<PAGE> 1
UNITED STATES
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 September 30, 1997
[ ] 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: 000-21407
LASON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3214743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
1305 Stephenson Highway
Troy, Michigan 48083
(Address of principal executive offices including zip code)
Telephone: (248) 597-5800
(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 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 [ ]
As of November 13, 1997 11,467,175 shares of Common Stock, $.01 par value were
outstanding.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
September 30, 1997 (Unaudited) and December 31, 1996 2
Condensed Consolidated Statements of Income (Unaudited),
Three Months and Nine Months Ended September 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows (Unaudited),
Nine Months Ended September 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
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Lason, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except for shares)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and equivalents $ 11,364 $ 79
Accounts receivable 30,986 24,151
Supplies 3,205 2,273
Prepaid expenses and other 6,751 4,608
-------- -------
Total current assets 52,306 31,111
Property, plant and equipment (net) 16,830 7,621
Deferred income taxes 1,610 2,571
Intangible assets (net) 73,397 37,243
-------- -------
TOTAL ASSETS $144,143 $78,546
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred income taxes $ 1,118 $ 1,529
Accrued expenses 4,259 4,199
Other current liabilities 9,336 8,457
-------- -------
Total current liabilities 14,713 14,185
Revolving credit line borrowings -- 4,101
Minority interests 151 257
Other liabilities 3,202 1,937
-------- -------
TOTAL LIABILITIES AND MINORITY INTERESTS 18,066 20,480
-------- -------
Common stock with a put option 1,060 1,060
STOCKHOLDERS' EQUITY
Common Stock $.01 par value 20,000,000 shares authorized,
11,418,467 and 8,610,246 shares issued and outstanding
at Septemebr 30, 1997 and December 31, 1996, respectively 114 86
Preferred stock, $.01 par value 5,000,000 shares authorized,
none issued and outstanding at September 30, 1997 and
December 31, 1996 -- --
Additional paid-in capital 113,759 51,912
Retained earnings 11,144 5,008
-------- -------
TOTAL STOCKHOLDERS' EQUITY 125,017 57,006
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $144,143 $78,546
======== =======
</TABLE>
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
2
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Lason, Inc.
Condensed Consolidated Statements of Income
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues, net of postage $ 30,608 $ 20,659 $ 84,266 $ 47,748
Cost of revenues 20,328 14,754 57,475 32,450
-------- --------- -------- --------
Gross profit 10,280 5,905 26,791 15,298
Selling, general and administrative expenses 5,739 3,482 14,134 8,738
Compensatory stock option expense 56 123 165 283
Amortization of intangibles 576 363 1,617 743
-------- --------- -------- --------
Income from operations 3,909 1,937 10,875 5,534
Interest expense 427 700 1,167 1,550
-------- --------- -------- --------
Income before income taxes
and minority interest in net income of subsidiaries 3,482 1,237 9,708 3,984
Provision for income taxes 1,215 469 3,465 1,433
-------- --------- -------- --------
Income before minority interest in net income of subsidiaries 2,267 768 6,243 2,551
Minority interest in net income of subsidiaries 9 40 107 68
-------- --------- -------- --------
Net Income $ 2,258 $ 728 $ 6,136 $ 2,483
======== ========= ======== ========
Earnings per share $ 0.23 $ 0.12 $ 0.65 $ 0.40
======== ========= ======== ========
</TABLE>
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
3
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Lason, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 1,956 $ 90
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for net assets of acquired businesses,
net of cash acquired (39,002) (17,137)
Proceeds from sales of fixed assets 186 60
Purchase of fixed assets (5,989) (1,854)
--------- --------
Net cash used in investing activities (44,805) (18,931)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 117,893 48,650
Repayments on revolving line of credit (121,994) (44,878)
Net proceeds from issuance of shares of common stock 58,091 -
Borrowings on acquisition facility -- 17,312
Principal payments on long-term debt -- (1,773)
Proceeds from exercise of employee stock options 144 5
--------- --------
Net cash provided by financing activities 54,134 19,316
--------- --------
Net increase in cash and equivalents 11,285 475
Cash and equivalents at beginning of period 79 103
--------- --------
Cash and equivalents at end of period $ 11,364 $ 578
========= ========
</TABLE>
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
4
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Lason, Inc. (together with its subsidiaries, the "Company") have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, such interim financial statements do not include
all of the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements.
