<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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- ---------------
Commission File Number: 000-21407
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 [ ] No [X]
As of November 12, 1998, 15,246,632 shares of Common Stock, $.01 par value were
outstanding.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of
September 30, 1998 (Unaudited) and December 31, 1997 2
Condensed Consolidated Statements of Income (Unaudited),
Three Months and Nine Months Ended September 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows (Unaudited),
Nine Months Ended September 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
</TABLE>
1
<PAGE> 3
Lason, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except for shares)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,963 $ 2,925
Accounts receivable (net) 81,466 43,815
Supplies 8,381 3,964
Prepaid expenses and other 17,145 8,946
-------- --------
Total current assets 108,955 59,650
Property and equipment (net) 47,756 22,575
Deferred income taxes - 1,034
Intangible assets (net) 202,237 94,640
-------- --------
TOTAL ASSETS $358,948 $177,899
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 12,283 $ 6,590
Accrued expenses 10,199 6,984
Customer deposits 5,713 2,810
Notes payable 208 6,462
Deferred income taxes 2,517 1,753
Other 9,270 3,714
-------- --------
Total current liabilities 40,190 28,313
Revolving credit line borrowings 27,500 13,550
Deferred income taxes 1,352 -
Other 12,071 3,431
-------- --------
TOTAL LIABILITIES 81,113 45,294
-------- --------
Common stock with a put option -- 1,060
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; 20,000,000 shares authorized,
15,242,629 and 11,637,640 shares issued and outstanding 146 115
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none issued and outstanding -- --
Additional paid-in capital 251,535 117,352
Retained earnings 26,154 14,078
-------- --------
TOTAL STOCKHOLDERS' EQUITY 277,835 131,545
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $358,948 $177,899
======== ========
</TABLE>
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE> 4
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,
-------------------------- --------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues, net of postage $ 77,934 $ 30,608 $187,136 $ 84,266
Cost of revenues 50,902 20,328 121,227 57,475
-------- -------- -------- --------
Gross profit 27,032 10,280 65,909 26,791
Selling, general and administrative expenses 15,616 5,748 38,152 14,241
Compensatory stock option expense 70 56 208 165
Amortization of intangibles 1,655 576 3,938 1,617
-------- -------- -------- --------
Income from operations 9,691 3,900 23,611
10,768
Net interest expense 1,741 427 3,917 1,167
-------- -------- --------- --------
Income before income taxes 7,950 3,473 19,694 9,601
Provision for income taxes 3,180 1,215 7,618 3,465
-------- -------- -------- --------
Net Income $ 4,770 $ 2,258 $ 12,076 $ 6,136
======== ======== ======== ========
Basic earnings per share $ 0.37 $ 0.23 $ 1.00 $ 0.67
======== ======== ======== ========
Diluted earnings per share $ 0.35 $ 0.22 $ 0.95 $ 0.65
======== ======== ======== ========
</TABLE>
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 5
Lason, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1997
---------- ---------
<S> <C> <C>
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (8,536) $ 1,956
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of businesses,
net of cash acquired (117,937) (39,002)
Additions to fixed assets and software development costs (13,771) (5,989)
Proceeds from sales of fixed assets 368 186
--------- ---------
Net cash used in investing activities (131,340) (44,805)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit 418,400 117,893
Repayments on revolving line of credit (404,450) (121,994)
Net proceeds from issuance of shares of common stock 130,809 58,091
Repayments of notes payable (6,254) -
Proceeds from exercise of employee stock options 409 144
--------- ---------
Net cash provided by financing activities 138,914 54,134
--------- ---------
Net (decrease) increase in cash and cash equivalents (962) 11,285
Cash and cash equivalents at beginning of period 2,925 79
--------- ---------
Cash and cash equivalents at end of period $ 1,963 $ 11,364
========= =========
</TABLE>
The accompanying Notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 6
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 nine month period ended September
30, 1998 are not necessarily indicative of the results to be expected for the
year ending December 31, 1998.
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, 1997 filed with the Securities and Exchange Commission
on March 31, 1998.
Certain reclassifications have been made to the consolidated financial
statements for 1997 to conform to the 1998 presentation.
NOTE 2. ACQUISITIONS
During the nine months ended September 30, 1998, the Company acquired
several information management companies. The most significant of which were:
Racom Corporation and its affiliates, API Systems, Inc., Quality Mailing
Services, Inc., Strategy Manufacturing, Inc., Litigation Reprographics and
Support Services, Inc., Document Production Services, Inc., Consolidated
Reprographics, Boyle Associates, Inc., Amitech Corporation and Input Services
International, Inc. (the "1998 Acquisitions").
