<PAGE> 1
As filed with the Securities and Exchange Commission on August 20, 1996
Registration No. 333-1340
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
DATA DOCUMENTS INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
-------------------
DELAWARE 2761 47-0714942
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
------------------
4205 SOUTH 96TH STREET
OMAHA, NEBRASKA 68127
(402) 339-0900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------
WALTER J. KEARNS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATA DOCUMENTS INCORPORATED
4205 SOUTH 96TH STREET
OMAHA, NEBRASKA 68127
(402) 339-0900
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------
WITH COPIES TO:
KENNETH M. DORAN, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 229-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
___________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
DATA DOCUMENTS INCORPORATED
CROSS REFERENCE SHEET
(PURSUANT TO RULE 404(A) OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND ITEM 501 OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM NO. AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS
----------------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus . . . . . . . . . . . Facing Page of Registration Statement;
Cross Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges . . . . . . . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . . . . . Outside Front Cover Page of Prospectus
6. Dilution . . . . . . . . . . . . . . . . . . . . . . Not Applicable
7. Selling Securityholders . . . . . . . . . . . . . . . Not Applicable
8. Plan of Distribution . . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus;
Prospectus Summary; Plan of Distribution
9. Description of Securities to be Registered . . . . . Description of Capital Stock
10. Interests of Named Experts and Counsel . . . . . . . Legal Matters; Experts
11. Information with Respect to the Registrant . . . . . Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Market
Price and Dividends; Selected Consolidated
Financial Data; Pro Forma Unaudited
Condensed Combined Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Description of Capital Stock;
Consolidated Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities . . . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE> 3
1,280,455 SHARES
PROSPECTUS
DATA DOCUMENTS INCORPORATED
COMMON STOCK
_______________
This Prospectus covers 1,280,455 shares of common stock, par value
$0.001 per share (the "Common Stock"), of Data Documents Incorporated, a
Delaware corporation (the "Company"), to be issued upon exercise of 1,280,455
Warrants (the "Warrants"). Each Warrant entitles the holder to purchase one
share of Common Stock at an average exercise price of approximately $.002 per
share.
The Company's Common Stock presently is traded on The Nasdaq National
Market under the symbol "DDII."
_______________
SEE "RISK FACTORS" BEGINNING ON PAGE 6 HEREIN FOR A DISCUSSION OF
CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The exercise price of the Warrants was determined by negotiations
between the Company and Jefferies & Company, Inc., the Underwriter in the
Company's public offering of Units (with each Unit consisting of $1,000
aggregate principal amount of 13-1/2% Senior Secured Notes of Data Documents,
Inc. due 2002 (the "Senior Notes") and a Warrant), which occurred in November
1994, and was not intended to bear any relationship to any objective criteria
of value. In no event should such exercise price be regarded as an indicator
of any future market price of the Company's securities. For information
regarding the factors considered in determining the exercise price and the
other terms of the Warrants, see "Exercise of the Warrants."
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
| | Underwriting Discounts |
| | and Commissions | Proceeds to
| Price to Public | | Company (1)
----------------------------------------------------------------------------------------------------
<S> | <C> | <C> | <C>
Per share . . . . . | $.002 | --- | $.002
Total . . . . . . . | $2,561 | --- | $2,561
----------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company estimated to be
approximately $30,000.
THE DATE OF THIS PROSPECTUS IS AUGUST __, 1996.
<PAGE> 4
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock issuable upon exercise of the Warrants. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
omitted as permitted by the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any agreement or other
document referred to herein are not necessarily complete, and reference is made
to the copy of such agreement or other document filed as an exhibit or schedule
to the Registration Statement and each such statement shall be deemed qualified
in its entirety by such reference. For further information, reference is made
to the Registration Statement and to the exhibits and schedules filed
therewith, which are available for inspection without charge at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of the material containing this
information may be obtained from the Commission upon payment of the prescribed
fees.
The Company is subject to the periodic reporting and other information
requirements of the Securities Exchange Act of 1934, as amended. Such reports
and other information may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may be
obtained by mail from the Public Reference Branch of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
The Company's Common Stock is presently traded on The Nasdaq Stock
Market under the symbol "DDII," and reports and information concerning the
Company can be inspected at such exchange, 1735 K Street, N.W., Washington,
D.C. 20006-1500.
The Company intends to furnish to its stockholders annual reports
containing consolidated financial statements audited by an independent public
accounting firm accompanied by an opinion expressed by such independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited consolidated financial information in each
case prepared in accordance with generally accepted accounting principles.
Data Documents(R), Intelimail(R), Laserprint(R), Inteligram(R),
Intelimailer(R) and Dual-Web(R) are federally protected trademarks or service
marks of the Company. The Company has applied for trademark protection for the
marks Odyssey Integrated Services(SM) and Odyssey Network. This Prospectus also
contains the registered trademarks of other companies.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 9
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . 9
Market Price and Dividends . . . . . . . . . . . . . . . . . . 9
Selected Consolidated Financial Data . . . . . . . . . . . . . 10
Pro Forma Unaudited Condensed
Combined Financial Information . . . . . . . . . . . . . . . 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 14
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Management . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Certain Transactions . . . . . . . . . . . . . . . . . . . . . 37
Principal Stockholders . . . . . . . . . . . . . . . . . . . . 39
Description of Capital Stock . . . . . . . . . . . . . . . . . 40
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . 42
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Index to Financial Statements . . . . . . . . . . . . . . . . F-1
</TABLE>
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and the consolidated financial statements of the Company,
including the notes thereto, appearing elsewhere herein. Unless the context
otherwise requires, the term "Company" includes Data Documents Incorporated and
its direct and indirect subsidiaries. For a discussion of certain matters that
should be considered by prospective purchasers of the Common Stock offered
hereby, see "Risk Factors."
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below under "Risk Factors" and the matters set forth in the
Prospectus generally. The Company cautions the reader, however, that this list
of factors may not be exhaustive. Prospective investors should carefully
consider, among other factors, the matters described under "Risk Factors"
before deciding to invest in the Common Stock offered hereby.
THE COMPANY
The Company is a leading designer and provider of custom business
forms, pressure-sensitive label products and forms management systems that
enable its large corporate customers to enhance productivity and reduce costs
associated with managing information. A substantial portion of the Company's
forms sales are made in connection with its proprietary forms management
systems. In addition, the Company supplies specialized direct mail products
and services ("Intelimail") and sells other computer services and products,
including laser printer supplies and software packages.
In October 1995, the Company consummated an initial public offering
(the "Offering") of 3,400,000 shares of its Common Stock. The Offering was
registered under the Securities Act on a Registration Statement on Form S-1.
The net proceeds to the Company of approximately $27.9 million were used by the
Company to redeem $24,000,000 in aggregate principal amount of the Senior
Notes.
Over the last five years, the business forms industry has been
affected by numerous factors, including changes in end-user requirements and
available technology. These changes have resulted in a shift towards certain
custom value-added products and systems in both the business forms and
pressure-sensitive label markets. Consequently, there has been a decline in
the stock forms segment and a reduction of the paper content of forms products.
In addition, end-users are increasingly seeking to outsource and single source
their forms management and pressure-sensitive label needs. The Company has
positioned itself as a provider of solutions-based approaches to information
collection and distribution and to focus its business on custom value-added
products that are tied to the Company's services. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Custom products
accounted for approximately 79% of the Company's net sales in 1995.
The Company establishes strategic, long-term forms management
relationships with its core customers. The Company's forms management services
have been designed to respond to increased outsourcing by large corporations of
non-core operations, such as forms design and workflow analysis, inventory
management, warehousing and shipping. During 1995, the Company had 506
customers in its forms management programs, and these customers accounted for
$130 million of the Company's net sales. During the second quarter of 1995,
the Company introduced Odyssey Integrated Services(SM) ("Odyssey"), which
provides a selection of software-based, fully integrated service modules
offering comprehensive forms management services and efficiency-enhancing
tools.
Within the pressure-sensitive label market, the Company has focused
on, among others, the thermal, laser and combination label/forms segments. The
Company has developed many label products, such as the Dual-Web label/form
combination product and airline baggage tracking labels. Many of the Company's
products have been developed to satisfy customers' increasing needs for
variable information content, such as inventory control bar-coding for
manufacturing, retailing and distribution customers. In August 1995, the
Company completed its acquisition of Cal Emblem Labels, Inc. ("Cal Emblem"), a
pressure-sensitive label business. The acquisition of Cal Emblem expands the
Company's product offerings to include prime labels, which are the largest
segment of the
3
<PAGE> 6
overall pressure-sensitive label market, and increases the Company's market
presence in the California and Colorado labels markets.
The Company sells its products and services exclusively through its
direct sales force. During 1995, no customer accounted for more than 5% of net
sales and the Company's five largest customers accounted for approximately
14.3% of net sales. The Company's largest customers have generally been
long-term customers with five or more years of significant purchases from the
Company.
The Company was organized by management and an investor group in
Delaware in February 1988 to acquire Data Documents, Inc. ("DDI") from Pitney
Bowes, Inc. (the "1988 Management Acquisition"). The Company has no operations
and no assets other than 100% of the outstanding Common Stock of DDI and DDI's
wholly-owned subsidiaries, Cal Emblem and PBF Washington, Inc. ("PBF"). The
executive offices of the Company and DDI are located at 4205 South 96th Street,
Omaha, Nebraska 68127 and their phone number is (402) 339-0900.
4
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents, for the periods and dates indicated,
summary historical and pro forma consolidated financial data of the Company.
The pro forma statement of operations data for the year ended December 31, 1995
gives effect to the acquisition of Cal Emblem as if it had been consummated as
of January 1, 1995. This information should be read in conjunction with
"Selected Consolidated Financial Data," "Pro Forma Unaudited Condensed Combined
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------------
1995
1993 1994 1995 PRO FORMA 1995 1996
---------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales .................. $193,588 $193,626 $242,238 $256,030 $114,230 $124,678
Gross Profit ............... 41,552 44,829 56,227 59,780 26,605 32,436
Selling, General and
Administrative Expenses .. 32,306 32,729 35,334 38,361 17,220 18,802
Operating Income ........... 9,246 12,100 20,737 21,263 9,229 13,634
Debt Expense ............... 8,063 8,735 13,335 13,872 6,906 4,960
Income (Loss) Before Income
Taxes .................... 1,183 3,365 7,402 7,391 2,323 8,674
Income (Loss) Before
Extraordinary Item ....... 971 1,832(1) 4,275(3) 3,217 1,330 5,154
Income (Loss) Before
Extraordinary Item Per
Common Share ............. $0.03 $0.13 $0.61 $0.60 $0.22 $0.52
Average Number of Shares
Outstanding(Primary) ..... 10,025,704 9,453,494 7,333,864 7,333,864 6,483,864 9,932,331
Supplementary Income (Loss)
Before Extraordinary Item
Per Common Share (2) ..... $0.65
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
---------------------------------------- -----------
1993 1994 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital .......................... $ 29,179 $ 37,231 $ 43,016 $ 49,352
Total Assets ............................. 104,534 116,221 125,725 127,123
Long-Term Obligations, Less Current
Maturities ............................. 68,569 86,719 65,212 64,689
Warrants ................................. -- 2,771 -- --
Common Stockholders' Equity (Deficit) .... (2,979) (5,143) 27,424 32,397
- ---------------
</TABLE>
(1) In November 1994, the Company incurred an extraordinary charge of
$2,795, net of income tax benefit of $1,787, for the write-off of
unamortized deferred financing costs and unamortized original issue
discounts and certain termination fees and costs associated with the
early termination of debt in connection with the issuance of the
Senior Notes.
(2) Reflects the Offering and the issuance of the Senior Notes as if they
were consummated as of January 1, 1995, with the net proceeds used to
redeem $24,000,000 in aggregate principal amount of the Senior Notes.
(3) In November 1995, the Company incurred an extraordinary charge of
$2,921,000, net of income tax benefit of $1,790,000, for the write-off
of unamortized deferred financing costs, unamortized original issue
discount and prepayment fees associated with the prepayment of
$24,000,000 of Senior Notes.
5
<PAGE> 8
RISK FACTORS
Prospective investors should carefully consider the specific factors
set forth below as well as the other information included in this Prospectus
before deciding to invest in the Common Stock offered hereby.
EFFECT OF CHANGES IN THE BUSINESS FORMS INDUSTRY; ACCEPTANCE OF NEW PRODUCTS
Historically, the business forms industry has been affected by the
price of paper, general economic conditions and changes in end-user
requirements. Paper prices represent a substantial portion of the cost of
producing business forms. During the period from May 1989 to January 1992,
paper prices decreased 33% and the Company passed on these reductions to its
customers, which resulted in a period of declining revenues. During the last
half of 1994, paper prices increased rapidly and, in December 1994, reached May
1989 levels. Through 1995, prices paid by the Company for paper rose steadily.
As in the past, these paper price increases were passed on to customers. There
can be no assurance that the Company will be able to pass on all or a portion
of any future increases to its customers. See "Business -- Raw Materials." In
addition, any cyclical downturns in the economy could have an adverse impact on
both the Company and the industry. In the first two quarters of 1996, the
Company has experienced declines in paper prices. Such declines, if passed on
to the Company's customers, could negatively affect the Company's revenues.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
Furthermore, over the last several years, the forms industry has
undergone a transition as a result of end-users' conversion from impact to
laser printing technology, which has led to decreased or shifting demand for
many products, such as stock and certain custom continuous forms and multi-part
forms, while other forms and forms-related products, such as pressure-sensitive
labels and forms for laser printers, have experienced growth. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "Business -- Industry Overview" and "-- Products."
During this period, there has also been a trend among large corporate users of
the Company's products towards outsourcing non-core operations such as forms
management. The Company has developed its Odyssey system partially in response
to these trends. While the Company has signed agreements with 22 customers and
is in various stages of installation, there can be no assurances that the
introduction of the Odyssey system will prove successful or that the system
will be adopted by existing or new customers. See "Business -- Forms
Management/Odyssey Integrated Services(SM)."
The foregoing factors have caused and may continue to cause the
Company to experience period-to-period changes in net sales and operating
income. Specifically, the convergence of falling paper prices and the
reduction in paper content of business forms along with the recession of
1990-1992 adversely affected the business forms industry in a number of ways,
including by increasing price competition. In 1992, this led to reduced
operating income for the Company and a net loss. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." No assurance
can be given as to the effect of a continuation of, or change in, these trends
and business cycles on the Company's business or results of operations. In
addition, any delay or inability by the Company to respond to changing market
trends could adversely affect the Company's results of operations or financial
condition.
Finally, electronic forms and electronic data interchange ("EDI")
technologies have recently been introduced to the market, and, while this
technology currently represents a very small portion of the market for business
form products, no assurance can be given as to the potential impact of such
emerging technologies on the business forms industry as a whole. See "Business
- -- Product Development."
COMPETITIVE INDUSTRY
The business forms, pressure-sensitive label and direct mail
industries are highly competitive. The Company competes with both national and
regional manufacturers based on several factors, including price,
6
<PAGE> 9
quality of service, turnaround time and other factors. Many of the Company's
competitors are larger than the Company and have greater financial and other
resources. See "Business -- Competition."
ACQUISITION OF CAL EMBLEM
In August 1995, the Company completed its acquisition of the capital
stock of Cal Emblem, a privately held pressure-sensitive label company. While
the Company has moved quickly to accomplish a combination of the businesses, the
consolidation of the Cal Emblem operations into the operations of the Company
will require management time and could result in diversion of management
resources from other important matters. No assurances can be given regarding
the ultimate success of the integration of the two companies. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General" and "Business -- Recent Developments."
SIGNIFICANT LEVERAGE AND DEBT SERVICE
As a result of the 1988 Management Acquisition and the November 1994
offering of the Senior Notes, the Company is highly leveraged. At December 31,
1995, the Company had total consolidated debt of approximately $66.4 million
(after the redemption of the $24 million in aggregate principal amount of the
Senior Notes with the proceeds of the Offering). This leverage may
significantly limit the Company's ability to withstand competitive pressure or
adverse economic conditions, make acquisitions or take advantage of business
opportunities.
The Company's ability to meet its debt service obligations and to
comply with the financial terms of its outstanding Senior Notes and its working
capital revolving credit facility will be dependent upon its future performance,
which, in turn, will be subject to general economic conditions and to financial,
business, competitive and other factors affecting the operations of the Company,
many of which are beyond its control. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt, it may
be required to refinance all or a portion of such debt, including the Senior
Notes that remain outstanding after the Offering, or to obtain additional
financing. However, there can be no assurance that any refinancing would be
possible or that any additional financing could be obtained. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's results of operations may fluctuate between quarterly
periods due to the effect of possible future acquisitions, the number of
shipping days in the quarter, the timing of significant contracts, changes in
raw material prices and other factors, many of which may be beyond the control
of the Company. Such variability in the Company's results of operations could
cause the Company's stock price to fluctuate following the release of interim
results of operations or other information and may have a material adverse
effect on the Company and its stock price. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General" and " --
Fluctuations in Quarterly Results."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend upon its ability to retain
a core group of key officers and employees. The loss of certain key employees
or the Company's inability to attract and retain other qualified employees could
have an adverse impact on the Company's business. The Company does not maintain
key man life insurance on any of its key employees. See "Business -- Employees"
and "Management."
7
<PAGE> 10
CONTROL OF THE COMPANY
The Company is controlled by members of the Company's management and
certain stockholders who hold in the aggregate approximately 44% of the
outstanding Common Stock (without regard to the exercise of outstanding options
and Warrants). See "Principal Stockholders."
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced extreme price and
volume fluctuations which often have been unrelated to the operating performance
of particular companies. Announcements of new products or accounts by the
Company or its competitors, changes in earnings estimates by analysts and
economic and other external factors, as well as period-to-period fluctuations in
financial results of the Company, may have a significant impact on the market
price and marketability of the Common Stock. Fluctuations or decreases in the
trading price of the Common Stock may adversely affect the liquidity of the
trading market for the Common Stock and the Company's ability to raise capital
through future equity financing.
ABSENCE OF DIVIDENDS
The Company has not paid any dividends on its Common Stock and does
not anticipate paying any dividends on such stock in the foreseeable future.
In addition, the Company's current bank credit line prohibits the payment of
dividends. See "Market Price and Dividends."
EFFECT OF SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Approximately 4,100,000 outstanding shares of Common Stock are
"restricted securities" within the meaning of Rule 144 ("Rule 144") promulgated
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available.
However, substantially all of these shares became eligible for sale pursuant to
Rule 144 beginning 90 days after the completion of the Offering, subject to the
volume and manner of sale limitations of Rule 144. Furthermore, certain of the
Company's current stockholders and the holders of the Company's outstanding
Warrants have been granted certain "piggyback" registration rights with respect
to the shares of Common Stock owned by them or to be issued to them.
No predictions can be made as to the effect, if any, that public sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
the Common Stock in the public market, particularly by directors and officers
of the Company, or the perception that such sales could occur, could have an
adverse impact on the market price of the Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Bylaws and the Delaware
General Corporation Law include provisions that may have the effect of
discouraging persons from pursuing a non-negotiated takeover of the Company and
preventing certain changes of control. See "Description of Capital Stock --
Anti-Takeover Statute" and "-- Limitation of Liability and Indemnification of
Directors and Officers."
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USE OF PROCEEDS
If all of the Warrants were exercised, the Company would receive gross
proceeds of approximately $2,561. There can be no assurance that any of these
Warrants will be exercised. The Company will use any proceeds received from
the exercise of these Warrants for working capital and general corporate
purposes.
PLAN OF DISTRIBUTION
The Common Stock covered by this Prospectus will be sold from time to
time by the Company upon conversion of the Warrants.
MARKET PRICE AND DIVIDENDS
The Company's Common Stock presently is traded on The Nasdaq National
Market under the symbol "DDII." On July 31, 1996, the closing sale price of
the Common Stock was $11.75 per share. As of the same date, the Common Stock
was held of record by 77 stockholders, and warrants to purchase 693,141 shares
of Common Stock were held of record by two warrantholders. The high and low
sales prices for the Common Stock during the quarter ended March 31, 1996 were
$10.75 and $7.875, respectively. The high and low sales prices for the Common
Stock during the quarter ended June 30, 1996 were $14.00 and $8.875,
respectively.
The Company has not paid cash dividends on its Common Stock to date.
Because the Company currently intends to retain any earnings to provide funds
for the operation and expansion of its business and to repay any indebtedness,
the Company does not intend to pay cash dividends on the Common Stock in the
foreseeable future. Furthermore, as a holding company with no independent
operations, the ability of the Company to pay cash dividends will be dependent
upon the receipt of dividends or other payments from DDI. Under the terms of
the Indenture governing the Senior Notes, DDI is not permitted to pay any
dividends on DDI's common stock unless certain financial ratio tests are
satisfied. In addition, DDI's current revolving credit facility contains
certain covenants which, among other things, prohibit the payment of dividends
by DDI. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." Any determination to
pay cash dividends on the Company's Common Stock in the future will be at the
sole discretion of the Company's Board of Directors.
