<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 June 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 August 8, 1997 8,945,893 shares of Common Stock, $.01 par value were
outstanding.
<PAGE> 2
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
June 30, 1997 (Unaudited) and December 31, 1996 2
Condensed Consolidated Statements of Income (Unaudited),
Three Months and Six Months Ended June 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows (Unaudited),
Three Months and Six Months Ended June 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 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
1
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Lason, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except for shares)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 1,727 $ 79
Accounts receivable 27,412 24,151
Supplies 2,580 2,273
Prepaid expenses and other 4,751 4,608
--------- ---------
Total current assets 36,470 31,111
Property, plant and equipment (net) 11,286 7,621
Deferred income taxes 1,996 2,571
Intangible assets (net) 56,975 37,243
--------- ---------
TOTAL ASSETS $ 106,727 $ 78,546
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred income taxes $ 914 $ 1,529
Accrued expenses 3,648 4,199
Other current liabilities 6,883 8,457
--------- ---------
Total current liabilities 11,445 14,185
Revolving credit line borrowings 27,400 4,101
Minority interests 355 257
Other liabilities 2,915 1,937
--------- ---------
TOTAL LIABILITIES AND MINORITY INTERESTS 42,115 20,480
--------- ---------
Common stock with a put option 1,060 1,060
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; 20,000,000 shares
authorized, 8,896,452 and 8,610,246 shares issued and
outstanding at June 30, 1997 and December 31, 1996,
respectively 89 86
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding at
June 30, 1997 and December 31, 1996 - -
Additional paid-in capital 54,577 51,912
Retained earnings 8,886 5,008
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 63,552 57,006
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 106,727 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Revenues, net of postage $ 27,422 14,084 $ 53,658 27,089
Cost of revenues 19,000 9,037 37,147 17,696
-------- ------- -------- --------
Gross profit 8,422 5,047 16,511 9,393
Selling, general and administrative expenses 4,080 2,759 8,395 5,256
Compensatory stock option expense 55 86 109 160
Amortization of intangibles 561 198 1,041 380
-------- ------- -------- --------
Income from operations 3,726 2,004 6,966 3,597
Interest expense 474 438 740 850
-------- ------- -------- --------
Income before income taxes
and minority interest in net income of subsidiaries 3,252 1,566 6,226 2,747
Provision for income taxes 1,203 550 2,250 964
-------- ------- -------- --------
Income before minority interest in net income of subsidiaries 2,049 1,016 3,976 1,783
Minority interest in net income of subsidiaries 64 28 98 28
-------- ------- -------- --------
Net Income $ 1,985 $ 988 $ 3,878 $ 1,755
======== ======= ======== ========
Earnings per share $ 0.22 $ 0.16 $ 0.43 $ 0.28
======== ======= ======== ========
</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>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 1,182 $ 2,420
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for net assets of acquired businesses,
net of cash acquired (19,226) (1,608)
Proceeds from sales of fixed assets 164 33
Purchase of fixed assets (3,837) (1,202)
--------- ---------
Net cash used in investing activities (22,899) (2,777)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 63,343 30,148
Repayments on revolving line of credit (40,044) (28,179)
Principal payments on long-term debt -- (1,000)
Proceeds from exercise of employee stock options 66 5
--------- ---------
Net cash provided by financing activities 23,365 974
--------- ---------
Net increase in cash 1,648 617
Cash at beginning of period 79 103
--------- ---------
Cash at end of period $ 1,727 $ 720
========= =========
</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 six month periods
ended June 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 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
Since July of 1996, Lason Systems, Inc. ("Lason"), a wholly-owned
subsidiary of the Company, has completed the acquisitions of eleven companies,
seven of which were acquired during 1997.
In January 1997, Lason acquired all of the outstanding common stock of
Churchill Communications Corporation ("Churchill") for $7.5 million in cash and
72,499 shares of the Company's common stock valued at approximately $1.5
million. Churchill is a provider of business communications
5
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services, including electronic mail messaging, data processing services and
proxy solicitation services in the New York City market. The shares of common
stock are subject to an eighteen month lock-up agreement which restricts the
owner's ability to sell such shares. The Company has agreed to register the
shares of common stock for sale subsequent to the lock-up period.
