UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number: 0-15424
VAUGHN COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0626191
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State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
5050 W. 78TH Street, Minneapolis, Minnesota 55435
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 832-3200
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Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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(Title of Class)
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(Title of Class)
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
such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
Exhibit Index appears on Page 22. Page 1 of 27 Pages.
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The aggregate market value of the registrant's voting shares held by
non-affiliates (based upon the closing sale price therefor on the NASDAQ
National Market System on April 11, 1997) was approximately $21,895,996. As
of April 11, 1997, 3,726,978 shares of the Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference:
1. The financial information set forth in the sections captioned
"SELECTED FINANCIAL DATA from Continuing Operations (in Thousands, Except Per
Share Amounts)" to be included in the Registrant's Annual Report to
Shareholders for the Year Ended January 31, 1997 (the "1997 Shareholder
Report") are incorporated herein by reference in response to Item 6 of Part
II hereof.
2. The discussion under the section captioned "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" to be included
in the 1997 Shareholder Report is incorporated herein by reference in
response to Item 7 of Part II hereof.
3. The Registrant's audited financial statements to be included in the
1997 Shareholder Report are incorporated herein by reference in response to
Item 8 of Part II hereof.
4. The discussions under the sections captioned "SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE", "PROPOSAL 1 ELECTION OF
DIRECTORS" and "EXECUTIVE OFFICERS" to be included in the Registrant's
definitive proxy statement to be filed with the Securities and Exchange
Commission and delivered to the Registrant's shareholders pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934 with
respect to the Annual Meeting of the Shareholders to be held on June 17, 1997
(the "1997 Proxy Statement") are incorporated herein by reference in response
to Item 10 of Part III hereof.
5. The discussions under the sections captioned "COMPENSATION OF
DIRECTORS" and "EXECUTIVE COMPENSATION" but excluding the discussions
included under the subsections captioned "EXECUTIVE COMPENSATION -
"Compensation Committee Report on Executive Compensation" and "EXECUTIVE
COMPENSATION - Comparative Stock Performance" to be included in the 1997 Proxy
Statement are incorporated herein by reference in response to Item 11 of Part
III hereof.
6. The discussions under the sections captioned "VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF", "PROPOSAL 1 ELECTION OF DIRECTORS" and
"TRANSACTIONS WITH MANAGEMENT - E. D. Willette Stock Put Redemption
Agreement, Including Change of Control Provision" to be included in the 1997
Proxy Statement are incorporated herein by reference in response to Item 12
of Part III hereof.
7. The discussion under the section captioned "TRANSACTIONS WITH
MANAGEMENT" to be included in the 1997 Proxy Statement is incorporated herein
by reference in response to Item 13 of Part III hereof.
i
VAUGHN COMMUNICATIONS, INC.
1997 FORM 10-K ANNUAL REPORT
Table of Contents
and
Cross Reference Sheet
PART 1
Page
----
Item 1. Business............................................................1
Item 2. Properties..........................................................9
Item 3. Legal Proceedings..................................................10
Item 4. Submission of Matters to a Vote of Security Holders................10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................10
Item 6. Selected Financial Data............................................11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................12
Item 8. Consolidated Financial Statements and Supplementary Data...........12
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure...........................................12
PART III
Item 10. Directors and Executive Officers of the Registrant.................12
Items 11. Executive Compensation.............................................12
ii
Item 12. Security Ownership of Certain Beneficial Owners and Management.....12
Item 13. Certain Relationships and Related Transactions.....................13
PART IV
Item 14. Exhibit, Financial Statement Schedule and Reports
on Form 8-K........................................................13
iii
PART 1
ITEM 1. BUSINESS
GENERAL
The Company was founded under the name Vaughn Displays, Inc. in 1943 and
changed its name to VAUGHN COMMUNICATIONS, INC. in 1987. The Company is engaged
in two business segments. The Vaughn Communications Division is a high volume
video tape duplicator for the corporate, educational and institutional user,
accounting for approximately 80% of the Company's sales in fiscal 1997. The
Vaughn Products Division is a manufacturer and distributor of gift, leather
products, and custom designed soft goods sold by gift shops and western stores,
accounting for approximately 20% of the Company's sales in fiscal 1997.
During the fiscal years ended January 31, 1997, 1996 and 1995, the
percentage of sales of the Communications Division and the Products Division as
compared to total sales of the Company were as follows:
Year Ended January 31,
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Division 1997 1996 1995
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Communications Division 80% 87% 83%
Products Division 20% 13% 17%
The Company's strategic objective is to grow and expand its two businesses
through internal growth and acquisitions. (See "Former Businesses" and "Recent
Acquisitions" below.) The term "Company" herein refers to the registrant
(VAUGHN COMMUNICATIONS, INC.), including its two operating divisions. The
Company's principal executive offices are located at 5050 West 78th Street,
Minneapolis, Minnesota 55435, and its telephone number is (612) 832-3200.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information about industry segments for the years ended January
31, 1997, 1996 and 1995 included in the notes to the Registrant's audited
consolidated financial statements to be included in the 1997 Shareholder Report
are incorporated herein by reference.
VAUGHN COMMUNICATIONS DIVISION
The Company's operations in the communication industry are conducted
through its Communications Division. The Communications Division currently has
video tape duplication facilities in Minneapolis, Milwaukee, Phoenix, Tampa,
Portland, Atlanta, Dallas, Houston, Raleigh, Chicago, Denver and Seattle and has
additional sales offices in St. Louis, New York City, Los Angeles, Nashville,
Washington, D.C. and Ft. Lauderdale. It serves markets that are principally
located in the United States.
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PRIMARY PRODUCTS AND SERVICES OF THE VIDEO TAPE DUPLICATION BUSINESS
There are two main formats in the video tape duplication industry
regarding VHS - tape standard play and extended play. Standard play is
currently the acceptable format for theatrical movies and certain other
products. Extended play is garnering a larger segment of the non-theatrical
segment. Promotional products, "how to" videos and other videos are moving
toward extended play format. The primary reason for this shift in format is
that extended play uses one-third the amount of tape required for standard
play and can be done in high speed duplication which is ultimately less
costly than standard play.