9
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial data of the
Company as of and for each of the years in the five- year period ended December
31, 1995 and as of and for each of the six month periods ended June 30, 1995
and 1996. The consolidated financial data as of and for each of the five years
in the period ended December 31, 1995, have been derived from the Company's
audited Consolidated Financial Statements. The Company's Consolidated
Financial Statements as of December 31, 1994 and 1995, and for the years ended
December 31, 1993, 1994 and 1995 and Deloitte & Touche LLP's audit report with
respect thereto have been included in this Prospectus. The consolidated
financial data as of and for the six month periods ended June 30, 1995 and 1996
are derived from unaudited consolidated financial statements of the Company
and, in the opinion of management, reflect all adjustments, consisting only of
adjustments of a normal recurring nature, necessary for a fair presentation of
such data. The statement of operations data for interim periods is not
necessarily indicative of results for the full year. The information below is
qualified in its entirety by the detailed information included elsewhere herein
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30
----------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales . . . . . . . . . . $ 194,425 $ 184,400 $ 193,588 $ 193,626 $ 242,238 $114,230 $124,678
Cost of Goods Sold . . . . . 151,942 144,630 152,036 148,797 186,011 87,625 92,242
-------- ---------- ---------- ---------- --------- --------- --------
Gross Profit . . . . . . . . 42,483 39,770 41,552 44,829 56,227 26,605 32,436
Selling, General and
Administrative Expenses 32,844 32,398 32,306 32,729 35,334 17,220 18,802
Stock Compensation Charge(1). -- -- -- -- 156 156 --
Nonrecurring Charge(2) . . . -- 4,208 -- -- -- -- --
--------- ---------- ---------- ---------- ---------- --------- --------
Operating Income . . . . . . 9,639 3,164 9,246 12,100 20,737 9,229 13,634
Debt Expense . . . . . . . . 9,168 8,160 8,063 8,735 13,335 6,906 4,960
--------- ---------- ---------- ---------- --------- --------- --------
Income (Loss) Before Income
Taxes . . . . . . . . . . . 471 (4,996) 1,183 3,365 7,402 2,323 8,674
Income Tax Expense (Benefit). 347 (1,785) 212 1,533 3,127 993 3,520
--------- --------- ---------- ---------- ---------- --------- --------
Income (Loss) Before
Extraordinary Item . . . . 124 (3,211) 971 1,832 4,275 1,330 5,154
Net Income (Loss) . . . . . . $ 124 $ (3,211) $ 971 $ (963)(3) $ 1,354(4) $ 1,330 $ 5,100
========= ========== ========== ========== ======== ======== ========
Net Income (Loss) Available
for Common Stock . . . . . (572) $ (3,898) $ 288 $ (1,583) $ 1,354 $ 1,330 $ 5,100
========= ========== ========== ========== ========= ======== ========
Earnings (Loss) Per Common
Share:
Primary:
Income (Loss) Before
Extraordinary Item . . . $ (0.10) $ (0.71) $ 0.03 $ 0.13 $ 0.61 $ 0.22 $ 0.52
Extraordinary Item . . . -- -- -- (0.30) (0.40) -- (0.01)
========= ========== ========== =========== ========== ========= ========
Net Income (Loss) . . . . $ (0.10) $ (0.71) $ 0.03 $ (0.17) $ 0.21 $ 0.22 $ 0.51
========= ========== ========== =========== ========== ======== ========
Fully Diluted:
Income (Loss) Before
Extraordinary Item. . . $ -- $ (0.24) $ 0.05 $ 0.11 $ 0.61 $ 0.22 $ 0.52
Extraordinary Item . . . -- -- -- (0.17) (0.40) -- (0.01)
========= ========== ========= ========== ========== ======== =======
Net Income (Loss) . . . . $ -- $ (0.24) $ 0.05 $ (0.06) $ 0.21 $ 0.22 $ 0.51
========= ========== ========== ========== ========== ======== ========
Supplementary Earnings (Loss)
Per Common Share (4):
Primary:
Income (Loss) Before
Extraordinary Item. . . $ 0.65
Extraordinary Item. . . . (0.31)
=========
Net Income (Loss) . . . . $ 0.34
=========
Weighted Average Common and
Common Share Equivalents
Outstanding:
Primary . . . . . . . . . . 5,505,652 5,505,652 10,025,704 9,453,494 7,333,864 6,483,864 9,932,331
Fully Diluted . . . . . . . 18,161,798 13,641,746 18,161,798 16,911,580 7,333,864 6,483,864 9,937,686
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital . . . . . . . . . $ 25,146 $ 28,691 $ 29,179 $ 37,231 $ 43,016 $ 49,352
Total Assets . . . . . . . . . . 109,884 105,289 104,534 116,221 125,725 127,123
Long-Term Obligations, Less
Current Maturities . . . . . . 68,850 71,298 68,569 86,719 65,212 64,689
Redeemable Preferred Stock . . . 6,829 6,829 6,829 -- -- --
Warrants . . . . . . . . . . . . -- -- -- 2,771 -- --
Common Stockholders' Equity (Deficit) 631 (3,267) (2,979) (5,143) 27,424 32,397
</TABLE>
_______________
(1) Reflects the difference between the fair value and the price paid for
Common Stock issued to an employee and a director in the second
quarter of 1995.
(2) Relates to $1,863 of plant consolidation costs in connection with the
cessation of operations at two of the Company's manufacturing
facilities and the $2,345 writedown of the carrying values of certain
real estate property in connection with the sale and leaseback of five
other manufacturing facilities. See Note M of notes to Consolidated
Financial Statements.
(3) In November 1994, the Company incurred an extraordinary charge of
$2,795, net of income tax benefit of $1,787, for the write-off of
unamortized deferred financing costs and unamortized original issue
discounts and certain termination fees and costs associated with the
early termination of debt in connection with the issuance of the
Senior Notes.
(4) Reflects the Offering and the issuance of the Senior Notes as if they
were consummated as of January 1, 1995, with the net proceeds used to
redeem $24,000,000 in aggregate principal amount of the Senior Notes.
11
<PAGE> 14
PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following pro forma unaudited condensed combined statement of
operations data of the Company for the year ended December 31, 1995 has been
prepared to reflect the acquisition of Cal Emblem as if such transaction had
occurred as of January 1, 1995. The pro forma financial information is derived
from the Pro Forma Unaudited Condensed Combined Financial Statements found
elsewhere in this Prospectus. The pro forma financial information does not
purport to represent what the Company's results of operations or financial
position would actually have been or to project the Company's results of
operations or financial position for any period.
The summary pro forma financial information should be read in
conjunction with the Pro Forma Unaudited Condensed Combined Financial
Statements and the notes thereto included elsewhere in this Prospectus.
PRO FORMA STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------
COMPANY CAL EMBLEM(5) ADJUSTMENTS PRO FORMA
------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . $242,238 $13,792 $ -- $256,030
Cost of Goods Sold . . . . . . . . . . . . . . 186,011 10,201 38 (1) 196,250
-------- ------- ------- --------
Gross Profit . . . . . . . . . . . . . . . . . 56,227 3,591 (38) 59,780
Selling, General and Administrative Expenses. . 35,334 3,000 27 (2) 38,361
Stock Compensation Charge . . . . . . . . . . . 156 -- -- 156
-------- ------- --------- --------
Operating Income . . . . . . . . . . . . . . . 20,737 591 (65) 21,263
Debt Expense . . . . . . . . . . . . . . . . . 13,335 336 201 (3) 13,872
-------- ------- --------- -------
Income (Loss) Before Income Taxes . . . . . . . 7,402 255 (266) 7,391
Income Tax Expense (Benefit) . . . . . . . . . 3,127 197 (107)(4) 3,217
-------- ------- -------- -------
Income (Loss) Before Extraordinary Item . . . . 4,275 58 (159) 4,174
Extraordinary Item, Net of Tax . . . . . . . . (2,921) -- -- (2,921)
-------- -------- -------- --------
Net Income (Loss) . . . . . . . . . . . . . . . $ 1,354 $ 58 $ (159) $ 1,253
======== ======== ======== ========
Earnings (Loss) Per Common Share:
Primary:
Income (Loss) Before Extraordinary Item. . $ 0.61 $ 0.60
Extraordinary Item . . . . . . . . . . . . (0.40) (0.40)
-------- -------
Net Income (Loss) . . . . . . . . . . . . $ 0.21 $ 0.20
======== ========
Fully Diluted:
Income (Loss) Before Extraordinary Item. . $ 0.61 $ 0.60
Extraordinary Item . . . . . . . . . . . . (0.40) (0.40)
-------- ---------
Net Income (Loss) . . . . . . . . . . . . $ 0.21 $ 0.20
======== ========
Weighted Average Common and Common Share
Equivalents Outstanding:
Primary . . . . . . . . . . . . . . . . . 7,333,864 7,333,864
Fully Diluted . . . . . . . . . . . . . . 7,333,864 7,333,864
</TABLE>
12
<PAGE> 15
_______________
(1) Reflects depreciation on the adjustment to the property of Cal Emblem
to reflect fair values.
(2) Reflects amortization of the excess of purchase price over net assets
acquired from Cal Emblem over a thirty-year period.
(3) Reflects the increase in interest expense and other debt-related costs
resulting from the debt incurred to finance the acquisition of Cal
Emblem as of January 1, 1995.
(4) Reflects the change in income tax expense as a result of the pro forma
adjustments that affect taxable income.
(5) Reflects results of Cal Emblem through the date of acquisition (August
24, 1995) by the Company.
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements of the Company and notes thereto
appearing elsewhere in this Prospectus.
When used in the following discussion, the words "believes,"
"estimates," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected, including, but not limited to, fluctuations in paper prices,
cyclical downturns in the economy and the effect of emerging technologies such
as electronic data interchange on the business forms industry as a whole.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
The Company provides business forms, pressure-sensitive label and
direct mail products and software based services to its customers to assist
them in managing their information collection and dissemination needs. The
Company was organized to purchase the stock of DDI from Pitney Bowes, Inc. in
February 1988. In September 1988, the Company extended its presence into the
northwest by purchasing the assets of Pioneer Business Forms, Inc. in Tacoma,
Washington. The Company was recapitalized in early 1993. In the
recapitalization, the Company mortgaged or sold and leased back six of its
manufacturing facilities and entered into a new revolving credit facility. The
Company used the proceeds from such transactions to pay off the lender which
provided the senior debt incurred in connection with the 1988 Management
Acquisition and to repay a material portion of the subordinated debt incurred
in connection with the 1988 Management Acquisition. In November 1994, the
Company completed the offering of the Senior Notes and Warrants and used the
proceeds to repurchase certain properties previously sold and leased back, to
redeem its preferred stock, to reduce its outstanding bank debt and repay
outstanding subordinated debt.
In August 1995, the Company purchased the capital stock of Cal Emblem,
expanding the Company's products to include prime labels and increasing its
market presence in California and Colorado. In October 1995, the Company
consummated the Offering of 3,400,000 shares of its Common Stock. The Offering
was registered under the Securities Act on a Registration Statement on Form
S-1. The net proceeds to the Company of approximately $27.9 million were used
by the Company to redeem $24,000,000 in aggregate principal amount of the
Senior Notes.
Over recent years the business forms industry has been affected by
changes in paper prices, general economic conditions and changes in end-user
requirements. Paper has historically accounted for approximately 60% of the
Company's average cost of goods sold, although the paper content of each of the
Company's products varies, and as a result, the sales price, as well as the
cost of sales, of the Company's products have been directly affected by the
price of paper. From May 1989 to January 1992, the price of 20 pound bond
paper decreased 33% and, from January 1992 until mid-1994, the price fluctuated
(although remaining well under the high levels experienced during the spring of
1989). Historically, lower paper costs have not produced increased margins
since the Company and its competitors generally have passed any savings on to
their customers through price reductions. During the last half of 1994, prices
increased rapidly and, in December 1994, reached May 1989 levels. Through the
first six months of 1995, prices paid by the Company for paper continued to
increase steadily. During this most recent period of increases, the Company
was able to pass on paper price increases to its customers due in part to the
tight paper supply; however, no assurance can be given that the Company will be
able to pass on any future increases to its customers. Beginning in the fourth
quarter of 1995, paper demand began to soften and price reductions have
occurred in
14
<PAGE> 17
January and February 1996. While the Company does not yet know if this signals
a new, continuing trend, if these reduced prices continue or even decline
further and are passed on to the customers, the Company's revenues could be
negatively affected. While no assurances can be given, the Company does not
currently anticipate that the recent price decreases will have a material
adverse impact on the Company's net income since the Company's past experience
is that declining prices also reduce costs.
The general economic conditions of 1990-1992 began to affect the
business forms industry during the last six months of 1990. The reduced level
of business activity which accompanied these conditions led to reduced demand
for business forms in general and increased competition from suppliers. The
Company addressed these business conditions by reducing costs and by
instituting an aggressive sales effort to retain and add high-volume customers.
Cost reductions included restructuring the forms plant administrative and
production control departments and terminating manufacturing in the Los
Angeles, California and North Haven, Connecticut plants in April and October
1993, respectively. Production was moved to other plants without any material
loss of business. The 1993 upturn in the economy, coupled with the Company's
restructuring actions, shift in product mix and increased sales volumes, led to
improved results for the Company for 1994 and continued throughout 1995.
The Company's net forms sales have also come under pressure as the
amount of paper used in business forms has declined due to changes in end-user
requirements. During recent years, the Company's customers have been shifting
to laser forms, which are typically single-ply letter size (8 1/2" x 11")
compared to the traditional continuous form (14 7/8" x 11"), which often had
multiple pages. The effects on the Company's net forms sales of declining
paper prices from 1989 through mid-1994 and of declining forms sizes during the
past six years have been substantially offset by increases in net sales of
higher-margin pressure-sensitive label and InteliMail(R) products as well as
increased higher-margin custom business form sales.
In accordance with generally accepted accounting principles, the
Company used purchase accounting in recording the acquisition of certain real
and personal property from Pitney Bowes, Inc. in February 1988 in the 1988
Management Acquisition and from Pioneer Business Forms, Inc. in September 1988.
Depreciation of most of the fixed assets acquired in these transactions (which
were assigned a remaining useful life of eight years) will be completed in
January 1996 and September 1996, respectively. Depreciation expenses with
respect to these assets was approximately $4,600,000 in 1995. The Company
estimates that the depreciation expenses with respect to these assets will be
approximately $400,000 in 1996.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1996 and June 30, 1995
Net Sales. Net sales were $59.6 million for the quarter ended June
30, 1996, an increase of 2.4% from $58.2 million in 1995. Paper price
decreases in 1996 over 1995 are estimated to have negatively impacted total
sales by approximately 4.8%, most of which related to business forms and
supplies. Net sales of business forms, supplies and services decreased 7.4%
with decreases of 2.7% in custom forms sales and 11.8% in stock forms sales.
The decreases were partially offset by $1.1 million of increased sales to
Odyssey Integrated Services(SM) customers. Pressure sensitive labels sales
increased 26.0% and included revenues from Cal Emblem, which was acquired in
August 1995. The pressure sensitive labels market was soft throughout the
second quarter of 1996, partly due to the weakness in the retail economy.
InteliMail(R) sales increased 6.5% due to the addition of new customers.
Gross Profit. Gross profit was $16.1 million for the quarter ended
June 30, 1996, an increase of $2.8 million, or 20.8% from $13.3 million in
1995. Gross profits in 1996 were favorably impacted by approximately $1.1
million in reduced depreciation expense from fully depreciated assets. As a
percentage of sales, gross profit was 27.0% compared with 22.9% in 1995. Gross
profit margins of business forms, supplies and services increased 6.1% for the
second quarter of 1996. Pressure sensitive labels gross profit margins
15
<PAGE> 18
decreased 0.8% in the second quarter of 1996 primarily as a result of sales mix.
InteliMail(R) gross profit margins increased 7.9%, primarily as a result of
higher operating levels from increased sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $9.3 million for the quarter ended June 30, 1996,
an increase of $0.9 million over 1995. The increase in expenses resulted from
inclusion of the expenses of Cal Emblem. These expenses increased as a
percentage of sales to 15.6% from 14.4% in 1995, as a result the impact of
lower paper prices on total sales.
Debt Expense. The decrease in debt expense of $1.0 million is
primarily attributable to repayment of $24.0 million of the Senior Notes, as
well as the related reduction in amortization of debt issuance costs and
accretion of discount.
Extraordinary Expense. In June 1996, the Company repurchased $500,000
of the Senior Notes at a price of $110. The premium along with the related
unamortized debt issuance discount resulted in a charge of $54,000, net of
income tax benefit of $34,000.
Comparison of Six Months Ended June 30, 1996 and 1995
Net Sales. Net sales were $124.7 million for the six months ended
June 30, 1996, an increase of 9.1% from $114.2 million in 1995. Paper price
decreases in 1996 over 1995 are estimated to have negatively impacted total
sales by approximately 0.9%, most of which related to business forms and
supplies. Net sales of business forms, supplies and services increased 1.5%
with increases of 2.2% in custom forms sales and 1.7% in stock forms sales.
The increases include $2.6 million of increased sales to Odyssey Integrated
Services(SM) customers. Pressure-sensitive labels sales increased 26.1% and
include revenues from Cal Emblem, which was acquired in August 1995. The
pressure-sensitive labels market was soft throughout the six months of 1996,
partly due to the weaknesses in the retail economy. InteliMail(R) sales
increased 15.2% due to the addition of new customers and growth from existing
customer.
Gross Profit. Gross profit was $32.4 million for the six months ended
June 30, 1996, an increase of $5.8 million, or 21.8% from $26.6 million in
1995. Gross profits in 1996 were favorably impacted by approximately $1.9
million in reduced depreciation expense from fully depreciated assets. As a
percentage of sales, gross profit was 26.0% compared with 23.3% in 1995. Gross
profit margins of business forms, supplies and services increased 4.1% for the
first six months of 1996. Pressure-sensitive labels gross profit margins
decreased 1.8% in the first six months of 1996 primarily as a result of sales
mix. InteliMail(R) gross profit margins increased 7.8%, primarily as a result
of operating levels from increased sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $18.8 million for the six months ended June 30,
1996, an increase of $1.6 million over 1995. The increase in expenses resulted
from inclusion of the expenses of Cal Emblem. These expenses as a percentage
of sales were 15.1% and remained unchanged from 1995 despite the impact of
lower paper prices on total sales during the second quarter of 1996.
Debt Expense. The decrease in debt expense of $1.9 million is
primarily attributable to repayment of $24.0 million of the Senior Notes, as
well as the related reduction in amortization of debt issuance costs and
accretion of discount.
Extraordinary Expense. In June 1996, the Company repurchased $500,000
of the Senior Notes at a price of $110. The premium along with the related
unamortized debt issuance cost and issuance discount resulted in a charge of
$54,000, net of income tax benefit of $34,000.
16
<PAGE> 19
Comparison of Year Ended December 31, 1995 and 1994
Net Sales. Net sales were $242.2 million for the year ended December
31, 1995, an increase of $48.6 million, or 25.1%, from $193.6 million for the
year ended December 31, 1994. Custom forms sales (excluding federal government
sales) increased 14.6%. The increase of custom forms sales was primarily a
result of higher prices due to higher paper prices in 1995. Stock forms sales
(excluding federal government sales) increased 47.9%, primarily from
significantly increased sales to existing accounts due in part to the Company's
long-term relationships with its paper vendors which helped ensure the
Company's reliability of supply in the generally tight paper market that
prevailed during 1995 and, to a lesser extent, to higher paper prices. Based
on the recent historical trend of stock forms sales, which have declined since
1989, the Company does not anticipate that this trend will continue in future
periods. Pressure-sensitive labels sales increased 40.0%, resulting from
increased usage of products by existing accounts as well as the addition of new
customers and the introduction of new applications. Sales of Cal Emblem,
acquired on August 25, 1995, contributed to the increase in pressure-sensitive
label sales. Pressure-sensitive label sales were also modestly affected by
higher raw material prices. InteliMail(R) sales increased 0.3%. Sales to the
federal government increased to $3.8 million from $3.6 million.
Gross profit. Gross profit was $56.2 million for the year ended
December 31, 1995, an increase of $11.4 million, or 25.4%, from $44.8 million
for the year ended December 31, 1994. As a percentage of sales, gross profit
margins remained unchanged at 23.2% of net sales. Forms gross profit margins
(excluding the effect of LIFO charges) increased slightly, while
pressure-sensitive labels gross profit margins decreased slightly and
InteliMail(R) gross profit margins improved. Gross profit for the year ended
December 31, 1995 was reduced by $2.1 million in last-in, first-out ("LIFO")
inventory charges, primarily as a result of increased paper prices. This
compared with a $0.4 million LIFO charge in 1994. Most of the Company's
inventories are valued on a LIFO basis.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $35.5 million for the year ended December 31,
1995, an increase of $2.8 million. Commissions on increased sales and the
expenses of Cal Emblem, which was acquired in August 1995, constituted most of
the increase. Total expenses declined as a percentage of sales to 14.7% in 1995
from 16.9% in 1994.
The Company recorded a non-recurring expense of $156,000 to reflect
the estimate of the difference in the fair value and the received for capital
stock sold in June 1995. (See Note N of notes to Consolidated Financial
Statements.)
Debt Expense. The increase of $4.6 million in debt expense in the
year 1995 as compared to 1994 is primarily due to the higher interest rate on
the Senior Notes as well as the amortization of debt issuance cost and
accretion of the discount attributable to the Senior Notes and the outstanding
Warrants issued in connection with the issuance of the Senior Notes. See "--
General".
Extraordinary Expense. On November 30, 1995, $24.0 million in
aggregate principal amount of the Senior Notes were called and retired. The
retirement of these Senior Notes resulted in a charge of $2.9 million, net of
$1.8 million in income tax benefit. The charge was comprised of the 11.4%
cash call premium and write-off of the unamortized original issue discount and
debt issuance costs related to the retired Senior Notes. (See Note P of notes
to Consolidated Financial Statements.)
Comparison of the year ended December 31, 1994 to year ended December 31, 1993
Net Sales. Net sales were $193.6 million for the year ended December
31, 1994, unchanged from $193.6 million for the year ended December 31, 1993.
While net sales were substantially the same, the sales mix reflected a large
decrease in low-margin stock forms (including stock cut sheets), offset by
increased sales of custom forms and InteliMail(R) products. Custom forms sales
(excluding federal government sales) increased
17
<PAGE> 20
3.0% and stock forms sales (excluding federal government sales) declined 9.0%
as the Company continued to focus its sales efforts on higher-margin,
value-added products. In addition, sales were negatively impacted by a $1.8
million reduction in low-margin forms sales to the federal government.
Pressure-sensitive label sales were flat as a result of the decision in late
1993 to eliminate certain marginally profitable business. Growth in more
profitable pressure-sensitive label sales offset the effect of eliminating this
marginally profitable business.
Gross Profit. Gross profit was $44.8 million for the year ended
December 31, 1994, an increase of $3.2 million, or 7.7%, from $41.6 million for
the year ended December 31, 1993. As a percentage of sales, gross profit
improved to 23.2% of net sales for the year ended December 31, 1994 from 21.5%
for the year ended December 31, 1993. Forms division gross profit improved
materially while pressure-sensitive label gross profit remained flat and
InteliMail(R) gross profit improved slightly. Forms division gross profit and
margins improved as sales of low-margin, commodity stock forms declined and as
efforts to reduce manufacturing costs continued to yield positive results. The
replacement of marginally profitable pressure-sensitive label business, offset
by the effect of lower manufacturing volume, resulted in flat
pressure-sensitive label gross profit, but improved margins. The small
increase in InteliMail(R) gross profit from increased sales was substantially
offset by lower margins resulting from aggressive pricing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $32.7 million for the year ended December 31,
1994, an increase of $0.4 million from the year ended December 31, 1993.
Expenses in 1994 included $0.5 million related to the termination of the
Raebarn Agreement. (See Note O of notes to Consolidated Financial Statements.)
These expenses increased as a percentage of sales from 16.7% in 1993 to 16.9%
in 1994.
Debt Expense. The increase in interest expense of $0.7 million in
1994 was attributable to higher interest rates on floating rate borrowings and
the interest associated with the capitalized sale/leaseback transaction. See
"-- General."
Extraordinary Item. The extraordinary item in 1994 reflects the
writing off of unamortized deferred financing costs and certain termination
fees and expenses associated with early termination of debt with the proceeds
of the Senior Note offering. The charge of $2.8 million recorded was net of
income tax benefit of $1.8 million. (See Note P of notes to Consolidated
Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily upon operating cash flow and borrowings
under its revolving credit facilities to finance capital expenditures,
increases in working capital and debt service. At June 30, 1996, working
capital was $49.4 million, an increase of $6.3 million from the working capital
balance as of December 31, 1995. Operating activities generated cash of
approximately $9.7 million during the six months ended June 30, 1996. Cash
provided by operations during the first six months of 1996 was primarily the
result of increased earnings. The Company had a net cash outflow of
approximately $0.9 million from its investing activities during the six months
ended June 30, 1996, for capital expenditures. The Company estimates that its
capital expenditures for fiscal 1996 will be approximately $6.0 million.
