SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
January 13, 1999
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
(Exact name of Registrant as specified in Charter)
New Jersey 0-24021 22-3561164
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
629 Grove Street, Jersey City, New Jersey 07310
(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (201) 217-1990
-------------------------------------------------------------
(Former name or Former Address, if Changed Since Last Report)
<PAGE>
This Form 8-K/A amends and supplements (i) the Form 8-K dated January 13,
1999 filed with the Securities and Exchange Commission (the "SEC") on January
25, 1999 relating to the acquisition by Cunningham Graphics International, Inc.
(the "Company") of Workable Company Limited ("Workable"), Plainduty Limited
("Plainduty") and Workable Printing (Singapore) PTE Ltd. ("Workable Singapore")
and (ii) the Form 8-K dated February 17, 1999 filed with the SEC on February 23,
1999 relating to the acquisition by the Company of Boston Towne Press, Inc. This
Form 8-K/A contains the information referred to in Item 7 of the form.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired
See Index to Financial Statements and Pro Forma Financial
Information below. Audited financial statements of Workable
Printing (Singapore) PTE LTD have not been filed because they
are not material to the Workable Group.
(b) Pro Forma Financial Information
See Index to Financial Statements and Pro Forma Financial
Information below
(c) Exhibits
Exhibit No. Description
----------- -----------
23.1 Consent of PriceWaterhouseCoopers
23.2 Consent of H.R. Margolis Company
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
PRO FORMA FINANCIAL INFORMATION
FINANCIAL STATEMENTS PAGE
- --------------------------------------------------------------------------------
WORKABLE COMPANY LIMITED
Report of the Directors F-1
Auditors' Report F-3
Profit and Loss Account for the period April 1, 1998
through December 31, 1998 and the for year
ended March 31, 1998 F-4
Balance Sheets as of December 31, 1998 and March
31, 1998 F-5
Cash Flow Statement for the period from April 1,
1998 through December 31, 1998 and for the
year ended March 31, 1998 F-6
Notes to the Accounts F-7
PLAINDUTY LIMITED
Report of the Directors F-21
Auditors' Report F-23
Profit and Loss Account for the period April 1, 1998
through December 31, 1998 and the for year
ended March 31, 1998 F-24
Balance Sheets as of December 31, 1998 and March
31, 1998 F-25
Cash Flow Statement for the period from April 1,
1998 through December 31, 1998 and for the
year ended March 31, 1998 F-26
Notes to the Accounts F-27
BOSTON TOWNE PRESS
Independent Auditors' Report F-37
Balance Sheets as of December 31, 1998 and 1997 F-38
Statements of Income and Retained Earnings for the
Years Ended December 31, 1998 and 1997 F-40
Statements of Comprehensive Income for the Years
Ended December 31, 1998 and 1997 F-41
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-42
Notes to the Financial Statements F-44
PRO FORMA FINANCIAL INFORMATION
Introduction to the Unaudited Pro Forma Combined
Financial Statements F-51
Unaudited Pro Forma Combined Balance Sheet as of
December 31, 1998 F-52
Unaudited Pro Forma Combined Statement of Income
for the Year Ended December 31, 1998 F-53
Notes to Unaudited Pro Forma Combined Statement
Financial Statements F-54
<PAGE>
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 hereunto duly authorized.
Cunningham Graphics International, Inc.
(Registrant)
Dated: March 29, 1999 By: /s/ Robert M. Okin
------------------------------
Name: Robert M. Okin
Title: Senior Vice President
and Chief Financial Officer
<PAGE>
WORKABLE COMPANY LIMITED
REPORT OF THE DIRECTORS
The directors submit their report together with the audited accounts for the
period from 1st April 1998 to 31st December 1998.
Change of financial year end
Pursuant to a special resolution passed on 31st December 1998, the company
changed its year end from 31st March to 31st December.
Principal activity
The principal activities of the company are printing and typesetting.
Results and appropriations
The results of the company for the period ended 31st December 1998 are set out
in the profit and loss account on page 4.
The directors have declared interim dividends of HK$304.01 per ordinary share,
totalling HK$30,097,268 which were paid on 30th November 1998. The directors do
not recommend the payment of a final dividend.
Fixed assets
Details of the movements in fixed assets are shown in note 6 to the accounts.
Directors
The directors during the period and up to the date of this report were:
Lam Hok Ling
Tung Hok Ki
Michael Cunningham (appointed on 13th January 1999)
Robert Okin (appointed on 13th January 1999)
Gordan Mays (appointed on 13th January 1999)
May Cheng (appointed on 12th January 1999 and resigned on 13th
January 1999)
There being no provision in the company's articles of association for retirement
by rotation, all remaining directors continue in office.
F-1
<PAGE>
Directors' interests
Notes 6, 10, 14 and 16 to the accounts contains details of transactions in which
Mr Lam Hok Ling and Mr Tung Hok Ki were interested by virtue of being beneficial
shareholders of the related company and Plainduty Limited, an associated
company.
Except for the foregoing, no contracts of significance in relation to the
company's business to which the company, its fellow subsidiaries or its holding
company was a party and in which a director of the company had a material
interest, whether directly or indirectly, subsisted at the end of the period or
at any time during the period.
At no time during the period was the company, its fellow subsidiaries or its
holding company a party to any arrangements to enable the directors of the
company to acquire benefits by means of the acquisition of shares in, or
debentures of, the company or any other body corporate.
Management contracts
No contracts concerning the management and administration of the whole or any
substantial part of the business of the company were entered into or existed
during the period.
Auditors
The accounts have been audited by PricewaterhouseCoopers who retire and, being
eligible, offer themselves for re-appointment.
On behalf of the Board
Chairman
Hong Kong, 19th February 1999
F-2
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS OF
WORKABLE COMPANY LIMITED
(incorporated in Hong Kong with limited liability)
We have audited the accompanying balance sheet of Workable Company Limited as of
31st December 1998 and 31st March 1998 and the related profit and loss account
and cash flow statement for the nine-month period ended 31st December 1998 and
the year ended 31st March 1998, all expressed in Hong Kong dollars. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Workable Company Limited at 31st
December 1998 and 31st March 1998 and the related profit and loss account and
cash flow statement for the nine-month period ended 31st December 1998 and the
year ended 31st March 1998, in conformity with accounting principles generally
accepted in Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain important
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of net income
expressed in Hong Kong dollars for the nine-month period ended 31st December
1998 and the year ended 31st March 1998 and the determination of stockholders'
equity and cash flows also expressed in Hong Kong dollars at 31st December 1998
and 31st March 1998 to the extent summarized in Note 18 to the financial
statements.
PricewaterhouseCoopers
Hong Kong
19th February 1999
F-3
<PAGE>
WORKABLE COMPANY LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD FROM 1ST APRIL 1998
TO 31ST DECEMBER 1998
Period from
1.4.1998
to Year ended
Note 31.12.1998 31.3.1998
HK$ HK$
Turnover 58,679,537 84,955,333
========== ==========
Operating profit 2 5,753,765 13,500,465
Share of profit of associated company 3,560,778 4,059,642
----------- -----------
Profit before taxation 9,314,543 17,560,107
Taxation (2,241,750) (2,530,907)
----------- -----------
Profit attributable to shareholders 7,072,793 15,029,200
----------- -----------
Share of profit after tax of associated company 4 (2,826,182) (3,412,595)
Dividend from associated company 3,265,095 --
----------- -----------
438,913 (3,412,595)
========== ==========
Net profit retained in the company 7,511,706 11,616,505
Retained earnings brought forward 37,575,023 30,875,455
----------- -----------
Profit available for distribution 45,086,729 42,491,960
Dividends 5 (30,097,268) (4,916,937)
----------- -----------
Retained earnings carried forward 14,989,461 37,575,023
========== ==========
F-4
<PAGE>
WORKABLE COMPANY LIMITED
BALANCE SHEET
AS AT 31ST DECEMBER 1998
<TABLE>
<CAPTION>
At At
Note 31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C> <C>
Fixed assets 6 30,181,157 33,799,269
Associated company 7 14,599,141) (9,956,226)
Net current assets 8 3,983,323 30,054,141
---------- ----------
19,565,339 53,897,184
========== ==========
Financed by:
Share capital 11 99,000 99,000
Plant and machinery revaluation reserve 492,143 492,143
Retained earnings 14,989,461 37,575,023
---------- ----------
Shareholders' funds 15,580,604 38,166,166
Long term liabilities 12 1,961,735 13,708,018
Deferred taxation 13 2,023,000 2,023,000
- ------------------------- --------------------------
Director Director
---------- ----------
19,565,339 53,897,184
========== ==========
</TABLE>
F-5
<PAGE>
WORKABLE COMPANY LIMITED
CASH FLOW STATEMENT
FOR THE PERIOD FROM 1ST APRIL 1998
TO 31ST DECEMBER 1998
<TABLE>
<CAPTION>
Period from
1.4.1998
to Year ended
Note 31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C> <C>
Net cash inflow from operating activities 15(a) 31,896,285 32,300,305
----------- ----------
Return on investments and servicing of finance
Dividend received 3,265,095 -
Interest received 463,021 817,358
Interest paid (920,191) (1,063,797)
Interest element of finance lease rental payments (370,976) (704,860)
Dividends paid (30,097,268) (4,916,937)
----------- ----------
Net cash outflow from return on investments
and servicing of finance (27,660,319) (5,868,236)
----------- ----------
Taxation
Hong Kong profits tax paid (606,270) (1,803,265)
----------- ----------
Investing activities
Purchase of fixed assets (1,456,682) (22,924,338)
Proceeds from sale of fixed assets 309,001 73,403
Proceeds from sale of unlisted investments 190,000 -
----------- ----------
Net cash outflow from investing activities (957,681) (22,850,935)
=========== ==========
Net cash inflow before financing 2,672,015 1,777,869
Financing
New loans borrowed - 4,000,000
Repayment of loans (964,149) (1,025,561)
Capital element of finance lease rental payments (1,469,571) (3,523,559)
----------- ----------
Net cash outflow from financing 15(b) (2,433,720) (549,120)
=========== ==========
Increase in cash and cash equivalents 238,295 1,228,749
Cash and cash equivalents at 1st April 3,105,620 1,876,871
----------- ----------
Cash and cash equivalents at 31st December/31st March 3,343,915 3,105,620
=========== ==========
Analysis of balances of cash and cash equivalents
Bank balances and cash 3,343,915 3,105,620
=========== ==========
</TABLE>
F-6
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
1 Principal accounting policies
(a) Turnover and revenue recognition
Turnover represents invoiced sales to third parties.