In the opinion of management, all necessary adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The operating results for the three month and nine month
periods ended September 30, 1997 are not necessarily indicative of the results
to be expected for the year ending December 31, 1997.
For further information, refer to the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 filed with the Securities and Exchange Commission
on March 31, 1997.
Certain reclassifications have been made to the consolidated financial
statements for 1996 to conform to the 1997 presentation.
NOTE 2. RECENTLY ISSUED ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" was issued in March 1997. This Statement establishes standards for
computing and presenting earnings per share ("EPS") and supersedes Accounting
Principles Board Opinion No. 15 and its related interpretations. The
Statement replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution whereas diluted EPS will include the potential
dilution that could occur if securities or other contracts to issue shares of
common stock were to be exercised or converted into shares of common stock.
The Statement is effective for financial statements issued for periods
ending after December 15, 1997. Earlier application is not permitted. The
Statement requires restatement of all prior period EPS data presented. The
adoption of this standard is not expected to have a material impact on the
Company's reported EPS.
NOTE 3. ACQUISITIONS
The Company, through certain of its subsidiaries, has completed the
following acquisitions during 1997:
In January 1997, Lason Systems, Inc. ("Lason"), a wholly-owned
subsidiary of the Company, acquired all of the outstanding common stock of
Churchill Communications Corporation for $7.5 million in cash and 72,499
shares of the Company's common stock valued at approximately $1.5 million.
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In February 1997, Lason Systems, Inc., Southeast ("LSE"), a wholly-owned
subsidiary of Lason, acquired all of the outstanding common stock of Alpha
Imaging, Inc. and Alpha Micro Graphics Supply, Inc. (affiliated companies and
together "Alpha") for $2.1 million in cash and 11,517 shares of the Company's
common stock valued at approximately $237,000.
In March 1997, Lason acquired all of the outstanding common stock of
Premier Copy Group, Inc. for $2.7 million in cash and forgiveness of a note
receivable of approximately $55,500.
In March 1997, Lason also acquired all of the outstanding common stock of
Automated Enterprises, Inc. ("AEI") for $5.9 million in cash and 31,008 shares
of the Company's common stock valued at approximately $655,000. The stock
purchase agreement provides for an additional payment to the selling shareholder
if AEI's financial performance for the years ending December 31, 1997 and
December 31, 1998 exceed specified targets. Under terms of the agreement,
the selling shareholder can require the Company to accelerate the payment of
$1.6 million in full payment of the Company's additional payment obligation.
Purchase price contingencies, if any, will be recorded as adjustments to the
purchase price when the contingencies are resolved.
In June 1997, Lason acquired all of the outstanding common stock of
Corporate Copies, Inc. for $1.6 million in cash.
In June 1997, LSE acquired all of the outstanding common stock of
American Micro-Image, Inc. for $420,410 in cash and 4,453 shares of the
Company's common stock valued at approximately $105,000.
In July 1997, Lason acquired all of the outstanding common stock of Image
Conversion Systems, Inc. ("ICS") for approximately $18.9 million in cash and
47,441 shares of the Company's common stock valued at approximately $1.1
million. Of the total cash payment, approximately $10.5 million was used to
repay the outstanding debt of ICS and approximately $8.4 million was paid to
the selling shareholders.
The shares of common stock issued in connection with the acquisition of ICS
are (i) being held in escrow as collateral to indemnify the Company if
contingencies set forth in the purchase agreement occur within twelve months
from the date of the acquisition, and (ii) subject to forfeiture if ICS does not
achieve targeted operating income in 1997 and in 1998. Further, if the
operating income of ICS for such periods exceeds a targeted level, the purchase
price may be increased by approximately $3.0 million. Purchase price
contingencies, if any, will be recorded as adjustments to the purchase price
when the contingencies are resolved.