In connection with the acquisition of Cal Emblem, the Company issued
two five-year term promissory notes in the aggregate principal amount of $2.2
million which accrue interest at the rate of 10% per annum. Principal and
interest payments will be due in approximately equal installments over five
years.
The tax-exempt industrial revenue bonds in the principal amount of
$570,000 bear an annual interest rate of 10.125% and are due on October 1, 1996
($400,000) and on October 1, 1997 ($170,000). Monthly sinking fund payments
are required.
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<PAGE> 21
The Company has a revolving credit facility (the "Revolving Credit
Facility") that provides for borrowing of up to $20 million. The Revolving
Credit Facility is secured by the Company's accounts receivable and the
proceeds thereof and, subject to the first lien of the Senior Noteholders, by
the Company's inventory and proceeds thereof. Outstanding indebtedness under
the Revolving Credit Facility is limited to 80% of eligible accounts receivable
(subject to reduction by the lender under certain circumstances). The facility
will expire in February 1997, subject to automatic annual renewal unless
terminated by either party. The Company is obligated to pay certain
termination fees in the event the facility is terminated prior to February
1997. Under the terms of the Indenture governing the Senior Notes, the Company
is permitted to incur additional revolving credit indebtedness in an amount
equal to 85% of its accounts receivable, and based upon accounts receivable
balances at June 30, 1996, the Company was permitted to incur approximately
$26.1 million of revolving credit indebtedness. As of June 30, 1996, there was
no amount outstanding under the Revolving Credit Facility. The facility
restricts certain liens and prohibits the payment of dividends on, and
redemption of, any class of the capital stock of DDI (all of which is
currently owned by the Company), PBF or Cal Emblem and certain other restricted
payments, among other things.
The Company expects to satisfy its obligations under the Senior Notes,
the promissory notes issued in connection with the Cal Emblem acquisition and
the industrial revenue bonds, as well as future capital expenditures and
working capital requirements, with cash flow from operations, and believes that
this source will provide sufficient liquidity to enable it to meet its working
capital requirements for at least the next 12 months.
The information in the immediately preceding paragraph is
forward-looking and involves risks and uncertainties that could significantly
impact the Company's expected liquidity requirements in the short and long
term. While it is impossible to itemize the many factors and specific events
that could affect the Company's outlook for its liquidity requirements, such
factors would include fluctuations in paper prices, cyclical downturns in the
economy and the effect of emerging technologies such as electronic data
interchange on the business forms industry as a whole. These factors could
reduce the Company's revenues and increase its expenses, resulting in a greater
burden on the Company's liquidity than that which the Company has described
above.
INFLATION
Inflation has not had a significant negative impact on the Company's
operations during the periods presented. The Company has historically been
able to pass on to its customers increases in raw material prices caused by
inflation; however, no assurances can be given as to the extent of the
Company's ability to continue to pass on any future increases should they
occur.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's results of operations may fluctuate between quarterly
periods due to the effect of possible future acquisitions, the number of
shipping dates in the quarter, the timing of significant contracts, changes in
raw material prices and other factors, many of which may be beyond the control
of the Company. Such variability in the Company's results of operations could
cause the Company's stock price to fluctuate following the release of interim
results of operations or other information and may have a material adverse
effect on the Company or its stock price.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, in the first quarter of 1996. The impact
of adoption was not material to the Company's consolidated financial
statements.
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SFAS No. 123, Accounting for Stock Based Compensation, became
effective for the Company beginning January 1, 1996 and requires expanded
disclosure of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted, however,
to continue to apply Accounting Principles Board (APB) Opinion No. 25, which
recognizes compensation cost based on intrinsic value of the equity instrument
award. The Company will continue to apply APB No. 25 to its stock-based
compensation awards to employees and will disclose the required pro forma
effect on net income and earnings per share in its Annual Report on Form 10-K.
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<PAGE> 23
BUSINESS
GENERAL
The Company is a leading designer and provider of custom business
forms, pressure-sensitive label products and forms management systems that
enable its large corporate customers to enhance productivity and reduce costs
associated with managing information. A substantial portion of the Company's
forms sales are made in connection with its proprietary forms management
systems. In addition, the Company supplies specialized direct mail products
and services ("Intelimail") and sells other computer services and products,
including laser printer supplies and software packages.
Within the pressure-sensitive label market, the Company has focused
on, among others, the thermal, laser and combination label/forms segments. The
Company has developed many label products, such as the Dual-Web label/form
combination product and airline baggage tracking labels. Many of the Company's
products have been developed to satisfy customers' increasing needs for
variable information content, such as inventory control bar-coding for
manufacturing, retailing and distribution customers.
The Company establishes strategic, long-term forms management
relationships with its core customers. The Company's forms management services
have been designed to respond to increased outsourcing by large corporations of
non-core operations, such as forms design and work flow analysis, inventory
management, warehousing and shipping. During the second quarter of 1995, the
Company introduced Odyssey Integrated Services(SM) ("Odyssey"), which provides a
selection of software-based, fully integrated service modules offering
comprehensive forms management services and efficiency-enhancing tools.
In October 1995, the Company consummated the Offering, issuing
3,400,000 shares of its Common Stock to the public. The Offering was
registered under the Securities Act on a Registration Statement on Form S-1.
The net proceeds to the Company of approximately $27.9 million were used by the
Company to redeem $24,000,000 in aggregate principal amount of the Senior
Notes.
RECENT DEVELOPMENTS
In August 1995, the Company acquired Cal Emblem, a privately held
business specializing in pressure-sensitive labels for the produce industry and
other industries. Approximately 50% of Cal Emblem's revenues during its most
recently completed fiscal year were generated by the sale of prime labels,
which are pressure-sensitive labels that serve as the primary product
identification for certain consumer products. The Company has not
traditionally had such prime label capabilities. See "Risk Factors --
Acquisition of Cal Emblem; Uncertainty of Future Acquisitions."
In conjunction with the acquisition of Cal Emblem, the Company entered
into a three-year employment agreement with the former President of Cal Emblem
and a two-year employment agreement with the former Vice President of Finance
of Cal Emblem. The Company has also granted a seven-year stock option to the
former President to purchase 195,815 shares of the Company's Common Stock at an
exercise price equal to the initial public offering price of $9.00 per share.
INDUSTRY OVERVIEW
The Company has focused its product offerings in the business forms,
pressure-sensitive label and custom direct mail industries.
The U.S. market for business forms is divided into two primary
segments: custom forms and stock forms. The Company has targeted the
higher-margin custom forms segment. Based on industry analyses, the custom
forms segment generated approximately $6.1 billion of sales in 1994 and
includes such custom-made products
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as invoices, statements, purchase orders and checks. The stock forms segment
of the industry (excluding blank cut sheet laser printer paper) generated
approximately $1.3 billion of sales in 1994 and includes a wide variety of more
standard computer-output paper.
Advances in computer and laser technology have resulted in changes in
forms demands for some traditional products while creating new opportunities
for forms products and solutions that address the needs created by this new
technology. The installed base of laser printers has increased significantly
over the past few years and, as a result, custom laser form sales have been one
of the fastest-growing segments of the forms market.
In addition, larger companies have increased their outsourcing of
non-core operations such as forms management and have reduced the number of
vendors providing such products and services. The increase in outsourcing and
in the installed base of laser printers has resulted in an increase in the
customization of information flows. This trend towards outsourcing has also
increased the use of color and higher paper grades in print media. The Company
has worked to focus its business on custom value-added products and services
and has sought to develop solutions-based approaches to information collection
and distribution. See "-- Product Development."
The overall U.S. market for pressure-sensitive labels has grown
rapidly and was approximately $3 billion in 1994. Within this market, the
Company has historically focused its efforts on the EDP label segment. The
market for EDP pressure-sensitive labels was approximately $809 million in
1994. Evolving technologies are the catalysts for changes and growth in the
pressure-sensitive label market. The use of label products in applications
that are critical to the operations of business users is spurring the
development of new products and technologies, and end-users are demanding
reliable delivery and higher quality.
FORMS MANAGEMENT/ODYSSEY INTEGRATED SERVICES(SM)
In 1983, the Company introduced its forms management program to assist
its larger customers in improving overall productivity and reducing the costs
associated with information management. For a typical customer, the greatest
portion of the total costs of forms usage is not the form itself, but rather
the costs of creating, procuring, managing, storing and using forms. By
developing programs tailored to each customer's requirements, the Company helps
to control these costs and improve efficiency in each phase of the customer's
forms usage. These programs also respond to the trend among large corporations
of outsourcing non-core operations such as forms management.
In the second quarter of 1995, the Company announced the development
of its Odyssey Integrated Services(SM) forms management system. The Odyssey
system is a collection of software-based, fully integrated service modules
providing comprehensive forms management services and efficiency-enhancing
tools. As a package, the Odyssey system provides a more extensive array of
forms management services than the Company's standard forms management
programs. The Odyssey system incorporates proprietary software that runs on
the Microsoft Windows platform. The Odyssey system has been designed to
operate on either a fully outsourced basis or on the customer's own file
server. The Odyssey system was developed through the efforts of the Company's
marketing force, in close collaboration with the Company's customers and the
Company's in-house technical personnel. The Company's focus with the Odyssey
system will be on attracting new customers whose businesses are large enough to
generate savings from Odyssey's various service modules. Some of the Company's
existing customers may also be converted to the Odyssey system. Through the
second quarter of 1996, 22 customers have signed Odyssey agreements, which
include both new customers and conversions. These customers are in various
phases with the system, ranging from installed, implementation and
implementation planning. Although the Company believes that the Odyssey system
can enable certain customers to realize cost savings, there can be no
assurances that the availability of the Odyssey system will attract new
customers or that it will be accepted by existing customers.
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Forms management services offered by the Company (both in the Odyssey
system and the Company's standard forms management programs) include: (i) forms
and systems work flow analysis; (ii) forms design services which utilize
advanced design techniques, including DataLaser(R) technology; (iii) forms
control services; and (iv) inventory management services. An example of a
forms management service is a warehousing/storage agreement whereby the Company
receives an order for up to a year's supply of forms which can be produced in
economic lots throughout the year and delivered to the customer on a
just-in-time basis. As part of its traditional forms management program, for
its major customers the Company also provides on-line direct computer access
with software that enables the customer to determine the production status of
orders, check current inventory levels and place orders. Additional services
available under Odyssey system modules include workflow reengineering for
improving employee productivity and disaster recovery services. The Company
also offers consolidated billing and the Company's "Pick and Pack" forms
warehousing/storage services on a selected basis. Through this
warehousing/storage service, the Company distributes products to various
locations in less than case lot quantities on an "as needed" basis.
The Company does not currently charge a separate fee for most of these
services offered as part of its traditional forms management program; however,
the Company intends to charge a monthly fee for its Odyssey system based on the
number of users of the system at the customer. Although the Company does not
anticipate that the Odyssey system fees alone will be a significant source of
revenue for the Company, the goal of the forms management programs, such as the
Odyssey program, is to attract and retain large customers with significant
forms usage by enabling them to generate cost savings and efficiencies in
information management. As is the Company's expectation for the Odyssey
system, not all aspects of the Company's traditional forms management program
are offered to, or utilized by, all customers.
PRODUCTS
The Company's products consist primarily of business forms,
pressure-sensitive label products and InteliMail(R) custom direct mail
products, with aggregate sales of these products constituting 98%, 98% and 97%
of the Company's net sales for 1995, 1994 and 1993, respectively.
Business Forms. The Company manufactures a complete line of custom
business forms produced to buyers' specifications for size, plies, paper, inks
and content. Products manufactured include invoices, statements, purchase
orders and receiving reports. These forms can be finished in a variety of
formats (fan-folded, roll-fed or cut-sheet) depending on the customer's
intended use. The Company also provides stock forms as a support product to
its custom forms and forms management accounts. These products are generally
pre-printed, generic forms and blank or green-bar forms for use on all types of
computer printers.
Many major customers now employ high speed laser printers in a
centralized "print center." These customers are converting from fan-folded
forms to sheeted and/or jumbo roll (50") forms and the Company has developed
processes to manufacture high-quality, reliable roll and sheeted products for
this new printing environment. The Company's sales of custom laser forms
represented approximately 10.8% of its total net sales for 1995.
Pressure-Sensitive Labels. The Company's electronic printer
pressure-sensitive labels are used in a wide range of retail, wholesale,
manufacturing, industrial and medical businesses and often relate to
applications that are critical to the operations of the Company's customers.
The Company produces bar code and other labels for a wide range of scanning
systems, which may be imprinted through the Company's plant or at the
customer's location. The uses of bar codes and other types of variable
information labeling, which uniquely identify individual products or
transactions, are growing, and customers are seeking to provide greater detail
in packaging and labeling, including hazardous materials notifications. In
addition, government regulations in various industries are increasing the
demand for more informative and extensive labels. The Company also serves as a
value-added reseller of certain of integrated label applications. See "--
Product Development."
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<PAGE> 26
The Company's custom label products include the following:
# Dual-Web. The Dual-Web product combines a custom-designed
business form and a pressure-sensitive label into a single
unit. Such label/form combination products are now used
extensively in the pharmacy and other industries.
# Laserprint. These labels, used primarily in retail and
distribution industries, are manufactured under strict
humidity-controlled conditions to ensure stability, with a
specially coated surface for laser imaging of bar-codes,
pricing information and other variable information.
# Airline Baggage Tracking Labels. On-demand printed bag tags.
Label stock is printed by the Company, and bar-codes and other
variable imaged information for baggage identification and
routing is added by airline personnel at ticket counters.
# Specialty Labels. Non-paper labels (vinyl, mylar, foils and
other films) with resistance to chemicals, heat and moisture
for harsh environments such as continuous rating plates for
electric and gas appliances, certain hazardous warning labels
(used for applications such as government-mandated chemical
labeling) and bar-coding labels.
# Direct Thermal Labels. Custom labels that produce an image
when thermal-coated paper comes in contact with a heated
printhead. These labels, which the customer normally uses to
identify specific items, are used in a variety of
applications, including parts identification and inventory
control.
# Thermal Transfer Labels. On-demand custom labels produced by
pressing a heated printhead against a film ribbon transferring
the image to the label surface. Applications include consumer
product tags, tickets, packaging, photo identification cards
and inventory control.
# Prime Labels. Through the newly acquired Cal Emblem, the
Company now competes in the prime label market, the largest
segment of the overall pressure-sensitive label market.
Intelimail. InteliMail(R) is a specialized single-source supplier of
custom direct mail services including printing, data processing and mailing
services offered to firms marketing their products and services through the
mail. Direct mail users include companies in the publishing, insurance,
finance, communications, retail sales, non-profit and automotive industries.
In addition, federal, state and local governments, agencies, political parties
and lobbyists are large users for applications such as ballots, voter
registration, license renewal statements and payment coupons. The
InteliMail(R) division focuses on middle market customers and provides a
complete line of printed products, design capabilities and mailing services.
Products of the InteliMail(R) division include a variety of different
mailer formats, processes and services for custom direct mail solicitations
such as: (i) production formats including promotional printing, imaged
insert/window envelopes, imaged envelope/generic insert, one-part
folded/mailer, InteliMailer(R) and Inteligram(R) and (ii) processes and
services including data processing, in-line finishing, and variable imaging.
PRODUCT DEVELOPMENT
In 1985, the Company introduced the "Combo Label," a patented
three-part product used for picking, pricing and shipping and the "Dual-Web"
label, a label/form combination. In 1987, the Company introduced the "Laser
Label," a sheetfed label allowing customers to apply their own variable imaging
on-site. In 1989, in conjunction with airline industry representatives, the
Company developed a heat-sensitive label to upgrade
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<PAGE> 27
baggage tracking systems. In 1990, the Company released a new product line to
provide custom cut sheets and 50" rolls (custom and stock) to the growing laser
forms market. In 1995, the Company released a guaranteed matched mailer, a
personalized letter and matching envelope produced with video and computer
equipment.
In response to the increased use of laser printing technology and the
trend towards outsourcing by large corporations, the Company has developed the
Odyssey system. The Odyssey system was developed through the efforts of the
Company's marketing force, in close collaboration with the Company's customers
and the Company's in-house technical personnel.
Company has an internal team of electronic forms designers and
information specialists. This team works to provide electronic forms to the
Company's customers. In 1991, the Company entered into an agreement with a
software developer to market software for electronic forms design and to
further enhance the Company's photo composition system by using personal
computers to generate copy/proofs on a local basis.
The Company has recently developed three informal, joint-venture
relationships with software and other technology-based companies to provide
integrated system solutions for commercial applications. One application is
Medi-Link, a prescription labeling package that provides prescription labels,
patient counseling documentation and point-of-sale coupons and is marketed
through the Company's sales force. The Medi-Link package, which incorporates
not only the Company's label products but also computer software and hardware,
has been adopted by a number of pharmacy companies. Another application is an
inventory compliance labeling system that will be offered for sale to vendors
of Wal-Mart Stores. The system, which is called Compliance Plus, includes
software, hardware and label products that conform to Wal-Mart's product
identification requirements for its vendors.
SALES AND MARKETING
Sales Force. The Company's products are sold through its direct sales
force, portions of which focus exclusively on sales of label products and
Intelimail(R) products and services.
The Company believes its sales force is very productive, with average
annual sales per representative of over $1.2 million during 1995. Management
attributes the sales force's productivity to a number of factors, including:
(i) focus on larger accounts; (ii) in-depth industry knowledge; (iii) a full
range of products allowing the sales force to cross-sell several product lines
to all of their customers; (iv) a high level of personal attention by the
salesperson to large accounts; and (v) a strong sales support structure. The
Company's sales force is very experienced, with an average level of sales
experience with the Company of approximately seven years. The Company only
recruits salespersons with prior sales experience.
CUSTOMERS
The Company's sales force targets large consumers of forms and labels
with revenue potential in excess of $50,000 per year and has historically
focused its sales efforts on its core geographic markets of mid-America, the
southwest and the northwest due to these regions' proximity to the Company's
manufacturing facilities and the impact of transportation costs on the
Company's margins. The Company also targets specific nationwide accounts where
increased volume and resulting efficiencies can offset delivery costs. The
Company's five largest customers accounted for 14.3% of net sales in 1995 and
14.2% of net sales during fiscal 1994. No customer accounted for more than
5.0% of the Company's net sales during 1995, 1994 or 1993.
BACKLOG
At June 30, 1996, the Company's backlog of unfilled customer orders
was $48.6 million, as compared to $54.3 million at June 30, 1995. The Company
expects that substantially all of its current orders will ship
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<PAGE> 28
within the next 180 days. The Company's typical order to shipment cycles
range from two to four weeks for custom products, while stock products are sold
"off the shelf."
DISTRIBUTION
Finished products produced by both the forms and labels operations are
normally distributed by truck either to warehouse facilities or directly to the
customer. Finished products generally are transported by outside trucking
services. However, the Company maintains and operates a fleet of trucks for
distribution within areas where the volume of shipments warrants ownership and
control.
Products are stored in all of the forms plants as well as in leased or
public warehouse facilities in outlying locations to decrease delivery time and
costs. Stock forms are stored in order to be readily available to the sales
force, while custom forms are stored for the convenience of the customer, often
pursuant to a forms management program. Warehouse storage is an important part
of the value-added services provided to customers. By producing forms or
labels required by a particular customer in advance and storing these products,
they are immediately available to the customer. The Company is compensated for
the expense of providing this warehousing function.
RAW MATERIALS
Paper is the Company's predominant raw material, accounting for 48% -
54% of the total cost of custom forms, 75% - 80% of the total cost of stock
forms and 67% - 74% of the total cost of pressure-sensitive labels. To satisfy
its paper requirements, the Company has entered into agreements with major
paper suppliers. The Company's paper supply contracts entitle the Company to
purchase paper at specified discounts to market prices. Purchases under these
agreements account for more than 80% of the Company's total paper requirements,
with the remainder purchased primarily from suppliers with which the Company
has long-standing relationships. Other raw materials used in the Company's
operations include carbon, ink and cartons.
COMPETITION
The business forms, pressure-sensitive label and direct mail
industries are very fragmented and highly competitive. The Company believes
that a relatively small number of companies account for a majority of the
market for business forms. Most other competitors are small local or regional
companies which often source from larger manufacturers. The Company's
competitors include manufacturers of all sizes, some of which have
significantly greater financial, distribution and marketing resources than the
Company. In general, because the business forms and prime label industries
tend to be regional, different competitive factors have greater influence in
different areas. In particular, the number of competitors in a region and
their relative strengths and selling tactics dictate the regional competitive
environments. Competition in the pressure-sensitive label and direct mail
industries tends to be nationwide in scope. The Company generally competes on
the basis of price and service in the stock forms and stock labels markets and
on the basis of price, quality, technical expertise and service, including
speed of delivery, in the custom forms and labels markets and in the customized
direct mail market.
The Company's largest competitors in the business forms industry are
Duplex Corporation, Moore Business Forms, Reynolds & Reynolds, Standard
Register Co., Uarco (a division of Settsu) and Wallace Computer Services Inc.
The Company's largest competitors in the pressure-sensitive label market are
Avery, Moore Business Forms and Uarco. The largest competitors in the direct
mail market are Colorforms (a division of Wallace), Communicolor (a division of
Standard Register Co.), Direct Marketing Corp. of America, InstaWeb and
Response Marketing Services (a division of Moore Business Forms).
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EMPLOYEES
At July 31, 1996, the Company had approximately 1,200 full-time and
part-time employees at its various plants and facilities, including the
employees at the facilities recently acquired from Cal Emblem. The Company
hires temporary employees from time to time as needed. The Company considers
its employee relations to be excellent and has not experienced any significant
work disruptions due to labor difficulties. Approximately 11% of the Company's
employees, representing the hourly production work forces at the Bloomington,
Minnesota and Tacoma, Washington plants and one of the Denver, Colorado plants,
are covered by collective bargaining agreements with local units of the Graphic
Communications International Union. The plant agreements covering the
Company's Bloomington, Tacoma and Denver facilities expire in September 1999,
September 1996 and December 1998, respectively. Wages and benefits at the
union plant locations do not differ materially from those of non-unionized
employees in the same labor markets. The remaining employees are not covered
by collective bargaining agreements.
TRADEMARKS
The Company owns and utilizes trademarks with respect to its name and
logo, the Cal Emblem name and logo, Dual-Web, Intelimail(R), Laserprint,
Inteligram(R) and Intelimailer(R), and has pending applications with respect to
Odyssey Integrated Services(SM) and Odyssey Systems. These trademarks (with the
exception of the Cal Emblem logo) are registered in the United States with the
U.S. Patent and Trademark Office. The Company believes that its trademarks and
other proprietary rights are significant assets and have value in the marketing
of its products.