Revenue from sale of goods is recognised when the goods are delivered
to customers.
Interest income is recognised on an accruals basis.
Dividend income is recognised when the right to receive payment is
established.
(b) Fixed assets
Fixed assets are stated at cost or valuation less accumulated
depreciation.
Leasehold land is depreciated over the remaining period of the
respective lease while other fixed assets are depreciated at rates
sufficient to write off their carrying value over their estimated
useful lives at the following annual rates:
Buildings 2% on straight line basis
Furniture and fixtures 20% on reducing balance basis
Plant and machinery 30% on reducing balance basis
Motor vehicles 30% on reducing balance basis
Computer software 30% on reducing balance basis
Assets under finance leases are depreciated over the shorter of the
respective lease terms and their estimated useful lives.
(c) Assets under leases
a. Finance leases
Leases that substantially transfer to the company all the
rewards and risks of ownership of assets, other than legal
title, are accounted for as finance leases. At the inception
of a finance lease, the fair value of the asset is recorded
together with the obligation, excluding the interest element,
to pay future rentals.
Finance charges are debited to the profit and loss account in
proportion to the capital balances outstanding.
b. Operating leases
Leases where substantially all the rewards and risks of
ownership of assets remain with the leasing company are
accounted for as operating leases. Rentals applicable to such
operating leases are charged to the profit and loss account on
a straight line basis over the lease term.
F-7
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
1 Principal accounting policies (continued)
(d) Deferred taxation
Deferred taxation is accounted for at the current tax rate in respect
of timing differences between profit as computed for taxation purposes
and profit as stated in the accounts to the extent that a liability or
asset is expected to be payable or receivable in the foreseeable
future.
(e) Stocks
Stocks are stated at the lower of cost and net realisable value. Cost
is determined on the first in first out basis. Net realisable value is
determined on the basis of anticipated sales proceeds less estimated
selling expenses.
(f) Foreign currencies
Transactions in foreign currencies are translated at exchange rates
ruling at the transaction dates. Monetary assets and liabilities
expressed in foreign currencies at the balances sheet date are
translated at rates of exchange ruling at the balance sheet date. All
exchange differences arising in these cases are dealt with in the
profit and loss account.
(g) Related parties
Related parties are individuals and companies where the individual or
company has the ability, directly and indirectly, to control the other
party or exercise significant influence over the other party in making
financial and operating decisions.
(h) Associated company
An associated company is a company, not being a subsidiary company, in
which an equity interest is held for the long term and significant
influence is exercised in its management. The company's investment in
associated company is carried at cost less provision for permanent
diminution in value. The result of associated company is accounted for
by the company on the basis of dividends received and receivable.
(i) Retirement benefit costs
The company contributes to a defined contribution retirement scheme
which is available to all employees. The assets and liabilities are
held separately from those of the company in an independently
administered fund. The company's contributions to this scheme are
expensed as incurred and may be reduced by contributions forfeited by
those employees who leave the scheme prior to vesting fully in the
contributions.
F-8
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
2 Operating profit
Period from
1.4.1998
to Year ended
1.12.1998 31.3.1998
HK$ HK$
Operating profit is stated after
crediting and charging the following:
Crediting
Interest income
- bank 463,021 679,187
- others - 138,171
Gain on disposal of fixed assets 41,959 -
Exchange gain 21,991 -
========= =========
Charging
Cost of stocks sold 44,003,682 58,809,148
Depreciation charge
- owned fixed assets 4,041,895 3,616,161
- leased fixed assets 765,857 1,722,765
Interest expense on bank loans and overdrafts 920,191 1,063,797
Finance lease charges 370,976 704,860
Auditors' remuneration 50,000 55,000
Operating leases rental - land and buildings 531,960 420,000
Loss on disposal of unlisted investments 317,000 -
Loss on disposal of fixed assets - 216,419
Exchange loss - 7,302
========= =========
3 Directors' emoluments
Period from
1.4.1998
to Year ended
1.12.1998 31.3.1998
HK$ HK$
Fees 100,000 220,000
Other emoluments 1,720,714 1,990,088
========= =========
F-9
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
4 Taxation
Hong Kong profits tax has been provided at the rate of 16% (year ended
31st March 1998:16.5%) on the estimated assessable profit for the
period.
Period from
1.4.1998
to Year ended
1.12.1998 31.3.1998
HK$ HK$
Company:
Hong Kong profits tax 1,100,000 527,000
Underprovision in prior years 407,154 220,000
Deferred taxation (note 13) - 1,136,960
---------- ---------
1,507,154 1,883,960
--------- ---------
Associated company:
Hong Kong profits tax 734,596 410,045
Deferred taxation - 236,902
---------- ---------
734,596 646,947
========== =========
2,241,750 2,530,907
========== =========
5 Dividends
Period from
1.4.1998
to Year ended
1.12.1998 31.3.1998
HK$ HK$
Interims, paid, of HK$304.01 (1998: HK$49.67)
per ordinary share 30,097,268 4,916,937
========== =========
F-10
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
6 Fixed assets
<TABLE>
<CAPTION>
Long-term
leasehold
land and
buildings Plant and Furniture Motor Computer
in Hong Kong machinery and fixtures vehicles software Total
HK$ HK$ HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C> <C> <C>
Cost or valuation
At 1st April 1998 12,175,610 28,515,399 5,378,903 2,867,809 - 48,937,721
Additions - 624,996 124,858 128,171 578,657 1,456,682
Disposals - (16,860) (25,912) - - (42,772)
Transfer to related
companies - (1,325,400) - - - (1,325,400)
Reclassification - (22,809) - - 22,809 -
---------- ---------- --------- --------- ------- ----------
At 31st December 1998 12,175,610 27,775,326 5,477,849 2,995,980 601,466 49,026,231
---------- ---------- --------- --------- ------- ----------
Accumulated depreciation
At 1st April 1998 240,694 12,251,666 1,715,829 930,263 - 15,138,452
Charge for the period 117,087 3,614,570 554,866 432,589 88,640 4,807,752
Disposals - (10,152) (8,359) - - (18,511)
Transfer to related
companies - (1,082,619) - - - (1,082,619)
Reclassification - (19,182) - - 19,182 -
---------- ---------- --------- --------- ------- ----------
At 31st December 1998 357,781 14,754,283 2,262,336 1,362,852 107,822 18,845,074
========== ========== ========= ========= ======= ==========
Net book value
At 31st December 1998 11,817,829 13,021,043 3,215,513 1,633,128 493,644 30,181,157
========== ========== ========= ========= ======= ==========
At 31st March 1998 11,934,916 16,263,733 3,663,074 1,937,546 - 33,799,269
========== ========== ========= ========= ======= ==========
Analysis of cost or valuation
of the above assets is as follows:
At cost 12,175,610 27,283,183 5,477,849 2,995,980 601,466 48,534,088
At director's valuation - 492,143 - - - 492,143
1992
---------- ---------- --------- --------- ------- ----------
12,175,610 27,775,326 5,477,849 2,995,980 601,466 49,026,231
========== ========== ========= ========= ======= ==========
</TABLE>
The aggregate net book value of fixed assets held under finance leases amounted
to HK$2,715,314 (at 31st March 1998: HK$4,020,337).
The leasehold land and buildings were mortgaged to a bank to secure the
company's overdrafts and loan facilities (see notes 12 and 16).
The transfer of fixed assets to related companies is at net book value of those
fixed assets.
F-11
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
7 Associated company
At At
1.12.1998 31.3.1998
HK$ HK$
Unlisted shares, at cost 76,000 76,001
Amount due to an associated company (14,675,141) (10,032,227)
----------- -----------
(14,599,141) (9,956,226)
=========== ===========
The amount due to an associated company is unsecured, interest free and
has no fixed terms of repayment.
Particulars of the associated company are as follows:
Place of Principal Equity
Name incorporation activities interest held
---- ------------- ---------- -------------
Plainduty Limited Hong Kong Printing factory 40%
Accounting for the investment in Plainduty Limited under the equity
method (note 1 (i)) would increase the carrying value of the investment
by HK$6,090,504 (31st March 1998 : HK$6,529,417), representing the
company's share of the undistributed post-acquisition profits of
Plainduty Limited.
F-12
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
8 Net current assets
At At
31.12.1998 31.3.1998
HK$ HK$
Current assets
Stocks 1,079,557 1,089,001
Debtors 9,748,573 8,829,460
Deposits and prepayments 394,789 150,728
Amounts due from directors (note 9) 752,558 5,186,339
Amounts due from related companies (note 10) 6,442,018 17,408,063
Unlisted investments - 507,000
Taxation recoverable - 480,268
Bank balances and cash 3,343,915 3,105,620
---------- ----------
21,761,410 36,756,479
---------- ----------
Current liabilities
Creditors and accruals 5,001,175 3,658,605
Current portion of long term liabilities (note 12) 12,356,296 3,043,733
Taxation payable 420,616 -
---------- ----------
17,778,087 6,702,338
========== ==========
3,983,323 30,054,141
========== ==========
9 Amounts due from directors
At At Maximum
31st December 1st April outstanding balance
Name 1998 1998 during the period
HK$ HK$ HK$
Lam Hok Ling 376,279 2,593,170 15,048,633
Tung Hok Ki 376,279 2,593,169 15,048,633
------- ---------
752,558 5,186,339
======= =========
The amounts due from directors are unsecured, interest free and have no
fixed terms of repayment.
