UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): November 16, 1998
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VAUGHN COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Minnesota
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(State or other jurisdiction of incorporation)
0-15424 41-0626191
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Commission File Number I.R.S. Employer Identification Number
5050 W. 78th Street, Minneapolis, Minnesota 55435
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (612) 832-3200
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N/A
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(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
SALE OF PRODUCTS DIVISION
Vaughn Communications, Inc. (the "Company") sold substantially all of
the assets and certain liabilities of its Products Division to Gift
Connections, Inc., an Iowa corporation (the "Buyer") effective as of November
16,1998, under the terms of a Purchase and Sale Agreement dated November
9,1998, for a purchase price of $1,432,775. The terms included the payment
of $300,000 at Closing, a promissory note for $932,775 payable within 60
days, and the assumption of $200,000 of liabilities by the Buyer. The
Products Division manufactures and distributes customized gifts and souvenirs
for the travel industry. Prior to this transaction, the Buyer had no
material relationship with the Company or any of the Company's affiliates,
officers, directors or any associate of the Company's officers and directors.
The purchase price was determined through direct negotiations between
the Buyer and the Company. The assets sold included approximately $758,000
of accounts receivable, $3,880,000 of inventory, $383,000 of fixed assets,
and $406,000 of intangibles, trade names and other assets. As a result of
the transaction, the Company will recognize a pretax loss of approximately
$4,123,000 on the sale of the assets.
The Company intends to use the proceeds from the sale to pay the
remaining current liabilities (approximately $350,000), and the long-term
debt (approximately $87,000) of the Products Division. The remaining
proceeds will be used to reduce current bank borrowings.
For the fiscal years ended January 31, 1998 and 1997, the Products
Division had annual sales of $12,196,000 and $13,758,000, respectively.
Pretax income (loss) for the same periods was ($371,000) and $161,000.
In connection with the sale, the Buyer will assume the Company's
obligations under all real and personal property leases relating to the
Products Division. In connection with the sale, the Company terminated the
employment of all employees of the Products Division. The Buyer has informed
the Company that it intends to re-employ substantially all of these employees.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION
Vaughn Communications, Inc.
Pro Forma Financial Statements (Unaudited)
The following pro forma financial statements reflect the sale of the
Products Division as if, in the case of the balance sheet, the sale had
occurred July 31, 1998, and, in the case of the statement of operations, the
sale occurred on February 1,1997. The pro forma statements of operations are
not necessarily indicative of the results of operations as they may be in the
future.
VAUGHN COMMUNICATIONS, INC.
BALANCE SHEET
(UNAUDITED)
Pro Forma
July 31, 1998 Adjustments(1) Pro Forma
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ASSETS
Current Assets
Trade Accounts receivable less allowance $17,950,091 ($3,428,939) $14,521,152
Inventories 8,985,636 (3,483,162) 5,502,474
Other 982,653 2,653,614 3,636,267
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Total Current Assets 27,918,380 (4,258,487) 23,659,893
Property, plant and equipment 35,600,183 (1,182,424) 34,417,759
Less accumulated depreciation 22,020,460 (757,396) 21,263,064
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13,579,723 (425,028) 13,154,695
Intangible and Other Assets 10,084,461 (431,765) 9,652,696
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$51,582,564 ($5,115,280) $46,467,284
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $6,685,881 ($200,000) $6,485,881
Notes payable to bank 7,244,435 (1,905,069) 5,339,366
Salaries, wages and payroll taxes 264,794 0 264,794
Current portion of long-term debt and capital
lease obligations 4,148,069 (190,476) 3,957,593
Other 2,170,746 0 2,170,746
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Total Current Liabilities 20,513,925 (2,295,545) 18,218,380
Long-term debt (less current portion) 5,571,279 (428,572) 5,142,707
