Note 5 - Segment Data
In June 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which is required to be adopted for fiscal
years beginning after December 15, 1997. Statement No. 131 will require the
Company to disclose revenues, earnings and other financial information
pertaining to the business segments by which the Company is managed, as well as
what factors management used to determine these segments. The Company is
currently evaluating the effects Statement No. 131 will have on its financial
statements and related disclosures.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(continued)
Note 6 - Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Nine Nine Three Three
Months Ended Months Ended Months Ended Months Ended
March 31, March 31, March 31, March 31,
1997 1998 1997 1998
Numerator:
<S> <C> <C> <C> <C>
Income from continuing operations $ 1,184 $ 1,263 $ 232 $ 317
------------------ ------------------- ------------------- ------------------
Numerator for basic earnings per
share-income available to common
stockholders $ 1,184 $ 1,263 $ 232 $ 317
Effect of dilutive securities: - - - -
------------------ ------------------- ------------------- ------------------
Numerator for diluted earnings per
share-income available to common
stockholders after assumed
conversions $ 1,184 $ 1,263 $ 232 $ 317
================== =================== =================== ==================
Denominator:
Denominator for basic earnings per
share-weighted-average shares 7,011,349 11,948,137 7,011,349 13,254,196
Effect of dilutive securities: - - - -
------------------ ------------------- ------------------- ------------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 7,011,349 11,948,137 7,011,349 13,254,196
================== =================== =================== ==================
Basic earnings per share $ 0.17 $ 0.11 $ 0.03 $ 0.02
================== =================== =================== ==================
Diluted earnings per share $ 0.17 $ 0.11 $ 0.03 $ 0.02
================== =================== =================== ==================
</TABLE>
The effect of 4% convertible subordinated notes and stock options have been
excluded from the diluted earnings per share calculation, because they are
anti-dilutive.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 7 - Long-Term Debt
<TABLE>
<CAPTION>
June 30, March 31,
1997 1998
-------------- --------------
<S> <C> <C>
Senior secured term loan $ - $ 31,000
Senior secured revolving credit loan 1,861 3,250
Notes payable to credit institutions bearing
interest at 10.0% - 13.0% 2,655 -
Notes payable to equipment manufacturer bearing
interest at 8.65% - 12.25% 374 -
Mortgage payable to credit institution
bearing interest at prime plus 1% 517 2,470
Capitalized lease obligations 72 1,389
----------------- -----------------
5,479 38,109
Less: Current maturities 149 4,781
----------------- -----------------
$ 5,330 $ 33,328
================= =================
</TABLE>
In connection with the Merger, the Company refinanced all IPL's and Old
Video Services Corporation's long-term indebtedness (excluding capital lease
obligations, Old Video Services Corporation's mortgage payable, IPL's
subordinated debt and IPL's note payable to Cognitive Communications, Inc.)
including lines of credit, with a $33,000 term loan and a $17,000 revolving line
of credit. The Company's current debt obligations at June 30, 1997 were
approximately $3,900 after giving effect to the Merger, refinancing and
Contribution (see Note 1), which was less than IPL's pre-refinancing current
portion of long- term debt of approximately $4,200. Consequently, all of the
Company's debt at June 30, 1997, excluding current capital lease obligations and
mortgage payable, has been classified as long-term.
Old Video Services Corporation had a short-term line of credit of $2,100 at
June 30, 1997, under which $1,861 was outstanding.
Senior Secured Long-Term Debt - The Company established a $33,000
senior secured term loan (the "Term Loan") and the Revolving Loan (as defined
herein), with a five-year facility provided by KeyBank, as the agent bank (the
"Facility") which are secured by all assets of the Company and its existing and
future directly and indirectly owned subsidiaries. The Term Loan and the
Revolving Loan bear interest at the lenders' prime rate minus 1.0% or LIBOR
(London Interbank Offered Rate) plus a number of basis points based upon the
Company's leverage ratio (funded debt divided by EBITDA), which is initially
LIBOR plus 1.75%. Principal payments of $1,000 per quarter in respect of the
term loan portion of the facility were due beginning December 31, 1997. Such
quarterly principal payments increase to $1,250 per quarter on December 31, 1998
and then increase to $1,750 per quarter on December 31, 1999 and then further
increase to $2,000 per quarter on September 30, 2001 with a balloon payment of
$3,750 in respect of the Term Loan portion of the facility due on September 30,
2002. The facility contains various covenants that require the Company to
maintain certain financial ratios, prohibit dividends and similar payments and
restrict the company's ability to incur other indebtedness. The facility is
guaranteed by all of the Company's subsidiaries.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 7 - Long-Term Debt (continued)
In August 1997, the Company entered into an interest rate swap
agreement with KeyBank to reduce the impact of changes in interest rates on its
Term Loan. The agreement, which matures in five years, has a total beginning
notional principal amount of $33,000, which decreases in accordance with
scheduled principal payments on the Company's Term Loan. The swap agreement
effectively converts the Company's borrowings under its Term Loan to a fixed
rate. The Company pays the counterparty a fixed rate of 7.58% per annum and
receives payments based upon the floating one month LIBOR rate. The Company is
exposed to credit loss in the event of nonperformance by the counterparty:
however, the Company does not anticipate nonperformance by the counterparty.