In addition to the primary products and services noted above, the
Communications Division offers international standards conversion, graphic
design, product fulfillment, MPEG compression, and rents video production and
editing equipment on a short-term basis. This group of ancillary services
represents approximately 5% of net sales in fiscal 1997.
The Company has continued to expand facilities for the Communications
Division's high volume video tape duplication. During the Company's fiscal year
ended January 31, 1997 ("fiscal 1997") the Communications Division acquired all
of the common stock of Satastar Corporate Services, Inc. which is located in
Chicago (see also "RECENT ACQUISITIONS - Merger of Satastar Corporate Services
Inc.") and expanded its operations in Seattle from a sales office to a full
service duplication facility. Expansion has been financed by cash flow generated
from operations, equipment leasing and bank financing.
The Company expended approximately $2,740,000 during fiscal 1997 for
additional video tape duplication equipment. It expects to spend an additional
$1,400,000 in fiscal 1998 to further expand its duplication facilities.
MANUFACTURING PROCESS
The manufacturing process for video cassettes generally utilizes
duplicating machines that copy from a master in "real time" speed, that is the
regular speed of the video being duplicated. In its Minneapolis, Milwaukee and
Atlanta facilities, the Company utilizes high speed machines which allow it to
duplicate a master 150 times faster than in "real time" speed and to utilize
less tape than regular speed machines utilize for the same content. In this
process, high speed tape loaders are used to load tape spliced to specific
program lengths into video shells.
LICENSES
The Victor Company of Japan, Ltd. ("JVC"), which owns the "VHS" logo, has
established standards for the physical characteristics of the video cassette.
Compliance with the JVC standards ensures that the video cassette will be
compatible with any VHS machine. Duplicators whose product conforms to the JVC
standards are permitted to apply the "VHS" logo to such product and pay JVC a
license fee for such privilege. The Communications Division paid JVC a license
fee of approximately $550,000 in fiscal 1997 for the privilege of applying the
"VHS" logo to its video product.
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SIGNIFICANT CUSTOMERS
The Communications Division sells to more than 6,000 accounts in any given
year. Approximately 16% of its sales come from ten customers, none of which
amount to more than 5% of net sales.
Illustrative of the Communications Division's duplication customers are
companies that use videotape to promote their products or instruct their
customers on the use of their products, financial service companies which
produce videotapes to present new financial products to sales personnel and
customers, high technology companies which use videotapes to train sales and
service personnel and corporations with many employees or locations that wish to
communicate a significant Company development to all employees simultaneously.
Such high volume customers are generally those who need 100 or more duplicate
videotapes reproduced, addressed to individual locations and forwarded for
delivery, often within a few hours or on an overnight basis. The Communications
Division also has the capacity to convert one international standard videotape
format to either of two other standard formats used around the world or for
various specific communication applications. Customers for these services
generally require lower volume reproduction.
MARKETING
The Communications Division markets its products nationally through the use
of 62 sales personnel who operate throughout the United States. To a lesser
degree, the Company also uses advertising in trade publications and
participation in trade shows.
SEASONALITY
The Communications Division's products are used consistently throughout the
year except for a slight rise in demand in September, October, and November to
supply extra requirements to customers for the holiday selling season.
COMPETITION
Though it is not possible to reliably state the Communications Division's
relative position in the absence of published statistics, based upon data
generated by its own management, the Company believes it is one of the largest
duplicators of video tape for the non-theatrical, non-music video segment of the
U.S. market. This market is comprised of exercise, educational, corporate,
promotional and instructional videos, etc.
The primary competitive factors in the video tape duplication business are
price, quality of service and range of products. The Communications Division
attempts to compete by offering high volume videotape duplication services, at a
competitive price, emphasizing service and customer support.
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The Company's principal competitors are HHG Digital Technologies (formerly
Allied Film and Video Company) and The Duplication Factory. The video
duplication business is highly competitive, not only with these competitors,
but also with many smaller duplicators.
The Company believes that its regional locations, its wide range of product
offerings, and national marketing capabilities are competitive advantages over
many others in the industry. While selling prices have been declining in recent
years as competitors continue to seek market share by lowering prices, the
Company has been reasonably successful in maintaining its margins by lowering
its material costs and achieving unit volume increases.
VAUGHN PRODUCTS DIVISION
The Products Division is engaged in the manufacture and sale of a line of
soft goods, including custom-designed, silk-screened T-shirts and sweatshirts,
souvenir leather products, and gift items sold primarily to retail merchants
located in the United States and Canada. The Products Division's manufacturing
facilities are located in the Company's Minneapolis, Minnesota plant where it
produces a line of over 200 leather items such as billfolds, purses, and
personal accessory items, and in Seattle, Washington, where it designs and
produces its soft goods products. The Products Division corporate headquarters
are also located in Seattle. The gift products are sold at wholesale prices for
resale, primarily by gift shops,and are marketed under the "Bloom Brothers" and
"Indian Arts and Crafts" names. See "RECENT ACQUISITIONS - Purchase of Indian
Arts and Crafts, Inc."
SALES AND DISTRIBUTION
Sales of the Products Division's products are made throughout the United
States and Canada by in-house sales people and independent manufacturer's
representatives. The Products Division employs two sales manager and four sales
people, and retains 35 manufacturer's representatives. The products are
included in a Company catalog, periodically sent to prospective and known
customers and made available for use by the sales organization. The Company
also participates in trade shows.
The principal markets for the Products Division's products are gift and
souvenir shops that serve the tourist industry.
The Products Division sells to over 3,000 customers, none of which account
for more than 5% of its net sales.