10 Amounts due from related companies
The amounts due from related companies are unsecured, interest free and
have no fixed terms of repayment.
F-13
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
11 Share capital
At At
31.12.1998 31.3.1998
HK$ HK$
Authorised:
100,000 ordinary shares of HK$1 each 100,000 100,000
=========== ==========
Issued and fully paid:
99,000 ordinary shares of HK$1 each 99,000 99,000
=========== ==========
12 Long term liabilities
At At
31.12.1998 31.3.1998
HK$ HK$
Bank loans - secured 10,563,153 11,527,302
Obligations under finance leases 3,754,878 5,224,449
----------- ----------
14,318,031 16,751,751
Amount due within one year included under
current liabilities (note 8) (12,356,296) (3,043,733)
----------- ----------
1,961,735 13,708,018
=========== ==========
(a) Obligations under finance leases are wholly repayable within five
years. Interest is charged on the outstanding balance at prime rates
per annum.
(b) Bank loans were secured by the land and buildings of the company and
Plainduty Limited, its associated company. They are originally
repayable by instalments up to March 2006. Following the disposals of
the land and buildings to a related company on 12th January 1999, the
bank loans were fully repaid and therefore reclassified as current
assets.
13 Deferred taxation
Period from
1.4.1998
to Year ended
31.12.1998 31.3.1998
HK$ HK$
At 1st April 2,023,000 886,040
Transfer from profit and loss account (note 4) - 1,136,960
--------- ---------
At 31st December/31st March 2,023,000 2,023,000
========= =========
Provided in the accounts in respect of:
Accelerated depreciation allowances 2,023,000 2,023,000
========= =========
F-14
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
14 Related party transactions
Other than those disclosed in notes 6, 7 and 12 to the accounts, during
the period the company undertook the following transactions with
related parties:
<TABLE>
<CAPTION>
Period from
1.4.1998
to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Rental income of plant and machinery from an
associated company 1,800,000 2,400,000
Printing income from a related company 215,832 -
Printing fees charged by an associated company (25,626,080) (32,590,990)
Operating lease rentals paid to related companies (531,960) (420,000)
Printing fees charged by a related company (46,368) -
=========== ===========
</TABLE>
15 Notes to the cash flow statement
(a) Reconciliation of operating profit to net cash inflow from operating
activities
<TABLE>
<CAPTION>
Period from
1.4.1998
to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Operating profit 5,753,765 13,500,465
Deprecation charges 4,807,752 5,338,926
(Gain)/loss on disposal of fixed assets (41,959) 216,419
Loss on disposal of unlisted investments 317,000 -
Decrease/(increase) in stocks 9,444 (228,961)
(Increase)/decrease in debtors (919,113) 615,525
(Increase)/decrease in deposits and prepayments (244,061) 1,071,334
Increase/(decrease) in creditors and accruals 1,342,570 (768,491)
Increase in amounts due to associated companies 4,642,915 6,015,418
Decrease/(increase) in amounts due from related
companies 10,966,045 (2,077,718)
Decrease in amounts due from directors 4,433,781 7,666,089
Net interest expense 828,146 951,299
---------- ----------
Net cash inflow from operating activities 31,896,285 32,300,305
========== ==========
</TABLE>
F-15
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
15 Notes to the cash flow statement (continued)
(b) Analysis of changes in financing during the period
Loans
and finance
lease obligations
HK$
Balance at 1st April 1998 16,751,751
Cash outflow from financing (2,433,720)
----------
Balance at 31st December 1998 14,318,031
==========
16 Subsequent events
(a) Disposal of land and buildings
Subsequent to 31st December 1998, the company entered into a sale and
purchase agreement with a related company which is wholly owned by Mr
Lam Hok Ling and Mr Tung Hok Ki for the disposal of its land and
buildings, at their net book value of HK$11,817,829. The bank loans
secured by the land and buildings were fully repaid upon disposal.
(b) Acquisition of a subsidiary company
Subsequent to 31st December 1998, the company acquired 100% of the
issued share capital of Workable Printing (Singapore) Pte Ltd at a cost
of HK$466,000.
17 Ultimate holding company
Pursuant to the completion of a share purchase agreement on 13th
January 1999, Cunningham Graphics International Inc., a company
incorporated in the United States of America, becomes the ultimate
holding company of the company.
F-16
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
18 Summary of Significant Differences Between Hong Kong and United States
Generally Accepted Accounting Principles
The Company's accounts are prepared in accordance with generally
accepted accounting principles ("GAAP") applicable in Hong Kong, which
differ in certain significant respects from those applicable in the
United States. The main differences relate principally to the
following items and the effects of the adjustments on net income and
shareholders' equity are set out below.
(a) Deferred Taxation
Under Hong Kong GAAP, deferred taxation is calculated under the
liability method in respect of the taxation effect arising from all
timing differences which are expected with reasonable probability to
be realized in the foreseeable future. Tax deferred or accelerated by
the effect of timing differences is accounted for to the extent that
it is possible that a liability or asset will be realized. Deferred
tax net debit balances are not carried forward as assets, except to
the extent that they are expected to be recoverable.
Pursuant to US Statement of Financial Accounting Standards ("SFAS")
No. 109 "Accounting for Income Taxes", U.S. GAAP generally requires
that deferred taxation be provided for all future taxable temporary
differences arising from differences between when items are recorded
for financial and tax reporting purposes, regardless of when reversal
is anticipated. The recognition of deferred tax assets under SFAS 109
is subject to a realization test which requires that an allowance be
provided when deferred tax assets are not "more likely than not" to be
realized.
(b) Revaluation of fixed assets
Under Hong Kong GAAP, fixed assets may be carried at a revalued
amount, being its fair value at the date of the revaluation less any
subsequent accumulated depreciation (which is generally based on the
revalued amount. When an asset's carrying amount is increased as a
result of a revaluation, the increase should be credited directly to
equity under the heading of revaluation reserve.
Under US GAAP, property, plant and equipment are reported at their
historical cost less accumulated depreciation. Revaluations are not
permitted under US GAAP.
(c) Associated company
Under Hong Kong GAAP, a single investing company which is not
wholly-owned, without subsidiaries but with one or more associates may
elect to record the associate company using either the equity method
or the cost method (with separate disclosure showing the results using
the equity method). The Company has adopted the cost method whereby
the associated company is carried at cost less provision for permanent
diminution. The result of the associated company is reflected in the
profit and loss account of the Company on the basis of dividends
received and receivable.
Under US GAAP, the equity method of accounting is used for investments
in which the company has a 20% to 50% ownership interest and
significant influence over the operations of the investee.
F-17
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
18 Summary of Significant Differences Between Hong Kong and United States
Generally Accepted Accounting Principles (continued)
(d) Statement of cash flows
The Company has adopted the Hong Kong Statements of Standard
Accounting Practice No. 15, "Cash Flow Statements" ("SSAP 15"). Its
objectives and principles are similar to those set out in the US
Statement of Financial Accounting Standards No. 95, "Statement of Cash
Flows" ("SFAS 95"). The principal differences between the standards
relate to classifications. Under SSAP 15, the Company presents its
cash flows for (a) operating activities; (b) return on investments and
servicing of finance; (c) taxation; (d) investing activities; and (e)
financing activities. SFAS 95 requires only three categories of cash
flow activity: (a) operating; (b) investing; and (c) financing. Cash
flows from returns on investments and the servicing of finance would
be included as operating activities for interest items and as
financing activities for dividends paid under SFAS 95.
If presented in accordance with SFAS 95, net cash flows from
operating, investing and financing activities for the nine-month
period ended 31st December 1998 and for the year ended 31st March 1998
would be:
<TABLE>
<CAPTION>
Inflow/(Outflow)
Period from
1.4.1998 to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Net cash inflow from operating activities 33,726,964 29,545,741
Net cash outflow from investing activities (957,681) (22,850,935)
Net cash outflow from financing activities (32,530,988) (5,466,057)
----------- -----------
Increase in cash and cash equivalents 238,295 1,228,749
=========== ===========
</TABLE>
F-18
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
18 Summary of Significant Differences Between Hong Kong and United States
Generally Accepted Accounting Principles (continued)
The following is a summary of the approximate effects on net income and
shareholders' equity if US GAAP were to be applied instead of Hong Kong
GAAP, expressed in Hong Kong dollars.
<TABLE>
<CAPTION>
Period from
1.4.1998 to Year ended
31.12.1998 31.3.98
HK$ HK$
<S> <C> <C>
Net income as shown in the financial statements 7,511,706 11,616,505
Description of items having the effect of increasing
reported income:
Equity method - share of profit (1) 2,940,982 3,405,046
Depreciation on revalued fixed assets (3) 9,009 17,370
Description of items having the effect of decreasing reported income:
Equity method - reversal of dividend income (1) (3,265,095) -
Deferred taxation (2) (49,000) (295,800)
---------- ----------
Net income according to generally accepted accounting
principles in the United States 7,147,602 14,743,121
========== ==========
Shareholders' equity as shown in the financial statements 15,580,604 38,166,166
Description of items having the effect of decreasing
reported shareholders' equity:
Deferred taxation (2)
- prior year (379,000) (83,200)
- current year (49,000) (295,800)
Net book value of revalued fixed assets (3) (31,521) (40,530)
Description of items having the effect of increasing:
reported shareholders' equity:
Equity method - carrying value of associated company 6,113,304 6,437,417
---------- ----------
Shareholders' equity according to generally accepted
accounting principles in the United States 21,234,387 44,184,053
========== ==========
</TABLE>
(1) Represents the effects of recording the associated company using the equity
method instead of the cost method.