Revolving Credit Facility - The Company established a $17,000 senior
secured revolving credit facility (the "Revolving Loan") with KeyBank. The
Company had outstanding direct borrowings of $3,250 under the Revolving Loan at
March 31, 1998. The Company also has outstanding under the Revolving Loan
letters of credit of approximately $1,096 at March 31, 1998. The Company's
weighted average interest rate was 7.57% at March 31, 1998.
Subordinated Debt - The Company, in connection with the Merger, assumed
IPL's $6,350 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 at May
5, 1995 using an effective rate of 8.34%. The valuation discount is being
amortized over the life of the notes.
Also, in connection with the merger and Contribution, the Company
assumed additional long-term indebtedness of $3,842, consisting of a note
payable to Cognitive Communications, Inc ($196), mortgage payable ($2,103) and
capital lease obligations ($1,543).
Note 8 - Discontinued Operations
On November 30, 1997, management, which had the authority to approve
the action, committed the Company to a formal plan to dispose of its interest in
the consulting company providing strategic consulting services in the area of
communications, design and implementation of intranets, extranets and internets.
The Company's management has determined a fair value for the assets taking into
account cash flow projections, customer agreements, and employment agreements.
The Company has excluded from its results of continuing operations, from the
date of Merger, losses from the operations of the consulting company and
included management's estimates of cash flow that is to be funded. Management
estimates the consulting company will be disposed of by November 1998.
Losses from the discontinued consulting company amounted to $140 from
the date of the Merger through November 30, 1997, net of applicable income tax
benefit of $73, and are shown separately in the consolidated statements of
income. Post November 30, 1997 losses of $656 have been deferred based upon
assumed future operating income and gain on disposal. Revenues of the
discontinued consulting company were $1,004 from the date of the Merger through
March 31, 1998.
At March 31, 1998, the consulting company had combined assets of
$1,142, consisting of net accounts receivable ($688), prepaid and other current
assets ($50), net fixed assets ($542), and other long-term assets ($159). The
combined liabilities consisted of accounts payable and accrued expenses ($94),
other current liabilities ($190), and net deferred taxes payable ($13).
On January 2, 1997, management, which had the authority to approve the
action, committed Old Video Services Corporation to a formal plan to discontinue
the operations of its Diversified Products segment as a condition to the Merger
(see Note 1). In August 1997, immediately prior to the Merger, the Old Video
Services Corporation spun-off the operations of its Diversified Products segment
to the shareholders of Old Video Services Corporation.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Losses from the discontinued Diversified Products segment amounted to
$1,711 for the nine month period ended March 31, 1997, net of applicable income
tax benefit of $1,189, and is shown separately in the consolidated statements of
income. Revenues of the discontinued operations of the Diversified Products
segment were $8,371 and $1,421 for the nine month period ended March 31, 1997
and 1998, respectively.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(in thousands, except share amounts)
General
On August 27, 1997, Video Services Corporation ("Old Video") merged
with and into International Post Limited ("IPL") with IPL being the surviving
corporation (the "Merger"). At the effective time of the Merger, IPL changed its
name to Video Services Corporation. References herein to the "Company" refer to
the combined company after giving effect to the Merger. The Merger was accounted
for as a reverse acquisition whereby the pre-Merger financial statements of Old
Video became the historical financial statements of the Company. As a result of
the Merger, the results of operations and cash flows reported for the Company
for the nine months ended March 31, 1998 are not necessarily comparable to those
for the nine months ended March 31, 1997. The results of operations and cash
flows as reported represent those of the Company for the nine month periods
ended March 31, 1998 and 1997, and include the results of operations and cash
flows of IPL from the date of the Merger through March 31, 1998. All references
to IPL's 1997 figures represent pre-acquisition amounts and are not included in
the financial statements, but are included in the following discussions for
comparative purposes only. In addition, in August 1997 and prior to the Merger:
(i) Old Video discontinued the operations of its Diversified Products segment
through a spinoff of the Diversified Products segment to Old Video's
stockholders and (ii) the principal stockholders of Old Video contributed by
merger (the "Contribution") the stock of two S corporations holding all of the
general and limited partnership interests in MAL Partners and L.I.M.A. Partners,
which partnerships owned real estate and equipment which was leased solely to
Video and IPL. The Contribution, which represents a transfer between entities
under common control, has been recorded at the lower of historical amortized
cost or fair value. See Note 1 to the Company's unaudited condensed consolidated
financial statements included herein. The following discussion and analysis
should be read in conjunction with such historical consolidated financial
statements and the notes thereto.