MANUFACTURING AND RAW MATERIALS
The Products Division's manufacturing operations consists primarily of
assembly, fabricating and converting leather to finished products and silk
screening of T-shirts. Numerous subcontractors are utilized to furnish
components and subassembly. Materials utilized in these products are standard
and readily available from multiple sources at competitive prices.
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SEASONAL OPERATIONS
The operations of the Company's Products Division are seasonal in nature.
Approximately half of the production and sale of its products are delivered to
customers from March through June.
COMPETITION
The primary competitive factors in the Products Division line of business
are price, product offering, quality and meeting delivery times. The Company
believes that the Products Division is competitive in each of these areas. The
Company does not have a significant share of the overall gift market and
competes for sales with many national and regional companies throughout the
United States and Canada. Many of such competitors have significantly greater
resources than the Company.
FORMER BUSINESSES
The Company originally operated as a manufacturer and distributor of flags
and banners, Christmas and seasonal decorative displays and parade and float
materials. In addition to these businesses and its two current business
segments, in 1986 the Company also entered radio broadcasting. The radio
broadcast business was not profitable for the Company and the Company's original
businesses did not always operate at predictable or acceptable levels of
profitability.
Consequently, in 1990 the Company began to redeploy its corporate and
personnel resources to the more firmly profitable current businesses operated by
the Vaughn Communications and Vaughn Products Divisions. In 1990 and 1991, the
Company sold its radio station interests and its audio and video equipment sales
and engineering businesses. In February 1992, the Company also withdrew from
the Christmas display business.
On March 1, 1994, the Company completed this redeployment by selling its
flag, banner, seasonal decorative display and parade and float products
operations and assets to Chromatic Concepts Co., a Minneapolis, Minnesota based
corporation ("Buyer"). These businesses previously occupied approximately 5,000
square feet of the Company's principal manufacturing plant in Minneapolis,
Minnesota and its 12,000 square foot manufacturing plant in Tampa, Florida, and
employed 21 manufacturing, sales and administrative personnel. The Buyer
reemployed substantially all of these employees. The Company retained its Tampa
plant, subject to a short-term lease to the Buyer which expired October 31,
1994, after which this facility was sold to an unrelated party. The portion of
the Minneapolis plant previously used by these businesses has been rededicated
to use by the Company's Communications and Products Divisions (see "Item 2.
Properties" below).
The Purchase and Sale Agreement with the Buyer provided for a purchase
price of $1,500,000, with $800,000 cash paid at closing, plus a $700,000
promissory note payable in installments over seven years with variable interest
at .25% per annum over the prime rate. The Company is also entitled to certain
additional payments of up to $250,000 over fifteen years contingent upon
performance of the businesses sold over this period. These businesses accounted
for approximately $2,904,000 of sales and an operating profit of $145,000 in
fiscal 1994.
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BACKLOG
Order backlog is not generally a significant factor in the Company's
business. The Company relies primarily on current selling efforts coupled
with near term delivery or performance.
EMPLOYEES
On March 31, 1997, the Company had 695 employees, including 81 in sales
and marketing, 493 in manufacturing and 121 in executive, finance and
administrative positions. Eighty of the Company's manufacturing and clerical
employees are part-time employees. The Company's employees are not
represented by a union. The Company considers its employee relations to be
satisfactory.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The costs associated with the Company's compliance with Federal, state
and local environmental laws are minimal. For these reasons, the Company's
compliance with such laws does not have a material effect on its capital
expenditures, earnings or its competitive position in the marketplace.
RECENT ACQUISITIONS
MERGER OF SATASTAR CORPORATE SERVICES, INC.
Pursuant to a Plan and Agreement of Merger dated June 7, 1996, on June
28, 1996 Satastar Corporate Services, Inc. (DBA PVS Corporate Services), an
Illinois corporation, was merged into the Company. The Company accounted
for the transaction as a pooling of interests. The merger was effected by
the issuance of 165,357 shares of the Company's common stock valued at $13.75
per share or approximately $2,274,000 in the aggregate, in exchange for all
the common stock of Satastar.
The Company also entered into employment and noncompete agreements with
the former owners of Satastar. The agreements are for terms ranging from two
to three years and call for compensation of $130,000 to $162,000 per year.
DESCRIPTION OF SATASTAR'S BUSINESS
Satastar is a regional video tape duplicator whose business, with the
exception of specific customer identity, is substantially similar to the
video tape duplication business of the Company's Communications Division of
which Satastar has become part. Satastar has a videotape duplication
facility in Chicago, Illinois, and the Company merged its pre-existing
facility in Chicago into that of Satastar.
For Satastar's years ended December 31, 1996 and 1995, it had annual
sales of $4,056,000 and $3,868,000, respectively. Net income for the same
periods was $102,000 and $342,000.
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At the time of the merger, Satastar had 39 employees, including 3 in
sales, 10 in administration and support, and 26 in operations. A majority of
these persons are currently employees of Vaughn Communications Division.
These employees are not represented by a union, and the Company considers
Satastar's employee relations to be satisfactory and there have been no work
stoppages.
PURCHASE OF CENTERCOM AND RELATED TRANSACTIONS
On April 4, 1995, the Company completed the acquisition of all of the
capital stock of Centercom, Inc., a Wisconsin corporation, and Centercom
South, Inc., a Florida corporation (collectively "Centercom") pursuant to a
Stock Purchase Agreement of even date (the "Purchase Agreement"). The
effective date of the acquisition is April 1, 1995. The Company accounted
for the acquisition as a purchase.
The purchase price for the capital stock of Centercom was $6,420,000,
which was paid equally to the two equal former shareholders of Centercom,
Jeffrey Johnson and Robert Harmon (the "Sellers"). The Company paid
$5,250,000 in cash and issued 180,000 shares of the Company's common stock,
valued at $6.50 per share ($1,170,000 in the aggregate), equal to the closing
sale price of the stock on NASDAQ on April 3, 1995. Pursuant to the terms of
the Purchase Agreement, the Sellers have been elected as directors of the
Company and appointed as members of the Company's Audit Committee.