Generally, shares of common stock issued or to be issued in connection with
the acquisitions, are subject to lock-up agreements ranging from twelve to
eighteen months. The lock-up agreements restrict the owners' ability to sell
the shares of common stock.
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Each of the acquisitions was accounted for as a purchase. The results of
operations for the three and nine month periods ended September 30, 1997
include the results of operations of all the acquired companies since the date
of their respective acquisition.
The aggregate purchase price for the acquisitions completed during 1997,
excluding liabilities assumed, was approximately $42.3 million. The purchase
price was allocated to the assets acquired and liabilities assumed based on the
related fair values at the date of acquisition. The excess of the aggregate
purchase price over the fair values of assets acquired and liabilities assumed
has been allocated to goodwill and is being amortized on a straight-line method
over 30 years.
In conjunction with these acquisitions, liabilities assumed and other
non-cash consideration was as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 11,703
Goodwill 36,045
Net cash paid in consideration for companies acquired (39,002)
Stock issued in consideration for companies acquired (2,489)
Acquisition costs incurred for companies acquired 709
--------
Liabilities assumed $ 6,966
========
</TABLE>
The following table summarizes pro forma unaudited results of
operations as if each of the acquisitions completed during 1997 had occurred
at the beginning of the periods presented:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues $97,315 $81,340
Income before income taxes 8,806 6,320
Net income 5,605 3,828
Earnings per share $ 0.60 $ 0.62
</TABLE>
The pro forma results of operations have been prepared for comparative
purposes only and are not necessarily indicative of the actual results of
operations had the acquisitions completed during 1997 taken place as of the
beginning of each period presented. In addition, the pro forma results of
operations do not include any potential effects on the results of operations
which may occur as a result of integrating the acquired companies into the
Company.
On November 13, 1997, Lason signed a definitive agreement to acquire
substantially all of the assets and assume certain liabilities of VIP Imaging
Inc., a privately held company based in San Francisco, California. The
completion of the transaction is subject to several conditions including
Hart-Scott-Rodino regulatory review.
NOTE 4. LONG-TERM DEBT
Lason has a credit agreement with a bank group providing for revolving
credit loans in an amount of up to $80 million. Borrowings will be used to
finance additional acquisitions of businesses, working capital, capital
expenditures and for other corporate purposes. Borrowings under the credit
agreement, if any, are collateralized by substantially all of Lason's assets.
Lason is not required to make
7
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principal payments prior to 2001, the term of the loan. Interest on amounts
outstanding is calculated based on interest rates determined at the time of
borrowing. Borrowings bear interest at rates ranging from a base percentage
rate plus a maximum of 1.25% to LIBOR plus a maximum of 2.25%, depending on the
Company's leverage ratio. The credit agreement contains restrictions on the
acquisition of stock or assets, disposal of assets, incurrence of other
liabilities, minimum requirements for cash flow and certain financial ratios.
As of September 30, 1997, no amounts were borrowed under the credit agreement.
NOTE 5. COMMON STOCK OFFERING
In August 1997, the Company sold 2,457,620 shares of its common stock
for net proceeds of approximately $58.1 million, after deducting underwriting
discounts and other offering expenses. The net proceeds were used to repay
debt outstanding under the Company's credit agreement and for general corporate
purposes.
In the fourth quarter of 1996, the Company completed an initial public
offering of 3,450,000 shares of common stock at $17.00 per share for net
proceeds of approximately $53.0 million, after deducting underwriting discounts
and other offering expenses. Approximately $41.2 million of the net proceeds
was used to repay outstanding debt under the Company's credit agreement and
approximately $11.8 million was used to redeem 692,047 shares of common stock
held by the Company's largest shareholder.
NOTE 6. EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common
shares and common share equivalents outstanding, retroactively adjusted for the
effect of a 2.5 for 1 common stock split effective October 15, 1996.
The weighted average common shares and common share equivalents
outstanding for the three and nine month periods ended September 30, 1996,
include as outstanding 692,047 shares of common stock which would have been
sold at an initial offering price of $17.00 per share to fund the redemption of
shares of common stock owned by the Company's largest shareholder. The shares
of common stock were redeemed on October 15, 1996 in connection with the
Company's initial public offering of common stock.