(2) Represents the effects of recognizing all future taxable temporary
differences arising from differences between when items are recorded for
financial and tax reporting purposes, regardless of when reversal is
anticipated.
(3) Represents the reversal of the net book value of revalued fixed assets and
the related depreciation.
F-19
<PAGE>
WORKABLE COMPANY LIMITED
NOTES TO THE ACCOUNTS
19 Approval of accounts
The accounts were approved by the board of directors on 19th February 1999.
F-20
<PAGE>
PLAINDUTY LIMITED
REPORT OF THE DIRECTORS
The directors submit their report together with the audited accounts for the
period from 1st April 1998 to 31st December 1998.
Change of financial year end
Pursuant to a special resolution passed on 31st December 1998, the company
changed its year end from 31st March to 31st December.
Principal activity
The principal activity of the company is printing.
Results and appropriations
The results of the company for the period ended 31st December 1998 are set out
in the profit and loss account on page 4.
The directors have declared an interim dividend of HK$81.63 per ordinary share,
totalling HK$8,162,738 which was paid on 30th November 1998. The directors do
not recommend the payment of a final dividend.
Fixed assets
Details of the movements in fixed assets are shown in note 6 to the accounts.
Directors
The directors during the period and up to the date of this report were:
Lam Hok Ling
Tung Hok Ki
Michael Cunningham (appointed on 13th January 1999)
Robert Kin (appointed on 13th January 1999)
Gordon Mays (appointed on 13th January 1999)
There being no provision in the company's articles of association for retirement
by rotation, all directors continue in office.
F-21
<PAGE>
Directors' interests
Notes 6, 10, 14 and 16 to the accounts contain details of transactions in which
Mr Lam Hok Ling and Mr Tung Hok Ki were interested by virtue of being beneficial
shareholders of the related company and a shareholder, Workable Company Limited.
Except for the foregoing, no contracts of significance in relation to the
company's business to which the company, its fellow subsidiaries or its holding
company was a party and in which a director of the company had a material
interest, whether directly or indirectly, subsisted at the end of the period or
at any time during the period.
At no time during the period was company , its fellow subsidiaries or its
holding company a party to any arrangements to enable the directors of the
company to acquire benefits by means of the acquisition of shares in, or
debentures of, the company or any other body corporate.
Management contracts
No contracts concerning the management and administration of the whole or any
substantial part of the business of the company were entered into or existed
during the period.
Auditors
The accounts have been audited by PricewaterhouseCoopers who retire and, being
eligible, offer themselves for re-appointment.
On behalf of the Board
Chairman
Hong Kong, 19th February 1999
F-22
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS OF
PLAINDUTY LIMITED
(incorporated in Hong Kong with limited liability)
We have audited the accompanying balance sheet of Plainduty Limited as of 31st
December 1998 and 31st March 1998 and the related profit and loss account and
cash flow statement for the nine-month period ended 31st December 1998 and the
year ended 31st March 1998, all expressed in Hong Kong dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Plainduty Limited at 31st December
1998 and 31st March 1998 and the related profit and loss account and cash flow
statement for the nine-month period ended 31st December 1998 and the year ended
31st March 1998, in conformity with accounting principles generally accepted in
Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
net income expressed in Hong Kong dollars for the nine-month period ended 31st
December 1998 and the year ended 31st March 1998 and the determination of
shareholders' equity and financial position also expressed in Hong Kong dollars
at 31st December 1998 and 31st March 1998 to the extent summarized in Note 18 to
the financial statements.
PricewaterhouseCoopers
Hong Kong
19th February 1999
F-23
<PAGE>
PLAINDUTY LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD FROM 1ST APRIL 1998
TO 31ST DECEMBER 1998
Period from
1.4.1998
to Year ended
Note 31.12.1998 31.3.1998
HK$ HK$
Turnover 25,626,080 32,590,990
========== ==========
Profit before taxation 2 8,901,946 10,149,108
Taxation 4 (1,836,489) (1,617,369)
---------- ----------
Profit for the period/year 7,065,457 8,531,739
Retained earnings brought forward 16,323,542 7,791,803
---------- ----------
Profit attributable to shareholders 23,388,999 16,323,542
Dividends 5 (8,162,738) -
---------- ----------
Retained earnings carried forward 15,226,261 16,323,542
========== ==========
F-24
<PAGE>
PLAINDUTY LIMITED
BALANCE SHEET
AS AT 31ST DECEMBER 1998
At At
Note 31.12.1998 31.3.1998
HK$ HK$
Fixed assets 6 12,416,979 13,812,360
Net current assets 7 5,095,215 5,292,942
---------- ----------
17,512,194 19,105,302
========== ==========
Financed by:
Share capital 11 100,000 100,000
Profit and loss account 15,226,261 16,323,542
---------- ----------
Shareholders' funds 15,326,261 16,423,542
Long term liabilities 12 1,025,933 1,521,760
Deferred taxation 13 1,160,000 1,160,000
- ------------------- -------------------
Director Director
---------- ----------
17,512,194 19,105,302
========== ==========
F-25
<PAGE>
PLAINDUTY LIMITED
CASH FLOW STATEMENT
FOR THE PERIOD FROM 1ST APRIL 1998
TO 31ST DECEMBER 1998
<TABLE>
<CAPTION>
Period from
1.4.1998
Note to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C> <C>
Net cash inflow from operating activities 15(a) 8,846,677 5,434,677
-------------- -------------
Returns on investments and servicing of
finance
Interest received 6 4,328
Interest element of finance lease rental payments (146,361) (227,824)
Dividends paid (8,162,738) -
-------------- -------------
Net cash outflow from returns on
investments and servicing of finance (8,309,093) (223,496)
-------------- -------------
Taxation
Hong Kong profits tax paid (120,459) (769,045)
-------------- -------------
Investing activities
Purchase of fixed assets (38,015) (5,237,151)
Proceeds from sale of fixed assets - 1,150,000
-------------- -------------
Net cash outflow from investing activities (38,015) (4,087,151)
-------------- -------------
Net cash inflow before financing 379,110 354,985
============== =============
Financing by:
Capital element of finance lease rental payments 15(b) (449,037) (441,384)
Decrease in cash and cash equivalents (69,927) (86,399)
Cash and cash equivalents at 1st April 96,209 182,608
Cash and cash equivalents at 31st December/31st March 26,282 96,209
============== =============
Analysis of the balances of cash and cash equivalents
Bank balances and cash 26,282 96,209
============== =============
</TABLE>
F-26
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
1 Principal accounting policies
(a) Turnover and revenue recognition
Turnover represents invoiced sales to a shareholder.
Revenue from sale of goods is recognised when the goods are delivered
to customers.
Interest income is recognised on an accruals basis.
(b) Fixed assets
Fixed assets are stated at cost less accumulated depreciation.
Leasehold land is depreciated over the remaining period of the
respective lease while other fixed assets are depreciated at rates
sufficient to write off their cost over their estimated useful lives at
the following annual rates:
Buildings 2% on straight line basis
Furniture and fixtures 20% on reducing balance basis
Plant and machinery 20% on reducing balance basis
Motor vehicles 30% on reducing balance basis
Assets under finance leases are depreciated over the shorter of their
respective lease terms or estimated useful lives.
(c) Assets under leases
a Finance leases
Leases that substantially transfer to the company all the rewards
and risks of ownership of assets, other than legal title, are
accounted for as finance leases. At the inception of a finance
lease, the fair value of the asset is recorded together with the
obligation, excluding the interest element, to pay future
rentals.
Finance charges are debited to the profit and loss account in
proportion to the capital balances outstanding.
b Operating leases
Leases where substantially all the rewards and risks of ownership
of assets remain with the leasing company are accounted for as
operating leases. Rentals applicable to such operating leases are
charged to the profit and loss account on a straight line basis
over the lease term.
(d) Deferred taxation
Deferred taxation is accounted for at the current tax rate in respect
of timing differences between profit as computed for taxation purposes
and profit as stated in the accounts to the extent that a liability or
asset is expected to be payable or receivable in the foreseeable
future.
F-27
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
1 Principal accounting policies (continued)
(e) Stocks
Stocks are stated at the lower of cost and net realisable value. Cost
is determined on the first in first out basis. Net realisable value is
determined on the basis of anticipated sales proceeds less estimated
selling expenses.
(f) Foreign currencies
Transactions in foreign currencies are translated at exchange rates
ruling at the transaction dates. Monetary assets and liabilities
expressed in foreign currencies at the balance sheet date are
translated at rates of exchange ruling at the balance sheet date. All
exchange differences arising in these cases are dealt with in the
profit and loss account.
(g) Retirement benefit costs
The company contributes to a defined contribution retirement scheme
which is available to all employees. The assets and liabilities are
held separately from those of the company in an independently
administered fund. The company's contributions to this scheme are
expensed as incurred and may be reduced by contributions forfeited by
those employees who leave the scheme prior to vesting fully in the
contributions.
(h) Related parties
Related parties are individuals and companies where the individual or
company has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making
financial and operating decisions.
2 Profit before taxation
<TABLE>
<CAPTION>
Period from
1.4.1998
to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Profit before taxation is stated after crediting and charging the
following:
Crediting
Interest income 6 4,328
Gain on disposal of fixed assets - 45,554
========== ==========
Charging
Cost of stocks sold 15,668,992 20,991,759
Depreciation charge
- owned fixed assets 1,018,374 1,201,146
- leased fixed assets 415,022 429,836
Finance lease charges 146,361 227,824
Auditors' remuneration 35,000 38,000
Operating leases rental
- land and buildings 225,000 300,000
- plant and machinery 1,800,000 2,400,000
========== ==========
</TABLE>
F-28
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
3 Directors' emoluments
None of the directors received any fees or other emoluments in respect
of their services rendered to the company during the period (year ended
31st March 1998: Nil).