The Sellers receive $100,000 each per year for a period of seven years
under consulting and noncompete agreements. In addition, the Company has
entered into two ten-year leases for the video tape duplication facilities
totaling approximately 38,000 square feet owned by a partnership of the
Sellers in Milwaukee, Wisconsin, at an aggregate annual net rent of $186,353
for the first three years and $199,225 for the remaining seven years of the
lease term. Management of the Company believes that the facilities leased
from Sellers are necessary for its video tape duplication business and that
the lease terms and conditions are no less favorable to the Company than
could be obtained from an unrelated third party (see "Description of
Centercom's Business" below).
FINANCING FOR THE ACQUISITION
The Company borrowed the cash consideration for the Centercom acquisition
from a bank, under a Loan Agreement. The Loan Agreement provided a
$5,000,000 term loan due March 31, 2000, payable in consecutive quarterly
principal installments of $250,000 commencing July 1, 1995, plus interest at
one-quarter percent over the bank's prime rate. The Loan Agreement also
provided a revolving credit facility of up to $8,000,000. On February 1,
1996, the Company entered into an amended agreement with its bank which
reduced the interest rate on the term loans to the prime rate.
DESCRIPTION OF CENTERCOM'S BUSINESS
Centercom is a national video tape duplicator whose business, with the
exception of specific customer identity and geographic concentration, is
substantially similar to the video tape duplication business of the Company's
Vaughn Communications Division of which Centercom has become a part.
Centercom has video tape duplication facilities in Milwaukee, Wisconsin,
Chicago, Illinois and Tampa,
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Florida. The Company has merged its preexisting facilities in Milwaukee,
Chicago and Tampa into those of Centercom. Centercom, Inc. and Centercom
South, Inc. have been and will continue as wholly-owned subsidiaries of the
Company for the immediately foreseeable future.
For Centercom's fiscal years ended June 30, 1994 and 1993, it had annual
sales of $8,700,000 and $7,700,000, respectively. Net income for the same
periods was $645,000 and $412,000.
Centercom's operations involve the use of several hundred real time video
tape duplicating machines and three high-speed (150 times real time rates)
duplicating machines similar to those utilized by the Company.
The Company believes that the Centercom acquisition has enabled the
Company to be a dominant competitor in the Milwaukee market, enhanced the
Company's already dominant position in the Tampa market and increased the
Company's presence in the Chicago market.
PURCHASE OF ADVANCED AUDIO/VIDEO PRODUCTIONS, INC.
Pursuant to a Purchase and Sale Agreement dated December 29, 1995, on
January 1, 1996 the Company acquired substantially all the assets and assumed
substantially all the liabilities of Advanced Audio/Video Productions, Inc.
("Advanced Video"), a Colorado corporation. The Company accounted for the
acquisition as a purchase.
The purchase price for the assets of Advanced Video in the amount of
approximately $282,000 included $182,000 of cash and $100,000 of long-term
debt to the seller. The note is payable in three annual installments of
$33,333.33 starting January 5, 1997, plus interest at the prime rate adjusted
on the anniversary date.
Advanced Video is a regional video tape duplicator with its facility
located in Denver, Colorado. Its business is substantially similar to the
video tape duplication business of the Company's Vaughn Communications
Division of which Advanced Video has become a part.
For Advanced Video's fiscal year ended December 31, 1995, it had annual
sales of $1,204,000 and net income of $60,000.
PURCHASE OF INDIAN ARTS AND CRAFTS, INC.
Pursuant to a Purchase and Sale Agreement dated January 31, 1996 the
Company acquired substantially all the assets and assumed substantially all
the liabilities of Indian Arts and Crafts, Inc. ("IAAC"), a Washington
corporation. The Company accounted for the acquisition as a purchase.
The purchase price of approximately $2,332,000 was paid to the five
shareholders of IAAC (the "Sellers"). The Company paid approximately $82,000
in cash, issued 145,138 shares of the Company's common stock valued at
$8.6125 per share ($1,250,000 in the aggregate), equal to the average closing
sale price of the stock on NASDAQ for the 10 days prior to January 31, 1996,
and issued $1,000,000 of
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long-term debt to the Sellers. The long-term debt consists of two promissory
notes; one in the principal amount of $250,000 payable in three equal annual
installments beginning January 31, 1997, and the other in the principal
amount of $750,000 payable in seven equal annual installments starting on
January 31, 1997. The interest rate on both notes is 8.5% per annum.
The Company also entered into a three-year employment agreement with
Howard Lowen, the president and largest shareholder of IAAC. In addition,
the Company entered into two leases with the Sellers. One lease is for a
production facility in Seattle totaling approximately 42,300 square feet at
an aggregate annual rent of $250,000. The term of this lease is 44 months
starting February 1, 1996. The second lease is for a sales office in
Anchorage ( 1,400 square feet) at an annual rental of $14,400 and has a
three-year term. Management of the Company believes that the facilities
leased from the Sellers are necessary for the business of the Products
Division and that the terms of the leases are no less favorable to the
Company than could be obtained from an unrelated third party.
FINANCING FOR THE ACQUISITION
The Company used its revolving credit facility to fund the $82,000 cash
portion of the purchase price. To fund the anticipated increase in working
capital needs, the Company entered into an Amended and Restated Loan
Agreement with a bank on February 1, 1996 (the "Amended Agreement"). The
Amended Agreement increases the total credit facility from $13,000,000 to
$17,000,000 and provides for long-term financing to finance acquisitions and
equipment purchases, and a revolving credit facility to finance working
capital. The interest rate on the long-term debt (approximately $4,015,000
at January 31, 1997) and the revolving debt is at the prime rate.