The weighted average common shares and common share equivalents
outstanding were 10,011,897 and 6,230,010 for the three months ended September
30, 1997 and 1996, respectively and 9,411,189 and 6,146,525 for the nine months
ended September 30, 1997 and 1996, respectively.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited condensed consolidated financial statements of the Company and the
related notes and the other related financial information included
elsewhere in this Form 10-Q. The discussion in this section contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed elsewhere in this Form 10-Q and identified from time to
time in the Company's reports and registration statements filed with the
Securities and Exchange Commission.
OVERVIEW
The Company, through certain of its subsidiaries, has completed the
following acquisitions during 1997:
In January 1997, Lason Systems, Inc. ("Lason"), a wholly-owned subsidiary
of the Company, acquired all of the outstanding common stock of Churchill
Communications Corporation for $7.5 million in cash and 72,499 shares of the
Company's common stock valued at approximately $1.5 million.
In February 1997, Lason Systems, Inc., Southeast ("LSE"), a wholly-owned
subsidiary of Lason, acquired all of the outstanding common stock of Alpha
Imaging, Inc. and Alpha Micro Graphics Supply, Inc. (affiliated companies and
together "Alpha") for $2.1 million in cash and 11,517 shares of the Company's
common stock valued at approximately $237,000.
In March 1997, Lason acquired all of the outstanding common stock of
Premier Copy Group, Inc. for $2.7 million in cash and forgiveness of a note
receivable of approximately $55,500.
In March 1997, Lason also acquired all of the outstanding common stock of
Automated Enterprises, Inc. ("AEI") for $5.9 million in cash and 31,008 shares
of the Company's common stock valued at approximately $655,000. The stock
purchase agreement provides for an additional payment to the selling
shareholder if AEI's financial performance for the years ending December 31,
1997 and December 31, 1998 exceed specified targets. Under terms of the
agreement, the selling shareholder can require the Company to accelerate the
payment of $1.6 million in full payment of the Company's additional payment
obligation. Purchase price contingencies, if any, will be recorded as
adjustments to the purchase price when the contingencies are resolved.
In June 1997, Lason acquired all of the outstanding common stock of
Corporate Copies, Inc. for $1.6 million in cash.
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In June 1997, LSE acquired all of the outstanding common stock of
American Micro-Image, Inc. for $420,410 in cash and 4,453 shares of the
Company's common stock valued at approximately $105,000.
In July 1997, Lason acquired 100% of the outstanding common stock of
Image Conversion Systems, Inc. ("ICS") for approximately $18.9 million in cash
and 47,441 shares of the Company's common stock valued at approximately $1.1
million. Of the total cash payment, approximately $10.5 million was used to
repay the outstanding debt of ICS and approximately $8.4 million was paid to
the selling shareholders.
The shares of common stock issued in connection with the acquisition of ICS
are (i) being held in escrow as collateral to indemnify the Company if
contingencies set forth in the purchase agreement occur within twelve months
from the date of the acquisition, and (ii) subject to forfeiture if ICS does not
achieve targeted operating income in 1997 and in 1998. Further, if the
operating income of ICS for such periods exceeds a targeted level, the purchase
price may be increased up to approximately $3.0 million. Purchase price
contingencies, if any, will be recorded as adjustments to the purchase price
when the contingencies are resolved.
Generally, shares of common stock issued or to be issued in connection with
the acquisitions, are subject to lock-up agreements ranging from twelve to
eighteen months. The lock-up agreements restrict the owners' ability to sell
the shares of common stock.
Each of the acquisitions was accounted for as a purchase. The excess of
the aggregate purchase price over the fair value of the net assets acquired has
been allocated to goodwill.
The results of operations for the three and nine month periods ended
September 30, 1997 include the results of operations of all the acquired
companies since the date of their respective acquisition and, therefore, are
not directly comparable to the results of operations for the same period of
1996.
On November 13, 1997, Lason signed a definitive agreement to acquire
substantially all of the assets and assume certain liabilities of VIP Imaging
Inc., a privately held company based in San Francisco, California. The
completion of the transaction is subject to several conditions including
Hart-Scott-Rodino regulatory review.