4 Taxation
Hong Kong profits tax has been provided at the rate of 16% (year ended
31st March 1998 : 16.5%) on the estimated assessable profit for the
period.
<TABLE>
<CAPTION>
Period from
1.4.1998
to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Hong Kong profits tax 1,600,000 1,025,113
Underprovision in prior years 236,489 -
Deferred taxation (note 13) - 592,256
---------- ----------
1,836,489 1,617,369
========== ==========
5 Dividends
<CAPTION>
Period from
1.4.1998
to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Interim, paid, of HK$81.63 (1998: Nil) per ordinary share 8,162,738 -
========== ==========
</TABLE>
F-29
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
6 Fixed assets
<TABLE>
<CAPTION>
Long-term
leasehold
land and
buildings in Plant and Furniture Motor
Hong Kong machinery and fixtures vehicles Total
HK$ HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C> <C>
Cost
At 1st April 1998 5,372,286 13,373,372 1,969,243 260,194 20,975,095
Additions - 33,435 4,580 - 38,015
------------- ------------- ------------- ------------- ---------------
At 31st December 1998 5,372,286 13,406,807 1,973,823 260,194 21,013,110
------------- ------------- ------------- ------------- ---------------
Accumulated depreciation
At 1st April 1998 422,980 5,870,495 750,221 119,039 7,162,735
Charge for the period 51,663 1,170,029 180,650 31,054 1,433,396
------------- ------------- ------------- ------------- ---------------
At 31st December 1998 474,643 7,040,524 930,871 150,093 8,596,131
------------- ------------- ------------ ------------ --------------
Net book value
At 31st December 1998 4,897,643 6,366,283 1,042,952 110,101 12,416,979
============= ============= ============= ============= ===============
At 31st March 1998 4,949,306 7,502,877 1,219,022 141,155 13,812,360
============= ============= ============= ============= ===============
</TABLE>
The aggregate net book value of fixed assets held under finance leases amounted
to HK$2,226,817 (at 31st March 1998: HK$2,641,839).
The leasehold land and buildings were mortgaged to a bank to secure banking
facilities to a shareholder, Workable Company Limited. They are disposed at net
book value amounting to HK$4,897,643 subsequent to the period end (note 16).
F-30
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
7 Net current assets
<TABLE>
<CAPTION>
At At
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Current assets
Stocks 48,980 64,245
Debtors 18,900 73,789
Amount due from a shareholder (note 8) 14,675,141 10,032,227
Amounts due from directors (note 9) - 1,304
Bank balances and cash 26,282 96,209
---------- ----------
14,769,303 10,267,774
---------- ----------
Current liabilities
Creditors and accruals 1,741,811 1,341,441
Current portion of long term liabilities (note 12) 651,980 605,190
Taxation payable 2,382,654 666,624
Amounts due to directors (note 9) 4,897,643 -
Amounts due to related companies (note 10) - 2,361,577
---------- ----------
9,674,088 4,974,832
---------- ----------
5,095,215 5,292,942
========== ==========
</TABLE>
8 Amount due from a shareholder
The amount due from a shareholder is unsecured, interest free and has
no fixed terms of repayment.
9 Amounts due from/(to) directors
<TABLE>
<CAPTION>
Maximum
outstanding balance
At At due from the
31st December 1st April directors
Name 1998 1998 during the period
HK$ HK$ HK$
<S> <C> <C> <C>
Lam Hok Ling (2,448,822) 652 652
Tung Hok Ki (2,448,821) 652 652
---------- -----
(4,897,643) 1,304
---------- -----
</TABLE>
The amounts due from the directors are unsecured, interest free and had
no fixed terms of repayment.
F-31
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
10 Amounts due to related companies
The amounts due to related companies were unsecured, interest free and
had no fixed terms of repayment.
11 Share capital
<TABLE>
<CAPTION>
At At
31.12.1998 31.3.1998
HK$ HK$
Authorised, issued and fully paid:
<S> <C> <C>
100,000 ordinary shares of HK$1 each 100,000 100,000
========= =========
</TABLE>
12 Long term liabilities
<TABLE>
<CAPTION>
At At
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Obligations under finance leases 1,677,913 2,126,950
Amount due within one year included under
current liabilities (note 7) (651,980) (605,190)
--------- ---------
1,025,933 1,521,760
========= =========
</TABLE>
The balance is wholly repayable within five years. Interest is charged
on the outstanding balance at prime rates per annum.
13 Deferred taxation
<TABLE>
<CAPTION>
Period from
1.4.1998
to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
At 1st April 1,160,000 567,744
Transfer from profit and loss account (note 4) - 592,256
--------- ---------
At 31st December/31st March 1,160,000 1,160,000
========= =========
Provided in the accounts in respect of:
Accelerated depreciation allowances 1,160,000 1,160,000
========= =========
</TABLE>
The potential liability for deferred taxation for which no provision
has been made in the accounts amounted to:
<TABLE>
<CAPTION>
At At
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Other timing differences 57,000 230,000
========= =========
</TABLE>
F-32
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
14 Related party transactions
During the period the company undertook the following transactions with
related parties in the normal course of its business:
<TABLE>
<CAPTION>
Period from
1.4.1998
to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Sales to a shareholder 25,626,080 32,590,990
Operating lease rentals for plant and machinery paid to
a shareholder (1,800,000) (2,400,000)
Operating lease rentals for warehouse paid to a related
company (225,000) (300,000)
========== ==========
</TABLE>
15 Notes to the cash flow statement
(a) Reconciliation of profit before taxation to net cash inflow from
operating activities
<TABLE>
<CAPTION>
Period from
1.4.1998
to Year ended
31.12.1998 31.3.1998
HK$ HK$
<S> <C> <C>
Profit before taxation 8,901,946 10,149,108
Depreciation charges 1,433,396 1,630,982
Gain on sale of fixed assets - (45,554)
Decrease in stocks 15,265 11,655
Decrease in debtors 54,889 1,216
Increase in creditors and accruals 400,370 6,891
Decrease in amounts due from directors 1,304 -
Decrease/(increase) in balances with shareholders 254,729 (6,843,117)
(Decrease)/increase in amounts due to related companies (2,361,577) 300,000
Net interest expense 146,355 223,496
---------- ----------
Net cash inflow from operating activities 8,846,677 5,434,677
========== ==========
</TABLE>
F-33
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
15 Notes to the cash flow statement (continued)
(b) Analysis of changes in financing during the period.
Finance lease
obligations
HK$
Balance at 1st April 1998 2,126,950
Cash outflow from financing (449,037)
---------
Balance at 31st December 1998 1,677,913
=========
16 Subsequent events
Subsequent to the period end, the company entered into a sale and purchase
agreements with a related company which is wholly owned by Mr Lam Hok Ling
and Mr Tung Hok Ki for the disposal of its land and buildings, at their net
book value of HK$4,897,643.
17 Ultimate holding company
Pursuant to the completion of a share purchase agreement on 13th January
1999, Cunningham Graphics International Inc., a company incorporated in the
United States of America, become the ultimate holding company of the
company.
18 Summary of Significant Differences Between Hong Kong and United States
Generally Accepted Accounting Principles ("GAAP")
The Company's accounts are prepared in accordance with generally accepted
accounting principles ("GAAP") applicable in Hong Kong, which differ in
certain significant respects from those applicable in the United States.
The main differences relate principally to the following items and the
effects of the adjustments on net income and shareholders' equity are set
out below.
(a) Deferred Taxation
Under Hong Kong GAAP, deferred taxation is calculated under the
liability method in respect of the taxation effect arising from all
timing differences which are expected with reasonable probability to
be realized in the foreseeable future. Tax deferred or accelerated by
the effect of timing differences is accounted for to the extent that
it is possible that a liability or asset will be realized. Deferred
tax net debit balances are not carried forward as assets, except to
the extent that they are expected to be recoverable.
Pursuant to US Statement of Financial Accounting Standards ("SFAS")
No. 109 "Accounting for Income Taxes", U.S. GAAP generally requires
that deferred taxation be provided for all future taxable temporary
differences arising from differences between when items are recorded
for financial and tax reporting purposes, regardless of when reversal
is anticipated. The recognition of deferred tax assets under SFAS 109
is subject to a realization test which requires that an allowance be
provided when deferred tax
F-34
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
18 Summary of Significant Differences Between Hong Kong and United States
Generally Accepted Accounting Principles ("GAAP")(continued)
assets are not "more likely than not" to be realized.
(b) Statement of cash flows
The Company has adopted the Hong Kong Statements of Standard Accounting
Practice No. 15, "Cash Flow Statements" ("SSAP 15"). Its objectives and
principles are similar to those set out in the US Statement of Financial
Accounting Standards No. 95, "Statement of Cash Flows" ("SFAS 95"). The
principal differences between the standards relate to classifications.
Under SSAP 15, the Company presents its cash flows for (a) operating
activities; (b) return on investments and servicing of finance; (c)
taxation; (d) investing activities; and (e) financing activities. SFAS 95
requires only three categories of cash flow activity: (a) operating; (b)
investing; and (c) financing. Cash flows from returns on investments and
the servicing of finance would be included as operating activities for
interest items and as financing activities for dividends paid under SFAS
95.
If presented in accordance with SFAS 95, net cash flows from operating,
investing and financing activities for the nine-month period ended 31st
December 1998 and for the year ended 31st March 1998 would be:
Inflow/(Outflow)
Period from
1.4.1998 to Year ended
31.12.1998 31.3.1998
HK$ HK$
Net cash inflow from operating activities 8,579,863 4,442,136
Net cash outflow from investing activities (38,015) (4,087,151)
Net cash outflow from financing activities (8,611,775) (441,384)
--------- ---------
Decrease in cash and cash equivalents (69,927) (86,399)
========= =========
F-35
<PAGE>
PLAINDUTY LIMITED
NOTES TO THE ACCOUNTS
18 Summary of Significant Differences Between Hong Kong and United States
Generally Accepted Accounting Principles ("GAAP")(continued)
The following is a summary of the approximate effects on net income and
shareholders' equity if US GAAP were to be applied instead of Hong Kong
GAAP, expressed in Hong Kong dollars.