DESCRIPTION OF IAAC'S BUSINESS
IAAC's business consists primarily of the manufacture and sale of gift
and souvenir products. Its principal products are custom-designed soft
goods, including T-shirts, sweatshirts and hats sold primarily in Alaska and
the Pacific Northwest. The Company has an art department which develops
custom designs that are silk-screened on apparel and then sold to retailers
by direct salespeople or independent manufacturer's representatives. IAAC
also resells other gift and souvenir products through the same sales
channels. IAAC has been merged into Vaughn Products Division, and the
Company moved the majority of the operations of the Products Division to
Seattle during fiscal 1997.
For IAAC's fiscal years ended December 31, 1995 and 1994, it had annual
sales of $7,543,000 and $7,593,000, respectively. Net income for the same
periods was $227,000 and $360,000, respectively.
ITEM 2. PROPERTIES
The Company owns its executive and administrative offices and principal
manufacturing plant consisting of approximately 67,000 square feet located on
a 4.1 acre site at 5050 West 78th Street, Minneapolis, Minnesota.
Approximately 5,000 square feet is devoted to and equipped for the
fabrication and warehousing of the Vaughn Products Division's products and
raw materials.
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Approximately 57,600 square feet is used for the Vaughn Communications
Division's separate administrative and sales offices, showrooms, videotape
duplication, shipping, warehouse and handling. The remaining space of
approximately 4,400 square feet houses the Company's executive and
administrative offices. These facilities include a separate adjacent
building of approximately 10,600 square feet. See the Notes to the audited
financial statements of the Company incorporated by reference for a
description of the mortgage term loan to the Company secured by these
facilities.
The Company leases Vaughn Communications Division's facilities in
Milwaukee, Wisconsin; Phoenix, Arizona; Tampa and Orlando, Florida; Portland,
Oregon; Atlanta, Georgia; Dallas, Texas; Houston, Texas; Raleigh, North
Carolina; Chicago, Illinois; Seattle, Washington; and Denver, Colorado for
sales offices and videotape reproduction, totaling approximately 293,000
square feet under leases expiring from 1998 through 2002, at a current total
annual rental of approximately $1,155,000.
The Products Division's Seattle facilities leased from the IAAC Sellers
are described under "RECENT ACQUISITIONS - Purchase of Indian Arts and
Crafts, Inc." in Item 1 above. In addition, the Products Division leases
approximately 24,000 square feet of warehousing and office space in an
adjacent building. The lease expires in 1999 and has a current annual rental
of $126,000.
The Company is presently utilizing approximately 75% of its manufacturing
plant capacity measured on a five-day week/three shift per day basis.
Production capacity, however, can be expanded by adding additional personnel
or acquiring additional manufacturing equipment. Management believes its
manufacturing facilities are generally sufficient for the Company's
immediately foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending against or involving the Company
or its properties which, in the opinion of management, will have a material
adverse effect upon the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the quarter ended January 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY
The Company's Common Stock is traded over-the-counter and has been
included in the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") National Market System since March 26, 1994,
under the symbol VGHN. The information presented is the quarterly high and
low closing sale prices as reported in the NASDAQ's National Market System.
All prices are without retail markups, markdowns or commissions.
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Price
---------------------
Calendar Period High Low
--------------- ------- -------
1997: First Quarter $ 8.00 $ 6.00
1996: First Quarter $ 9.375 $ 8.375
Second Quarter 19.00 9.00
Third Quarter 15.00 9.50
Fourth Quarter 10.50 7.00
1995: First Quarter $7.875 $ 6.25
Second Quarter 7.875 5.75
Third Quarter 9.375 7.125
Fourth Quarter 9.50 7.75
The last sales price for the Company's Common Stock as reported by the
NASDAQ National Market System on April 11, 1997 was $5.875 per share. As of
January 31, 1997, the Company had 336 shareholders of record. The Company
has never paid a cash dividend on its Common Stock. It intends to retain all
earnings to finance the development of its business. The Company's loan
agreement with its bank contains limitations on paying dividends.
Accordingly, no cash dividends are anticipated for the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended January 31, 1997, the Company sold
unregistered securities in the amounts, at the times, and for the aggregate
amounts of consideration listed below:
a. On June 28, 1996, the Company issued 165,357 shares of its common
stock to Satastar Corporate Services, Inc. ("Satastar") in exchange for all
of the outstanding capital stock of Satastar. The business combination of
Satastar and the Company has been accounted for as a pooling of interest.
There were no underwriters involved in this transaction. The shares issued
to the shareholders of Satastar were issued in reliance upon the exemption
from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Act"). With respect to the Company's reliance on Section 4(2)
of the Act, the shareholders of Satastar represented that they acquired the
shares for investment and the certificates representing the shares issued to
the shareholders of Satastar were legended with respect to restrictions on
transfer. See the discussion under "RECENT ACQUISITIONS - Purchase of
Satastar Corporate Services, Inc." included in "Item 1. Business."
ITEM 6. SELECTED FINANCIAL DATA
The financial information set forth in the sections entitled "SELECTED
FINANCIAL DATA from Continuing Operations (in Thousands, Except Per Share
Amounts)" to be included in the Company's 1997 Shareholder Report is
incorporated herein by reference in response to this Item 6. This section
should be read in conjunction with the Notes to Consolidated Financial
Statements which also appear in the 1997 Shareholder Report and are incorporated
herein by reference.
- 11 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion under the Section entitled "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" to be included in
the 1997 Shareholder Report is incorporated herein by reference in response
to this Item 7.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company for each of the years
in the three-year period ended January 31, 1997, together with the report
thereon of Ernst & Young LLP, contained in the 1997 Shareholder Report, are
incorporated herein by reference in response to this Item 8.