Overview
The Company's business is currently divided into three segments: (i)
Satellite and Fiber Optic Transmission Services ("Transmission Services"), (ii)
Systems and Products and (iii) Production Services. The Transmission Services
segment integrates and distributes broadcast quality video content via a
satellite and fiber optic transmission network routed through its digital/analog
switching center. The Systems and Products segment designs, engineers and
produces advanced video facilities for the broadcast and cable television,
post-production and professional markets and rents professional video equipment
to the sports, entertainment and other segments of the broadcast and cable
television and professional markets. The Production services segment is an
international provider of technical and creative services to owners, producers
and distributors of television programming and other programming content.
Discontinued Operations
On January 2, 1997, Old Video's management, which had the authority to
approve the action, committed Old Video to a formal plan to discontinue the
operations of its Diversified Products segment as a condition to the Merger. In
August 1997 and prior to the Merger, Old Video spun off the Diversified Products
segment to Old Video's stockholders. On November 30, 1997, management, which had
the authority to approve the action, committed the Company to a formal plan to
dispose of the consulting company providing strategic consulting services in the
area of communications, design and implementation of intranets, extranets and
internets (See Note 8).
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
(in thousands, except share amounts)
Results of Continuing Operations
Three Months Ended March 31, 1998 compared to Three Months Ended March
31, 1997.
Total revenues increased by $14,758 to $20,456 in 1998 from $5,698 in
1997. Revenues from services increased by $13,438 to $15,857 in 1998 from $2,419
in 1997. $12,844 of the $15,857 of 1998 services revenue was attributable to
post-Merger contribution to revenues from services provided by IPL. Revenues
from services other than those provided by IPL increased by 24.6% to $3,013 in
1998 from $2,419 in 1997. This increase was due primarily to an increase in the
number of customers connected to the Company's satellite and fiber optic network
and the receipt of additional transmission revenue from existing customers,
which was partially offset by a decrease in syndication revenues due to
programming cancellations. Revenues from services provided by IPL decreased by
6.3% from $13,705 in 1997 to $12,844 in 1998. The decrease is primarily due to
lower standards conversion and duplication service revenues. This decrease is a
result of consolidations within the entertainment industry combined with the
movement of certain projects to competition located in California. Revenues from
sales increased by 45.5% to $4,096 in 1998 from $2,815 in 1997 due to increased
demand for design and installation of video systems; however, the amount of the
increase was reduced as a result of a change in the structure of certain
contracts pursuant to which the Company now receives a commission on equipment
used in such video systems which is purchased directly by the customer from
third parties. Previously, the Company had recorded revenues from the sale of
such equipment as well as costs related to the purchase thereof. Rental revenue
increased 8.4% to $503 in 1988 from $464 in 1997 as a result of strong demand
for digital video equipment.