<TABLE>
<CAPTION>
Period from
1.4.1998 to Year ended
31.12.1998 31.3.98
HK$ HK$
<S> <C> <C>
Net income as shown in the financial statements 7,065,457 8,531,739
Description of items having the effect of increasing
/(decreasing) reported income:
Deferred taxation (1) 287,000 (19,121)
---------- ----------
Net income according to generally accepted
accounting principles in the United States 7,352,457 8,512,618
========== ==========
Shareholders' equity as shown in the financial statements 15,326,261 16,423,542
Description of items having the effect of decreasing reported
shareholders' equity:
Deferred taxation (1)
- prior period (230,000) (210,879)
- current period 287,000 (19,121)
---------- ----------
Shareholders' equity according to generally accepted accounting
principles in the United States 15,383,261 16,193,542
========== ==========
</TABLE>
(1) Represents the effects of recognizing all future taxable temporary
differences arising from differences between when items are recorded
for financial and tax reporting purposes, regardless of when reversal
is anticipated.
19 Approval of accounts
The accounts were approved by the board of directors on 19th February 1999.
F-36
<PAGE>
INDEPENDENT AUDITOR'S REPORT
BOARD OF DIRECTORS AND SHAREHOLDER
BOSTON TOWNE PRESS, INC.
We have audited the accompanying balance sheets of BOSTON TOWNE PRESS, INC.
as of December 31, 1998 and 1997 and the related statements of income and
retained earnings, comprehensive income and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BOSTON TOWNE PRESS, INC. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ H.R. Margolis Company
Philadelphia, Pennsylvania
February 3, 1999
F-37
<PAGE>
BOSTON TOWNE PRESS, INC.
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
-------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 510,690 $ 401,340
Marketable equity securities - available-for-sale 105,435 28,668
Accounts receivable - net of allowance for doubtful accounts
of $4,600 in both years 679,810 675,174
Inventories 31,721 62,697
Prepaid expenses and other current assets 61,437 39,039
-------------- -------------
1,389,093 1,206,918
IMPROVEMENTS AND EQUIPMENT - net of accumulated
depreciation and amortization 1,079,673 894,220
OTHER ASSETS 10,123 62,123
-------------- -------------
$ 2,478,889 $ 2,163,261
============== =============
</TABLE>
See accompanying notes to the financial statements.
F-38
<PAGE>
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
------------- -------------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Notes payable $ 190,013 $ 172,263
Accounts payable 154,616 174,335
Accrued expenses and other current liabilities 212,437 177,445
------------- -------------
557,066 524,043
NOTES PAYABLE 291,138 262,453
------------- -------------
848,204 786,496
------------- -------------
COMMITMENTS
SHAREHOLDER'S EQUITY
COMMON STOCK
No par value
Authorized - 20,000 shares
Issued and outstanding - 1,000 shares 50,000 50,000
ADDITIONAL PAID-IN CAPITAL 652,805 652,805
UNREALIZED HOLDING GAINS (LOSSES)
ON AVAILABLE-FOR-SALE SECURITIES (4,615) 431
RETAINED EARNINGS 932,495 673,529
------------- -------------
1,630,685 1,376,765
------------- -------------
$ 2,478,889 $ 2,163,261
============= =============
</TABLE>
F-39
<PAGE>
BOSTON TOWNE PRESS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
------------- -------------
<S> <C> <C>
SALES - NET $ 4,396,452 $ 4,195,832
COST OF GOODS SOLD 2,747,024 2,700,804
------------- -------------
GROSS PROFIT 1,649,428 1,495,028
ADMINISTRATIVE AND SELLING EXPENSES 771,916 711,511
------------- -------------
877,512 783,517
------------- -------------
OTHER INCOME (EXPENSE)
Other income (expense) - net 58,674 9,884
Interest expense (46,808) (38,857)
------------- -------------
11,866 (28,973)
------------- -------------
NET INCOME 889,378 754,544
RETAINED EARNINGS - BEGINNING OF YEAR 673,529 285,880
------------- -------------
1,562,907 1,040,424
SHAREHOLDER'S WITHDRAWALS 630,412 366,895
------------- -------------
RETAINED EARNINGS - END OF YEAR $ 932,495 $ 673,529
============= =============
</TABLE>
See accompanying notes to the financial statements.
F-40
<PAGE>
BOSTON TOWNE PRESS, INC.
STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31,
1 9 9 8 1 9 9 7
------------ ----------
NET INCOME $ 889,378 $ 754,544
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS (LOSSES) ON SECURITIES
Unrealized holding gains (losses) arising
during the period (5,046) 933
------------ ----------
TOTAL COMPREHENSIVE INCOME $ 884,332 $ 755,477
============ ==========
See accompanying notes to the financial statements.
F-41
<PAGE>
BOSTON TOWNE PRESS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 4,401,696 $ 4,037,157
Cash paid to suppliers and employees (3,313,381) (3,278,943)
Interest paid (46,808) (38,857
Investment income received 28,951 11,116
Other income received 1,714
Other expenses paid (79)
-------------- -------------
Net cash provided by operating activities 1,072,172 730,394
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable equity securities (81,813) (2,296)
Purchases of improvements and equipment (397,132) (172,508)
Proceeds from sales of equipment 50,100 999
-------------- -------------
Net cash (used in) investing activities (428,845) (173,805)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from incurrence of long-term debt 254,045 71,400
Net repayments under line of credit agreement (35,040) (14,960)
Principal payments on obligation under capital lease
and notes payable (172,570) (124,467)
Shareholder's withdrawals (580,412) (366,895)
-------------- -------------
Net cash (used in) financing activities (533,977) (434,922)
-------------- -------------
NET INCREASE IN CASH 109,350 121,667
CASH - BEGINNING OF YEAR 401,340 279,673
-------------- -------------
CASH - END OF YEAR $ 510,690 $ 401,340
============== =============
</TABLE>
See accompanying notes to the financial statements.
F-42
<PAGE>
BOSTON TOWNE PRESS, INC.
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
------------- ------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 889,378 $ 754,544
------------- ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 191,588 161,895
Loss (gain) on sales of fixed assets (28,009) 1,153
Changes in assets and liabilities
(Increase) in accounts receivable (4,636) (167,700)
Decrease in inventories 30,976 6,475
(Increase) in prepaid expenses and other current assets (22,398) (18,585)
(Increase) in other assets (1,010)
(Decrease) in accounts payable (19,719) (59,316)
Increase in accrued expenses and other current liabilities 34,992 52,938
------------- ------------
Total adjustments 182,794 (24,150)
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,072,172 $ 730,394
============= ============
</TABLE>
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1998, the Corporation reclassified a loan
receivable - officer, in the amount of $50,000, as a shareholder's
distribution. The Corporation had no transactions for the year ended
December 31, 1997 that were non-cash.
See accompanying notes to the financial statements.
F-43
<PAGE>
BOSTON TOWNE PRESS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations
Boston Towne Press, Inc. has a Printing Division that manufactures and
sells printed products. The Corporation also has a mail house which
provides packaging and mailing services and operates as the Mail One
Division.
Concentration of Credit Risk
Boston Towne Press, Inc. operates from a location in Boston, Massachusetts.
The Corporation grants credit to customers, substantially all of whom are
commercial establishments, located in the vicinity of the operating
location.
The Corporation maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Corporation has not
experienced any losses in such accounts. The Corporation believes it is not
exposed to any significant credit risk on cash.
For the years ended December 31, 1998 and 1997, the Corporation had one
customer that comprised approximately 19% of total sales in each year.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Marketable Equity Securities
Management determines the appropriate classification of securities at the
time of purchase. Securities to be held for indefinite periods of time are
classified as available-for-sale and carried at market value.
Realized gains and losses on dispositions of marketable equity securities
are recognized on a specific identification basis. Unrealized gains and
losses on marketable equity securities - available-for-sale, are based on
the difference between the book value and market value of each security.
These gains and losses are credited or charged to shareholder's equity,
whereas realized gains and losses are credited or charged to operations.
F-44
<PAGE>
BOSTON TOWNE PRESS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
The Corporation values its inventories at the lower of cost or market, with
cost determined on a first-in, first-out basis, and its work in process at
material cost plus labor and overhead.
Improvements and Equipment
Recorded at cost with depreciation and amortization being provided under
the straight-line method over the estimated useful lives of the assets.
Expenditures for maintenance, repairs and betterments which could not
materially prolong the normal useful life of an asset have been charged to
operations as incurred. Additions and betterments which substantially
extend the useful life of the properties are capitalized. Upon sale or
other disposition of assets, the cost and related accumulated depreciation
and amortization are removed from the respective accounts, and the
resulting gain or loss, if any, is included in income.
Income Taxes
For federal and state income tax purposes the Corporation elected to be
taxed as an "S" Corporation.
401(k) Profit Sharing Plan
The Corporation has a 401(k) profit sharing plan which covers all employees
who elect to be covered and who are at least eighteen years of age and have
worked for the Corporation for at least one year. The participating
employees may contribute from 2% to 12% of eligible compensation up to the
allowable amount under Section 402(g) of the Internal Revenue Code.
The Corporation's contribution is discretionary and is determined annually
by the Board of Directors. The provision for a contribution to the 401(k)
profit sharing plan for the years ended December 31, 1998 and 1997 was
$75,000 and $81,695, respectively.