Under terms of a majority of the purchase agreements for the 1998
Acquisitions, shares of the Company's common stock and/or cash are being held in
escrow to indemnify the Company if contingencies set forth in the respective
purchase agreements occur within specified time frames, ranging from 12 to 24
months from the date of acquisition. In addition, certain of the purchase
agreements provide for an increase to the purchase price if operating income of
the acquired business exceeds targeted levels. The maximum amount of additional
purchase price which may be recorded should such targets be achieved for the
1998 Acquisitions is approximately $71.4 million. Such contingent payments, if
any, would be paid generally over a 24 to 36 month period after the date of
acquisition. Purchase price contingencies, if any, will be recorded as an
adjustment to the purchase price when the related contingency is resolved.
The aggregate purchase price for all acquisitions completed during the
first nine months of 1998, excluding liabilities assumed, was approximately
$134.2 million, consisting of approximately $113.7 million in cash and 515,958
shares of the Company's common stock valued at approximately $20.5 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. The allocation of the excess purchase price is based on
preliminary estimates and assumptions, and is subject to revision upon final
determination of the fair market value of the net assets acquired. Management
does not expect the final allocations to differ materially from the preliminary
estimates.
5
<PAGE> 7
Each acquisition completed during the first nine months of 1998 was
accounted for as a purchase. The results of operations for the three and nine
month periods ended September 30, 1998 include the results of operations for
each of the acquired companies since the date of their respective acquisition.
In conjunction with these acquisitions, liabilities assumed and other
non-cash consideration was as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 44,413
Goodwill 99,860
Cash and common stock held in escrow 20,775
Net cash paid in consideration for companies acquired (113,702)
Common stock issued in consideration for companies acquired (20,548)
--------
Liabilities assumed $ 30,798
========
</TABLE>
The following table summarizes pro forma unaudited results of
operations as if each of the acquisitions completed during the first nine months
of 1998 had occurred at the beginning of the periods presented:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $238,756 $164,416
Income before income taxes 21,196 10,215
Net income 12,923 6,436
Basic earnings per share $ 1.07 $ 0.70
Diluted earnings per share $ 1.00 $ 0.65
</TABLE>
In October, 1998, the Company acquired UMC Imaging Systems, Inc., and
Datacom Imaging Systems Company and its affiliates, for aggregate consideration
of $11.8 million consisting of $10.4 million in cash, $1.2 million in
convertible debentures and 4,003 shares of the Company's common stock valued at
approximately $200,000.
NOTE 3. LONG-TERM DEBT
The Company has a credit agreement with a bank group providing for
revolving credit loans of up to $200 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 the Company's assets. The Company is not
required to make principal payments prior to 2003. Interest on amounts
outstanding is calculated based on interest rates determined at the time of
borrowing. Borrowings bear interest at rates ranging from LIBOR plus a maximum
of 1.75% to a base percentage rate plus a maximum of 0.50%, at the Company's
election at the time of borrowing. 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.
6
<PAGE> 8
NOTE 4. COMMON STOCK OFFERING
In August 1998, the Company sold 2,925,000 shares of its common stock
for net proceeds of approximately $130.8 million, after deducting underwriting
discounts and other offering expenses.
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 from each of these offerings were used to repay debt
then outstanding under the Company's credit agreement, which was primarily
incurred to fund business acquisitions, and for general corporate purposes.
NOTE 5. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" is effective for financial statements issued after December 15, 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. EPS amounts for the three months and nine months ended
September 30, 1997 have been restated using the provisions of SFAS No. 128.
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic and diluted earnings per share calculations
for the three and nine month periods ended September 30, 1998 and 1997 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1998 September 30, 1997
------------------------------ -----------------------------
Weighted Weighted
Net Average Per Net Average Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS $4,770 12,842 $ 0.37 $2,258 9,749 $ 0.23
EFFECT OF DILUTIVE SECURITIES
Contingently issuable
shares of common stock -- 532 -- -- 32 --
Potential shares of common
stock from stock options
outstanding -- 379 -- -- 268 --
------ ------ ------ ------
DILUTED EPS $4,770 13,753 $ 0.35 $2,258 10,049 $ 0.22
====== ====== ====== ======
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
--------------------------------- ---------------------------------
Weighted Weighted
Net Average Per Net Average Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS $12,076 12,038 $ 1.00 $ 6,136 9,107 $ 0.67
EFFECT OF DILUTIVE SECURITIES
Contingently issuable
shares of common stock -- 389 -- -- 11 --
Potential shares of common
stock from stock options
outstanding -- 350 -- -- 328 --
------- ------ ------- -----
DILUTED EPS $12,076 12,777 $ 0.95 $ 6,136 9,446 $ 0.65
======= ====== ======= =====
</TABLE>
The weighted average common shares and common share equivalents
outstanding used to compute the dilutive effect of common stock options
outstanding was computed using the treasury stock method prescribed by SFAS No.