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. Alpha provides digital imaging
services in the states of Florida and Georgia, principally serving the
financial, commercial and health care industries. The shares of common stock
are subject to a twelve month lock-up agreement which restricts the owner's
ability to sell such shares. The Company has agreed to register the shares of
common stock for sale subsequent to the lock-up period. In conjunction with the
acquisition, Alpha was merged with LSE.
In March 1997, Lason acquired all of the outstanding common stock of
Premier Copy Group, Inc. ("Premier") for $2.7 million in cash and forgiveness
of a note receivable of approximately $55,500. Premier specializes in
litigation support and document management services to the legal and commercial
markets in the Atlanta market. The purchase price is subject to possible
adjustment (i) based on Premier's net worth as of March 31, 1997, and (ii)
based on satisfactory performance of certain activities set forth in employment
agreements. In connection therewith, a portion of the purchase price is held
in escrow to be released no later than September 30, 1997. The purchase price
contingency, if any, will be recorded as an adjustment to the purchase price
when the contingency is resolved.
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. AEI is a
leading provider of business communications services, including digital
printing and related data processing services in the Richmond, Virginia and
greater Washington D.C. markets. The shares of common stock are subject to an
eighteen month lock-up agreement which restricts the owner's ability to sell
such shares. The Company has agreed to register the shares of common stock for
sale subsequent to the lock-up period. The purchase price is subject to
possible adjustment based on AEI's net worth as of March 31, 1997. The
stock purchase agreement also 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. The additional payment,
if any, would be paid both in cash and shares of the Company's common stock.
In the event of a change of control or the termination of the employment of the
selling shareholder other than for cause, the selling shareholder can require
the Company to pay $1.6 million in cash 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. ("CCI") for $1.6 million in cash. CCI provides
document management and imaging services in the Richmond, Virginia market.
In June 1997, LSE acquired all of the outstanding common stock of
American Micro-Image, Inc. ("AMII") for $420,410 in cash and 4,453 shares of
the Company's common stock valued at approximately $105,000. AMII provides
records management and document management services in the Miami, Florida
market. The shares of common stock are subject to an eighteen month lock-up
agreement which restricts the owner's ability to sell such shares. The Company
has agreed to register the shares of common stock for sale subsequent to the
lock-up period. In conjunction with the acquisition, AMII was merged with LSE.
6
<PAGE> 8
Each of the acquisitions was accounted for as a purchase. The results of
operations for the three and six month periods ended June 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 the
first half of 1997, excluding liabilities assumed, was approximately $22.8
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 $ 4,654
Goodwill 19,570
Net cash paid in consideration for companies acquired (19,226)
Stock issued in consideration for companies acquired ( 2,489)
Acquisition costs incurred for companies acquired 388
--------
Liabilities assumed $ 2,897
========
</TABLE>
The following table summarizes pro forma unaudited results of operations
as if each of the acquisitions completed during the first six months of 1997
had occurred at the beginning of the periods presented:
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues $56,092 $36,468
Income before income taxes 6,166 3,960
Net income 3,835 2,462
Earnings per share $ 0.42 $ 0.40
</TABLE>
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. ICS is a leading provider of services to convert
documents to electronic and other media and has operations in eight states.
The shares of common stock issued in connection with the acquisition of
ICS (i) are 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) are 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, certain
selling stockholders have the opportunity to earn an aggregate bonus equal to
approximately $3.0 million payable two-thirds in cash and one-third in shares
of the Company's common stock. The shares of common stock, if earned, are
subject to an eighteen month lock-up agreement which restricts the owner's
ability to sell such shares. The Company has agreed to register the shares of
common stock for sale subsequent to the lock-up period. Purchase price
contingencies, if any, will be recorded as adjustments to the purchase price
when the contingencies are resolved.