Although management anticipates that the Company will continue to acquire
complementary businesses in the future, there can be no assurance that the
Company will be able to identify and acquire attractive acquisition candidates,
profitably manage such acquired companies or successfully integrate such
acquired companies into the Company without substantial costs, delays or other
problems. In addition, there can be no assurance that any companies acquired
in the future will be profitable at the time of acquisition or will achieve
sales and profitability justifying the Company's investment therein or that the
Company will recognize the synergies expected from such acquisitions.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1996.
Net revenues increased 48% to $30.6 million for the three months ended
September 30, 1997 from $20.7 million in the third quarter of 1996. The
increase in net revenues during the third quarter includes approximately $7.7
million of revenues related to businesses acquired since January 1, 1997.
Excluding the results of subsidiaries acquired since January 1, 1997, revenues
increased approximately $2.2 million primarily related to growth in the
Company's business communications, Print On-Demand (POD), and Computer Output
To Laser Disk (COLD) services.
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Gross profit increased to $10.3 million for the third quarter of 1997 from
$6.0 million for the comparable 1996 quarter primarily due to an increase in
net revenues and the Company's product mix. Gross profit as a percentage of
net revenues was 34% for the three months ended September 30, 1997 versus 29%
for the comparable period of 1996.
Selling, general and administrative expenses were $5.7 million for the
three months ended September 30, 1997 compared to $3.5 million for the
comparable 1996 quarter. The increase is primarily attributable to businesses
acquired since January 1, 1997.
Amortization of intangibles increased to $576,000 for the three months
ended September 30, 1997 from $363,000 for the comparable period of 1996 due to
the amortization of goodwill recorded as a result of businesses acquired since
January 1, 1997.
Interest expense decreased to $427,000 for the third quarter of 1997 from
$700,000 for the comparable 1996 quarter primarily due to lower average debt
balances outstanding in 1997 compared to 1996.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE
MONTHS ENDED SEPTEMBER 30, 1996.
Net revenues increased 76% to $84.3 million for the nine months ended
September 30, 1997 from $47.7 million for the comparable period of 1996. The
increase in net revenues in 1997 includes approximately $27.2 million of
revenues related to businesses acquired during the third quarter of 1996 and
the first nine months of 1997. In addition, net revenues increased
approximately $9.4 million in 1997 compared to 1996 primarily due to growth in
the Company's business communications, POD, and COLD services.
Gross profit increased to $26.8 million for the first nine months of 1997
from $15.3 million for the comparable 1996 period primarily due to an increase
in net revenues. Gross profit as a percentage of net revenues was 32% for each
of the nine month periods ended September 30, 1997 and 1996.
Selling, general and administrative expenses were $14.1 million for the
nine months ended September 30, 1997 compared to $8.7 million for the
comparable 1996 period. The increase is primarily attributable to businesses
acquired during the third quarter of 1996 and the first nine months of 1997.
Amortization of intangibles increased to $1.6 million for the nine months
ended September 30, 1997 from $743,000 for the comparable period of 1996 due to
the amortization of goodwill recorded as a result of businesses acquired during
the third quarter of 1996 and the first nine months of 1997.
Interest expense decreased to $1.2 million for the nine months ended
September 30, 1997 from $1.6 million for the comparable period of 1996
primarily due to a decrease in average debt outstanding during 1997 compared to
the comparable period of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and acquisitions through a
combination of cash flow from operations, bank borrowings and the issuance of
shares of its common stock.
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<PAGE> 13
Cash flows provided by operating activities totaled $2.0 million for the
nine months ended September 30, 1997 compared to $90,000 for the comparable
period of 1996. The increase in operating cash flows in 1997 is primarily due
to increased net income and lower accounts receivable balances, partially
offset by the effects of lower accrued expenses and other liabilities.