The supplementary financial information requirements of Item 302 of
Regulation S-K are not applicable to the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The discussions under the sections captioned "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE", "PROPOSAL 1 ELECTION OF DIRECTORS" and
"EXECUTIVE OFFICERS" to be included in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission and
delivered to the Registrant's shareholders pursuant to Regulation 14A
promulgated under the Securities Exchange Act of 1934 with respect to the
Annual Meeting of the Shareholders to be held on June 17, 1997 (the "1997
Proxy Statement") are incorporated herein by reference in response to this
Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The discussions under the sections captioned "COMPENSATION OF DIRECTORS"
and "EXECUTIVE COMPENSATION" but excluding the discussions included under the
subsections captioned "EXECUTIVE COMPENSATION - Compensation Committee Report on
Executive Compensation" and "EXECUTIVE COMPENSATION - Comparative Stock
Performance" to be included in the 1997 Proxy Statement are incorporated herein
by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The discussions under the sections captioned "VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF", "PROPOSAL 1 ELECTION OF DIRECTORS" and
"TRANSACTIONS
- 12 -
WITH MANAGEMENT - E. D. Willette Stock Put Redemption Agreement, Including
Change of Control Provision" to be included in the 1997 Proxy Statement are
incorporated herein by reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The discussion under the section captioned "TRANSACTIONS WITH MANAGEMENT"
to be included in the 1997 Proxy Statement is incorporated herein by reference
in response to this Item 13.
PART IV
ITEM 14. EXHIBIT, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
The consolidated financial statements listed below of the Company for
each of the years in the three-year period ended January 31, 1997,
together with the report thereon of Ernst & Young LLP, contained in
the 1997 Shareholder Report (attached as Exhibit 13) are incorporated
herein by reference in response to this Item 14 (a) (1).
Independent Auditor's Report of Ernst & Young LLP
Consolidated Balance Sheets as of January 31, 1997 and 1996
Consolidated Statements of Income for the years ended January 31,
1997, 1996 and 1995
Consolidated Statement of Shareholders' Equity for the years ended
January 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended January 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
With the exception of the aforementioned information, and the
information specified in Parts II and III, the 1997 Shareholder Report
is not to be deemed filed as part of this Report.
2. FINANCIAL STATEMENT SCHEDULE OF THE COMPANY
Schedule No. Page
----------- ----
II Valuation and Qualifying Accounts S-1
All other schedules are omitted, because they are not applicable, or
not required, or because the information is included in the Company's
consolidated financial statements or notes thereto.
b. REPORTS ON FORM 8-K
No current Reports on Form 8-K were filed by the Company during the
quarter ended January 31, 1997.
- 13 -
(c) EXHIBITS
Exhibit No. Description of Exhibits
----------- -----------------------
(2)(a) Stock Purchase Agreement dated April 4, 1995, providing
for the Company's purchase of all of the capital stock
of Centercom, Inc., a Wisconsin corporation, and
Centercom South, Inc. a Florida corporation, from
Jeffrey Johnson and Robert Harmon (incorporated herein
by reference to Exhibit 2(a)-1 to the Company's Current
Report on Form 8-K with a Date of Report of April 14,
1995).
(2)(b) Escrow Agreement dated April 14, 1995 among the Company,
Jeffrey Johnson, Robert Harmon and Firstar Trust Company
(incorporated herein by reference to Exhibit (2)(a)-2 to
the Company's Current Report on Form 8-K with a Date of
Report of April 14, 1995).
(2)(c) Purchase and Sale Agreement dated January 31, 1996 between
the Company and the Shareholders of Indian Arts and Crafts,
Inc. (without Exhibits, Schedules or Attachments) (incorporated
by reference to Exhibit (2)(c) to the Company's Annual Report
on Form 10-K for the year ended January 31, 1996 (hereinafter
referred to as the "1996 Form 10-K")).
(2)(d) Plan and Agreement of Merger dated June 7, 1996, between the
Company and Satastar Corporate Services, Inc., doing business
as PVS Corporate Services (without Exhibits, Schedules or
Attachments).
(3)(i)(a) Restated Articles of Incorporation of the Company, and all
amendments filed with the Minnesota Secretary of State through
March 12, 1987 (incorporated herein by reference to Exhibit 3(a)
to the Company's Registration Statement on Form S-1 No. 33-10918
hereinafter referred to as the "Company's S-1 Registration
Statement").
(3)(i)(b) Articles of Amendment to the Company's Restated Articles of
Incorporation, as filed with the Minnesota Secretary of State
on July 16, 1987 (incorporated herein by reference to Exhibit
19 to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1987).
- 14 -
(3)(i)(c) Articles of Amendment to the Company's Restated Articles of
Incorporation, as filed with the Minnesota Secretary of State
on June 24, 1993 (incorporated herein by reference to Exhibit
3(a) to the Company's Annual Report on Form 10-K for the year
ended January 31, 1994, (hereinafter referred to as the "1994
Form 10-K")).
(3)(ii)(a) Restated By-Laws of the Company and all amendments thereto
through March 12, 1987 (incorporated herein by reference to
Exhibit 3(b) to the Company's S-1 Registration Statement).
(3)(ii)(b) Third Amendment to the Company's Restated By-Laws adopted
April 19, 1994 (incorporated herein by reference to
Exhibit 3(b) to the 1994 Form 10-K).
(10)(a) [Intentionally left blank.]
(10)(b) Purchase and Sale Agreement Restated February 17, 1994, dated
as of February 28, 1994, providing for the Company's sale of
its flag, banner and parade and float products, assets and
business to Chromatic Concepts Co. (incorporated herein by
reference to Exhibit (10)(b) to the 1994 Form 10-K).
(10)(c) Purchase Agreement dated as of May 25, 1993, providing for the
Company's purchase from Cranberry Novelty Manufacturing Company
of the "Cranberry Lake" novelty product line (incorporated herein
by reference to Exhibit (10)(c) to the 1994 Form 10-K).
(10)(d) Adoption Agreement dated November 5, 1992 for Vaughn
Communications, Inc. Retirement Savings Plan (the "Plan")
adopting Fidelity Management & Research Co. standard prototype
Profit Sharing/401(K) Plan basic plan document No. 7 and copy
of Retirement Service Agreement dated November 4, 1992 with
Fidelity Management Trust Company, providing for the trust
and administration of the Plan, first effective as of the Plan
year beginning February 1, 1993 (incorporated herein by reference
to Exhibit (10)(d) to the 1994 Form 10-K).