7
<PAGE> 9
NOTE 4. LONG-TERM DEBT
The Company has a credit agreement with a bank group providing for
revolving credit loans in an amount of up to $60 million, which may be
increased to $80 million at Lason's request, and after payment of a commitment
fee and bank group review and approval. 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% ( a weighted average rate of 8.75% as
of June 30, 1997) to LIBOR plus a maximum of 2.25% ( a weighted average rate of
6.94% as of June 30, 1997), 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 June 30, 1997, there was $27.4
million outstanding under the Credit Agreement. In July, 1997, Lason borrowed
approximately $18.9 million under the Credit Agreement to fund the acquisition
of ICS.
NOTE 5. EARNINGS PER SHARE
For purposes of computing earnings per share, common stock equivalents
include outstanding stock options. 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 six month periods ended June 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 9,130,971 and 6,243,000 for the three months ended June 30,
1997 and 1996, respectively and 9,098,945 and 6,187,600 for the six months
ended June 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
Since July of 1996, Lason Systems, Inc. ("Lason"), a wholly-owned
subsidiary of the Company, has completed the acquisitions of eleven companies,
seven of which were acquired during 1997.
In January 1997, Lason acquired all of the outstanding common stock of
Churchill Communications Corporation ("Churchill") for $7.5 million in cash and
72,499 shares of the Company's common stock valued at approximately $1.5
million. Churchill is a provider of business communications services,
including electronic mail messaging, data processing services and proxy
solicitation services in the New York City market. The shares of common stock
are subject to an eighteen month lock-up agreement which restricts the owner's
ability to sell such shares. The Company has agreed to register the shares of
common stock for sale subsequent to the lock-up period
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. Alpha provides digital imaging
services in the states of Florida and Georgia, principally serving the
financial, commercial and health care industries. The shares of common stock
are subject to a twelve month lock-up agreement which restricts the owner's
ability to sell such shares. The Company has agreed to register the shares of
common stock for sale subsequent to the lock-up period. In conjunction with the
acquisition, Alpha was merged with LSE.
In March 1997, Lason acquired all of the outstanding common stock of
Premier Copy Group, Inc. ("Premier") for $2.7 million in cash and forgiveness
of a note receivable of approximately $55,500. Premier specializes in
litigation support and document management services to the legal and commercial
markets in the Atlanta market. The purchase price is subject to possible
adjustment (i) based on Premier's net worth as of March 31, 1997, and (ii)
based on satisfactory performance of certain activities set forth in employment
agreements. In connection therewith, a portion of the purchase price is held
in escrow to be released no later than September 30, 1997. The purchase price
contingency, if any, will be recorded as an adjustment to the purchase price
when the contingency is resolved.
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. AEI is a
leading provider of business communications services, including digital
printing and related data processing services in the Richmond, Virginia and
greater Washington D.C. markets. The shares of common stock are subject to an
eighteen month lock-up agreement which restricts the owner's ability to sell
such shares. The Company has agreed to register the shares of common stock for
sale subsequent to the lock-up period. The purchase price is subject to
possible adjustment based on AEI's net worth as of March 31, 1997. The
stock purchase agreement also 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 exceeds specified targets. The additional payment,
9
<PAGE> 11
if any, would be paid both in cash and shares of the Company's common stock.
In the event of a change of control or the termination of the employment of the
selling shareholder other than for cause, the selling shareholder can require
the Company to pay $1.6 million in cash 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. ("CCI") for $1.6 million in cash. CCI provides
document management and imaging services in the Richmond, Virginia market.
In June 1997, LSE acquired all of the outstanding common stock of
American Micro-Image, Inc. ("AMII") for $420,410 in cash and 4,453 shares of
the Company's common stock valued at approximately $105,000. AMII provides
records management and document management services in the Miami, Florida
market. The shares of common stock are subject to an eighteen month lock-up
agreement which restricts the owner's ability to sell such shares. The Company
has agreed to register the shares of common stock for sale subsequent to the
lock-up period. In conjunction with the acquisition, AMII was merged with LSE.
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 six month periods ended June
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 comparable 1996 period.
One of the Company's principal strategies is to increase its revenues and
the markets it serves through the continued acquisition of complementary
businesses. Toward that end, 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 was used to repay the outstanding debt of ICS and
approximately $8.4 million was paid to the selling shareholders. ICS is a
leading provider of services to convert documents to electronic and other media
and has operations in eight states.