MANUFACTURING
Manufacturing. Most of the Company's products are manufactured at one
of the Company's 11 facilities. With the exception of the pressure-sensitive
label plants in Dallas, Denver, Fresno and Kansas City and the Kansas City
Intelimail(R) plant, each plant is multi-purpose so that regional locations can
offer a full range of business forms products.
The Company's forms manufacturing plants utilize rotary presses in the
production of business forms. The press configurations range from 14", 17",
20", 22" and 24" repeat sizes and provide from one to six-color printing
capability. These presses, along with accessory equipment, provide broad
capability to satisfy the wide range of forms demand from the Company's
customers. The Company's multiple plants allow the Company to shift work
during periods of peak demands at one or more plants in order to maintain
service levels.
Facilities. The Company's 11 facilities are located in or near
Fresno, California; Chicago, Illinois; Dallas, Texas (2); Denver, Colorado (2);
Kansas City, Kansas (2); Minneapolis, Minnesota; Tacoma, Washington and Omaha,
Nebraska. The Company's executive and administrative offices are located in
Omaha, Nebraska, including its headquarters offices. The following table sets
forth function, location, size, ownership status and leasehold term of the
facilities and plants operated by the Company (excluding sales offices):
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<TABLE>
<CAPTION>
PRIMARY
APPROXIMATE OWNED/ LEASE FUNCTIONAL
FUNCTION/LOCATION SQUARE FOOTAGE LEASED EXPIRATION USE
----------------- -------------- ------ ---------- ----------
<S> <C> <C> <C> <C>
CORPORATE OFFICE:
Omaha, Nebraska . . . . . . . . . . . . . . 35,000 Owned -- Office
MANUFACTURING:
Bloomington, Minnesota . . . . . . . . . . 81,000 Leased 1999 Forms
Crystal Lake, Illinois . . . . . . . . . . 79,000 Leased 2006 Forms
Hutchins (Dallas), Texas . . . . . . . . . 104,000 Owned -- Forms
Dallas, Texas . . . . . . . . . . . . . . . 98,000 Owned -- Labels
Denver, Colorado . . . . . . . . . . . . . 109,000 Owned -- Forms
Denver, Colorado . . . . . . . . . . . . . 35,000 Leased 1998 Labels
Fresno, California . . . . . . . . . . . . 52,000 Leased 1999 Labels
Lenexa (Kansas City), Kansas . . . . . . . 15,000 Leased 1997 Labels
Lenexa (Kansas City), Kansas . . . . . . . 66,000 Owned -- Intelimail(R)
Omaha, Nebraska . . . . . . . . . . . . . . 130,000 Owned -- Forms
Tacoma, Washington . . . . . . . . . . . . 84,000 Owned -- Forms
COMPOSITION:
Kansas City, Kansas . . . . . . . . . . . . 6,000 Leased 1999 Composition
</TABLE>
The Company believes that its existing corporate and manufacturing
facilities will be adequate to meet its current and foreseeable requirements,
and that suitable additional or alternative space will be available as needed
on commercially reasonable terms.
Subcontracting Program. The Company manufactures only those products
it can produce efficiently, complementing its production with a subcontracting
program focusing on very short-run quantities, extremely fast turnaround
products, electronic data processing supplies and mailers and envelopes. Sales
of purchased products totaled $37 million, or approximately 15% of net sales,
in 1995. The Company's overall margins from those products it purchases from
subcontractors are generally at least as high as its margins from internally
manufactured products. Coordinated efforts among the Company's offices have
led to purchasing economies and higher margins.
ENVIRONMENTAL MATTERS
The Company's operations are subject to a variety of federal, state
and local environmental laws and regulations which have become increasingly
stringent. The Company believes its current operations are in material
compliance with current environmental laws and regulations. However, the scope
of environmental laws is very broad and is subject to change.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the ordinary
course of business. In management's opinion, the outcome of these matters will
not have a material adverse effect on the Company's financial condition,
liquidity or results of operations.
28
<PAGE> 31
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth certain information concerning the
Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------- --------- --------------------------------------------
<S> <C> <C>
Walter J. Kearns . . . . . . . . . . 59 Chairman of the Board, President and Chief
Executive Officer
Joseph C. Addison . . . . . . . . . . 63 Director, Vice President, Finance, Chief
Financial Officer, Secretary and Treasurer
Morris W. Caudle . . . . . . . . . . 54 Vice President, General Sales Manager
Jeffrey R. Holton . . . . . . . . . . 46 Vice President, General Manager,
Allyn D. Plejdrup . . . . . . . . . . 61 Vice President, General Manager, Label Group
William R. Rinehart . . . . . . . . . 59 Vice President, Manufacturing
Mark R. Allison . . . . . . . . . . . 44 Director
Thomas W. Blumenthal . . . . . . . . 37 Director
Robert W. Cruickshank . . . . . . . . 51 Director
</TABLE>
Walter J. Kearns has served as President and Chief Executive Officer
of DDI since 1984 and he assumed such offices for the Company upon the 1988
Management Acquisition. Previously, he was employed by Burroughs Corporation
for over 20 years, last serving as Vice President and General Manager, Business
Forms Division. Mr. Kearns has been a director of DDI and the Company since
the 1988 Management Acquisition.
Joseph C. Addison joined DDI in 1974 and has served successively as
Director, Management Information, Treasurer, and currently as Vice President,
Finance, Chief Financial Officer, Secretary and Treasurer. He assumed such
offices for the Company upon the 1988 Management Acquisition. Mr. Addison
became a director of the Company and DDI in November 1994.
Morris W. Caudle joined DDI in January 1987 as Vice President, Sales
(Eastern Region). He assumed such office for the Company upon the 1988
Management Acquisition. In October 1989, Mr. Caudle became Vice President,
General Sales Manager.
Jeffrey R. Holton is Vice President and General Manager,
Intelimail(R). Mr. Holton joined the Company in August 1993 after a 21-year
career in the direct mail industry with the Communicolor Division of The
Standard Register Company in Ohio.
Allyn D. Plejdrup joined DDI in 1976 as Director of Marketing of the
Labels division and was promoted in that year to Division Manager. He assumed
that position for the Company upon the 1988 Management Acquisition. In February
1988, Mr. Plejdrup became Vice President, General Manager, Labels. In
connection with the acquisition of Cal Emblem in September 1995, Mr. Plejdrup
became Vice President, General Manager, Label Group.
William R. Rinehart joined DDI in 1977 as Plant Manager of the Dallas
Plant. He has served as Plant Manager, Dallas Forms; Division Manager, Dallas;
and since 1986, Vice President, Manufacturing for DDI. He assumed that
position for the Company upon the 1988 Management Acquisition.
29
<PAGE> 32
Mark R. Allison has been a director of the Company and DDI since the
1988 Management Acquisition. Mr. Allison is the Chief Executive Officer of
Raebarn Corporation in New York, the merchant banking firm which initiated the
1988 Management Acquisition, since 1985 and has also been Chief Executive
Officer of Ashtree Holdings, Inc., since 1992. Mr. Allison was also the
President of Lafarick Corporation in Los Angeles (formerly known as Raebarn
Corporation) from 1985 to 1995. Mr. Allison is a director of Holophane
Corporation, a publicly traded lighting equipment manufacturer.
Thomas W. Blumenthal became a director of DDI and the Company upon the
1988 Management Acquisition. Mr. Blumenthal is currently a Vice President of
The Baupost Group, Inc. From 1984 until 1993, Mr. Blumenthal was associated
with Dean Witter Reynolds Inc. in various capacities where he became a Managing
Director in 1989. Mr. Blumenthal is also a director of The Oberto Sausage
Company and Richey Electronics, Inc.
Robert W. Cruickshank has been a director of the Company since 1992
and DDI since December 1994. Mr. Cruickshank operates an investment firm
providing consulting services ranging from investment policy to supervision of
private companies. Mr. Cruickshank is a director of Calgon Carbon Inc.,
Friedman's Inc. and New Canaan Bank and Trust.
The existing directors were elected to the Board pursuant to a
stockholders' agreement which was amended and restated in connection with the
Senior Note offering. The voting restrictions of such stockholders' agreement
terminated upon completion of the Offering. See "Certain Transactions --
Stockholders Agreement and Registration Rights."
BOARD OF DIRECTORS COMMITTEES AND COMPENSATION
The Board of Directors of the Company has appointed three committees:
the Audit Committee, the Compensation Committee and the Stock Option Committee.
The members of the Audit Committee are Messrs. Allison and Blumenthal. The
members of the Compensation Committee are Messrs. Blumenthal and Cruickshank.
The members of the Stock Option Committee are Messrs. Allison and Cruickshank.
The Stock Option Committee administers the Company's 1995 Stock Incentive Plan.
Employee directors do not receive additional compensation for service on the
Board of Directors or its committees. The Company pays other outside directors
an annual fee of $18,000 plus $500 for each attended regularly scheduled
meeting, and reimburses such directors' expenses relating to their activities
as directors. Non-employee directors receive automatic option grants under the
Company's 1995 Employee Stock Incentive Plan pursuant to a pre-determined
formula.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither Mr. Blumenthal nor Mr. Cruickshank is or has been an employee
or officer of the Company or any of its subsidiaries.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth, for the
years ended December 31, 1993, 1994 and 1995, the cash compensation for
services in all capacities to the Company of those persons who were, as of
December 31, 1995, the Company's Chief Executive Officer, and the four other
most highly compensated executive officers of the Company whose total annual
salary and bonus exceeded $100,000 during the last fiscal year (collectively,
the "Named Executive Officers"):
30
<PAGE> 33
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ------------
ALL OTHER SECURITIES
COMPENSA- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) TION(2) OPTIONS
----------------------------------------------------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Walter J. Kearns . . . . . . . . . . . . . 1995 $234,500 $320,500 $1,350 12,000
Chairman, President and Chief 1994 227,700 200,400 1,350 --
Executive Officer 1993 215,800 224,100 1,350 --
William R. Rinehart . . . . . . . . . . . . 1995 131,925 63,500 1,085 5,000
Vice President - Manufacturing 1994 126,442 54,200 1,085 --
1993 123,600 52,600 1,085 --
Morris W. Caudle . . . . . . . . . . . . . 1995 140,717 76,200 576 5,000
Vice President, General Sales Manager 1994 135,725 52,500 576 --
1993 132,717 57,500 576 --
Joseph C. Addison . . . . . . . . . . . . . 1995 126,125 69,400 2,106 5,000
Vice President -- Finance, 1994 118,750 42,200 2,106 --
Chief Financial Officer and Secretary 1993 115,250 48,000 2,106 --
Allyn D. Plejdrup . . . . . . . . . . . . . 1995 131,500 83,600 1,902 5,000
Vice President, General Manager -- 1994 122,700 47,700 1,220 --
Label Group 1993 117,233 53,400 1,220 --
</TABLE>
- -------------
(1) Includes amounts earned during the subject year, but paid in the
subsequent year.
(2) Consists of the value of the Company's contributions to group life
insurance over $50,000. Excludes perquisites and other personal
benefits that do not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for any Named Executive Officer.
Option Grants Table. Shown below is information concerning grants of
options issued by the Company to the Named Executive Officers during 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Walter J. Kearns 12,000 11.2% $9.90 10/3/2000 $29,838 $65,935
William R. Rinehart 5,000 4.7 9.00 10/3/2005 28,300 71,718
Morris W. Caudle 5,000 4.7 9.00 10/3/2005 28,300 71,718
Joseph C. Addison 5,000(3) 4.7 9.00 10/3/2005 28,300 71,718
Allyn D. Plejdrup 5,000 4.7 9.00 10/3/2005 28,300 71,718
</TABLE>
- --------------------
31
<PAGE> 34
(1) These options were granted under the Company's 1995 Stock Incentive
Plan. All options were granted on October 3, 1995, and unless otherwise
indicated, vest with respect to one-third of the shares on each anniversary of
such grant date.
(2) The 5% and 10% assumed rates of appreciation are specified under the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future price of its Common Stock. The
actual value, if any, which a Named Executive Officer may realize upon the
exercise of stock options will be based upon the difference between the market
price of the Company's Common Stock on the date of exercise and the exercise
price.
(3) All of Mr. Addison's options vest on October 3, 1996.
Aggregated Option Exercises and Year-End Option Value Table. Shown
below is information relating to the year-end value of unexercised options for
each of the Named Executive Officers as of December 31, 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
-----------------------------------------------------------------------------------------
<S> <C> <C>
Walter J. Kearns 12,000 $0
William R. Rinehart 5,000 0
Morris W. Caudle 5,000 0
Joseph C. Addison 5,000 0
Allyn D. Plejdrup 5,000 0
- ---------------
</TABLE>
(1) Calculated using closing per-share price of $8.63 of the Company's
Common Stock on The Nasdaq National Market on December 31, 1995. The
actual amount, if any, realized from unexercised options will be
dependent upon the price of the Company's Common Stock at the time
shares obtained upon exercise of such options are sold and, as to
unexercisable options, whether restrictions upon exercise of such
options lapse.
Employment Agreement. The Company has entered into an employment
agreement (the "Employment Agreement") with Mr. Kearns which sets forth the
terms and conditions of Mr. Kearns' employment as Chairman, President and Chief
Executive Officer. The Employment Agreement provides for a base salary of
$227,700, reviewable annually by the Board of Directors for increase, as well
as an annual targeted bonus of 96% of the annual salary range midpoint
($215,100 for 1995), based upon the attainment by the Company of certain
financial performance objectives. See "-- Annual Cash Bonus Plan."
The Employment Agreement does not provide for a specified term of
employment. If Mr. Kearns' employment is terminated by the Company without
cause or if he resigns for good reason, other than within two years following a
Change of Control (in each case, as defined in the Employment Agreement), Mr.
Kearns would be entitled to receive severance payments and other benefits
including: (a) a single lump sum payment of any accrued base salary, benefits
and bonus under the Annual Cash Bonus Plan (as defined below); (b) continuation
of base salary, bonus payments and certain fringe benefits for a period of 24
months following termination of employment, provided that such amounts shall be
reduced if Mr. Kearns accepts third-party employment; and (c) full vesting of
all outstanding stock options, if any.
Within two years following a Change of Control, if Mr. Kearns'
employment is terminated by the Company without cause or if he resigns for good
reason, he would be entitled to receive certain lump sum payments and
32
<PAGE> 35
other benefits, including: (a) a single lump sum payment of any accrued base
salary, benefits and bonus under the Annual Cash Bonus Plan; (b) a single lump
sum payment equal to the sum of two times Mr. Kearns' applicable base salary
and targeted annual bonus; and (c) reimbursement of any excise tax incurred
under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), plus any resulting income taxes as a result of such reimbursement. In
addition, upon the occurrence of a Change in Control, Mr. Kearns will become
fully vested in all outstanding stock incentive awards, including all stock
options, if any, granted to him.
If Mr. Kearns' employment is terminated by the Company for cause or if
he resigns without good reason, he would not be entitled to any severance pay
or any other additional compensation.
Termination Benefits Agreements. The Company has entered into certain
Termination Benefits Agreements (the "Termination Agreements") with each of the
Company's executive officers other than Mr. Kearns. Under the terms of the
Termination Agreements, such executives are entitled to receive certain
benefits upon the termination of their employment within two years following a
Change in Control if termination is by the Company without cause or by such
executive for good reason (all terms as defined in the Termination Agreements).
Benefits payable upon termination would include: (a) a single lump sum payment
of any accrued base salary, benefits and bonus under the Annual Cash Bonus
Plan; (b) continuation of certain fringe benefits for a period of 12 months
following termination of employment; (c) a single lump sum payment equal to 1
1/2 times the executive's applicable base salary and targeted annual bonus; and
(d) reimbursement of any excise tax incurred under Section 4999 of the Code,
plus any resulting income taxes. In addition, upon the occurrence of a Change
in Control, the executive will become fully vested in all outstanding stock
incentive awards, including all stock options, if any, granted to him.
Pension Benefits. The Data Documents, Inc. Pension Plan (the "Pension
Plan") is a non-contributory defined benefit pension plan covering all salaried
and hourly employees of DDI who have completed one year of service and attained
age 21, other than employees who are participants in a collective bargaining
agreement that does not provide for participation in the Pension Plan. Upon
retirement at normal retirement age (65), a participant in the Pension Plan is
entitled to an annual pension benefit equal to 0.8% of his "average annual
compensation" up to an amount equal to his "covered compensation" plus 1.2% of
average annual compensation in excess of covered compensation multiplied by the
number of years of service accrued by the participant, up to a maximum of 35
years. For purposes of the application of this formula, "average annual
compensation" is calculated on the basis of the average of the highest-paid
five consecutive years of the participant's final ten calendar years of
service. "Covered compensation" is the average of the taxable wage bases in
effect for each calendar year during the 35-year period ending on the last day
of the calendar year in which the participant attains "retirement age" as
defined in the Social Security Act. Benefits received are not reduced by
amounts received from Social Security or other benefit plans. The normal form
of pension benefit for a married participant is a joint and 50% survivor
annuity and for a single participant is a straight life annuity. A participant
becomes entitled to a non-forfeitable benefit under the Pension Plan upon
completion of five years of service. For purposes of vesting and benefit
accrual, an employee accrues one year of service upon completion of at least
1,000 hours of service in a calendar year. The Pension Plan also provides for
payment of benefits upon a participant's early retirement date (attainment of
age 55 with at least five years of service), actuarially reduced by factors set
forth in the Pension Plan.
The following table shows the annual pension benefits, calculated on
the basis of a straight life annuity, that would be payable under the Pension
Plan for retirement at age 65 for various levels of average annual compensation
and years of service:
33
<PAGE> 36
<TABLE>
<CAPTION>
ANNUAL BENEFITS FOR YEARS OF SERVICE(2)
----------------------------------------------------
AVERAGE ANNUAL COMPENSATION(1) LEVELS: 15 20 25 30 35
------------------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000 . . . . . . . . . . . . . $16,541 $22,055 $27,569 $33,083 $38,596
$125,000 . . . . . . . . . . . . . 21,041 28,055 35,069 42,083 49,096
$150,000(3) . . . . . . . . . . . . 25,541 34,055 42,569 51,083 59,596
- ---------------
</TABLE>
(1) Under Section 401(a)(17) of the Code, effective for benefits accrued
under the Pension Plan in Plan years beginning on or after January 1,
1994, compensation in excess of $150,000 must be disregarded.
(2) Under Section 415 of the Code, annual benefits which can be paid under
the Pension Plan to any employee may not exceed an amount equal to
$120,000, as adjusted annually.
(3) Due to the restrictions discussed in footnote (1) above, benefits for
average annual compensation in excess of $150,000 are the same as
those for average annual compensation of $150,000.
Compensation for purposes of the determination of average annual
compensation means the total earnings paid or made available to an employee
during a Plan year, as defined in Section 415(c)(3) of the Code, but including
compensation not currently includable in an employee's gross income by reason
of the application of Sections 125 and 402(a)(8) of the Code. For purposes of
determining annual compensation, the Company includes the value of Company
contributions for group life insurance over $50,000.
The years of service, for Pension Plan purposes, and estimated average
annual compensation as of December 31, 1995, of each individual named in the
Summary Compensation Table above were: Mr. Kearns: 12 years, $386,431; Mr.
Addison: 15 years, $157,545; Mr. Caudle: 9 years, $177,036; Mr. Plejdrup: 15
years, $157,081; and Mr. Rinehart: 15 years, $176,405. The current vested
annual benefits for those eligible to retire as of January 1, 1996 would be:
Mr. Kearns, $24,864; Mr. Addison, $24,756; Mr. Plejdrup, $23,844 and Mr.
Rinehart, $24,840. Mr. Caudle is not currently eligible to retire.
The Company currently intends to continue the Pension Plan, but has
reserved the right to terminate it at any time.
401(k) Plan. The Data Documents, Inc. 401(k) Salary Deferral Savings
Plan (the "401(k) Plan") is a tax-qualified defined contribution plan that
contains a qualified cash or deferred arrangement under Section 401(k) of the
Code. All employees, other than those covered under collective bargaining
agreements, are eligible to participate in the 401(k) Plan upon completion of
one year of service. Employees may elect to contribute a percentage of their
annual earnings to the 401(k) Plan on a pre-tax basis by payroll deduction up
to a maximum of $9,500 each year (or such higher limit as the Internal Revenue
Service may prescribe). The amounts so contributed are credited to individual
accounts maintained for each 401(k) Plan participant in the tax-exempt trust
established by the 401(k) Plan. Participants are fully vested at all times in
such account balances. Amounts held in such accounts are invested at the
direction of the participant in one or more of the several diversified
investment funds made available by the Company as plan administrator. Other
than forwarding the participants' salary deferrals to the 401(k) Plan on their
behalf, the Company makes no contributions to the 401(k) Plan. The Company
maintains a separate 401(k) plan for its Denver, Colorado collective bargaining
unit employees, which includes contributions made by the Company. As a result
of the acquisition of Cal Emblem in August 1995, the Company also maintains a
401(k) plan for employees of that subsidiary, with a matching contribution of
15% of a participant's salary deferrals made by the Company. Participants
become fully vested in these matching contributions on a gradual schedule over
seven years.
34
<PAGE> 37
As of December 31, 1995, the account balances under the 401(k) Plan of
each individual named in the Summary Compensation Table above were: Mr. Kearns,
$95,933; Mr. Addison, $85,075; Mr. Caudle, $90,453; Mr. Plejdrup, $2,284; and
Mr. Rinehart, $63,550. Upon termination of employment, the foregoing officers
would be entitled to receive a distribution of their account balances from the
401(k) Plan.
The Company currently intends to continue the 401(k) Plan, but has
reserved the right to terminate it at any time.
Annual Cash Bonus Program. The Annual Cash Bonus Program provides for
the granting of cash bonuses to officers and other key employees of the
Company. Each year objective financial performance measurements for the
Company and target bonus levels for each executive are approved in advance by
the Compensation Committee of the Board of Directors. Bonus amounts are
determined based on a combination of the performance results for the Company
and individual performance goal results and are paid following the end of the
fiscal year. The typical target bonus ranges from 10% to 40% of the annual
salary range midpoint for the particular employee's position ("annual salary
range midpoint"). Mr. Kearns' annual bonus target is 96% of annual salary
range midpoint and may not exceed 149% of annual salary range midpoint pursuant
to his employment agreement. The maximum bonus of the other named Executive
Officers may not exceed 60% of their annual salary range midpoint.
STOCK OPTION PLAN
The Board of Directors of the Company adopted the 1995 Employee Stock
Incentive Plan (the "1995 Plan") pursuant to which officers, directors,
employees and consultants of the Company are eligible to receive options to
purchase Common Stock and other awards as described below. The maximum number
of shares of Common Stock that may be issued pursuant to awards granted under
the 1995 Plan is 500,000 (subject to adjustments to prevent dilution).