(10)(e) [Intentionally left blank.]
- 15 -
(10)(f) 1990 Company-Wide Stock Option Plan adopted by the Company's
Board of Directors on June 26, 1990, as amended December 17,
1990, and forms of 1990 Incentive Stock Option and 1990
Non-statutory Stock Option Agreements (incorporated herein by
reference to Exhibit 10(f) to the Company's Annual Report on
Form 10-K for the year ended January 31, 1991), and copy of
amendment to such Plan adopted by the Board June 24, 1992
(incorporated herein by reference to Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the year ended
January 31, 1993, (hereinafter referred to as the "1993
Form 10-K")).
(10)(g) 1988 Stock Option Plan adopted by the Company's Board of
Directors on December 20, 1988, and forms of 1988 Incentive
Stock Option and 1988 Nonstatutory Stock Option Agreements
(incorporated herein by reference to Exhibit 10(g) to the
Company's Annual Report on Form 10-K for the year ended
January 31, 1989), and copies of amendments to such Plan
adopted by the Board June 24, 1992 (incorporated herein by
reference to Exhibit 10(g) to the 1993 Form 10-K).
(10)(h) Amended and Restated Stock Put Redemption Agreement dated
August 27, 1986, between the Company and E. David Willette
(incorporated herein by reference to Exhibit 10(h) to the 1993
Form 10-K).
(10)(i) 1983 Incentive Stock Option Plan and form of 1983 Incentive
Stock Option Agreement (incorporated by reference to
Exhibit 10(1) to the Company's S-1 Registration Statement),
and copy of amendment to such Plan adopted by the Board June 24,
1992 (incorporated herein by reference to Exhibit 10(i) to the
1993 Form 10-K).
(10)(j) 1985 Stock Option Plan (incorporated by reference to
Exhibit 10(m) to the Company's S-1 Registration Statement),
copy of Amendment to the 1985 Stock Option Plan adopted by the
Company's Board of Directors on December 10, 1987, and
corresponding revised forms of 1985 Incentive Stock Option
Agreement and 1985 Nonstatutory Option Agreement (incorporated
by reference to Exhibit 10(j) to the Company's Annual Report on
Form 10-K for the year ended January 31, 1988), and copy of
amendment to such Plan adopted by the Board June 24, 1992
(incorporated herein by reference to Exhibit 10(j) to the
1993 Form 10-K).
- 16 -
(10)(k) 1990 Non-Employee Directors Stock Option Plan adopted by the
Company's Board of Directors June 26, 1990, as amended
December 17, 1990, and form of 1990 Non-Employee Directors
Stock Option Agreement (non-statutory) (incorporated herein
by reference to Exhibit 10(k) to the 1993 Form 10-K).
(10)(l) Mortgage and Security Agreement and Fixture Financing Statement
and Promissory Note, dated February 26, 1988, between the Company
(as mortgagor and borrower) and The Canada Life Assurance Company
(as mortgagee and lender), providing for a three year $1,600,000
mortgage loan to the Company with three year renewal options
secured by the Company's Minneapolis, Minnesota headquarters and
adjacent plant and office facilities (incorporated by reference
to Exhibit 10(1) to the Company's Annual Report on Form 10-K for
the year ended January 31, 1988).
(10)(m) 1990 Discounted Stock Option Plan adopted by the Company's Board
of Directors on June 26, 1990, as amended December 17, 1990, and
form of 1990 Discounted Stock Option Agreement (nonstatutory)
(incorporated herein by reference to Exhibit 10(m) to the
Company's Annual Report on Form 10-K for the year ended
January 31, 1991), and copy of amendment to such Plan adopted by
the Board June 24, 1992 (incorporated herein by reference to
Exhibit 10(m) to the 1993 Form 10-K).
(10)(n) Leases each dated April 4, 1995, between Centercom, Inc., the
Company's wholly-owned subsidiary, as Lessee, and Centercom
Partnership, a partnership owned by Jeffrey Johnson and Robert
Harmon, the former owners of all of the capital stock of
Centercom, Inc., as Lessor, and Specialty Services, Inc., a
real estate holding corporation owned by Messrs. Johnson and
Harmon, as Lessor, respectively providing for the lease and
rental from and after April 4, 1995, of the real estate and
buildings located at 5737 West Hemlock Street and 5621 West
Hemlock Street, Milwaukee, Wisconsin, from which the Company's
wholly-owned subsidiary, Centercom, Inc., conducts its Milwaukee,
Wisconsin based videotape duplication operations (incorporated
herein by reference to Exhibit (10)(n) to the 1995 Form 10-K).
(10)(o) Consulting and Non-Competition Agreements, each dated April 4,
1995, among the Company, its wholly-owned subsidiary, Centercom,
Inc. and each of Jeffrey Johnson and Robert Harmon, the prior
shareholders of Centercom, Inc., from whom the Company acquired
the capital stock of Centercom, Inc., providing
- 17 -
for certain covenants of Jeffrey Johnson and Robert Harmon
against competition with the Company and Centercom, Inc. and
for performance of certain consulting services by said prior
shareholders (incorporated herein by reference to Exhibit (10)(o)
to the 1995 Form 10-K).
(10)(p) Shareholder Voting Agreement dated April 4, 1995, among the
Company, E. David Willette and Jeffrey Johnson and Robert
Harmon, providing that E. David Willette will vote his own
shares of the Company's Common Stock for the election of
Jeffrey Johnson and Robert Harmon as members of the Company's
Board of Directors (incorporated herein by reference to
Exhibit (10)(p) to the 1995 Form 10-K).
(10)(q) Amended and Restated Loan Agreement dated February 1, 1996,
between the Company and American Bank N.A. (incorporated by
reference to Exhibit (10)(q) to the 1996 Form 10-K.)