The shares of common stock issued in connection with the acquisition of
ICS (i) are 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) are 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, certain
selling stockholders have the opportunity to earn an aggregate bonus equal to
approximately $3.0 million payable two-thirds in cash and one-third in shares
of the Company's common stock. The shares of common stock, if earned, are
subject to an eighteen month lock-up agreement which restricts the owner's
ability to sell such shares. The Company has agreed to register the shares of
common stock for sale subsequent to the lock-up period. Purchase price
contingencies, if any, will be recorded as adjustments to the purchase price
when the contingencies are resolved.
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.
10
<PAGE> 12
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE
MONTHS ENDED JUNE 30, 1996.
Net revenues increased 95% to $27.4 million for the three months ended
June 30, 1997 from $14.1 million in the second quarter of 1996. The increase
in net revenues during the second quarter includes approximately $9.8 million
of revenues related to businesses acquired since July, 1996. Excluding the
results of subsidiaries acquired since July 1996, revenues increased
approximately $3.5 million primarily related to growth in the Company's
business communications and records management services of $2.7 million and
$409,000, respectively.
Gross profit increased to $8.4 million for the second quarter of 1997 from
$5.0 million for the comparable 1996 quarter primarily due to an increase in
net revenues, partially offset by lower gross profit margins for certain
businesses acquired since July, 1996 and the Company's product mix. Gross
profit as a percentage of net revenues was 31% for the three months ended June
30, 1997 versus 36% for the comparable period of 1996.
Selling, general and administrative expenses were $4.1 million for the
three months ended June 30, 1997 compared to $2.8 million for the comparable
1996 quarter. The increase is primarily attributable to businesses acquired
since July, 1996. Selling, general and administrative expenses as a percentage
of net revenues decreased to 14.9% for the three months ended June 30, 1997
from 19.6% for the comparable period of 1996. The decrease in selling, general
and administrative expenses as a percentage of net revenues primarily resulted
from an increase in net revenues without a proportionate increase in expenses.
Amortization of intangibles increased to $561,000 for the three months
ended June 30, 1997 from $198,000 for the comparable period of 1996 due to the
amortization of goodwill recorded as a result of businesses acquired since
July, 1996.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS
ENDED JUNE 30, 1996.
Net revenues increased 98% to $53.7 million compared with $27.1 million
for the comparable period of 1996. The increase in net revenues during the
first half of 1997 includes approximately $19.8 million of revenues related to
businesses acquired since July, 1996. Excluding the results of subsidiaries
acquired since July 1996, revenues increased approximately $6.8 million
primarily related to growth in the Company's business communications and
records management services of $5.8 million and $600,000, respectively.
Gross profit increased to $16.5 million for the first six months of 1997
from $9.4 million for the comparable 1996 period primarily due to an increase
in net revenues, partially offset by lower gross profit margins for certain
businesses acquired since July, 1996 and the Company's product mix. Gross
profit as a percentage of net revenues was 31% for the six months ended June
30, 1997 versus 35% for the comparable period of 1996.
Selling, general and administrative expenses were $8.4 million for the six
months ended June 30, 1997 compared to $5.3 million for the comparable 1996
period. The increase is primarily attributable to businesses acquired since
July, 1996. Selling, general and administrative expenses as a percentage of net
revenues decreased to 15.6% for the first six months of 1997 from 19.4% for the
comparable period of 1996. The decrease in selling, general and administrative
expenses as a percentage of net revenues primarily resulted from an increase in
net revenues without a proportionate increase in expenses.
11
<PAGE> 13
Amortization of intangibles increased to $1.0 million for the six months
ended June 30, 1997 from $380,000 for the comparable period of 1996 due to the
amortization of goodwill recorded as a result of businesses acquired since
July, 1996.
Interest expense decreased to $740,000 for the six months ended June 30,
1997 from $850,000 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
common stock.
Cash flows provided by operating activities totaled $1.2 million for the
six months ended June 30, 1997 compared to $2.4 million for the comparable
period of 1996. The decrease in operating cash flows in 1997 is primarily due
to increased net income which was more than offset by the effects of lower
accrued expenses and other liabilities.