128.
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
During the nine months ended September 30, 1998, the Company acquired
several information management companies. The most significant of which were:
Racom Corporation and its affiliates, API Systems, Inc., Quality Mailing
Services, Inc., Strategy Manufacturing, Inc., Litigation Reprographics and
Support Services, Inc., Document Production Services, Inc., Consolidated
Reprographics, Boyle Associates, Inc., Amitech Corporation and Input Services
International, Inc. (the "1998 Acquisitions"). In October 1998, the Company
completed the acquisition of UMC Imaging Systems, Inc., and Datacom Imaging
Systems Company and its affiliates.
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.
8
<PAGE> 10
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1997.
Consolidated net revenues increased 155% to $77.9 million for the three
months ended September 30, 1998 from $30.6 million in the third quarter of 1997.
Approximately $42.4 million of the increase was due to acquisitions and
approximately $4.9 million was due to growth in the Company's existing business.
The internal growth was primarily the result of higher image and data capture
revenues partially offset by the effects of certain discontinued services.
Gross profit increased to $27.0 million for the third quarter of 1998
from $10.3 million for the comparable 1997 quarter primarily due to an increase
in net revenues and the Company's service mix. Gross profit as a percentage of
net revenues was 35% for the 1998 third quarter versus 34% for the comparable
period of 1997.
Selling, general and administrative expenses increased $9.9 million to
$15.6 million, or 20% of net revenues for the three months ended September 30,
1998 from $5.7 million, or 19% of net revenues for the comparable 1997 quarter.
Approximately $7.6 million of the increase was due to selling, general and
administrative expenses of acquired companies. The remaining increase was
primarily due to higher compensation and other corporate overhead expenses
associated with managing a larger consolidated organization.
Amortization of intangibles increased to $1.7 million for the three
months ended September 30, 1998 from $576,000 for the third quarter of 1997
primarily due to an increase in goodwill related to business acquisitions
completed during 1998.
Net interest expense was $1.7 million for the 1998 third quarter
compared to $427,000 in 1997. The increase is primarily due to higher average
borrowing balances resulting from borrowings used to fund business acquisitions.
Provision for income taxes as a percentage of pre tax income increased
to 40% for the third quarter of 1998 from 35% in the comparable 1997 quarter
predominately due to a substantial portion of goodwill amortization expense that
is not deductible for federal income tax purposes.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE
MONTHS ENDED SEPTEMBER 30, 1997.
Consolidated net revenues increased 122% to $187.1 million for the nine
months ended September 30, 1998 from $84.3 million for the comparable period of
1997. Approximately $90.1 million of the increase was due to acquisitions and
approximately $12.7 million was due to growth in the Company's existing
business. The internal growth was primarily the result of higher image and data
capture and data management revenues, partially offset by the effects of certain
discontinued services.
Gross profit increased to $65.9 million for the nine months ended
September 30, 1998 from $26.8 million for the comparable 1997 period primarily
due to an increase in net revenues and the Company's service mix. Gross profit
as a percentage of net revenues was 35% for the nine months ended September 30,
1998 versus 32% in 1997.
Selling, general and administrative expenses increased $23.9 million to
$38.2 million, or 20% of net revenues for the first nine months of 1998 from
$14.2 million, or 17% of net revenues in 1997. Approximately $17.0 million of
the increase was due to selling, general and administrative expenses of acquired
companies. The remaining increase was primarily due to increased compensation
and other corporate overhead expenses associated with managing a larger
consolidated organization.
9
<PAGE> 11
Amortization of intangibles increased to $3.9 million for the nine
months ended September 30, 1998 from $1.6 million for the comparable 1997 period
primarily due to an increase in goodwill related to business acquisitions
completed during 1998.
Net interest expense was $3.9 million for the first nine months of 1998
compared to $1.2 million in 1997. The increase is primarily due to higher
average borrowing balances resulting from borrowings used to fund business
acquisitions.
Provision for income taxes as a percentage of pretax income, increased
to 39% for the first nine months of 1998 from 36% for the comparable period of
1997, primarily due to a substantial portion of goodwill amortization expense
that is not deductible for federal income tax purposes.
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 common stock.
Cash flows used by operating activities totaled $8.5 million for the
nine months ended September 30, 1998 compared to cash flows provided by
operating activities of $2.0 million for the comparable period of 1997. The
decrease in operating cash flows in 1998 is primarily due to higher consolidated
net income offset by the effects of higher accounts receivable balances,
increased prepaid expenses, and lower current liabilities.