Total costs of sales, services and rentals increased by $8,459 to
$11,746 in 1998 from $3,287 in 1997. Costs of services increased by $7,103 to
$8,245 in 1998 from $1,142 in 1997. This increase was primarily attributable to
costs of services provided by IPL of $6,900 and a $1,345 increase in costs of
non-IPL services. Cost of IPL services increased $106 to $6,900 in 1998 from
$6,794 in 1997. This increase was a result of higher direct salaries to artists,
technicians and engineers. Cost of sales increased by $1,370 to $3,359 in 1998
from $1,989 in 1997. Increases in costs of sales were offset by decreases which
were due primarily to the change in contract structure discussed above. Cost of
rentals decreased by $14 to $142 in 1998 from $156 in 1997 as a result of lower
sub-rental costs. The Company's overall gross profit margin decreased to 32.8%
in 1998 from 34.6% in 1997. Gross profit margin from sales decreased to 18% in
1998 from 29.3% in 1997 primarily as a result of the change in contract
structure discussed above. Gross profit margin from services other than services
provided by IPL increased to 55.4% in 1998 from 52.8% in 1997 as a result of an
increase in revenues combined with stable fixed costs for materials and
equipment. Gross profit margin from services provided by IPL decreased from
50.4% in 1997 to 46.3% in 1998 as a result of an decrease in revenues combined
with increase in direct salaries. Gross profit margin from rentals increased to
71.8% in 1998 from 66.4% in 1997, primarily from reduced amount of sub-rentals.
Selling, general and administrative expenses increased to $4,747 in
1998 from $1,488 in 1997, which increases primarily resulted from the additional
administrative salaries and occupancy costs attributed to IPL's operations.
However, as a result of the Company's increased revenue, selling, general and
administrative expenses as a percentage of revenues decreased to 23.2% in 1998
from 26.1% in 1997.
Depreciation expense increased to $2,008 in 1998 from $437 in 1997,
primarily due to the significant amount of fixed assets of IPL acquired in the
Merger. Amortization expense increased to $255 in 1998 from $5 in 1997
reflecting the amortization of the goodwill (excess of cost over the fair value
of net assets acquired) recorded in connection with the Merger, which is being
amortized over 25 years
Interest expense increased to $1,128 in 1998 from $161 in 1997
primarily due to the assumption by the Company in the Merger of IPL's existing
long-term indebtedness. See "--Liquidity and Capital Resources."
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
(in thousands, except share amounts)
The effective tax rate applied against pre-tax income was 48% in 1998
and 35.6% in 1997. The effective tax rate for both periods as compared to the
federal statutory tax rate of 34% was primarily the result of state income taxes
and goodwill amortization created by the Merger which is not deductible for
income tax purposes.
Income from continuing operations increased 36.6% to $317 in 1998from $232
in 1997 primarily as a result of the factors discussed above.
Nine Months Ended March 31, 1998 compared to Nine Months Ended March
31, 1997.
Total revenues increased by $32,139 to $51,093 in 1998 from $18,954 in
1997. Revenues from services increased by $30,572 to $38,003 in 1998 from $7,431
in 1997. $29,613 of the $38,003 of 1998 services revenue was attributable to
post-Merger contribution to revenues from services provided by IPL. Revenues
from services other than those provided by IPL increased by 12.9% to $8,390 in
1998 from $7,431 in 1997. This increase was due primarily to an increase in the
number of customers connected to the Company's satellite and fiber optic network
and the receipt of additional transmission revenue from existing customers,
which was partially offset by a decrease in syndication revenues due to
programming cancellations. Revenues from services provided by IPL decreased by
16.2% from $35.333 in 1997 to $29,613 in 1998. The decrease is primarily due to
lower standards conversion, duplication, editorial and graphic services.
Revenues from sales increased by 20.6% to $11,567 in 1998 from $9,595 in 1997
due to increased demand for design and installation of video systems; however,
the amount of the increase was reduced as a result of a change in the structure
of certain contracts pursuant to which the Company now receives a commission on
equipment used in such video systems which is purchased directly by the customer
from third parties. Previously, the Company had recorded revenues from the sale
of such equipment as well as costs related to the purchase thereof. Rental
revenue decreased 21.0% to $1,523 in 1988 from $1,928 in 1997 as a result of
strong demand for video equipment generated by the Atlanta Olympics, 1996
presidential election, and the professional baseball World Series in 1997, which
did not recur in 1998.
Total costs of sales, services and rentals increased by $17,358 to
$28,493 in 1998 from $11,135 in 1997. Costs of services increased by $16,012 to
$19,545 in 1998 from $3,533 in 1997. This increase was primarily attributable to
costs of services provided by IPL of $15,822 and a $190 increase in costs of
non-IPL services. Cost of IPL services decreased $2,537 to $15,822 in 1998 from
$18,359 in 1997. Cost of sales increased by $1,532 to $8,508 in 1998 from $6,976
in 1997. Increases in costs of sales were offset by decreases which were due
primarily to the change in contract structure discussed above. Cost of rentals
decreased by $186 to $440 in 1998 from $626 in 1997 as a result of strong demand
for video equipment generated by the Atlanta Olympics, presidential election,
and the professional baseball World Series, which did not recur in 1998. The
Company's overall gross profit margin decreased to 34.4% in 1998 from 34.6% in
1997. Gross profit margin from sales decreased to 26.4% in 1998 from 27.3% in
1997 primarily as a result of the change in contract structure discussed above.