Cash flows used in investing activities totaled $44.8 million and $18.9
million for the nine months ended September 30, 1997 and 1996, respectively, and
has primarily been used to fund payments for acquired businesses and investments
in capital equipment. Cash used to acquire businesses, net of cash acquired,
was $39.0 million for the first nine months of 1997 versus $17.1 million for
the comparable 1996 period. Cash used to invest in capital equipment,
primarily used to expand and improve the Company's technology based
infrastructure, totaled $6.0 million in 1997 compared to $1.9 million in 1996.
The 1997 investment in capital equipment includes approximately $1.5 million of
previously leased copiers that were purchased in the first quarter.
Cash flows provided by financing activities during 1997 largely consisted
of the net proceeds from the sale of shares of common stock during the third
quarter of 1997. The net proceeds were used to repay amounts outstanding
under the Company's credit agreement. In 1996, cash flows provided by
financing activities largely consisted of borrowings on the Company's
acquisition facility. In 1997 and 1996, borrowings were primarily incurred to
fund the acquisitions of businesses.
Credit Agreement Borrowings
Lason has a credit agreement with a bank group providing for revolving
credit loans up to $80 million. Borrowings will be used to finance additional
acquisitions of businesses, working capital, capital expenditures and for other
corporate purposes. Borrowings under the credit agreement are collateralized
by substantially all of Lason's assets. Lason is not required to make
principal payments prior to 2001, the term of the loan. Interest on amounts
outstanding is calculated based on interest rates determined at the time of
borrowing. Borrowings bear interest at rates ranging from a base percentage
rate plus a maximum of 1.25% to LIBOR plus a maximum of 2.25%, depending on the
Company's leverage ratio. The credit agreement contains restrictions on the
acquisition of stock or assets, disposal of assets, incurrence of other
liabilities, minimum requirements for cash flow and certain financial ratios.
As of November 13, 1997, no amounts were borrowed under the credit agreement.
In August 1997, the Company sold 2,457,620 shares of common stock for net
proceeds of approximately $58.1 million, after deducting underwriting discounts
and other offering expenses. The net proceeds were used to repay debt
outstanding under the Company's credit agreement and for general corporate
purposes.
In the fourth quarter of 1996, the Company completed an initial public
offering of 3,450,000 shares of common stock at $17.00 per share for net
proceeds of approximately $53.0 million, after deducting underwriting discounts
and other offering expenses. Approximately $41.2 million of the net proceeds
was used to repay outstanding debt under the Company's credit agreement and
approximately $11.8 million was used to redeem 692,047 shares of common stock
held by the Company's largest shareholder.
12
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Acquisitions
The Company's liquidity and capital resources have been significantly
affected by acquisitions of businesses and, given the Company's acquisition
strategy, may be significantly affected for the foreseeable future. To date,
the Company has financed its acquisitions with borrowings under its credit
agreement, with shares of its common stock and with cash from operations.
Future Capital Needs
The Company's ability to obtain cash adequate to fund its needs depends
generally on the results of its operations and the availability of financing.
Management believes that cash flow from operations, in conjunction with
borrowings from its existing and any future credit agreements and possible
issuance of shares of its common stock, will be sufficient to meet debt service
requirements, make possible future acquisitions and fund capital expenditures
in the future. However, there can be no assurance in this regard or that the
terms available for any future financing, if required, would be favorable to
the Company.
INFLATION
Certain of the Company's expenses, such as wages and benefits, occupancy
costs, and equipment repair and replacement, are subject to normal inflation.
Supplies, such as paper and related products, can be subject to significant
price fluctuations. Although the Company to date has been able to
substantially offset any such cost increases through increased operating
efficiencies, there can be no assurance that the Company will be able to offset
any future cost increases through similar efficiencies or increased charges for
its products and services.
LITIGATION
The Company is, from time to time, a party to legal proceedings arising in
the normal course of its business. Management believes that none of the legal
proceedings currently outstanding will have a material adverse effect on the
Company's business, financial condition or results of operations.
As previously disclosed, in January and February, 1997, the Company was
named as a co-defendant in three lawsuits generally alleging violations of the
Federal Fair Debt Collection Practices Act on the part of the Company in the
printing and mailing of collection letters for certain of its customers. On
October 30, 1997 and November 4, 1997, the Company's motions for summary
judgment in two of the lawsuits were granted, specifically finding that the
Company was not a "debt collector" with respect to its printing and mailing of
collection letters for its customers.