The 1995 Plan is administered by the Stock Option Committee, except
that grants to non-employee directors are made pursuant to a pre-determined
formula. The Stock Option Committee has full and final authority to select the
individuals to receive awards and to grant such awards and has a wide degree of
flexibility in determining the terms and conditions of awards. Subject to
limitations imposed by law, the Board of Directors of the Company may amend or
terminate the Plan at any time and in any manner. However, no such amendment
or termination may deprive the recipient of an award previously granted under
the Plan of any rights thereunder without his or her consent.
Awards to employees are not restricted to any specified form or
structure and may include, without limitation, sales or bonuses of stock,
restricted stock, stock options, reload stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, phantom stock, dividend equivalents,
performance units or performance shares. An award to an employee may consist
of one such security or benefit or two or more of them in tandem or in the
alternative. Any option granted to an employee may be a tax-benefited
incentive stock option or a non-qualified stock option. Certain non-employee
directors will receive automatic option grants under the Plan. See "Board of
Directors Committees and Compensation" above. An award granted under the 1995
Plan to an employee will generally include a provision conditioning or
accelerating the receipt of benefits upon the occurrence of specified events,
such as a change of control of the Company or a dissolution, liquidation, sale
of substantially all of the property and assets of the Company or other
significant corporate transaction.
Pursuant to Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), directors, executive officers and 10%
stockholders of the Company are generally liable to the Company for repayment
of any profits realized from any non-exempt purchase and sale of Common Stock
occurring within a six-month period. Rule 16b-3 promulgated under the Exchange
Act provides an exemption from Section
35
<PAGE> 38
16(b) liability for certain transactions by an officer or director pursuant to
an employee benefit plan that complies with such Rule. The Plan is designed to
comply with Rule 16b-3.
Awards may not be granted under the 1995 Plan after the tenth
anniversary of the adoption of the 1995 Plan. Although any award that was duly
granted on or prior to such date may thereafter be exercised or settled in
accordance with its terms, no shares of Common Stock may be issued pursuant to
any award after the twentieth anniversary of the adoption of the Plan.
Prior to the completion of the Offering, the Company granted options
to employees to purchase an aggregate of 103,800 shares of Common Stock,
exercisable at the initial public offering price of $9.00 per share, with the
exception of the options granted to Mr. Kearns which are exercisable at $9.90.
Such grants included an option grant to Mr. Kearns to purchase 12,000 shares of
Common Stock, option grants to each of Messrs. Addison, Caudle, Plejdrup and
Rinehart to purchase 5,000 shares of Common Stock and an option grant to Mr.
Holton to purchase 10,000 shares of Common Stock. The Company also granted Mr.
Blumenthal an option to purchase 25,000 shares, exercisable at the initial
public offering price of $9.00 per share.
36
<PAGE> 39
CERTAIN TRANSACTIONS
THE 1988 MANAGEMENT ACQUISITION
The Company was organized to acquire in February 1988 all of the
capital stock of DDI from Pitney Bowes, Inc. The purchase price of the
transaction, including fees and expenses, was approximately $92.4 million plus
certain assumed liabilities. Following the 1988 Management Acquisition, the
capital structure of DDI consisted of $7.0 million of Common Stock and
Cumulative Convertible Preferred Stock with annual dividends payable for a
period of time in kind with shares of the Company's Cumulative Redeemable
Preferred Stock, $29.4 million aggregate amount of Senior Subordinated Notes
(the "Subordinated Notes") and senior bank financing totaling approximately
$64.0 million, including working capital and bridge financing facilities.
In connection with the 1988 Management Acquisition, the primary
investor, Teachers Insurance and Annuity Association of America ("Teachers"),
purchased the entire $29.4 million of Subordinated Notes, purchased $6.1
million of Cumulative Convertible Preferred Stock and also received warrants
entitling it to purchase 25% of the Common Stock of the Company on a
fully-diluted basis. The predecessors to Lafarick Corporation and their
affiliates (the "Raebarn Stockholders") purchased approximately 45% of the
Common Stock of the Company (13.5% of such Common Stock on a fully diluted
basis).
In addition, at the time of the 1988 Management Acquisition, members
of management, including each of the executive officers and several current and
former officers (excluding Lafarick Corporation affiliates) (the "Management
Stockholders"), purchased, in the aggregate, 55% of the Common Stock of the
Company (16.5% of such Common Stock on a fully diluted basis). The senior bank
lender under the credit facility for the 1988 Management Acquisition purchased
$200,000 of Cumulative Convertible Preferred Stock.
THE 1993 RECAPITALIZATION
The Company was recapitalized in early 1993. In the recapitalization,
the Company: (i) raised $2.6 million by mortgaging its Los Angeles
manufacturing facility; (ii) entered into a new credit facility consisting of:
(x) a $12 million term loan; (y) a $2 million bridge loan (which has been
repaid); and (z) a $35 million revolving credit facility, and the Company
repaid all amounts due to the initial senior bank lender; (iii) completed the
sale and leaseback of five of its manufacturing facilities (one of which was
subdivided into two parcels thereafter) for gross proceeds of $12.75 million,
with which the Company repaid $8 million aggregate face amount of its
Subordinated Notes. The 1993 recapitalization left intact an approximately
$3.1 million note payable obligation assumed by the Company when it purchased
the assets of PBF. The note payable obligation relates to industrial revenue
bonds issued by Pierce County, Washington relating to PBF's manufacturing
facilities.
USE OF PROCEEDS FROM THE SENIOR NOTE OFFERING
A portion of the proceeds of the Company's November 1994 Senior Note
offering was used to redeem all of the outstanding Cumulative Redeemable
Preferred Stock and Cumulative Convertible Preferred Stock of the Company, 98%
of which was held by Teachers, and all of the Company's outstanding
subordinated debt, all of which was held by Teachers. Furthermore, the Company
entered into an agreement in connection with the repayment of its subordinated
debt and the redemption of the outstanding preferred stock which resulted in
the cancellation of all of the outstanding warrants to purchase common stock of
the Company held by Teachers in exchange for new warrants, substantially
similar to the warrants issued in connection with the Senior Note offering,
which entitled the holder to purchase an aggregate of 5% of the Company's
Common Stock on a fully diluted basis determined immediately following such
offering.
37
<PAGE> 40
STOCKHOLDERS' AGREEMENT AND REGISTRATION RIGHTS
In connection with the 1988 Management Acquisition, Teachers, the
Management Stockholders, the Raebarn Stockholders, and the Company entered into
a Stock Subscription Agreement, which was amended and restated upon the
consummation of the Senior Note offering (as amended and restated, the
"Stockholders' Agreement").
Most of the rights contained in the Stockholders' Agreement terminated
upon consummation of the Offering, except that all of the parties thereto
continue to have incidental, or piggyback, registration rights if the Company
proposes to register any of its equity securities under the Securities Act
(other than in certain instances) subject to customary underwriting cut-back
and hold-back provisions. The registration rights of the Stockholders'
Agreement continue until September 1, 2004. The Company will pay all expenses
relating to any such registrations other than underwriting discounts and
commissions.
CONSULTING AGREEMENTS
Mr. Allison has been the President of Lafarick Corporation in Los
Angeles (formerly known as Raebarn Corporation), which initiated the 1988
acquisition of the Company, since 1985. Pursuant to an Agreement for
Management, Advisory and Consulting Services, dated as of February 26, 1988,
among DDI, the Company and a predecessor-in-interest to Lafarick Corporation
(the "Raebarn Agreement"), the Company paid such predecessor a transaction fee
of $600,000 upon consummation of the 1988 Acquisition. In 1991, the
predecessor-in-interest assigned its rights and obligations under the Raebarn
Agreement to Lafarick Corporation. Pursuant to the Raebarn Agreement, the
Company agreed to pay Lafarick Corporation, as assignee, an annual fee of
$250,000, in addition to out-of-pocket expenses for a term of ten years which
was to expire in February 1998. In 1993 the Company made payments aggregating
$893,000 to Lafarick Corporation in accordance with the Raebarn Agreement. The
Company, DDI and Lafarick Corporation terminated the Raebarn Agreement
effective upon consummation of the Senior Note offering in November 1994 and
recorded the present value of the liability at the time of such termination.
In connection with such termination, the Company agreed to make termination
payments to Lafarick Corporation of $250,000 per year, subject to a 4% annual
increase through December 1, 2002. The Company made payments of $250,000 and
$260,000 to Lafarick Corporation during 1994 and 1995, respectively, in
accordance with this agreement.
TRANSACTIONS WITH AFFILIATES
The Board of Directors has adopted a policy that any transactions
between the Company and its officers, directors, principal stockholders or
other affiliated parties are subject to approval by a majority of the Company's
disinterested directors.
38
<PAGE> 41
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of July 31, 1996 (i) by each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) by each of the Company's directors, (iii) by each Named
Executive Officer and (iv) by all directors and executive officers as a group.
The number of shares beneficially owned by each person shown in the table below
is determined under rules of the Securities and Exchange Commission, and such
information is not necessarily indicative of beneficial ownership for any other
purpose. Unless otherwise noted, the address of each such person is that of
the Company at 4205 South 96th Street, Omaha, Nebraska 68127.
<TABLE>
<CAPTION>
NUMBER OF
SHARES (1)(2) PERCENT
------------- -------
<S> <C> <C>
Walter J. Kearns(3) . . . . . . . . . . . . 851,743 9.3%
Joseph C. Addison . . . . . . . . . . . . . 355,095 3.9
Morris W. Caudle(4) . . . . . . . . . . . . . 355,095 3.9
Allyn D. Plejdrup(5) . . . . . . . . . . . . 355,095 3.9
William R. Rinehart(6) . . . . . . . . . . . 355,095 3.9
Mark R. Allison . . . . . . . . . . . . . . 653,616 7.1
Thomas W. Blumenthal(7) . . . . . . . . . . 74,321 *
Robert W. Cruickshank . . . . . . . . . . . 46,913 *
All directors and executive officers
as a group (9 persons) . . . . . . . . . 3,112,244 33.9
- ---------------
</TABLE>
* Indicates ownership of less than one percent.
(1) Does not include 76,000 shares issuable upon exercise of options
granted to certain executive officers and one of the Company's
directors, none of which are exercisable within 60 days of July 31,
1996.
(2) Unless otherwise noted, sole voting and dispositive power are
possessed with respect to all shares of Common Stock shown.
(3) Includes 3,200 shares held by members of Mr. Kearns' family, as to
which Mr. Kearns disclaims beneficial ownership.
(4) Includes 77,400 shares held by members of Mr. Caudle's family, as to
which Mr. Caudle disclaims beneficial ownership.
(5) Mr. Plejdrup's address is Data Documents, 3403 Dan Morton Drive,
Dallas, Texas 75236-1068.
(6) Includes 178,547 shares held by members of Mr. Rinehart's family, as
to which Mr. Rinehart disclaims beneficial ownership.
(7) Includes 2,000 shares held by members of Mr. Blumenthal's family, as
to which Mr. Blumenthal disclaims beneficial ownership.
39
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000
shares of Common Stock, $.001 par value ("Common Stock"), and 5,000,000 shares
of Preferred Stock, $.01 par value ("Preferred Stock"). As of July 31, 1996,
9,190,718 shares of Common Stock were issued and outstanding and were held of
record by 77 stockholders. As of the same date, the Company held 269,607
shares of Common Stock in its treasury at no cost, and no shares of preferred
stock were outstanding. As of the same date, warrants to purchase an aggregate
of 693,141 shares of the Company's Common Stock were outstanding. The
authorized capital stock of DDI consists of 2,000,000 shares of Common Stock,
par value $1.00 per share, 496,016 of which were outstanding and held by the
Company.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share
held of record on each matter submitted to a vote of stockholders. Subject to
preferences that may be granted to the holders of Preferred Stock, each holder
of Common Stock is entitled to share ratably in distributions to stockholders
and to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor and, in the event of the
liquidation or dissolution of the Company, is entitled to share ratably in all
assets of the Company remaining after payment of liabilities. Holders of
Common Stock have no conversion, preemptive or other subscription rights, and
there are no redemption rights or sinking fund provisions with respect to the
Common Stock. The outstanding Common Stock is, validly issued, fully paid and
non-assessable.
Additional shares of Common Stock may be issued from time to time by
the Company. The Company's Certificate of Incorporation (the "Charter")
provides that the Board of Directors has no power to alter the rights of any
outstanding shares of Common Stock. Certain other provisions of the Charter
affect the rights of holders of Common Stock and may have the effect of
delaying, deferring or preventing a change in control of the Company.
WARRANTS
In connection with the Senior Note offering in November 1994, the
Company issued warrants to purchase the aggregate 1,280,455 shares of Common
Stock covered by this Prospectus (the "Warrants"). Warrants to purchase
320,114 of these shares were issued to Teachers in exchange for warrants
previously issued to Teachers, and the remainder was issued to purchasers of
the Senior Notes. Holders of Warrants are entitled to receive approximately
6.53 shares of Common Stock upon payment of an exercise price of approximately
$.002. Unless exercised, the Warrants will automatically expire on July 15,
2002.
The exercise price and the number of shares of Common Stock are
subject to customary anti-dilution provisions that are effective upon the
occurrence of certain events. The Warrants were issued in registered form,
pursuant to two Warrant Agreements dated as of November 28, 1994 by and between
the Company and NationsBank of Texas, N.A., as warrant agent. The Bank of New
York has since become the successor warrant agent.
If DDI consummates an initial public offering of its common stock, the
holders of the Warrants or the Common Stock received upon exercise thereof (the
"Warrant Shares") will also have the right to exercise the Warrants, or
exchange the Warrant Shares, for such number of shares of common stock of DDI
as have an equivalent fair market value to the fair market value of the number
of Warrant Shares or shares of Common Stock the Warrants are exercisable into
as of the date of such offering, as determined by an appraisal firm of national
standing.
40
<PAGE> 43
The exercise price of the Warrants was determined by negotiation
between the Company and Jefferies & Company, Inc. and was not intended to bear
any relationship to any objective criteria of value. In no event should such
exercise price be regarded as an indicator of any future market price of the
Company's securities.
The Warrants may be exercised prior to expiration upon surrender of
the warrant certificate at the offices of the warrant agent for the Warrants,
with the subscription form on the reverse side of the warrant certificate
completed and executed as indicated, accompanied by payment of the full
exercise price (which may be cash, certified check or bank check payable to the
order of the Company) for the number of Warrants being exercised.
Pursuant to the Warrant Agreements, the Company is required to
register the issuance of the Warrant Shares upon exercise of the Warrants under
the Securities Act and to maintain a current prospectus as long as the Warrants
are exercisable and outstanding except during the 30-day period prior to and 30
days following any underwritten public offering of the Company's or DDI's
common stock yielding net proceeds of at least $20 million subsequent to the
Offering.
The Warrantholders have no right to vote on matters submitted to the
stockholders of the Company and have no right to receive dividends. The
Warrantholders are not entitled to share in the assets of the Company in the
event of the liquidation or dissolution of the Company or the winding up of the
Company's affairs.
PREFERRED STOCK
The Board of Directors, without further action by the holders of
Common Stock, may issue shares of Preferred Stock and may fix or alter the
voting rights, redemption provisions (including sinking fund provisions),
dividend rights, dividend rates, liquidation preferences, conversion rights and
the designation of and number of shares constituting any wholly unissued series
of Preferred Stock. The issuance of Preferred Stock could adversely affect the
voting power and other rights of the holders of Common Stock.
The authority possessed by the Board of Directors to issue Preferred
Stock could potentially be used to discourage attempts by others to obtain
control of the Company through a merger, tender offer, proxy contest or
otherwise by making such attempts more difficult to achieve or more costly.
The Board of Directors may issue Preferred Stock with voting and conversion
rights that could adversely affect the voting power of the holders of Common
Stock. There are no agreements or understandings for the issuance of Preferred
Stock and the Board of Directors has no present intention to issue any
Preferred Stock.
ANTI-TAKEOVER STATUTE
Section 203 of the Delaware General Corporation Law generally
prohibits a Delaware corporation from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to the date of the business combination, the transaction is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock or (iii) on or after the date such stockholder became an
interested stockholder, the business combination is approved by the board and
by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. A "business combination"
includes mergers, certain asset sales and certain other transactions resulting
in a financial benefit to the stockholder. An "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.
41
<PAGE> 44
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a company will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for liability
for (i) any breach of their duty of loyalty to the company or its stockholders,
(ii) acts or omissions not in good faith or involving intentional misconduct or
a knowing violation of law, (iii) unlawful payment of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law or (iv) any transaction from which the director derived
an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its
officers, directors, employees and other agents to the extent permitted by
Delaware law. The Company's Bylaws also permit it to secure insurance on
behalf of any officer, Director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
Bylaws would permit indemnification.
The Company has entered into agreements to indemnify its officers and
Directors. These agreements, among other things, indemnify the Company's
officers and Directors for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as an officer or Director of the Company,
any subsidiary of the Company or any other company or enterprise to which such
person provides services at the request of the Company. The Company believes
that the provisions in its Certificate of Incorporation and its Bylaws and the
indemnification agreements are necessary to attract and retain qualified
persons as officers and Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock issuable
upon exercise of the Warrants will be passed upon for the Company by Gibson,
Dunn & Crutcher LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of the Company as of December
31, 1994 and 1995 and for each of the three years in the period ended December
31, 1995 included in this Prospectus and the related financial statement
schedules included elsewhere in the registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and have been so
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
The financial statements of Cal Emblem as of and for the one-year
period ended April 30, 1995 included in this Prospectus have been audited by
Stoughton Davidson Accountancy Corporation, independent auditors, as stated in
their reports appearing herein and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
42
<PAGE> 45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA:
DATA DOCUMENTS INCORPORATED AND CAL EMBLEM LABELS, INC. COMBINED:
Pro Forma Unaudited Condensed Combined Statement of Operations . . . . . . . . . . . . . . . F-2
Pro Forma Unaudited Condensed Combined Statement of Operations for the Year
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Notes to Pro Forma Unaudited Condensed Combined Statement of Operations for the
Year Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Notes to Pro Forma Unaudited Condensed Combined Statement of Operations . . . . . . . . . . F-5
HISTORICAL:
DATA DOCUMENTS INCORPORATED:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Balance Sheets at December 31, 1994 and 1995 (audited) and
June 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994
and 1995 (audited) and for the six months ended June 30, 1995 and 1996 (unaudited) . . . . . F-8
Consolidated Statements of Common Stockholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995 (audited) and for the six months ended
June 30 1996 (unaudited) . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 (audited) and for the six months ended June 30, 1995 and 1996 (unaudited) . . . . . . . F-10
Notes to Consolidated Financial Statements for the Years Ended December 31, 1993, 1994
and 1995 (audited) and for the six months ended June 30, 1995 and 1996 (unaudited) . . . . . F-12
CAL EMBLEM LABELS, INC.:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
Balance Sheet at April 30, 1995 (audited) and June 30, 1995 (unaudited) . . . . . . . . . F-26
Statement of Income for the Year Ended April 30, 1995 (audited) and for the Two
Months Ended June, 1994 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . F-27
Statement of Changes in Stockholders' Equity for the Year Ended April 30, 1995
(audited) and for the Two Months Ended June 30, 1995 (unaudited) . . . . . . . . . . . . F-28
Statement of Cash Flows for the Year Ended April 30, 1995 (audited) and for the
Two Months Ended June 30, 1994 and 1995 (unaudited) . . . . . . . . . . . . . . . . . . . F-29
Notes to Financial Statements for the Year Ended April 30, 1995 (audited) and for
the Two Months Ended June 30, 1994 and 1995 (unaudited) . . . . . . . . . . . . . . . . . F-30
</TABLE>
Separate financial statements of Data Documents, Inc. and PBF Washington,
Inc. are not presented because, in the opinion of management, they are not
material to an understanding of the financial condition and results of
operations of the Company.
F-1
<PAGE> 46
PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
The following pro forma unaudited condensed combined statement of operations
of Data Documents Incorporated (the "Company") and subsidiaries and Cal Emblem
Labels, Inc. ("Cal Emblem") has been prepared to give effect to the acquisition
of Cal Emblem (including the payments by Data Documents Incorporated of
$2,260,000 of cash, the assumption of $3,855,000 of Cal Emblem debt, and the
issuance of two five year promissory notes in the aggregate principal amount of
$2,245,000, bearing interest at 10% per annum, with such acquisition to be
accounted for as a purchase).
The pro forma condensed combined statement of operation assumes that all
transactions occurred at January 1, 1995. Earnings per share have been
calculated assuming that 7,333,864 weighted average shares of common stock and
common stock equivalents were outstanding at December 31, 1995. In the opinion
of management of the Company and Cal Emblem, all adjustments necessary to
present fairly such pro forma financial statements have been made.
The pro forma condensed combined financial statements should be read in
conjunction with the financial statements of the Company and Cal Emblem and the
related notes thereto included elsewhere in this Prospectus and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The pro forma condensed combined statement of operations is not
necessarily indicative of what the actual results of operations would have been
had the transactions occurred at January 1, 1995, nor do they purport to
indicate the results of future operations.
F-2
<PAGE> 47
PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
DATA CAL PRO FORMA
DOCUMENTS EMBLEM PRO FORMA COMBINED AFTER
INCORPORATED LABELS, INC. (1) ADJUSTMENTS ACQUISITION
------------ ---------------- ----------- --------------
<S> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . $242,238,000 $13,791,992 $ -- $256,029,992
COST OF GOODS SOLD . . . . . . . 186,011,000 10,200,915 38,260 (2) 196,250,175
------------ ----------- -------- ------------
Gross Profit . . . . . . . . . 56,227,000 3,591,077 (38,260) 59,779,817
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES . . . . 35,334,000 2,999,963 27,187 (3) 38,361,150
STOCK COMPENSATION CHARGE . . . . 156,000 -- -- 156,000
------------- --------- -------- ------------
Operating income . . . . . . . 20,737,000 591,114 (65,447) 21,262,667
DEBT EXPENSE . . . . . . . . . . 13,335,000 336,241 200,792 (4) 13,872,033
------------ --------- -------- ------------
INCOME (LOSS) BEFORE INCOME
TAXES . . . . . . . . . . . . . . 7,402,000 254,873 (266,239) 7,390,634
INCOME TAX EXPENSE (BENEFIT) . . 3,127,000 196,519 (106,495)(5) 3,217,024
------------ --------- -------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS . . . . . $ 1,354,000 $ 58,354 $(159,744) $ 1,252,610
============ ========= ========= ============
PRO FORMA EARNINGS PER
COMMON SHARE:
Primary:
Income (Loss) Before
Extraordinary Item . . . . . . $ 0.61 $ 0.60
Extraordinary Item . . . . . . (0.40) (0.40)
------------ ------------
Net Income (Loss) . . . . . . . $ 0.21 $ 0.20
============ ============
Fully Diluted:
Income (Loss) Before
Extraordinary Item . . . . . . $ 0.61 $ 0.60
Extraordinary Item . . . . . . (0.40) (0.40)
------------ ------------
Net Income (Loss) . . . . . . . $ 0.21 $ 0.20
============ ============
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Primary . . . . . . . . . . . . 7,333,864 7,333,864
============ ============
Fully diluted . . . . . . . . . 7,333,864 7,333,864
============ ============
</TABLE>
See notes to pro forma unaudited condensed combined statement of operations.