Cash flows used in investing activities totaled $131.3 million and
$44.8 million for the nine months ended September 30, 1998 and 1997,
respectively, and was primarily used to fund the acquisition of businesses and
invest in capital equipment and software development activities. Cash used for
acquisitions was approximately $117.9 million and $ 39.0 million for the nine
months ended September 30, 1998 and 1997, respectively. Cash used to invest in
capital equipment and software development activities totaled $13.8 million in
1998, compared to $6.0 million in 1997. The 1998 amount includes approximately
$3.4 million for the development and implementation of computer software
primarily to support the Company's national information processing needs. These
projects and related costs will continue as the Company pursues its acquisition
strategy. The 1997 investment in capital equipment includes approximately $1.5
million of previously leased equipment that was purchased during the first
quarter of 1997.
Cash flows provided by financing activities totaled $138.9 million in
1998 compared to $54.1 million in 1997.
In August 1998, the Company sold 2,925,000 shares of its common stock
for net proceeds of approximately $130.8 million, after deducting underwriting
discounts and other offering expenses. 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 from each of these offerings were used to repay debt
then outstanding under the Company's credit agreement, which was primarily
incurred to fund business acquisitions, and for general corporate purposes.
During the first quarter of 1998, the Company repaid $6.2 million of
short-term promissory notes relating to certain business acquisitions the
Company completed in the fourth quarter of 1997.
10
<PAGE> 12
Credit Agreement Borrowings
The Company has a credit agreement with a bank group providing for
revolving credit loans of up to $200 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 the Company's assets. The Company is not
required to make principal payments prior to 2003. Interest on amounts
outstanding is calculated based on interest rates determined at the time of
borrowing. Borrowings bear interest at rates ranging from LIBOR plus a maximum
of 1.75% (6.88% as of November 12, 1998) to a base percentage rate plus a
maximum of 0.50% (8.50% as of November 12, 1998), at the Company's election at
the time of borrowing. 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 12, 1998, $45.3 million was borrowed under the credit agreement.
Future Capital Needs
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.
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.
YEAR 2000
The Company uses a significant number of computer software programs and
operating systems in its internal operations. To the extent that these software
applications contain a source code that is unable to interpret appropriately the
upcoming calendar year 2000, some level of modification or even possible
replacement of such source code or program applications will be necessary. In
addition, the Company may experience significant adverse business interruptions
if significant customers and/or suppliers are not prepared for the year 2000.
The Company has formed a committee consisting of key management
personnel to address the year 2000 issue. The Company is currently surveying its
customers and suppliers to help identify those that are most critical to the
operations of the Company. After the most critical customers and suppliers are
identified, meetings will be scheduled between them and Company personnel to
gain an understanding of their year 2000 readiness and any potential impact on
the Company. Appropriate remediation action will be implemented based on that
assessment, which is expected to be completed by March 31, 1999.
The Company is currently modifying its computer software programs and
operating systems to make each significant system and progam "Year 2000"
compliant. As of September 30, 1998, the Company has incurred approximately $1.0
million in connection with its Year 2000 compliance program and anticipates that
it will incur an additional estimated $2.0 million to complete the program.
Although the Company has not yet completed its Year 2000 assessment, it
does not anticipate a material Year 2000 business interruption due to the nature
of its operating systems, and the customers and suppliers with which it
transacts business. However, there can be no assurance that the Company will not
11
<PAGE> 13
incur unanticipated costs or systems interruptions, which could have a material
adverse effect on the Company's business, financial condition or results of
operations. In addition, there can be no assurance that the failure by the
Company's critical customers or suppliers to be Year 2000 compliant will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
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.
12
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In July and September 1998, in connection with the acquisition of the
shares or assets of various companies and as partial payment of the purchase
price, the Company issued an aggregate of 147,145 shares of its Common Stock
valued at $7,941,086. The shares were issued at prices ranging from $49.31 to
$54.89 per share.
In September 1998, the Company issued 5,520 shares of its Common Stock
at a price per share of $43.65 to shareholders of a company it had previously
acquired as additional consideration for the achievement of certain target
levels of performance after the acquisition.
The issuance of the securities described in the two prior paragraphs
was exempt from registration under the Securities Act by virtue of Section 4(2)
thereof as transactions not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
None
13
<PAGE> 15
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 13, 1998 /s/ William J. Rauwerdink
(Date) --------------------------------
Executive Vice President and
Chief Financial Officer
14
<PAGE> 16
INDEX TO EXHIBIT
Ex-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,963
<SECURITIES> 0
<RECEIVABLES> 81,466
<ALLOWANCES> 0
<INVENTORY> 8,381
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0
0
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</TABLE>