(10)(r) 1995 Non-Employee Director Stock Option Plan adopted by the
Board of Directors on June 20, 1995 and form of 1995
Non-Employee Director Nonstatutory Stock Option Agreement.
10)(s) Third Modification Agreement and Amendment to Mortgage dated
January 1, 1997 between the Company and the Canada Life
Assurance Company.
(11) Statement Regarding Computation of Earnings Per Share.
(13) 1997 Annual Report to Shareholders.
(23) Consent of Independent Auditors
(24) Power of Attorney (see the Signature Page of this Report)
(27) Financial Data Schedules
(d) Financial Statements required by Regulation S-X which are excluded
from the Annual Report to Shareholders.
None.
- 18 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VAUGHN COMMUNICATIONS, INC.
By \s\ E. David Willette
-------------------------------------
E. David Willette
Chairman and Chief Executive Officer
(Principal Executive Officer)
By \s\ M. Charles Reinhart
-------------------------------------
M. Charles Reinhart
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: April 30, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
above or below, constitutes and appoints E. David Willette and M. Charles
Reinhart, or either of them, his true and lawful attorneys-in-fact, and
agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments to this Report, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
- 19 -
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company in their respective capacities as directors of the Company.
\s\ E. David Willette Director April 30, 1997
- ----------------------------------
E. David Willette
\s\ Roger F. Heegaard Director April 30, 1997
- ----------------------------------
Roger F. Heegaard
\s\ Harold G. Wahlquist Director April 30, 1997
- ----------------------------------
Harold G. Wahlquist
\s\ William D. Smith Director April 30, 1997
- ----------------------------------
William D. Smith
\s\ Laurence F. LeJeune Director April 30, 1997
- ----------------------------------
Laurence F. LeJeune
\s\ Michael R. Sill Director April 30, 1997
- ----------------------------------
Michael R. Sill
\s\ Rodney P. Burwell Director April 30, 1997
- ----------------------------------
Rodney P. Burwell
\s\ Jeffrey Johnson Director April 30, 1997
- ----------------------------------
Jeffrey Johnson
\s\ Robert Harmon Director April 30, 1997
- ----------------------------------
Robert Harmon
\s\ Donald J. Drapeau Director April 30, 1997
- ----------------------------------
Donald J. Drapeau
- 20 -
VAUGHN COMMUNICATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
Additions
---------
Charged Charged
Balance at to Costs to Other Balance at
Beginning and Accounts- Deductions End of
Description of Period Expenses Describe Describe Period
- ----------- --------- -------- -------- -------- --------
Year ended
1/31/97:
Deducted from
asset account:
Allowance for
doubtful accounts $625,600 $396,694 $372,294(1) $650,000
--------- -------- -------- --------
--------- -------- -------- --------
Year ended
1/31/96:
Deducted from
asset account:
Allowance for
doubtful accounts $536,700 $386,160 $297,260(1) $625,600
--------- -------- -------- --------
--------- -------- -------- --------
Year ended
1/31/95:
Deducted from
asset account:
Allowance for
doubtful accounts $470,000 $290,496 $223,796(1) $536,700
--------- -------- -------- --------
--------- -------- -------- --------
- ------------------------
(1) Uncollectible accounts written off, net of recoveries
- 21 - S-1
VAUGHN COMMUNICATIONS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
(2)(d) Plan and Agreement of Merger dated June 7, 1996 between the
Company and Satastar Corporate Services, Inc., doing business
as PVS Corporate Services (without exhibits, schedules and
attachments).
(10)(r) 1995 Non-Employee Director Stock Option Plan adopted on
June 20, 1995 and Form of 1995 Non-Employee Director
Nonstatutory Stock Option Agreement.
(10)(s) Third Modification Agreement and Amendment to Mortgage dated
January 1, 1997, between the Company and Canada Life
Assurance.
(11) Statement Regarding Computation of Earnings Per Share
(13) 1997 Annual Report to Shareholders
(23) Consent of Independent Auditors
(24) Power of Attorney (see Signature Page of Report)
(27) Financial Data Schedules
- 22 -
VAUGHN COMMUNICATIONS, INC.
COMPUTATI0N OF EARNINGS PER SHARE
Year Ended January 31
------------------------------------------------
1997 1996 1995
---- ---- ----
PRIMARY:
Average Shares Outstanding 3,640,304 3,243,905 2,963,155
Net effect of dilutive stock options 283,960 395,168 424,081
based on the treasury stock method ---------- ---------- ----------
using average market price
TOTAL 3,924,264 3,639,073 3,387,236
---------- ---------- ----------
---------- ---------- ----------
Income from continuing operations $2,015,496 $2,247,176 $1,893,459
Income from discontinued
operations (net of tax benefit) - - 492,351
---------- ---------- ----------
Net Income $2,015,496 $2,247,176 $2,385,810
---------- ---------- ----------
---------- ---------- ----------
PER SHARE AMOUNTS:
Income from continuing operations $.51 $.62 $.56
Income from discontinued operations - - .14
------ ------ ------
$.51 $.62 $.70
------ ------ ------
------ ------ ------
FULLY DILUTED:
Average shares outstanding 3,640,304 3,243,905 2,963,155
Net effect of dilutive stock options
based on the treasury stock method
using the quarter-end market price
if higher than average market price 284,129 433,648 455,481
---------- ---------- ----------
TOTAL 3,924,433 3,677,553 3,418,636
---------- ---------- ----------
---------- ---------- ----------
Income from continuing operations $2,015,496 $2,247,176 $1,893,459
Income from discontinued
operations (net of tax benefit) - - 492,351
---------- ---------- ----------
Net Income $2,015,496 $2,247,176 $2,385,810
---------- ---------- ----------
---------- ---------- ----------
PER SHARE AMOUNTS:
Income from continuing operations $.51 $.61 $.56
Income from discontinued operations - - .14
------ ------ ------
$.51 $.61 $.70
------ ------ ------
------ ------ ------
EXHIBIT 11