Capital lease obligations (less current portion) 3,513,780 0 3,513,780
Deferred taxes 54,326 0 54,326
Shareholders' Equity
Common stock, par value $.10 per share:
Authorized 20,000,000 shares, issued and
outstanding at July 31, 1998 - 4,082,052
shares 408,205 0 408,205
Additional paid-in capital 8,984,859 0 8,984,859
Retained earnings 12,536,190 (2,391,163) 10,145,027
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Total Shareholders' Equity 21,929,254 (2,391,163) 19,538,091
$51,582,564 ($5,115,280) $46,467,284
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VAUGHN COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
Year Ended Pro Forma
January 31, 1998 Adjustments(2) Pro Forma
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Net Sales $74,487,763 ($12,196,484) $62,291,279
Cost of goods sold 50,761,624 (9,365,322) 41,396,302
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Gross profit 23,726,139 (2,831,162) 20,894,977
Selling, general and administrative expenses 19,092,543 (3,013,707) 16,078,836
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Income from operations 4,633,596 182,545 4,816,141
Other income (expense)
Interest expense (1,410,484) 220,893 (1,189,591)
Interest income 115,194 (32,565) 82,629
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Income from continuing operations before taxes 3,338,306 370,873 3,709,179
Income taxes 1,400,000 155,000 1,555,000
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Net income from continuing operations $1,938,306 $215,873 $2,154,179
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Net income per share
Basic $ .49 $ .55
Diluted $ .48 $ .54
Weighted average common shares outstanding 3,918,263 3,918,263
Dilutive options 101,719 101,719
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4,019,982 4,019,982
STATEMENT OF OPERATIONS
Six Months Ended Pro Forma Pro Forma
July 31, 1998 Adjustments Remaining
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Net Sales $47,414,650 ($8,045,391) $39,369,259
Cost of goods sold 31,918,461 (5,603,317) 26,315,144
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Gross profit 15,496,189 (2,442,074) 13,054,115
Selling, general and administrative expenses 11,661,489 (1,559,699) 10,101,790
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Income from operations 3,834,700 (882,375) 2,952,325
Other income (expense)
Interest expense (959,047) 103,698 (855,349)
Interest income 54,847 (591) 54,256
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Income from continuing operations before taxes 2,930,500 (779,268) 2,151,232
Income taxes 1,230,000 (327,000) 903,000
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Net income from continuing operations $1,700,500 ($452,268) $1,248,232
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Net income per share
Basic $ .42 $ .31
Diluted $ .41 $ .30
Weighted average common shares outstanding 4,087,464 4,087,484
Dilutive options 77,110 77,110
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4,164,574 4,164,574
NOTES REGARDING PRO FORMA ADJUSTMENTS
(1) The pro forma balance sheet adjustments reflect the sale of the assets of
the Products Division for $300,000 cash at closing, a short term note for
$932,775, and the assumption of $200,000 of liabilities. In addition, it
reflects the application of the proceeds to reduce current liabilities as
well as collection of Products Division accounts receivable from August 1,
1998 through the date of closing, and the use of these proceeds to reduce
notes payable to bank and long-term debt. Also, the balance sheet reflects
the net loss on the sale of the assets and the tax benefit of the loss.
(2) The pro forma statement of operations reflects the adjustment for the
operations of the Products Division.
(c) EXHIBITS.
EXHIBIT INDEX
The following is a list of Exhibits filed herewith. The page reference
is to the location of the Exhibits under the sequential numbering system of
the original executed copy of this report on Form 8-K where the Exhibits can
be located.
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE
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2.1 Purchase and Sale Agreement between the Company and
Gift Connections, Inc. dated November 9, 1998, providing
for the Company's sale of the assets of the Products
Division.
[Balance of Page Intentionally Left Blank.]
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf of the
undersigned thereunto duly authorized.
VAUGHN COMMUNICATIONS, INC.
Date: November 23, 1998 By \s\ M. Charles Reinhart
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M. Charles Reinhart
Chief Financial Officer