F-45
<PAGE>
BOSTON TOWNE PRESS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
2. MARKETABLE EQUITY SECURITIES - AVAILABLE-FOR-SALE
The cost and fair value of marketable equity securities -
available-for-sale at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
December 31, 1998
Equity securities $ 110,050 $ 4,615 $ 105,435
========== =========== ==========
December 31, 1997
Equity securities $ 28,237 $ 431 $ 28,668
========== ========== ==========
</TABLE>
At December 31, 1998, unrealized losses of $4,615 on marketable equity
securities - available-for-sale have been subtracted from shareholder's
equity. The increase in the unrealized holding losses on marketable equity
securities - available-for-sale, for the year ended December 31, 1998, was
$5,046.
At December 31, 1997, unrealized gains of $431 on marketable equity
securities - available-for-sale, have been added to shareholder's equity.
The increase in the unrealized holding gains on marketable equity
securities - available-for-sale, for the year ended December 31, 1997, was
$933.
The December 31, 1997 marketable equity securities have been restated to
reclassify money market funds from marketable equity securities -
available-for-sale, to cash.
3. INVENTORIES
The major classes of inventories are as follows:
1 9 9 8 1 9 9 7
----------- ----------
Work in process $ 22,220 $ 50,470
Paper and other chargeable materials 9,501 12,227
----------- -----------
$ 31,721 $ 62,697
=========== ===========
F-46
<PAGE>
BOSTON TOWNE PRESS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
4. IMPROVEMENTS AND EQUIPMENT
The major classes of improvements and equipment are as follows:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7 Useful Life
------------- ------------- ------------
<S> <C> <C> <C>
Leasehold improvements $ 55,272 $ 55,272 3 - 10 years
Machinery and equipment 1,492,085 1,279,995 5 - 10 years
Office equipment 147,254 92,192 5 - 10 years
Vehicles 26,215 5 years
------------- -------------
1,720,826 1,427,459
Less: Accumulated depreciation
and amortization 641,153 533,239
------------- -------------
$ 1,079,673 $ 894,220
============= =============
</TABLE>
F-47
<PAGE>
BOSTON TOWNE PRESS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
5. NOTES PAYABLE
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
------------------------ ------------------------
Current Long-Term Current Long-Term
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Notes payable to Bank Boston, collateralized by
substantially all of the assets of the
Corporation.
a. Revolving line of credit demand note up to
$500,000. Interest is payable monthly at
prime plus 1%. $ 35,040
b. Payable in monthly installments of $7,149 for
principal and interest, with interest at
8.25%, commencing March 1996 through February
2001. $ 74,895 $ 94,392 68,753 $ 169,021
c. Payable in monthly installments of $3,847 for
principal and interest, with interest at
9.00%, commencing January 1997 through
December 1999. 43,939 40,116 43,963
d. Payable in monthly installments of $2,270 for
principal and interest, with interest at
8.80%, commencing January 1998 through
December 2000. 23,621 25,907 21,931 49,469
e. Payable in monthly installments of $4,907 for
principal and interest, with interest at
8.40%, commencing March 1998 through February
2003. 42,762 162,839
Other 4,796 8,000 6,423
----------- ---------- ---------- ----------
$ 190,013 $ 291,138 $ 172,263 $ 262,453
=========== ========== ========== ==========
</TABLE>
F-48
<PAGE>
BOSTON TOWNE PRESS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
5. NOTES PAYABLE (Continued)
At December 31, 1998 aggregate annual maturities of long-term debt are as
follows:
2000 $ 158,633
2001 66,645
2002 54,859
2003 11,001
----------
$ 291,138
==========
6. COMMITMENTS
Operating Leases
The Corporation leases its facilities under a non-cancelable lease with a
term through December 31, 2001.
Future minimum rentals on the above lease are as follows:
1999 $ 128,700
2000 128,700
2001 128,700
----------
$ 386,100
==========
Rent expense for the years ended December 31, 1998 and 1997 was $104,937
and $109,301, respectively.
The company leases certain equipment and automobiles under operating leases
expiring on various dates through March of 2001.
The following is a schedule of the future minimum lease payments under the
operating leases with terms in excess of one year:
1999 $ 20,302
2000 16,260
2001 1,363
----------
$ 37,925
==========
F-49
<PAGE>
BOSTON TOWNE PRESS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Continued)
6. COMMITMENTS (continued)
Security Agreement
On January 10, 1992, all of the outstanding stock of the Corporation was
sold to the current shareholder under a stock purchase agreement evidenced
by a promissory note. In order to secure payment of the promissory note,
the Corporation has granted to the former shareholder a security interest
in all of the Corporation's equipment.
7. LOAN RECEIVABLE - OFFICER
The Corporation had a receivable from the shareholder of the Corporation in
the amount of $50,000 at December 31, 1997 which was classified as
non-current. This loan was reclassified as a shareholder's distribution
during the year ended December 31, 1998. Interest was payable based on the
long-term monthly applicable federal interest rates. Interest income on
this loan for the years ended December 31, 1998 and 1997 was $ 2,798 and
$3,277, respectively.
8. SUBSEQUENT EVENT (Unaudited)
On February 17, 1999 the Corporation sold substantially all of the assets
and certain liabilities to Cunningham Graphics International, Inc.
F-50
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC.
INTRODUCTION TO THE UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Cunningham Graphics International, Inc. (the "Company")
of (i) Workable Company Limited ("Workable"), Plainduty Limited ("Plainduty")
and Workable Printing (Singapore) PTE Ltd. ("Workable Singapore", and
collectively with the foregoing, the "Workable Group", with such transaction
being the "Workable Transaction") on January 13, 1999 and (ii) Boston Towne
Press, Inc. ("Boston Towne Press") on February 17, 1999. The unaudited pro forma
financial statements presented below were derived from: (a) the audited
financial statements for Cunningham Graphics International Inc. for the year
ended December 31, 1998; (b) the audited financial statements for Workable and
Plainduty for the nine-month period ended December 31, 1998 filed herewith and
the unaudited financial statements for Workable and Plainduty for the
three-month period ended March 31, 1998; (c) the unaudited financial statements
for Workable Singapore for the period May 14, 1998 (date of incorporation) to
December 31, 1998; (d) the audited financial statements for Boston Towne Press
filed herewith.
The unaudited pro forma combined financial statements, including the notes
thereto, are qualified in their entirety by reference to, and should be read in
conjunction with, the historical consolidated financial statements of Cunningham
Graphics International, Inc. included in its Annual Report on Form 10-K for the
year ended December 31, 1998. None of the pro forma financial statements
included herein purport to be indicative of the Company's financial position or
results of operations that would have occurred had the transactions been
completed as of or at the beginning of the periods presented, nor do such
statements purport to indicate the Company's financial condition or results of
operations at any future date or for any future period.
F-51
<PAGE>
Cunningham Graphics International, Inc.
Unaudited Pro Forma Balance Sheet
(in thousands)
The unaudited pro forma balance sheet presented below reflects the
financial position of the Company as of December 31, 1998, together with
the financial position of The Workable Group and Boston Towne
Press as of December 31, 1998.
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------------------------- Adjustments
The Workable Group Boston
------------------------------ Boston Adjustments Towne
Workable Plainduty Workable Towne (Workable) Press) Company
Company (1) (1) Singapore Press (2(a)) (2(a)) Pro Forma
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 11,879 $ 432 $ 3 $ 29 $ 616 $ (6,347) $ (2,075) $ 4,537
Accounts receivable 9,199 1,259 5 721 11,184
Inventories 1,301 139 6 20 32 1,498
Prepaid expenses and other 383 850 3 18 20 (789) 485
Deferred income taxes 520 - - 520
Intercompany 929 1,895 - (2,824) -
-------- -------- -------- -------- -------- -------- -------- --------
Total current assets 23,282 3,609 1,907 72 1,389 (9,960) (2,075) 18,224
Property and equipment-net 8,652 3,892 1,603 604 1,080 (2,159) - 13,672
Other assets 860 - 5 865
Goodwill 10,795 - 5 9,026 3,397 23,218
(5)
-------- -------- -------- -------- -------- -------- -------- --------
$ 43,589 $ 7,501 $ 3,510 $ 676 $ 2,479 $ (3,093) $ 1,317 $ 55,979
======== ======== ======== ======== ======== ======== ======== ========
Liabilities and stockholdrs' equity
Current liabilities:
Current portion of long-term debt $ 580 $ 1,365 $ - $ - $ 190 $ (1,365) $ (180) $ 590
Revolving line of credit 419 - - - - 3,388 3,807
Current portions of obligations under
capital lease 493 230 84 - 807
Accounts payable 3,102 646 225 22 155 4,150
Accrued expenses 3,504 54 308 213 4,079
Intercompany 1,895 632 826 - (3,353) -
-------- -------- -------- -------- -------- -------- -------- --------
Total current liabilities 8,098 4,190 1,249 848 558 (4,718) 3,208 13,433
Long-term debt, net of current portion 769 - 132 291 (261) 931
Obiligations under capital leases-net of
current portion 1,216 253 1,469
Deferred income taxes 932 316 143 - 1,391
Other long-term liabilities 64 64
-------- -------- -------- -------- -------- -------- -------- --------
Total liabilities 11,079 4,759 1,524 848 849 (4,718) 2,947 17,288
Total stockholders equity 32,510 2,742 1,986 (172) 1,630 6,181 (1,630) 38,691
(4,556)
-------- -------- -------- -------- -------- -------- -------- --------
$ 43,589 $ 7,501 $ 3,510 $ 676 $ 2,479 $ (3,093) $ 1,317 $ 55,979
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-52
<PAGE>
Cunningham Graphics International, Inc.