13
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description
----------- -----------
10.48 Amendment to Stock Option Agreement between the
Company and William J. Rauwerdink dated
October 7, 1997.
10.49 Amendment to Stock Option Agreement between the
Company and Brian E. Jablonski dated
October 9, 1997.
27 Financial Data Schedule
b. Reports on Form 8-K
July 29, 1997: Reported the acquisition of Image Conversion Systems, Inc.
by Lason Systems, Inc. ("ICS"), as amended on
October 14, 1997. In connection therewith, the
following financial information was also filed:
(a) Financial Statements of ICS:
Audited balance sheet as of October 31, 1996, and
the related statements of operations,
shareholders' equity and cash flows for the year
then ended and the report of Arthur Andersen
L.L.P. thereon, and the balance sheet as of April
30, 1997 (unaudited), the statement of operations
for the six months ended April 30, 1997 and 1996
(unaudited), the statement of changes in
shareholders' equity as of April 30, 1997
(unaudited), the statement of cash flows for the
six months ended April 30, 1997 and 1996
(unaudited), and the Notes to the Financial
Statements.
(b) Pro Forma Financial Information:
Pro Forma condensed consolidated balance
sheets as of June 30, 1997 (unaudited)
Pro Forma condensed consolidated statements
of income for the six months ended June 30,
1997 (unaudited)
Pro Forma condensed consolidated statements
of income for the year ended December 31,
1996 (unaudited)
Notes to Pro Forma condensed consolidated
financial information (unaudited)
August 22, 1997: Reported the completion of a public offering of
shares of common stock.
14
<PAGE> 16
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.
LASON, INC.
-----------
(Registrant)
November 14, 1997 /s/ William J. Rauwerdink
(Date) ----------------------------
Executive Vice President and
Chief Financial Officer
15
<PAGE> 17
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ------- --- -----------
10.48 Amendment to Stock Option Agreement between
the Company and William J. Rauwerdink dated
October 7, 1997.
10.49 Amendment to Stock Option Agreement between
the Company and Brian E. Jablonski dated
October 9, 1997.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.48
AMENDMENT TO STOCK OPTION AGREEMENT
This AMENDMENT is made this 7th day of October, 1997 by and between,
Lason, Inc., a Delaware corporation (the "Company") and William J. Rauwerdink
(the "Grantee").
WHEREAS, pursuant to the 1995 Stock Option Plan of Lason, Inc. (the
"Plan"), the Company and Grantee entered into that certain Stock Option
Agreement effective as of May 6, 1996 (the "Agreement"); and
WHEREAS, the Company has determined that it would be to the advantage and
in the best interest of the Company and its Shareholders to modify such
Agreement in recognition of Grantee's service as Executive Vice President,
Chief Financial Officer, Secretary and Treasurer of the Company by accelerating
the vesting period by condensing the vesting period to four years from five
years and dividing the Option Shares which would have vested during the fifth
year in equal amounts between the second, third and fourth years.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree to amend the Agreement as
follows:
1. Acceleration of Vesting/Exercisability. Section 2.B of the
Agreement is hereby amended and restated in its entirety as follows:
(B) VESTING/EXERCISABILITY.
(i) Purchaser may only exercise his Option to
purchase Option Shares to the extent that such Option has
vested and become exercisable with respect to such Option
Shares. Except as otherwise provided in Paragraph 2(b)(ii)
below, the Option Shares will vest and become exercisable in
accordance with the following schedule, if as of each such
date the Grantee is still employed by the Company or any of
its Subsidiaries:
<TABLE>
<CAPTION>
CUMULATIVE PERCENTAGE
OF OPTION SHARES VESTED
DATE AND EXERCISABLE
--------------- -----------------------
<S> <C>
October 8, 1996 20.0%
October 8, 1997 46.667%
October 8, 1998 73.334%
October 8, 1999 100.0%
</TABLE>
Option Shares which have become vested and exercisable are
referred to herein as "Vested Shares" and all other Option
Shares are referred to herein as "Unvested Shares."