F-3
<PAGE> 48
NOTES TO PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
(1) Reflects results of Cal Emblem through the date of acquisition (August
24, 1995) by the Company.
(2) Reflects depreciation on the adjustment to property of Cal Emblem to
reflect fair values.
(3) Reflects amortization of the excess of purchase price over net assets
acquired from Cal Emblem over a thirty year period.
(4) Reflects the increase in interest expense and other debt related costs
resulting from the debt incurred to finance the acquisition of Cal
Emblem effective January 1, 1995.
(5) Reflects the change in income tax expense as a result of pro forma
adjustments which affect taxable income.
F-4
<PAGE> 49
NOTES TO PRO FORMA UNAUDITED CONDENSED COMBINED
STATEMENT OF OPERATIONS
The Company's acquisition of Cal Emblem was accounted for as a purchase. The
resulting pro forma adjustments, which give effect to a new basis of accounting
for Cal Emblem, are based on the historical financial statements of Cal Emblem
and assumptions with respect to the fair value of the acquired assets and
liabilities.
Included below is a reconciliation of amounts derived from the Cal Emblem
audited statement of operations for the year ended April 30, 1995 to the
results of operations used in presenting the pro forma combined statement of
operations.
<TABLE>
<CAPTION>
MAY 1, 1995 EIGHT MONTHS JANUARY 1, 1995
YEAR ENDED THROUGH DATE OF ENDED THROUGH DATE OF
APRIL 30, ACQUISITION DECEMBER 31, ACQUISITION
1995 (AUGUST 24, 1995) 1994 (AUGUST 24, 1995)
----------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $23,043,763 $ 6,347,377 $(15,599,148) $13,791,992
Cost of goods sold . . . . . . . . . . . . . . 17,406,178 4,836,084 (12,041,347) 10,200,915
----------- ------------ ----------- -----------
Gross Profit . . . . . . . . . . . . . 5,637,585 1,511,293 (3,557,801) 3,591,077
Selling, general and administrative expenses. . 4,645,433 1,305,033 (2,950,503) 2,999,963
----------- ------------ ------------ -----------
Operating income (loss) . . . . . . . 992,152 206,260 (607,298) 591,114
Debt expense . . . . . . . . . . . . . . . . . 522,378 152,755 (338,892) 336,241
----------- ------------ ------------ -----------
Income (loss) before income taxes . . . . . . . 469,774 53,505 (268,406) 254,873
Income tax expense (benefit) . . . . . . . . . 114,718 81,801 -- 196,519
----------- ------------ ------------ -----------
Income (loss) before extraordinary item . . . . 355,056 (28,296) (268,406) 58,354
Extraordinary item, net of tax . . . . . . . . -- -- -- --
----------- ------------ ------------ -----------
Net income (loss) . . . . . . . . . . . . . . . 355,056 (28,296) (268,406) 58,354
Less preferred dividends . . . . . . . . . . . -- -- -- --
----------- ------------ ------------ -----------
Net income (loss) available for common stock. . $ 355,056 $ (28,296) $ (268,406) $ 58,354
=========== =========== ============ ===========
</TABLE>
F-5
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Data Documents Incorporated
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Data Documents
Incorporated (formerly Data Documents Holdings, Inc.) and subsidiaries as of
December 31, 1994 and 1995 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Data Documents Incorporated and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 16, 1996
Omaha, Nebraska
F-6
<PAGE> 51
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
ASSETS 1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (including restricted cash of $2,891,000
in 1994) (Notes G and H) $ 4,353 $ 2,024 $ 7,509
Accounts receivable, net of allowances of $200,000, $458,000 and $254,000
(unaudited) 27,143 31,569 30,995
Inventories (Note D) 30,796 36,048 35,098
Other current assets 1,778 1,788 1,334
-------- -------- --------
Total Current Assets 64,070 71,429 74,936
PROPERTY, PLANT AND EQUIPMENT, net (Notes E and H) 37,364 37,502 36,308
GOODWILL, net of accumulated amortization of $1,956,000, $2,273,000 and
$2,481,000 (unaudited) 6,493 10,248 10,041
DEFERRED FINANCING COSTS AND OTHER ASSETS 8,294 6,546 5,838
-------- -------- --------
$116,221 $125,725 $127,123
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note G) $ 19,436 $19,326 $ 16,851
Accrued compensation 2,907 3,579 3,001
Accrued interest payable 1,133 3,877 3,964
Current maturities of long-term obligations (Note H) 2,850 1,169 1,184
Income taxes (Note F) 513 462 584
-------- -------- --------
Total Current Liabilities $ 26,839 $ 28,413 $ 25,584
POST-RETIREMENT BENEFITS (Note M) 1,739 1,805 1,843
LONG-TERM OBLIGATIONS (Note H) 86,719 65,212 64,689
DEFERRED INCOME TAXES (Note F) 3,296 2,871 2,610
CONTINGENCIES (Notes H, K and L)
WARRANTS, less unamortized discount of $1,229,000 (Note J) 2,771 - -
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued - - -
Common stock, $0.001 par value; 15,000,000 shares authorized; 5,424,062,
8,873,016 and 9,443,378 (unaudited) issued; 5,121,819, 8,603,409 and
9,173,771 (unaudited) shares outstanding 5 9 9
Additional paid-in capital 921 32,162 32,035
Retained earnings (deficit) (5,843) (4,489) 611
Stockholder notes receivable (226) (258) (258)
Treasury stock, acquired at no cost, 302,243 and 269,607 and 269,607
(unaudited) shares - - -
-------- -------- --------
Total Stockholders' Equity (Deficit) (5,143) 27,424 32,397
-------- -------- --------
$116,221 $125,725 $127,123
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 52
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- ------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES $ 193,588 $ 193,626 $ 242,238 $ 114,230 $ 124,678
COST OF GOODS SOLD 152,036 148,797 186,011 87,625 92,242
----------- ----------- ---------- ---------- ----------
Gross Profit 41,552 44,829 56,227 26,605 32,436
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 32,306 32,729 35,334 17,220 18,802
STOCK COMPENSATION CHARGE
(Note N) - - 156 156 -
----------- ----------- ---------- ---------- ----------
Operating Income 9,246 12,100 20,737 9,229 13,634
DEBT EXPENSE, Including amortization of
$1,055,000, $1,072,000, $1,312,000,
$729,000 (unaudited) and $415,000
(unaudited) 8,063 8,735 13,335 6,906 4,960
----------- ----------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,183 3,365 7,402 2,323 8,674
INCOME TAX EXPENSE (Note F) 212 1,533 3,127 993 3,520
----------- ----------- ---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY
ITEM 971 1,832 4,275 1,330 5,154
EXTRAORDINARY ITEM, net of tax
(Note P) - (2,795) (2,921) - (54)
----------- ----------- ---------- ---------- ----------
NET INCOME (LOSS) 971 (963) 1,354 1,330 5,100
LESS PREFERRED DIVIDENDS 683 620 - - -
----------- ----------- ---------- ---------- ----------
NET INCOME (LOSS) AVAILABLE FOR
COMMON STOCK $ 288 $ (1,583) $ 1,354 $ 1,330 $ 5,100
=========== =========== ========== ========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Primary:
Income before extraordinary item $ 0.03 $ 0.13 $ 0.61 $ 0.22 $ 0.52
Extraordinary item - (0.30) (0.40) - (0.01)
----------- ----------- ---------- ---------- ----------
Net Income (Loss) $ 0.03 $ (0.17) $ 0.21 $ 0.22 $ 0.51
=========== =========== ========== ========== ===========
Fully diluted:
Income before extraordinary item $ 0.05 $ 0.11 0.61 $ 0.22 0.52
Extraordinary item - (0.17) (0.40) - (0.01)
----------- ----------- ---------- ---------- ----------
Net Income (Loss) $ 0.05 $ (0.06) $ 0.21 $ 0.22 $ 0.51
=========== =========== ========== ========== ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 10,025,704 9,453,494 7,333,864 6,483,864 9,932,331
=========== =========== ========== ========== ==========
Fully Diluted 18,161,798 16,911,580 7,333,864 6,483,864 9,937,686
=========== =========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 53
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMU- STOCKHOLDER
COMMON PAID-IN LATED NOTES
STOCK CAPITAL DEFICIT RECEIVABLE TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 $ 5 $ 1,276 $(4,548) $ - $ (3,267)
Preferred dividends - - (683) - (683)
Net income - - 971 - 971
----- -------- ------- ------ ---------
BALANCE, December 31, 1993 5 1,276 (4,260) - (2,979)
Acquisition of 710,193 shares of
treasury stock at no cost - - - - -
Preferred dividends - - (620) - (620)
407,947 shares issued in exchange for
notes receivables - 226 - (226) -
Redemption of warrants (Note J) - (581) - - (581)
Net loss - - (963) - (963)
----- -------- ------- ------ ---------
BALANCE, December 31, 1994 5 921 (5,843) (226) (5,143)
48,954 shares issued for cash (Note N) - 142 - - 142
32,636 shares issued from treasury stock in
exchange for note receivable (Note N) - 95 - (55) 40
Warrant reclassification (Note J) - 3,087 - - 3,087
Payment on stockholders' notes - - - 23 23
Issuance of 3,400,000 common shares (Note C) 4 27,917 - - 27,921
Net income - - 1,354 - 1,354
----- -------- ------- ------ ---------
BALANCE, December 31, 1995 9 32,162 (4,489) (258) 27,424
Warrants exchanged for common stock (Note J)
(unaudited) - - - - -
Payments for stock registration costs
(unaudited) - (127) - - (127)
Net income (unaudited) - - 5,100 - 5,100
----- -------- ------- ------ ---------
BALANCE, June 30, 1996 (unaudited) $ 9 $ 32,035 $ 611 $ (258) $ 32,397
===== ======== ======= ====== =========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 54
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 971 $ (963) $ 1,354 $ 1,330 $ 5,100
Adjustments to reconcile net income
(loss) to net cash flows from
operating activities:
Depreciation 6,927 6,992 7,552 3,646 2,172
Amortization of intangibles 1,546 1,504 1,804 958 715
Stock compensation charge - - 156 156 -
Extraordinary item - 2,941 1,975 - 37
Provision for deferred income taxes (1,795) (1,743) (1,375) (875) (265)
(Gain) loss on sale of property,
plant and equipment 13 46 (4) (4) (58)
Changes in operating assets and
liabilities:
Accounts receivable (1,842) (3,695) (2,181) (1,307) 574
Inventories (1,064) (1,545) (3,468) (4,817) 950
Other current assets 78 (265) 144 521 (59)
Accounts payable and accrued
liabilities (1,348) 3,291 (3,513) (2,709) (429
Accrued interest (283) 141 2,744 4,231 87
Current taxes on income and
other (30) (445) 131 824 639
Other assets (523) 96 (438) (205) 276
---------- ----------- ----------- ---------- -----------
Net cash flows from operating
activities 2,650 6,355 4,881 (1,749) 9,739
---------- ----------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (3,549) (6,972) (3,955) (1,009) (1,031)
Proceeds from the sale of property,
plant and equipment 108 193 58 14 111
Investment in Cal Emblem - - (2,403) - -
---------- ----------- ----------- ---------- -----------
Net cash flows from investing
activities (3,441) (6,779) (6,300) (995) (920)
---------- ----------- ----------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 55
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------- ---------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt $ 38,645 $ 85,000 $ - $ - $ -
Payment of debt (51,592) (56,673) (30,227) (52) (621)
Proceeds from lease financing obligation 12,750 - - - -
Principal payments of lease finance obligations (142) (12,608) - - -
Change in liability for outstanding checks 521 512 1,347 (51) (2,586)
Dividends paid (683) (620) - - -
Preferred stock redemptions - (6,829) - - -
Debt issuance and related costs - (4,651) - - -
Payments for stock registration costs - - - - (127)
Proceeds from sale of common stock - - 27,970 49 -
---------- -------- --------- -------- -------
Net cash flows from financing activities (501) 4,131 (910) (54) (3,334)
---------- -------- --------- -------- -------
NET INCREASE (DECREASE) IN CASH (1,292) 3,707 (2,329) 700 5,485
CASH AND CASH EQUIVALENTS, Beginning of period 1,938 646 4,353 4,353 2,024
---------- -------- --------- -------- -------
CASH AND CASH EQUIVALENTS, End of period $ 646 $ 4,353 $ 2,024 $ 5,053 $ 7,509
========== ======== ========= ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 7,310 $ 7,522 $ 9,639 $ 2,003 $ 4,553
========== ======== ========= ======== =======
Income taxes $ 2,089 $ 1,941 $ 2,759 $ 1,061 $ 3,065
========== ======== ========= ======== =======
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Termination agreement (Note H) $ 1,349
========
Exchange of common stock purchase warrants
with exchangeable warrants (Note J) $ 581
========
Issuance of 32,636 and 407,947 shares of common stock
for stockholder notes receivable $ 226 $ 55 $ 32
======== ========= ========
Acquisition of treasury stock at no cost in 1994 $ -
========
Leaseback of manufacturing properties $ 12,750
==========
Recognition of post-retirement benefits obligations $ 1,637
==========
Issuance of promissory notes to the former stockholders
of Cal Emblem Labels, Inc. (Note B) $ 2,245
=========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 56
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Data Documents Incorporated (formerly Data
Documents Holdings, Inc.) (the "Company") was formed for the purpose of
acquiring Data Documents, Inc. The Company designs, manufactures, and
markets business forms, pressure-sensitive label products and supplies
specialized direct mail products and software-based services. A
substantial portion of the Company's forms sales are made in connection
with its proprietary forms management system. The principal markets for
the business forms are primarily located in the geographic markets of
mid-America, the southwest and the northwest. The principal markets for
the labels and direct mail business is nationwide.
BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS - The
balance sheet as of June 30, 1996 and the related statements of operations
and cash flows for the six months ended June 30, 1995 and 1996, are
unaudited. However, in the opinion of management, the interim financial
statements include all adjustments, which consist of only normal recurring
adjustments, necessary for fair presentation of the Company's financial
position and results of operations. The unaudited results of operations
for the six months ended June 30, 1995 and 1996, are not necessarily
indicative of the results which may be expected for the entire year.
CONSOLIDATION - The consolidated financial statements of the Company
include the accounts of its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated during
consolidation. All operating activities, assets and liabilities are
those of the Company's subsidiaries.
CASH AND CASH EQUIVALENTS - All highly liquid investments, including
restricted cash, purchased with a maturity of three months or less are
considered cash equivalents.
INVENTORIES - Inventories are valued at the lower of cost, determined by
the last-in, first-out (LIFO) method, or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost and are depreciated using the straight-line method over the
estimated useful life of the asset, which are as follows: buildings, 30
years; leasehold improvements, life of the lease; machinery and
equipment, 3 to 12 years; and furniture and fixtures, 4 to 10 years.
GOODWILL - Goodwill represents the excess of costs over the value of net
tangible assets acquired in the acquisition of Data Documents, Inc., PBF
Washington, Inc., and Cal Emblem Labels, Inc. This cost is being
amortized on a straight-line basis over 30 years. Recoverability of this
asset is evaluated periodically based on management's estimate of future
undiscounted operating income of the businesses acquired.
DEFERRED FINANCING COSTS - Deferred financing costs represents the cost
of securing debt financing. The cost is being amortized over the
estimated periods of outstanding principal amounts of the related
obligations.
F-12
<PAGE> 57
OTHER ASSETS - Subscriber installation costs for the Company's
software-based Odyssey forms management system, are capitalized and
amortized over the initial period of the subscriber agreement, generally
3 years.
REVENUE RECOGNITION - Sales and related cost of goods sold are recognized
upon shipment of products.
OTHER POSTRETIREMENT BENEFITS - The Company adopted, effective January 1,
1993, Statement of Financial Accounting Standards (SFAS) No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions.
The Company elected to recognize the transition obligation relating to
prior service cost in its statement of operations over a 20 year period
beginning in 1993.
INCOME TAXES - The Company and its wholly-owned subsidiaries file a
consolidated income tax return. The Company uses an asset and liability
approach for the financial reporting of income taxes in accordance with
SFAS No. 109 - Accounting for Income Taxes. Deferred income taxes arise
from temporary differences between financial and tax reporting.
STOCK SPLIT - The Company's Board of Directors declared a 6.52715097-to-1
stock split in August 1995 and the financial statements presented herein
reflect the split for all periods presented.
EARNINGS PER SHARE - The earnings per share calculation is based upon net
income less preferred dividends and the weighted average number of shares
of common stock outstanding and warrants and options when dilutive. The
calculation on a fully diluted basis assumes conversion of the
convertible preferred stock at the beginning of the period.
NEW ACCOUNTING PRONOUNCEMENTS - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, in the
first quarter of 1996. The impact of adoption was not material to the
Company's consolidated financial statements.
SFAS No. 123, Accounting for Stock Based Compensation, became effective
for the Company beginning January 1, 1996 and requires expanded disclosure
of stock-based compensation arrangements with employees and encourages
(but does not require) compensation cost to be measured based on the fair
value of the equity instrument awarded. Companies are permitted, however,
to continue to apply Accounting Principles Board (APB) Opinion No. 25,
which recognizes compensation cost based on intrinsic value of the equity
instrument award. The Company will continue to apply APB No. 25 to its
stock-based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share in its
Annual Report on Form 10-K.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior
year financial statements to conform to the 1995 presentation.
B. ACQUISITION
On August 25, 1995, the Company acquired all of the outstanding stock of
Cal Emblem Labels, Inc. ("Cal Emblem") for $4.5 million, plus replacement
of Cal Emblem's bank debt, which was funded through borrowings of
approximately $5.9 million under the Company's existing revolving credit
facility and the issuance of five-year term promissory notes in the
aggregate principal amount of $2.2 million to the former owners. The
acquisition was accounted for using the purchase method of accounting.
F-13
<PAGE> 58
Accordingly, the assets and liabilities and results of operations of Cal
Emblem are included in the Company's consolidated financial statements
subsequent to the acquisition date. The purchase price has been allocated
to the underlying assets and liabilities of Cal Emblem based on their
respective fair values at the date of acquisition. The excess cost over
the fair market value of net assets acquired of $4,122,000 is being
amortized over a 30-year period on a straight-line basis.
The following unaudited pro forma financial information shows the results
of operations of the Company as though the acquisition occurred as of
January 1, 1994.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------------
1994 1995
(UNAUDITED)
<S> <C> <C>
Net sales $ 216,244 $ 256,030
Net income from continuing operations 2,026 4,174
Net income (loss) available for common stock (1,389) 1,253
Earnings per share:
Primary $ 0.15 $ 0.60
Fully diluted 0.12 0.60
</TABLE>
C. INITIAL PUBLIC OFFERING
In October 1995, the Company completed an initial public offering of
3,400,000 shares of common stock of the Company at an offering price of
$9.00 per share. The net proceeds of the offering were used to redeem
approximately $24,000,000 in aggregate principal amount of Data Document,
Inc.'s 13 1/2% Senior Notes.
If the Company had consummated the offering as of January 1, 1995,
unaudited earnings per common share would have been $0.65 before
extraordinary item and $0.34 after extraordinary item for the year ended
December 31, 1995.
D. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -----------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Finished goods $ 21,810 $ 26,888 $ 26,406
Work in process 1,635 1,287 1,155
Raw materials 6,523 6,860 6,495
Supplies and spare parts 828 1,013 1,042
-------- -------- --------
$ 30,796 $ 36,048 $ 35,098
======== ======== ========
</TABLE>
Substantially all inventories were valued using the LIFO method. If the
first-in, first-out (FIFO) method of inventory accounting had been used,
inventories at December 31, 1994 and 1995 and June 30, 1996 would have
been lower than reported by $2,769,000, $712,000 and $1,854,000
(unaudited), respectively. On a FIFO basis, operating income would have
been higher (lower) by $(216,000), $390,000, $2,057,000, $2,005,000
(unaudited), and $1,142,000 (unaudited), respectively, for fiscal years
1993,
F-14
<PAGE> 59
1994, 1995 and the six months ended June 30, 1995 and 1996. The FIFO cost
of inventories approximates replacement cost.
E. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------- -----------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Land $ 5,336 $ 5,336 $ 5,336
Buildings 18,088 18,517 18,721
Leasehold improvements 904 1,146 1,180
Machinery and equipment 51,602 57,531 56,183
Furniture and fixtures 1,399 1,572 1,548
-------- -------- --------
77,329 84,102 82,968
Less accumulated depreciation and amortization 39,965 46,600 46,660
-------- -------- --------
$ 37,364 $ 37,502 $ 36,308
======== ======== ========
</TABLE>
F. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -----------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income from continuing operations:
Current provision:
Federal $ 1,843 $ 2,265 $ 3,792 $1,562 $ 3,153
State 164 399 710 305 584
Deferred (1,795) (1,131) (1,375) (874) (217)
-------- -------- -------- ------ -------
$ 212 $ 1,533 $ 3,127 $ 993 $ 3,520
======== ======== ======== ====== =======
</TABLE>
F-15
<PAGE> 60
The following represents a reconciliation between the actual income tax
expense (benefit) and income taxes computed by applying the statutory
Federal income tax rate to income before income taxes from continuing
operations:
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0% 34.0% 35.0%
State income tax effect 5.0 5.0 4.0 4.0 3.9
Amortization of excess of purchase
price over net assets acquired 9.2 3.2 1.6 2.2 0.9
Other 3.9 3.3 1.5 2.5 0.8
Expense (benefit) of change in estimate
of deferred income tax liabilities (34.2) - 1.1 - -
----- ----- ----- ----- -----
17.9% 45.5% 42.2% 42.7% 40.6%
===== ===== ===== ===== =====
</TABLE>
Deferred income tax assets (liabilities) are comprised of the following
at:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
<S> <C> <C>
Deferred income tax assets:
Acquired net operating loss of Cal Emblem $ - $ 653
Non-deductible accrued liabilities 441 498
Non-deductible bad debt reserve 76 179
Other 101 167
---------- ----------
618 1,497
---------- ----------
Valuation allowance - (653)
---------- ----------
Deferred income tax liabilities:
Basis of property and equipment (3,156) (2,647)
Basis of inventory (1,030) (1,143)
Accrual for pension costs (230) (387)
Other (11) -
---------- ----------
(4,427) (4,177)
---------- ----------
Net deferred income tax liability $ (3,809) $ (3,333)
========== ==========
</TABLE>
In connection with the Company's acquisition of Cal Emblem, the Company
acquired a net operating loss carryforward. At December 31, 1995, the
loss carryforward was $1,692,000 and expires through the year 2009. A
valuation allowance has been established for the deferred tax asset
related to the loss carryforward. If realized, the loss carryforward
will result in a decrease in goodwill.