Cash flows used in investing activities totaled $22.9 million and $2.8
million for the six months ended June 30, 1997 and 1996, respectively, and has
primarily been used to fund payments for acquired businesses and investments in
capital equipment to improve the Company's reprographic capability and
capacity. Cash used to acquire businesses, net of cash acquired, was $19.2
million for the first half of 1997 compared to $1.6 million for the comparable
period of 1996. Cash used to invest in capital equipment totaled $3.8 million
for the 1997 first half, versus $1.2 million for the comparable period of
1996. The 1997 investment in capital equipment includes approximately $1.5
million of previously leased copiers that were purchased during the first
quarter.
Cash flows provided by financing activities largely consisted of the net
proceeds from revolving line of credit borrowings primarily used to fund the
payments for acquired businesses and for working capital during the first six
months of 1997 and 1996.
Credit Agreement Borrowings
The Company has a credit agreement with a bank group providing for
revolving credit loans up to $60 million which may be increased to $80 million
at Lason's request, and after payment of a commitment fee and bank group review
and approval. 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% ( a weighted average rate of 8.75% as of August 4, 1997) to
LIBOR plus a maximum of 2.25% ( a weighted average rate of 6.94% as of August
4, 1997), 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 August 4, 1997, there was approximately
$46.8 million outstanding under the Credit Agreement
12
<PAGE> 14
The Company registered 4.0 million shares of common stock in August, 1997.
A total of 2.2 million shares are offered by the Company and 1.8 million
shares are offered by certain selling shareholders. The net proceeds from such
offering will be used to repay amounts outstanding under the Company's
credit agreement and for general corporate purposes, including working capital
and financing of possible acquisitions. In addition, the underwriters
were granted shares an over-allotment option to purchase an additional 600,000
shares, 330,000 shares would be sold by the Company and 270,000 shares
would be sold by certain selling shareholders. The Company will not receive
any proceeds from the sale of shares of common stock by the selling
shareholders.
Recent 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 the 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 possible 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.
In January and February 1997, the Company was named as a co-defendant in
three lawsuits filed in the United States District Court for the Northern
District of Illinois purporting to be class actions and alleging violations of
the Federal Fair Debt Collection Practices Act ("FDCPA") on the part of the
Company in the printing and mailing of collection letters for certain of its
customers. The complaints demand compensatory damages in the amount of one
dollar for each letter sent to members of the purported classes of plaintiffs
and punitive damages. The Company has moved for summary judgment in each of
these lawsuits in part on the grounds that the Company is not a "debt
collector" within the meaning of the FDCPA. Although there can be no assurance
as to the outcome of this litigation, the Company believes that it has
meritorious defenses to the allegations made in the complaints and is defending
itself vigorously.
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<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 19,
1997. At the meeting, Gary L. Monroe and Bruce V. Rauner were re-
elected as Directors of the Company for terms ending in 2000 and until
their successors are elected and qualified. Messrs. Monroe and Rauner
each received 7,001,014 votes cast in favor and 10,000 votes cast
withholding authority.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
b. Reports on Form 8-K
None
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)
August 13, 1997 /s/ William J. Rauwerdink
(Date) -------------------------
Executive Vice President and
Chief Financial Officer
15
<PAGE> 17
Exhibit Index
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,727
<SECURITIES> 0
<RECEIVABLES> 27,412
<ALLOWANCES> 0
<INVENTORY> 2,580
<CURRENT-ASSETS> 36,470
<PP&E> 14,507
<DEPRECIATION> 3,221
<TOTAL-ASSETS> 106,727
<CURRENT-LIABILITIES> 11,445
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 63,463
<TOTAL-LIABILITY-AND-EQUITY> 106,727
<SALES> 53,658
<TOTAL-REVENUES> 53,658
<CGS> 37,147
<TOTAL-COSTS> 37,147
<OTHER-EXPENSES> 9,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 740
<INCOME-PRETAX> 6,226
<INCOME-TAX> 2,250
<INCOME-CONTINUING> 3,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,878
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