1
<PAGE> 2
(ii) Upon the occurrence of a Sale of the Company,
each Option shall vest and all Unvested Shares shall become
Vested Shares if, but only if, the Grantee thereof is employed
by the Company or any of its Subsidiaries on the date of such
occurrence.
2. Existing Agreement. Except as modified by this Amendment, the terms
and conditions of the Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment upon
the day and year first above written.
GRANTEE: COMPANY:
Lason, Inc., a Delaware corporation
(S) William J. Rauwerdink By: (S) Gary L. Monroe
- ---------------------------- -------------------------------
William J. Rauwerdink Gary L. Monroe
Its: President and Chief Executive Officer
2
<PAGE> 1
EXHIBIT 10.49
AMENDMENT TO STOCK OPTION AGREEMENT
This AMENDMENT is made this 9th day of October, 1997 by and between,
Lason, Inc., a Delaware corporation (the "Company") and Brian E. Jablonski (the
"Grantee").
WHEREAS, pursuant to the 1995 Stock Option Plan of Lason, Inc. (the
"Plan"), the Company and Grantee entered into that certain Stock Option
Agreement effective as of May 6, 1996 (the "Agreement"); and
WHEREAS, the Company has determined that it would be to the advantage and
in the best interest of the Company and its Shareholders to modify such
Agreement in recognition of Grantee's service as Executive Vice President of
Marketing and Sales of the Company by accelerating the vesting period by
condensing the vesting period to four years from five years and dividing the
Option Shares which would have vested during the fifth year in equal amounts
between the second, third and fourth years.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree to amend the Agreement as
follows:
1. Acceleration of Vesting/Exercisability. Section 2.B of the Agreement
is hereby amended and restated in its entirety as follows:
(B) VESTING/EXERCISABILITY.
(i) Purchaser may only exercise his Option to
purchase Option Shares to the extent that such Option has
vested and become exercisable with respect to such Option
Shares. Except as otherwise provided in Paragraph 2(b)(ii)
below, the Option Shares will vest and become exercisable in
accordance with the following schedule, if as of each such
date the Grantee is still employed by the Company or any of
its Subsidiaries:
<TABLE>
<CAPTION>
CUMULATIVE PERCENTAGE
OF OPTION SHARES VESTED
DATE AND EXERCISABLE
--------------- -----------------------
<S> <C>
October 8, 1996 20.0%
October 8, 1997 46.667%
October 8, 1998 73.334%
October 8, 1999 100.0%
</TABLE>
Option Shares which have become vested and exercisable are
referred to herein as "Vested Shares" and all other Option
Shares are referred to herein as "Unvested Shares."
1
<PAGE> 2
(ii) Upon the occurrence of a Sale of the Company,
each Option shall vest and all Unvested Shares shall become
Vested Shares if, but only if, the Grantee thereof is employed
by the Company or any of its Subsidiaries on the date of such
occurrence.
2. Existing Agreement. Except as modified by this Amendment, the terms
and conditions of the Agreement shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment upon
the day and year first above written.
GRANTEE: COMPANY:
Lason, Inc., a Delaware corporation
(S) Brian E. Jablonski By: (S) Gary L. Monroe
- --------------------------- ------------------------------------
Brian E. Jablonski Gary L. Monroe
Its: President and Chief Executive Officer
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,364
<SECURITIES> 0
<RECEIVABLES> 30,986
<ALLOWANCES> 0
<INVENTORY> 3,205
<CURRENT-ASSETS> 52,306
<PP&E> 16,830
<DEPRECIATION> 0
<TOTAL-ASSETS> 144,143
<CURRENT-LIABILITIES> 14,713
<BONDS> 0
0
0
<COMMON> 114
<OTHER-SE> 124,903
<TOTAL-LIABILITY-AND-EQUITY> 144,143
<SALES> 84,266
<TOTAL-REVENUES> 84,266
<CGS> 57,475
<TOTAL-COSTS> 57,475
<OTHER-EXPENSES> 15,916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,167
<INCOME-PRETAX> 9,708
<INCOME-TAX> 3,465
<INCOME-CONTINUING> 6,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,136
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