F-16
<PAGE> 61
G. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A cash management system is utilized under which deposits are made to
cover only those checks presented to the bank for payment. Checks not
yet presented to the bank for payment in the amounts of $5,559,000,
$7,336,000, and $4,750,000 (unaudited) at December 31, 1994 and 1995 and
June 30, 1996, respectively, are included in accounts payable and
accrued liabilities.
H. LONG-TERM OBLIGATIONS
Long-term obligations consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- -----------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Senior Secured Notes, 13 1/2%, due 2002, less
unamortized discount of $2,037,000, $1,343,000
and $1,230,000 (unaudited) $ 82,963 $ 59,657 $ 59,270
Mortgage note, 10.5%, (due in monthly installments
with balloon payment in 2002) 2,518 2,469 2,443
Promissory notes, 10%, to former Cal Emblem
stockholders due in annual installments through
August 2000 - 2,245 2,245
Obligation under termination agreement payable in
monthly installments through December 1, 2002, less
unamortized discount of $1,046,000, $848,000 and
$753,000 (unaudited) 1,349 1,288 1,248
Note payable, 10.125%, Pierce County, Washington
(due in varying amounts through 1997) 2,600 570 570
Other 139 152 97
-------- -------- --------
89,569 66,381 65,873
Less current maturities of debt 2,850 1,169 1,184
-------- -------- --------
$ 86,719 $ 65,212 $ 64,689
======== ======== ========
</TABLE>
In November 1994, the Company issued 85,000 units, each consisting of
$1,000 aggregate principal amount of 13 1/2% senior secured notes of Data
Documents, Inc. due 2002 (the "Senior Notes") and common stock purchase
warrants to purchase common stock of Data Documents Incorporated.
Interest is due semi-annually on January 15 and July 15. The Senior
Notes are guaranteed by the Company and its subsidiaries. On or after
July 15, 1999, the Senior Notes are redeemable, at the option of the
Company, in whole or in part at the redemption prices of 104.2% in 1999
decreasing to 100% in 2001. Upon the change of control, the Company is
required to offer to repurchase all outstanding Senior Notes at 101% of
the principal amount plus accrued interest to the date of redemption.
The restrictions on redemption do not limit the ability of the Company to
purchase Senior Notes on the open market.
In November 1995, the Company completed an initial public offering. The
net proceeds of the Offering were used to redeem $24 million of the
Company's Senior Notes at a redemption price of 111.4%.
F-17
<PAGE> 62
The Senior Notes are collateralized by a first priority security interest
in substantially all assets other than accounts receivable. The Senior
Notes contain certain restrictive covenants which limit, subject to
certain exceptions; the incurrence of additional debt, the payment of
dividends on and redemption of stock of the Company, asset sales,
consolidations, mergers or transfers of all or substantially all of the
Company's assets, certain transactions with affiliates including
intercompany dividends, and liens, among other things. At December 31,
1995, pursuant to terms of the Senior Notes no dividends may be paid to
the Company by its subsidiaries.
A surety agreement for the benefit of the holders of the Pierce County,
Washington debt obligation was allowed to expire in 1995 and payment of
$2,030,000 principal was made. The remaining principal of $570,000 will
be paid under scheduled maturities without the benefit of a surety
agreement.
In November 1994, the Company terminated an agreement for management,
advisory and consulting services. The termination agreement is payable
in monthly installments of $21,667 (increasing each January 1 by 4%) to
December 1, 2002. The obligation has been recorded at its present value
using a 15% discount rate over the seven year term.
The Company has a revolving credit facility with a maximum credit line of
the lesser of $20,000,000 or 80% of eligible accounts receivables, which
are pledged as collateral, none of which was outstanding at December 31,
1994 or 1995. Debt covenants under the revolving credit facility require
maintenance of minimum amounts of tangible net worth. Interest under the
revolving facility is paid monthly at 1.5% above prime or 3% above LIBOR
and .5% per annum on the unused line available.
A sale and leaseback of manufacturing properties was consummated in 1993,
proceeds of which totaled $12,750,000. The proceeds were used to repay
$8,000,000 of debt, to pay certain fees and taxes associated with the
transaction and for operations. This transaction was accounted for as a
financing transaction. In November 1994, the facilities were repurchased
with proceeds from the Senior Notes. Included in cash at December 31,
1994, is $2,891,000 held in escrow relating to final settlement of the
repurchase. Final settlement was made in March 1995 and all excess
restricted cash was released from escrow and returned to the Company.
At December 31, 1995 and June 30, 1996 (unaudited), a contingent liability
to a financial institution exists for outstanding letters of credit in the
amount of $422,000.
FAIR VALUE - The fair value of the Company's long-term debt is based on
quoted market prices or on the current rates offered to the Company for
debt of similar maturities. At December 31, 1995, the carrying amount of
the Company's debt was $66,381,000 and the estimated fair value was
$71,871,000. At December 31, 1994, the carrying value of $89,569,000
approximated fair value.
Aggregate maturities of long-term obligations in each of the next five
years are as follows:
<TABLE>
<S> <C>
1996 $ 1,169
1997 952
1998 796
1999 808
2000 296
</TABLE>
F-18
<PAGE> 63
I. PREFERRED STOCK
On September 7, 1995, the Company amended its articles of incorporation
to authorize issuance of 5,000,000 shares of preferred stock having a par
value of $0.01 per share. None of the shares of the authorized preferred
stock have been issued. The Board of Directors, without further action
by the holders of common stock, may issue shares of preferred stock and
may fix or alter the voting rights, redemption provisions, dividend
rights, dividend rates, liquidation preferences, conversion rights and
the designation of and number of shares constituting any wholly unissued
series of preferred stock.
Prior to November 23, 1994, the two classes of preferred stock of the
Company were entitled to quarterly dividends at the rate of $10 per
annum. Dividends were cumulative, if not declared. In November 1994, all
of the outstanding preferred stock was repurchased at face value.
J. WARRANTS
In connection with the 1994 issuance of the Senior Notes, the Company
issued warrants to purchase its common stock (the "Warrants"). Each
Warrant, when exercised, entitles the holder thereof to receive the
number of shares of common stock as set forth on the Warrant at $.002 per
share. Prior to the completion of the Offering, the Warrants were
exercisable at any time on or after November 28, 1995 and unless
exercised, automatically expire on July 15, 2002. The Warrants entitle
the holders to purchase in the aggregate 960,341 shares of common stock,
or approximately 10% of the outstanding common stock on a fully diluted
basis.
In 1994, upon the issuance of the Senior Notes, the Company canceled all
existing common stock purchase Warrants and replaced them with additional
Warrants to purchase in the aggregate 320,114 shares of common stock or
approximately 3% of the outstanding common stock on a fully diluted basis
and which are exchangeable under the same terms as described above.
Under specified conditions the Warrants were redeemable for cash or
Senior Notes. In 1995, the Warrants became solely exchangeable for
shares of common stock, and the Warrants were reclassified to additional
paid in capital. All of the above Warrants remain outstanding at
December 31, 1995.
In the second quarter of 1996, 50,483 Warrants were exchanged for 570,362
shares of the Company's common stock (unaudited).
K. CONTINGENCIES
The Company is subject to lawsuits and claims which arise out of the
normal course of its business. In the opinion of management, the
disposition of such claims will not have a material adverse effect on the
Company. The Company's income tax returns are currently under IRS
examination. The Company does not expect the results from these
contingencies to have a material adverse effect on its consolidated
financial statements.
L. LEASES
Sales offices, certain manufacturing facilities, certain transportation
and other equipment are leased under long-term noncancellable leases.
Substantially all of the leases are net leases which require payment of
property taxes, insurance and maintenance costs in addition to rental
payments.
F-19
<PAGE> 64
At December 31, 1995, the future minimum lease payments under
noncancellable operating leases with rental terms of more than one year
amount to:
<TABLE>
<CAPTION>
Year Ending
<S> <C>
1996 $ 2,469
1997 1,665
1998 1,187
1999 546
2000 185
Later Years 974
---
Total minimum obligation $ 7,026
============
</TABLE>
Rent expenses relating to all operating leases were $2,189,000,
$2,328,000, and $2,537,000 for the years ended December 31, 1993, 1994
and 1995, respectively.
M. EMPLOYEE BENEFIT PLANS
Pension Plans -- The Company and its subsidiaries have defined benefit
retirement plans for eligible salaried and hourly employees. Benefits
are based on years of credited service and average compensation for each
year of service. For 1993, 1994 and 1995, the Company's funding policy
is to contribute the minimum amount deductible for federal income tax
purposes. Plan assets are invested in common trust funds administered by
a corporate trustee.
Net periodic pension cost of the defined benefit plan includes the
following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
<S> <C> <C> <C>
Service cost $ 562 $ 632 $ 571
Interest cost on projected benefit obligation 720 800 881
Return on plan assets (850) 180 (1,911)
Net amortization and deferral (67) (1,206) 892
----- ------- -------
Net periodic pension cost $ 365 $ 406 $ 433
===== ======= =======
</TABLE>
F-20
<PAGE> 65
The following table sets forth the plan's funded status and the amount
recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 8,855 $11,494
Nonvested benefit obligation 306 360
-------- -------
Accumulated benefit obligation $ 9,161 $11,854
======== =======
Projected benefit obligation for services rendered to date $ 10,512 $13,690
Plan assets at fair value 10,222 11,734
-------- -------
Plan assets less than projected benefit obligation (290) (1,956)
Unrecognized net loss 985 2,191
Unrecognized prior service cost (105) (74)
-------- -------
Prepaid pension cost $ 590 $ 161
======== =======
</TABLE>
The projected benefit obligation is determined using a weighted average
discount rate of 8.25% for 1994 and 7.5% for 1995, and a 3.5% rate of
increase in future compensation levels for 1994 and 1995.
The Company and its subsidiaries are also participants in multi-employer
pension plans covering union employees. Costs associated with these
plans aggregate approximately $72,000, $62,000 and $66,000 for 1993, 1994
and 1995, respectively.
SAVINGS PLAN - The Company has a Salary Deferral Savings Plan which
permits employees to make salary reduction contributions from 1% to 18%.
The Plan is a defined contribution pension plan which became effective
July 1, 1988. The administrative expenses related to the Plan are paid
by the Company.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - Effective January 1, 1993,
the Company adopted SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. The Company accrues the
estimated cost of retiree benefit payments during the years the employee
provides services. The Company has elected to recognize the initial
obligation of approximately $1,637,000 over a period of twenty years.
Certain medical and dental benefits are provided to qualifying employees.
The following table sets forth the medical and dental plan's funded
status at December 31, 1994 and 1995:
Accumulated postretirement benefits obligation:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Retirees $ 626 $ 741
Fully eligible plan participants 964 983
------- -------
Accumulated postretirement benefit obligations in excess
of plan assets (1,590) (1,724)
Unrecognized transition obligation (included in other assets) 1,473 1,391
Unrecognized net gain (149) (81)
------- -------
Accrued postretirement benefit cost (266) $ (414)
======= =======
</TABLE>
F-21
<PAGE> 66
Net postretirement benefit cost for the year ended December 31, 1993, 1994
and 1995 consisted of the following components:
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Service cost of benefits earned $ 89 $ 115 $ 87
Interest cost on accumulated postretirement benefit
obligation 105 116 131
Amortization of transition obligation 81 81 82
------ ------ ------
Net postretirement benefit cost $ 275 $ 312 $ 300
====== ====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of January 1, 1993 was 12% for 1993,
decreasing gradually to a 6% annual growth rate after 12 years and
remaining at a 6% annual rate thereafter. A one-percentage point
increase in the assumed health care cost trend rate would increase the
accumulated postretirement benefit obligation by approximately $210,000
as of December 31, 1995 and would increase net postretirement health care
cost by $13,000 for the year ended December 31, 1995. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 8.25% and 7.5% for the years ended December 31, 1994 and
1995.
N. STOCK OPTION PLAN
The Board of Directors of the Company adopted the 1995 Employee Stock
Incentive Plan (the "Plan") pursuant to which the Board may award options
to purchase, in aggregate, 500,000 shares of common stock. Options vest
and become exercisable over a one to three year period after date of
grant and generally expire no later than ten years from the date of
grant. The exercise price per share is no less than the fair market
value on the date each option is granted.
In connection with the Company's acquisition of Cal Emblem in August
1995, the Company granted options for 195,815 shares to a former
stockholder of Cal Emblem at the initial public offering price of $9.00.
The following table summarizes the activity in common shares subject to
options for the year ended December 31, 1995:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES (PER SHARE)
<S> <C> <C>
Outstanding at January 1, 1995 - -
Granted under Plan 128,800 $9.00 - $9.90
Granted to former stockholder 195,815 $9.00
Exercised or cancelled - -
-------
Outstanding at December 31, 1995 324,615 $9.00 - $9.90
=======
Vested and exercisable 195,815 $9.00
=======
</TABLE>
F-22
<PAGE> 67
STOCK COMPENSATION CHARGE - During the second quarter of 1995, the
Company recorded a noncash expense of $156,000 relating to the sale of
common shares to a director and an employee. The amount represents the
excess of the estimated fair value of the common shares over
consideration received. Such shares have been considered outstanding for
all periods presented in the computation of earnings per share.
O. RELATED PARTY TRANSACTIONS
In February 1988, the Company entered into an agreement for management,
advisory and consulting services through 1998 with Raebarn Corporation
whose principals are common stockholders and/or directors of the Company.
The agreement provided in the event that the Company, at any time during
the term of the agreement, engaged in certain transactions, Raebarn
Corporation had the right to act as the Company's financial advisors.
Payments to Raebarn totaled $250,000 in 1994 and 1993. Fees of $643,000
were paid in 1993 to Raebarn Corporation related to financing
transactions. In November 1994, the Company terminated its agreement
with Raebarn in exchange for monthly payments to Raebarn through December
2002 the present value of which has been accrued.
P. EXTRAORDINARY ITEM
In November 1995, the Company incurred an extraordinary charge of
$2,921,000, net of income tax benefit of $1,790,000, for the write-off of
unamortized deferred financing costs, unamortized original issue discount
and prepayment fees associated with the prepayment of $24,000,000 of
Senior Notes.
In November 1994, the Company incurred an extraordinary charge of
$2,795,000, net of income tax benefit of $1,787,000, for the write-off of
unamortized deferred financing costs, unamortized original issue discount
and certain termination fees and costs associated with the early
termination of debt.
In June 1996, the Company incurred an extraordinary charge of $54,000
(unaudited), net of income tax benefit of $34,000 (unaudited), for the
write-off of unamortized deferred financing costs, unamortized original
issue account and premium on reacquisition associated with the repurchase
of $500,000 of Senior Notes.
SUMMARIZED FINANCIAL INFORMATION
Following is the summarized financial information of Data Documents, Inc.
and subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- -----------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Current assets $64,070 $71,429 $74,936
Noncurrent assets $52,151 $54,296 $52,187
Current liabilities $26,839 $28,413 $25,584
Noncurrent liabilities $91,754 $69,888 $69,142
</TABLE>
F-23
<PAGE> 68
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ---------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales $193,588 $193,626 $242,238 $114,230 $124,678
Gross profit $ 41,552 $ 44,829 $ 56,227 $ 26,605 $ 32,436
Net income (loss) $ 971 $ (963) $ 1,354 $ 1,330 $ 5,100
</TABLE>
Following is the summarized combined financial information of PBF
Washington, Inc. and Cal Emblem Labels, Inc. (wholly-owned subsidiaries
of Data Documents, Inc.), guarantors of the Senior Notes. The
information presented for Cal Emblem Labels, Inc. is as of December 31,
1995 and from the date of acquisition through December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- -----------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Current assets $3,230 $ 7,948 $6,824
Noncurrent assets $3,178 $10,581 $9,737
Current liabilities $5,434 $11,301 $8,814
Noncurrent liabilities $ - $ 1,140 $1,130
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------ ------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales $8,644 $7,975 $17,133 $4,983 $11,145
Gross profit $1,799 $2,394 $ 4,204 $1,244 $ 3,248
Net income (loss) $ (211) $ 217 $ 608 $ 132 $ 387
</TABLE>
F-24
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
Cal Emblem Labels, Inc.
Fresno, California
We have audited the accompanying Balance Sheet of Cal Emblem Labels, Inc., as
of April 30, 1995, and the related Statements of Income, Changes in
Stockholders' Equity, and Cash Flows for the year 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 audit.
We conducted our audit 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 audit provides 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 Cal Emblem Labels, Inc., as of
April 30, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
[SIGNATURE]
Stoughton Davidson Accountancy Corporation
Fresno, California
June 19, 1995
(except for Note 11, as to which the date is July 12, 1995)
F-25
<PAGE> 70
CAL EMBLEM LABELS, INC.
FRESNO, CALIFORNIA
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1995 JUNE 30, 1995
--------------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,042 $21,948
Accounts and Notes Receivable, Less Allowance for Doubtful
Accounts of $125,000 and $142,000 (Unaudited) (Note 5):
Trade . . . . . . . . . . . . . . . . . . . . . . . . . 2,958,054 2,491,558
Other . . . . . . . . . . . . . . . . . . . . . . . . . 23,938 30,151
Inventories (Notes 2 and 5) . . . . . . . . . . . . . . . . . 1,419,212 1,636,089
Deferred Income Taxes (Notes 1 and 7) . . . . . . . . . . . . 303,243 303,243
Prepaid Expenses and Other . . . . . . . . . . . . . . . . . 172,292 134,790
---------- ----------
Total Current Assets . . . . . . . . . . . . . . . . 4,902,781 4,617,779
Property and Equipment, Net (Notes 1, 3 and 5) . . . . . . . . 3,366,662 3,292,585
Cash Value, Keyman Life Insurance . . . . . . . . . . . . . . . 185,189 195,314
Other Assets (Notes 1 and 6) . . . . . . . . . . . . . . . . . 259,041 244,237
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . $8,713,673 $8,349,915
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities . . . . . . . . . . $1,752,264 $1,519,996
Accrued Compensation . . . . . . . . . . . . . . . . . . . . 299,314 308,411
Income Taxes Payable (Notes 1 and 7) . . . . . . . . . . . . 98,358 131,358
Notes Payable to Related Parties (Note 4) . . . . . . . . . . 192,478 192,478
Current Portion of Long-term Debt (Note 5) . . . . . . . . . 386,316 373,329
---------- ----------
Total Current Liabilities . . . . . . . . . . . . . . 2,728,730 2,525,572
Long-term Debt (Notes 5 and 6) . . . . . . . . . . . . . . . . 4,414,833 4,203,601
Deferred Income Taxes (Notes 1 and 7) . . . . . . . . . . . . . 243,928 250,928
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . . 7,387,491 6,980,101
---------- ----------
Commitment and Contingencies (Note 8)
Stockholders' Equity (Notes 1, 9, 10, and 11):
Capital Stock, $1 Par Value; Authorized 2,000,000; Issued 987,036 987,036
987,036
Additional Paid-in Capital . . . . . . . . . . . . . . . . . 309,441 309,441
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . 78,455 122,087
Treasury Stock, at Cost, 15,000 Shares . . . . . . . . . . . (48,750) (48,750)
---------- ----------
Total Stockholders' Equity . . . . . . . . . . . . . 1,326,182 1,369,814
---------- ----------
Total Liabilities and Stockholders' Equity . . . . . $8,713,673 $8,349,915
========== ==========
</TABLE>
See Independent Auditors' Report and Notes to the Financial Statements.
F-26
<PAGE> 71
CAL EMBLEM LABELS, INC.
FRESNO, CALIFORNIA
STATEMENT OF INCOME
<TABLE>
<CAPTION> TWO MONTHS ENDED
YEAR ENDED -----------------------------
APRIL 30, 1995 JUNE 30, 1994 JUNE 30, 1995
-------------- ------------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . $23,043,763 $4,406,979 $3,394,872
Cost of Goods Sold . . . . . . . . . . . 17,406,178 3,336,177 2,504,798
----------- ---------- ----------
Gross Profit . . . . . . . . . 5,637,585 1,070,802 890,074
Selling, General and Administrative
Expenses . . . . . . . . . . . . . . . 4,645,433 828,801 724,852
----------- ---------- ----------
Operating Income . . . . . . . 992,152 242,001 165,222
Debt Expense . . . . . . . . . . . . . . 522,378 79,331 81,590
----------- ---------- ----------
Income Before Income Taxes . . . . . . . 469,774 162,670 83,632
Income Tax Expense (Note 7) . . . . . . . (114,718) (39,692) (40,000)
----------- ---------- ----------
Net Income . . . . . . . . . . . . . . . $ 355,056 $ 122,978 $ 43,632
=========== ========== ==========
</TABLE>
See Independent Auditors' Report and Notes to the Financial Statements.
F-27
<PAGE> 72
CAL EMBLEM LABELS, INC.
FRESNO, CALIFORNIA
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
CAPITAL PAID IN EARNINGS TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
-------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1994 . . . . . . . . . . $987,036 $353,191 $(276,601) $(130,000) $ 933,626
Net Income . . . . . . . . . . . . . . . -- -- 355,056 -- 355,056
Exercised Option for Treasury Stock
(Note 6) . . . . . . . . . . . . . . . -- (43,750) -- 81,250 37,500
-------- -------- --------- --------- ----------
Balance, April 30, 1995 . . . . . . . . . . 987,036 309,441 78,455 (48,750) 1,326,182
Net Income (Unaudited) . . . . . . . . . -- -- 43,632 -- 43,632
-------- -------- --------- --------- ----------
Balance, June 30, 1995 (Unaudited) . . . . $987,036 $309,441 $ 122,087 $ (48,750) $1,369,814
======== ======== ========= =========== ==========
</TABLE>
See Independent Auditors' Report and Notes to the Financial Statements.
F-28
<PAGE> 73
CAL EMBLEM LABELS, INC.