Gross profit margin from services other than services provided by IPL increased
to 55.6% in 1998 from 52.5% in 1997 as a result of an increase in revenues
combined with stable fixed costs for materials and equipment. Gross profit
margin from services provided by IPL decreased from 48.0% in 1997 to 46.6% in
1998 as a result of an decrease in revenues combined with increase in direct
salaries. Gross profit margin from rentals increased to 71.1% in 1998 from 67.5%
in 1997, primarily from reduced amount of sub-rentals, which were required in
1997 to meet increased demand for equipment rentals in connection with the
Atlanta Olympics
Selling, general and administrative expenses increased to $12,067 in
1998 from $4,710 in 1997, which increases primarily resulted from the additional
administrative salaries and occupancy costs attributed to IPL's operations.
However, as a result of the Company's increased revenue, selling, general and
administrative expenses as a percentage of revenues decreased to 23.6% in 1998
from 24.8% in 1997. <PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
(in thousands, except share amounts)
Depreciation expense increased to $5,024 in 1998 from $1,267 in 1997,
primarily due to the significant amount of fixed assets of IPL acquired in the
Merger. Amortization expense increased to $563 in 1998 from $12 in 1997
reflecting the amortization of the goodwill (excess of cost over the fair value
of net assets acquired) recorded in connection with the Merger, which is being
amortized over 25 years.
Interest expense increased to $2,618 in 1998 from $406 in 1997
primarily due to the assumption by the Company in the Merger of IPL's existing
long-term indebtedness. See "--Liquidity and Capital Resources."
The effective tax rate applied against pre-tax income was 48% in 1998
and 40% in 1997. The effective tax rate for both periods as compared to the
federal statutory tax rate of 34% was primarily the result of state income taxes
and goodwill amortization created by the Merger which is not deductible for
income tax purposes.
Income from continuing operations increased 6.7% to $1,263 in 1998 from
$1,184 in 1997 primarily as a result of the factors discussed above.
Liquidity and Capital Resources
The Company meets its liquidity needs and capital expenditures
requirements with internally generated funds, borrowing under its bank credit
facility (including line of credit), equipment financing and capital leases.
Such funds are used for capital expenditures, working capital needs and
repayment of outstanding indebtedness
In connection with the Merger, the Company refinanced substantially all
of Old Video's and IPL's long-term indebtedness (excluding convertible
subordinated debt, Old Video's mortgage payable, note payable to Cognitive
Communications, Inc. and obligations under capital leases), including lines of
credit, with a $33,000 term loan and a $17,000 revolving line of credit. The new
facility bears interest at: (i) the lenders' prime rate minus 1.00% or (ii)
LIBOR plus a number of basis points based upon the Company's leverage ratio
(funded debt divided by EBITDA (defined as earnings before interest, taxes,
depreciation and amortization), which is initially LIBOR plus 1.75% (the Company
has the option to choose the applicable interest rate). Principal payments of
$1,000 per quarter in respect of the term loan portion of the facility were due
beginning December 31, 1997. Such quarterly principal payments increase to
$1,250 per quarter on December 31, 1998 and then increase to $1,750 per quarter
on December 31, 1999 and then further increase to $2,000 per quarter on
September 30, 2001 with a balloon payment of $3,750 in respect of the term loan
portion of the facility due on September 30, 2002. The facility is secured by
all of the assets of the Company and its subsidiaries (after giving effect to
the Merger). No significant gain or loss resulted from the refinancing. The
facility contains covenants which require the Company to maintain certain
financial ratios, prohibit dividends and similar payments and restrict the
incurrence of other indebtedness. The facility is guaranteed by all of the
Company's subsidiaries (after giving effect to the Merger).
The proceeds of the new facility were used as follows: approximately
$23,400 to refinance IPL's outstanding long-term indebtedness, approximately
$3,600 to refinance Old Video's outstanding long-term indebtedness and $1,485 of
mortgage obligations of MAL Partners and approximately $1,800 to refinance Old
Video's outstanding short-term line of credit. Approximately $3,500 was used to
pay the fees and expenses incurred in connection with the Merger.