Unaudited Pro Forma Income Statements
(in thousands, except per share data)
For the year ended December 31, 1998 of the Company, together with
the year ended December 31, 1998 of the Workable Group and Boston
Towne Press, assuming the Workable Group and Boston Towne Press
acquisitions occurred as of January 1, 1998
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------------
The Workable Group
----------------------------------------
Workable Boston
Company Workable (1) Plainduty (1) Singapore Towne Press
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 53,146 $ 9,852 $ 4,274 $ 51 $ 4,396
Operating expenses:
Costs of production 37,694 6,806 1,893 85 2,574
Selling, general and administrative 7,783 1,486 749 123 753
Depreciation and amortization 1,252 876 219 80 192
---------- ---------- ---------- ---------- ----------
46,729 9,168 2,861 288 3,519
---------- ---------- ---------- ---------- ----------
Income from operations 6,417 684 1,413 (237) 877
Interest expense (400) (239) (29) - (47)
Interest income 475 71 1 - 29
Other income (expense) 5 770 64 - 30
---------- ---------- ---------- ---------- ----------
Income before income taxes 6,497 1,286 1,449 (237) 889
Provision for income taxes 2,489 264 253 - -
---------- ---------- ---------- ---------- ----------
Net income $ 4,008 $ 1,022 $ 1,196 $ (237) $ 889
========== ========== ========== ========== ==========
Pro Forma Data
Income before income taxes $ 6,497
Pro forma provision for income taxes 2,809 (a)
----------
Pro forma net income $ 3,688
==========
Pro forma earnings prer common share:
Basic $ 0.80
==========
Diluted $ 0.80
==========
Pro forma weighted average number of common shares:
Basic 4,587,941
==========
Diluted 4,637,024
==========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Adjustments
Adjustments (Boston Company
(Workable) Towne Press) Pro Forma
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $ (4,274)(b) $ - $ 67,445
Operating expenses:
Costs of production (4,584)(b) 44,468
Selling, general and administrative 10,894
Depreciation and amortization 198 (c) 85 (g) 2,902
----------- ---------- ----------
(4,386) 85 58,264
----------- ---------- ----------
Income from operations 112 (85) 9,181
Interest expense (32)(d) (244)(h) (991)
Interest income (185)(e) (58)(i) 333
Other income (expense) (731)(b) 138
----------- ---------- ----------
Income before income taxes (837 (387) 8,660
Provision for income taxes (217)(f) 206 (j) 2,995
----------- ---------- ----------
Net income $ (620) $ (593) $ 5,665
=========== ========== ==========
Pro Forma Data
Income before income taxes $ 8,660
Pro forma provision for income taxes 3,315 (a)
----------
Pro forma net income $ 5,345
==========
Pro forma earnings prer common share:
Basic 1.07 (k)
==========
Diluted $ 1.06 (k)
==========
Pro forma weighted average number of common shares:
Basic 398,216 (k) 4,986,157 (k)
=========== ==========
Diluted 398,216 (k) 5,035,240 (k)
=========== ==========
</TABLE>
F-53
<PAGE>
CUNNINGHAM GRAPHICS INTERNATIONAL, INC
NOTES TO UNAUDITED PRO FORAM COMBINED FINANCIAL STATEMETNS
(In thousands, except per share data)
1. Acquisitions
Acquisition of the Workable Group
On January 13, 1999, the Company, through its wholly-owned subsidiary,
Cunningham Graphics International S.A., acquired all of the issued and
outstanding capital stock of Workable Company Limited, a Hong Kong corporation
("Workable"). In addition, the Company acquired from the selling shareholders
the 60% of the outstanding capital stock of Plainduty Limited, a Hong Kong
corporation, which was not owned directly by Workable. Workable also has a
wholly owned subsidiary in Singapore, which was acquired subsequent to December
31, 1998.
The aggregate purchase price of the acquisition was $13,100, which was comprised
of the following: (i) 398,216 shares of Common Stock, valued at a price of
$15.52 per share and (ii) cash in the amount of $6,181. In addition, the Company
assumed $700 of indebtedness. The Company utilized proceeds from its initial
public offering of Common Stock to fund the cash portion of the purchase price.
Under the terms of the purchase agreement, the Company may be required to pay to
the Sellers up to an additional $3,800, depending upon the earnings, as defined,
of Workable during the years 1999 through 2001. The Company estimates the
goodwill generated from the acquisition will be approximately $8,899, which will
be amortized over 40 years.
The pro-forma balances were derived from the audited financial statements for
Workable and Plainduty for the nine-month period ended December 31, 1998 and the
unaudited financial statements for the three-month period ended March 31 ,1998
expressed in Hong Kong dollars. The balances were converted into U.S. dollars
using an exchange rate of $0.1291 per Hong Kong dollar.
In arriving at the pro forma balances, adjustments were made to:
a) Reflect U.S. generally accepted accounting principles (GAAP). For
Workable, the GAAP adjustments related to deferred taxation, fixed
assets and the treatment of the associate company. For Plainduty, the
GAAP adjustment related to deferred taxation;
b) Eliminate intercompany profit and loss transactions between Workable
and Plainduty.
Acquisition of Boston Towne Press
On February 16, 1999, the Company acquired substantially all of the assets and
assumed certain liabilities of Boston Towne Press. The purchase price of Boston
Towne Press was $5.4 million, which was paid in cash and partially funded by the
utilization of $3,388 of the revolving line of credit. Pursuant to the purchase
and sale agreement, the Company may be required to pay the seller up to an
additional $700, depending upon the earnings of Boston Towne Press during the
years 1999 and 2000. The Company estimates the goodwill generated from the
transaction will be approximately $2,749 and will be amortized over 40 years.
F-54
<PAGE>
Pro Forma Adjustments
Balance Sheet
<TABLE>
<CAPTION>
The Workable Boston
Group Towne Press
-------------- -------------
<S> <C> <C>
(a) Purchase accounting adjustments to reflect the assets and liabilities
at estimated fair value:
Goodwill $8,899 $3,397
Assets not acquired:
Land and Building (2,159) -
Goodwill - (5)
Intercompany (2,749) -
Liabilities not assumed:
Current portion of long-term debt (1,365) (180)
Long-term debt, net of current portion - (261)
Intercompany (3,353) -
Elimination of equity method of accounting (789) -
Stockholders equity: (3,819) (1,630)
Record financing used to complete acquisition:
Cash paid to sellers and costs of the transactions (6,347) 2,075
Borrowings on line of credit - 3,388
Common stock issued to sellers 6,181 -
</TABLE>
Statement of Operations
(a) The provision for income taxes represents the income tax provision that
would have been reported had the Company been subject to federal and
additional state income taxes during the entire year ended December 31,
1998. The provision for income taxes reflects an increase of $320 for the
period January 1, 1998 through April 22, 1998.
(b) Reflects the elimination of intercompany transactions among the companies
in the Workable Group.
(c) Reflects a net increase in depreciation and amortization expense of $198
attributable to the Workable Transaction. Pro forma depreciation and
amortization expense was determined based on a preliminary allocation of
the purchase price to the operating assets acquired based on estimates of
fair values and a 40 year life for goodwill. The actual allocation of the
purchase price may differ from the estimated amounts for the following
reasons: i) further information learned on the fair value of the assets
acquired and (ii) the settlement of the earn-out amount in future years.
(d) Reflects the elimination of interest expense of $109 on the Workable debt
of approximately $1,365 which not assumed by the Company and an increase in
interest expense for $141 as if the Company had borrowed the cash portion
of the purchase price from January 1, 1998 through April 22, 1998, the date
of the initial public offering, payable with interest expense of 7%.
(e) Reflects the elimination of interest income of $185 from April 22, 1998
through December 31, 1998 as if the Company utilized the cash portion of
the purchase price of $6,347 to complete the acquisition of the Workable
Group instead of having the funds invested.
(f) Reflects a pro forma provision for income taxes computed utilizing an
effective tax rate of 20% for the Workable Group.
F-55
<PAGE>
(g) Reflects a net increase in depreciation and amortization expense of $85
attributable to the Boston Towne Press acquisition. Pro forma depreciation
and amortization expense was determined based on a preliminary allocation
of the purchase price to the operating assets acquired based on estimates
of fair values and a 40 year life for goodwill.
(h) Reflects the elimination of interest expense of $37 on the Boston Towne
Press debt of approximately $441 which was not assumed by the Company and
an increase in interest expense of $281 as if the Company had borrowed the
cash portion of the purchase price of $2,075 from January 1, 1998 through
April 22, 1998, and borrowed $3,388 of the purchase price from January 1,
1998 through December 31, 1998.
(i) Reflects the elimination of interest income of $58 from April 22, 1998
through December 31, 1998 as if the Company utilized the cash portion of
the purchase price of $2,075 to complete the acquisition of Boston Towne
Press.
(j) Boston Towne Press operated under S corporation status for federal and
state income tax purposes prior to the acquisition. Accordingly, no
provision for income tax expense is reflected in the entity's historical
financial statements and an adjustment for pro forma federal and state
income tax expense has been made utilizing an effective tax rate of 41%.
Additionally, the pro forma provision for income taxes also reflects the
provision and benefits of the pro forma adjustments described above.
(k) Pro forma earnings per share was calculated based on the historical
weighted average shares of the Company outstanding for the year ended
December 31, 1998 of 4,637,024 plus 398,216 shares issued in connection
with the Workable Transaction.
F-56
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-52723) of Cunningham Graphics International, Inc.
of our reports dated February 19, 1999 with respect to the financial statements
of Plainduty Limited and Workable Company Limited appearing on pages F-3 and
F-23 of this Form 8-K/A.
/s/ PricewaterhouseCoopers
Hong Kong
March 29, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-52723) and in the related Prospectuses of our report dated
February 3, 1999 with respect to the financial statements of Boston Towne Press,
Inc. included in this Current Report (Form 8-K/A) of Cunningham Graphics
International, Inc. dated March 29, 1999.
/s/ H.R. Margolis Company
Philadelphia, Pennsylvania
March 29, 1999