In August 1997, the Company entered into an interest rate swap
agreement on the $33,000 term loan, which decreases in accordance with scheduled
principal payments on the company's Term Loan. The swap agreement effectively
converts the Company's borrowings under its Term Loan to a fixed rate of 7.58%
per annum.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
(in thousands, except share amounts)
At March 31, 1998, the Company's outstanding indebtedness was
approximately $43,503, including $3,250 under the revolving credit facility. At
March 31, 1998, the weighted average interest rate was approximately 7.77% on
the Company's outstanding indebtedness. The remainder of the facility
(approximately $12,654) will be available for future working capital
requirements and general corporate purposes.
The Company announced plans to open an additional facility in California.
The new facility will provide post-production services to international
television program originators and distributors; such services will include
standards conversion and international duplication. Management believes that the
facility will give the company an opportunity to recapture business lost to
those of its competitors operating in California, as well as to attract
additional customers located on the West Coast. The Company has identified and
leased what it considers to be appropriate office space in the Burbank area and
begun the required leasehold improvements. In addition a general manager has
been selected and hired to manage the expansion. Management currently estimates
this expansion will require approximately $5.1 million in capital expenditures,
and will result in increased revenues and operating expenses. The incurrence of
additional capital expenditures will require an amendment to the existing bank
credit agreement. Management is presently in discussions with the banks to amend
the credit agreement. The source of the capital expenditures and operating funds
is expected to be a combination of internally generated funds and bank
borrowings.
Cash Flow from Operating Activities. For the nine months ended March
31, 1998, net cash used in operating activities was $1,441, primarily resulting
from EBITDA of $10,634, which was offset by increases in working capital
requirements, primarily the payment of transaction costs associated with the
Merger. For the nine months ended March 31, 1997, net cash provided by operating
activities was $2,234, primarily resulting from EBITDA of $3,659, which was
offset by increases in working capital requirements.
Cash Flow from Investing Activities. For the nine months ended March
31, 1998, the Company used $2,293 for investing activities, consisting of $2,367
for the purchase of additional equipment, which was offset by a sale of fixed
assets and repayment of an advance to an affiliate.
Cash Flow from Financing Activities. For the nine months ended March
31, 1998, cash provided by financing activities, net of repayments of borrowings
of long-term indebtedness, was $4,238. Such amount primarily consisted of
$33,000 in proceeds from the senior secured term loan and $12,100 in borrowings
under the revolving line of credit described above. The Company repaid $41,070
of borrowings primarily in connection with the refinancing described above.
Impact of Year 2000:
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has completed an assessment and will have to modify
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total year 2000
project cost is estimated by management to be not material.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
(in thousands, except share amounts)
Forward-Looking Statements:
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, entertainment, television, video and broadcast 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 industry and the loss of key personnel, as well as the ability
of the Company's management to obtain an amendment to the bank credit agreement.
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
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
The Registrant filed with the Securities and Exchange Commission on
Form 8-A on February 6, 1998, pursuant to the requirements of Section 12(b) of
the Securities Exchange Act of 1934, in connection with the listing of the
Common Stock on the American Stock Exchange.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information purposes only and
not filed.
(b) REPORTS ON FORM 8-K
None
<PAGE>
VIDEO SERVICES CORPORATION AND SUBSIDIARIES
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.
VIDEO SERVICES CORPORATION
(Registrant)
Date: May 15, 1998 /s/Louis H. Siracusano
----------------------------------------------------
Name: Louis H. Siracusano
Title: President and Chief Executive Officer
Date: May 15, 1998 /s/Steven G. Crane
----------------------------------------------------
Name: Steven G. Crane
Title: Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENTS OF INCOME FILED AS PART OF THE
QUARTERLY REPORT ON FORM 10-Q 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> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 894
<SECURITIES> 0
<RECEIVABLES> 13,995
<ALLOWANCES> 851
<INVENTORY> 1,100
<CURRENT-ASSETS> 18,995
<PP&E> 87,995
<DEPRECIATION> 52,798
<TOTAL-ASSETS> 82,308
<CURRENT-LIABILITIES> 16,192
<BONDS> 5,394
0
0
<COMMON> 132
<OTHER-SE> 21,254
<TOTAL-LIABILITY-AND-EQUITY> 82,308
<SALES> 51,093
<TOTAL-REVENUES> 51,093
<CGS> 28,493
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> (58)
<INTEREST-EXPENSE> 2,618
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