FRESNO, CALIFORNIA
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TWO MONTHS ENDED
YEAR ENDED -------------------------------
APRIL 30, 1995 JUNE 30, 1994 JUNE 30, 1995
-------------- ------------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $ 355,056 $ 122,978 $ 43,632
Items Not Requiring Cash:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 831,629 134,084 140,679
Amortization . . . . . . . . . . . . . . . . . . . . . . . 68,820 11,470 11,470
(Gain) Loss on Sale of Equipment . . . . . . . . . . . . . 38,286 -- (25)
Changes In:
Accounts Receivable . . . . . . . . . . . . . . . . . . . (381,934) (835,455) 460,283
Inventories . . . . . . . . . . . . . . . . . . . . . . . (33,840) (100,606) (216,877)
Prepaid Expenses and Other Assets . . . . . . . . . . . . 38,554 (37,532) 37,502
Accounts Payable and Accrued Expenses . . . . . . . . . . (147,670) 436,039 (223,171)
Current and Deferred Income Taxes . . . . . . . . . . . . 52,163 26,572 40,000
---------- ---------- ----------
Net Cash Provided (Used) by Operating Activities . . . . 821,064 (242,450) 293,493
Cash Flows From Investing Activities:
Proceeds from Sale of Property and Equipment . . . . . . . . 2,548 -- 6,000
Purchase of Property and Equipment . . . . . . . . . . . . . (624,171) (55,154) (72,577)
(Increase) Decrease in Deposits . . . . . . . . . . . . . . 6,583 (160) 3,334
Increase in Cash Surrender Value of Life Insurance. . . . . . (57,817) -- (10,125)
---------- ---------- ----------
Net Cash Used in Investing Activities . . . . . . . . . (672,857) (55,314) (73,368)
---------- ---------- ----------
Cash Flows From Financing Activities:
Principal Payments on Notes Payable to Related Parties . . . (54,605) (11,660) --
Proceeds from Notes Payable to Related Parties . . . . . . 100,806 29,000 --
Net Proceeds (Payments) of Line of Credit . . . . . . . . . 33,424 361,560 (158,129)
Principal Payments on Long-term Debt . . . . . . . . . . . . (551,271) (68,107) (66,090)
Proceeds from Long-term Debt . . . . . . . . . . . . . . . . 311,981 -- --
Stock Option Exercised . . . . . . . . . . . . . . . . . . . 37,500 -- --
---------- ---------- ----------
Net Cash Provided (Used) by Financing Activities (122,165) 310,793 (224,219)
---------- ---------- ----------
Increase (Decrease) in Cash . . . . . . . . . . . . . . . . . . 26,042 13,029 (4,094)
Cash at Beginning of Period . . . . . . . . . . . . . . . . . . -- -- 26,042
---------- ---------- ----------
Cash at End of Period . . . . . . . . . . . . . . . . . . . . . $ 26,042 $ 13,029 $ 21,948
========== ========== ==========
</TABLE>
See Independent Auditors' Report and Notes to the Financial Statements
F-29
<PAGE> 74
CAL EMBLEM LABELS, INC.
FRESNO, CALIFORNIA
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Cal Emblem Labels formed on April 30, 1986 to manufacture and sell
pressure-sensitive and nonpressure-sensitive labels and tags and related
products according to customer specifications. The Company extends unsecured
credit to customers located throughout the United States and foreign countries.
Basis of Presentation of Unaudited Interim Financial Statements
The Balance Sheet at June 30, 1995 and the related Statements of
Income and Cash Flows for the two months ended June 1994 and 1995, are
unaudited. However, in the opinion of management, the interim financial
statements include all adjustments which consists of only normal recurring
adjustments necessary for fair presentation of the Company's financial
position. The results of operations for the unaudited two months ended June
30, 1994 and 1995, are not necessarily indicative of the results which may be
expected for the entire year.
Inventory Pricing
All inventories are stated at the lower of cost or market. Costs are
determined using the FIFO (first-in, first-out) method.
Property and Equipment
Property and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful life of each asset (2 to 12
years). Leasehold improvements are depreciated over the shorter of the lease
term or the estimated useful lives of the improvements.
Goodwill
Goodwill represents the excess of the cost of the acquired label
manufacturing companies over the fair value of their net assets at the date of
acquisition and is being amortized using the straight-line method over ten
years.
Organization and Financing Costs
Organization costs are being amortized using the straight-line method
over five years. Financing costs are being amortized over five years using a
method that approximates the interest method.
Revenue Recognition
Sales and related cost of sales are recognized upon shipment of
products.
Income Taxes
Deferred tax provisions/benefits are calculated for certain
transactions and events because of differing treatments under generally
accepted accounting principles and the currently enacted tax laws of the
federal and state governments. The results of these differences on a
cumulative basis, known as temporary differences, result in the recognition and
measurement of deferred tax assets and liabilities in the accompanying Balance
Sheet. A valuation allowance is established to reduce deferred tax assets if
it is more likely than not that a deferred tax asset will not be realized.
F-30
<PAGE> 75
CAL EMBLEM LABELS, INC.
FRESNO, CALIFORNIA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 30, 1995 JUNE 30, 1995
--------------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . . . . $ 693,453 $ 812,349
Raw materials . . . . . . . . . . . . . . . . . . . . 552,726 717,068
Supplies and spare parts . . . . . . . . . . . . . . 173,033 106,672
---------- ----------
Total Inventories . . . . . . . . . . . . . $1,419,212 $1,636,089
========== ==========
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 30, 1995 JUNE 30, 1995
--------------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Machinery and equipment . . . . . . . . . . . . . . . $ 5,601,302 $ 5,518,924
Furniture and fixtures . . . . . . . . . . . . . . . 402,638 402,638
Automobiles . . . . . . . . . . . . . . . . . . . . . 117,719 111,577
Leasehold improvements . . . . . . . . . . . . . . . 257,025 257,025
Dies . . . . . . . . . . . . . . . . . . . . . . . . 414,631 420,761
Software . . . . . . . . . . . . . . . . . . . . . . 151,814 151,814
Development costs . . . . . . . . . . . . . . . . . . 45,773 45,773
----------- -----------
Total Property and Equipment . . . . . . . . 6,990,902 6,908,512
Less Accumulated Depreciation and Amortization . . . (3,624,240) (3,615,927)
------------ ------------
Net Property and Equipment . . . . . . . . . $ 3,366,662 $ 3,292,585
=========== ===========
</TABLE>
NOTE 4 -- NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
APRIL 30, 1995 JUNE 30, 1995
--------------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Notes payable to related parties, interest at 10.0% and
11.5%, interest payable upon maturity date; due
February 24, 1996 and August 1, 1996 . . . . . . . $117,046 $117,046
Notes payable to stockholder, interest at 14.0%, interest
payable quarterly; due on July 15, 1995; subordinated
to notes payable to bank . . . . . . . . . . . . . 75,432 75,432
-------- --------
Total Notes Payable to Related Parties . . . . $192,478 $192,478
======== ========
</TABLE>
F-31
<PAGE> 76
CAL EMBLEM LABELS, INC.
FRESNO, CALIFORNIA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, 1995 JUNE 30, 1995
--------------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Note payable to bank, payable $25,272 monthly plus
interest at prime (9.00% as of April 30, 1995) plus
2.00%; secured by accounts receivable, inventory,
equipment and personal guarantee up to $500,000 by the
Company's principal stockholder; due January 1, 2001 . $1,743,774 $1,693,230
Note payable to bank, provides for borrowing up to 85%
of qualified accounts receivable and 60% of paper and
finished goods inventories and limited to a total of
$3,300,000; interest at prime (9.00% as of April 30,
1995) plus 1.75%, payable monthly, secured by accounts
receivable, inventory, equipment and personal guaranty
up to $500,000 by the Company's principal stockholder;
due January 1997 . . . . . . . . . . . . . . . . . . . 2,862,431 2,704,346
Installment notes, payable $9,047 monthly, including
interest at 9.25% to 9.90%, secured by equipment; due
June 18, 1995 through July 6, 1998 . . . . . . . . . . 194,944 179,354
----------- -----------
4,801,149 4,576,930
Less Current Portion . . . . . . . . . . . . . . . . . 386,316 373,329
----------- -----------
Total Long-term Debt . . . . . . . . . . . . $4,414,833 $4,203,601
========== ==========
</TABLE>
Aggregate annual maturities of long-term debt at April 30 are as follows:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . $ 386,316
1997 . . . . . . . . . . . . 3,237,961
1998 . . . . . . . . . . . . 335,192
1999 . . . . . . . . . . . . 310,966
2000 . . . . . . . . . . . . 303,265
Thereafter . . . . . . . . . 227,449
----------
Total . . . . . . . $4,801,149
==========
</TABLE>
NOTE 6 -- STOCK WARRANTS AND OPTION
At April 30, 1993, there were stock warrants outstanding to purchase
111 shares of the common stock of one of the Company's divisions for
approximately $.01 per share. On January 7, 1994, the Company entered into an
exchange agreement with the holders of the warrant shares. Under the
agreement, the warrants were exchanged for a $75,000 cash payment and a
$200,000 note payable. The difference between this total of $275,000 and the
carrying amount of the warrants of $150,000 represents contingent purchase
price relating to the purchase of the division and is shown as goodwill in the
accompanying financial statements. Payments under the note payable during 1995
totaled $177,778.
On December 2, 1991, the Company granted a stock option to a minority
shareholder. The agreement requires the shareholder to make annual payments on
May 1 of $3,000 in consideration for the granting of this option. As of April
30, 1994, payments totaling $9,000 had been made by the shareholder. The
option was exercised during the year ended April 30, 1995, for 25,000 shares of
the Company's common stock at $1.50 per share, totaling $37,500.
F-32
<PAGE> 77
CAL EMBLEM LABELS, INC.
FRESNO, CALIFORNIA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
TWO MONTHS ENDED
JUNE 30
YEAR ENDED ------------------------
APRIL 30, 1995 1994 1995
-------------- ------------------------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current Provision:
Federal . . . . . . . . . . $146,236 $50,590 $25,000
State . . . . . . . . . . . 27,797 9,598 8,000
Deferred . . . . . . . . . . . (59,315) (20,496) 7,000
-------- ------- -------
Total . . . . . . . . . $114,718 $39,692 $40,000
======== ======= =======
</TABLE>
The following represents a reconciliation between the actual income
tax expense (benefit) and income taxes computed by applying the statutory
federal income tax rate to income before income taxes:
<TABLE>
<CAPTION>
TWO MONTHS ENDED
JUNE 30
YEAR ENDED --------------------
APRIL 30, 1995 1994 1995
-------------- --------------------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C>
Statutory rate . . . . . . . . . . . . . . . 34.0% 34.0% 34.0%
State income tax effect . . . . . . . . . . . 13.7 13.7 6.0
Amortization of excess of purchase price over
net assets and stock warrants acquired . . 3.4 3.4 4.0
Benefit of change in estimate of income tax
liabilities . . . . . . . . . . . . . . . (34.4) (34.4) --
Other . . . . . . . . . . . . . . . . . . 7.7 7.7 4.0
----- ----- -----
Total . . . . . . . . . . . . . . . . 24.4% 24.4% 48.0%
===== ===== =====
</TABLE>
Deferred income tax (liabilities) assets results from reporting income
and expenses in different periods for tax and financial reporting purposes.
The tax effects of such cumulative temporary differences were as follows:
<TABLE>
<CAPTION>
APRIL 30, 1995
---------------
(AUDITED)
<S> <C>
Deferred income tax assets:
Net operating loss carryover . . . . . . . . . . . . $506,640
Alternative minimum tax credit carryover . . . . . . 134,744
Non-deductible bad debt reserve . . . . . . . . . . 50,000
Non-deductible accrued liabilities . . . . . . . . . 38,582
Other . . . . . . . . . . . . . . . . . . . . . . . 14,661
--------
Total deferred income tax assets . . . . . . . . 744,627
--------
Deferred income tax liabilities:
Basis of property and equipment . . . . . . . . . . (685,312)
---------
Net deferred income tax asset . . . . . . . . . $ 59,315
========
</TABLE>
F-33
<PAGE> 78
CAL EMBLEM LABELS, INC.
FRESNO, CALIFORNIA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The Company has available, at April 30, 1995, unused operating loss
carry forwards of approximately $1,217,000 which expire between 2004 and 2008.
NOTE 8 -- OPERATING LEASES
Noncancellable operating leases for buildings and equipment expire
July 31, 1995 through March 31, 1999. Building leases generally contain
renewal options for one to three years and require the Company to pay all
executory costs (property taxes, maintenance and insurance).
Future minimum lease payments at April 30, 1995 are as follows:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . $270,488
1997 . . . . . . . . . . . . 189,758
1998 . . . . . . . . . . . . 155,749
1999 . . . . . . . . . . . . 147,987
--------
Total . . . . . . . $763,982
========
</TABLE>
Rental expense for all operating leases consisted of $313,119, $52,334
(unaudited), and $52,005 (unaudited) for the periods ended April 30, 1995, and
June 30, 1994 and 1995, respectively.
NOTE 9 -- PENSION PLAN
The Company has a defined contribution pension plan covering
substantially all employees. The plan allows participants to make salary
deferral contributions up to 15% of the participant's compensation (within
limitations imposed by the Internal Revenue Service). The Company provides a
matching 15% of the elective salary deferrals for each plan year. Company
contributions to the plan were $24,757, $3,750 (unaudited), and $5,317
(unaudited) for the periods ended April 30, 1995, and June 30, 1994 and 1995,
respectively.
NOTE 10 -- ADDITIONAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
TWO MONTHS ENDED
JUNE 30
YEAR ENDED -------------------
APRIL 30, 1995 1994 1995
-------------- -------------------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C>
Additional Cash Flows Information:
Interest paid . . . . . $512,267 $71,714 $85,353
Income taxes paid . . . $ 62,555 -- --
</TABLE>
NOTE 11 -- SUBSEQUENT EVENT -- SALE TO DATA DOCUMENTS, INC.
On July 12, 1995, the shareholders of the Company entered into an
agreement to sell their stock to Data Documents, Inc., a Nebraska corporation.
The sale is expected to close by August 31, 1995.
F-34
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering are as follows:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
-------- ------
<S> <C>
Registration Fee . . . . . . . . . . . . $ 100
Legal Fees and Expenses . . . . . . . . . 19,000
Accounting Fees and Expenses . . . . . . 5,000
Blue Sky Fees and Expenses . . . . . . . 5,000
Miscellaneous Expenses . . . . . . . . . 900
TOTAL . . . . . . . . . . . . . $30,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors in terms
sufficiently broad to indemnify officers and directors of the Company under
certain circumstances from liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. The Company's Charter and Bylaws
and the indemnification agreements between the Company and its officers and
directors provide, in effect, that, to the fullest extent and under the
circumstances permitted by Section 145 of the DGCL, the Company will indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is a
director or officer of the Company or is or was serving at the request of the
Company as a director or officer of another corporation or enterprise. The
Company may, in its discretion, similarly indemnify its employees and agents.
The Charter relieves its directors from monetary damages to the Company or its
stockholders for breach of such director's fiduciary duty as directors to the
fullest extent permitted by the DGCL. Under Section 102(b)(7) of the DGCL, a
corporation may relieve its directors from personal liability to such
corporation or its stockholders for monetary damages for any breach of their
fiduciary duty as directors except (i) for a breach of the duty of loyalty,
(ii) for failure to act in good faith, (iii) for intentional misconduct or
knowing violation of law, (iv) for willful or negligent violation of certain
provisions in the DGCL imposing certain requirements with respect to stock
repurchases, redemption and dividends or (v) for any transactions from which
the director derived an improper personal benefit. Depending upon the
character of the proceeding, under Delaware law, the Company may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with any action,
suit or proceeding if the person indemnified acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interest of the Company, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful. To the
extent that a director or officer of the Company has been successful in the
defense of any action, suit or proceeding referred to above, the Company will
be obligated to indemnify him or her against expenses (including attorneys'
fees) actually and reasonably incurred in connection therewith.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In June 1995, the Company sold 7,500 shares and 5,000 shares to Robert
W. Cruickshank (an outside director of the Company) and one of the Company's
facility managers, respectively, at a price of $6.50 per share (prior to
adjustment for the approximately 6.53-for-1 stock split completed prior to the
Offering). The Company believes that each of these transactions was exempt
from registration pursuant to Section 4(2) of the Act.
In connection with the acquisition of the outstanding capital stock of
Cal Emblem Labels, Inc., the Company in August 1995 issued an option to
purchase 195,815 shares of Common Stock of the Company to one of the former
II-1
<PAGE> 80
shareholders of Cal Emblem. The Company believes that the issuance of this
option was exempt from registration pursuant to Section 4(2) of the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
DESCRIPTION OF EXHIBIT
EXHIBIT ----------------------
NUMBER
------
<S> <C>
3.1 Certificate of Incorporation of the Company (previously filed as Exhibit 3.3 to
the Company's Registration Statement on Form S-1 (Registration No. 33-82700) and
incorporated herein by this reference).
3.2 Bylaws of the Company (previously filed as Exhibit 3.4 to the Company's
Registration Statement on Form S-1 (Registration No. 33-82700) and incorporated
herein by this reference).
3.3 Certificate of Amendment to Certificate of Incorporation of the Company, filed
November 23, 1994 (previously filed as Exhibit 3.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
3.4 Certificate of Amendment to Certificate of Incorporation of the Company, filed
August 31, 1995 (previously filed as Exhibit 3.4 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
3.5 Certificate of Amendment to Certificate of Incorporation of the Company, filed
October 3, 1995 (previously filed as Exhibit 3.5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1340) and incorporated herein by
this reference).
4.1 Specimen certificate of Common Stock (previously filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (Registration No. 33-95804) and
incorporated herein by this reference).
5.1 Opinion and consent of Gibson, Dunn & Crutcher LLP (previously filed as Exhibit
5.1 to the Company's Registration Statement on Form S-1 (Registration No. 333-
1340) and incorporated herein by this reference).
10.1 Employment Agreement dated November 28, 1994 by and between Data Documents, Inc.
("DDI") and Walter J. Kearns (previously filed as Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated
herein by this reference).
10.2 Termination Benefits Agreement dated November 28, 1994 by and between DDI and
each of Joseph Addison, Morris Caudle, Jeffrey Holton, Allyn Plejdrup and
William Rinehart (previously filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
10.3 Amended and Restated Stock Subscription Agreement dated as of November 28, 1994
by and among the Company and the other persons named therein (previously filed
as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by this reference).
</TABLE>
II-2
<PAGE> 81
<TABLE>
<S> <C>
10.4 Revolving credit facility documents, as amended, among DDI, PBF
Washington, Inc. ("PBF") and Congress Financial Corporation
(Western), consisting of an Accounts Financing Agreement (Security
Agreement), with Addendum thereto, dated February 5, 1993, a Trade
Financing Agreement Supplement, an Inventory and Equipment Security
Agreement Supplement, a Letter re: Inventory Loans, a LIBOR
Supplement and a Patent and Trademark Security Agreement, as amended
(previously filed as Exhibit 10.4 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 33-82700) and
incorporated herein by this reference).
10.5 Promissory Note Secured by Deed of Trust, dated December 8, 1992 in the
principal amount of $2,600,000 made by DDI in favor of the J. David
Gladstone Institutes (previously filed as Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (Registration No.
33-82700) and incorporated herein by this reference).
10.6 Deed of Trust with Assignment of Rents and Fixture filing, dated as of
December 8, 1992, by and among DDI, Pacific Title Guaranty Company
and the J. David Gladstone Institutes (previously filed as Exhibit
10.6 to the Company's Registration Statement on Form S-1
(Registration No. 33-82700) and incorporated herein by this
reference).
10.7 Security Agreement dated December 8, 1992 by and between and the J.
David Gladstone Institutes (previously filed as Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (Registration No.
33-82700) and incorporated herein by this reference).
10.8 Pension Plan, restated as of January 1, 1989 (previously filed as
Exhibit 10.8 to the Company's Registration Statement on Form S-1
(Registration No. 33-82700) and incorporated herein by this
reference).
10.9 Warrant Agreement (Teachers) dated as of November 28, 1994 by and
between DDI and NationsBank of Texas, N.A. ("NationsBank")
(previously filed as Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 and incorporated
herein by this reference).
10.10 Termination Agreement dated November 28, 1994 by and between DDI and
Raebarn Corporation (previously filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by this reference).
10.11 Warrant Agreement (including form of warrant certificate) dated as of
November 28, 1994 by and between the Company and NationsBank
(previously filed as Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 and incorporated
herein by this reference).
10.12 Security Agreement dated November 28, 1994 by and between the Company
and NationsBank (previously filed as Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by this reference).
10.13 Security Agreement dated as of November 28, 1994 by and between DDI and
NationsBank (previously filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by this reference).
10.14 Security Agreement dated as of November 28, 1994 by and between PBF and
NationsBank (previously filed as Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by this reference).
10.15 Stock Purchase Agreement dated as of July 12, 1995 by and among John E.
Bailey, Jay W. Hunzeker and DDI (previously filed as Exhibit 10.15 to
the Company's Registration Statement on Form S-1 (Registration No.
33-95804) and incorporated herein by this reference).
</TABLE>
II-3
<PAGE> 82
<TABLE>
<S> <C>
10.16 Non-Qualified Stock Option Agreement dated as of August 25, 1995 by and between
the Company and John E. Bailey (previously filed as Exhibit 99.1 to the
Company's Current Report on Form 8-K filed on September 6, 1995 and incorporated
herein by this reference).
10.17 Promissory Note dated August 25, 1995 in the principal amount of $2,095,000 made
by the Company in favor of John E. Bailey (previously filed as Exhibit 99.2 to
the Company's Current Report on Form 8-K filed on September 6, 1995 and
incorporated herein by this reference).
10.18 Form of Indemnity Agreement by and between the Company and its directors and
certain officers (previously filed as Exhibit 10.18 to the Company's
Registration Statement on Form S-1 (Registration No. 33-95804) and incorporated
herein by this reference).
10.19 1995 Stock Incentive Plan of the Company (previously filed as Exhibit 10.19 to
the Company's Registration Statement on Form S-1 (Registration No. 33-95804) and
incorporated herein by this reference).
10.20 Form of Incentive Stock Option Agreement (previously filed as Exhibit 10.20 to
the Company's Registration Statement on Form S-1 (Registration No. 33-95804) and
incorporated herein by this reference).
10.21 Form of Non-qualified Stock Option Agreement (previously filed as Exhibit 10.21
to the Company's Registration Statement on Form S-1 (Registration No. 33-95804)
and incorporated herein by this reference).
10.22 Form of Restricted Stock Agreement (previously filed as Exhibit 10.22 to the
Company's Registration Statement on Form S-1 (Registration No. 33-95804) and
incorporated herein by this reference).
10.23 Amendments to revolving credit facility documents, among DDI, PBF and Congress
Financial Corporation (Western), consisting of Addendum to Trade Financing
Supplement (Security Agreement), Amendment Number One to Accounts Financing
Agreement (Security Agreement), Amendment Number Three to Accounts Financing
Agreement (Security Agreement), Intercompany Security Agreement, Assignment and
Optional Advance Promissory Note (previously filed as Exhibit 10.23 to the
Company's Registration Statement on Form S-1 (Registration No. 33-95804) and
incorporated herein by this reference).
10.24 Amendment Number Two to Accounts Financing Agreement (Security Agreement)
(previously filed as Exhibit 10.24 to the Company's Registration Statement on
Form S-1 (Registration No. 33-95804) and incorporated herein by this reference).
10.25 Indenture dated as of November 28, 1994 among DDI, the Guarantors named therein
and NationsBank (previously filed as Exhibit 10.25 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
10.26 Leasehold Mortgage, Assignment of Leases and Rents and Fixture Filing dated as
of November 18, 1994 by DDI to NationsBank relating to Bloomington, Minnesota
property (previously filed as Exhibit 10.26 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
10.27 Leasehold Mortgage, Assignment of Leases and Rents and Fixture Filing dated as
of November 18, 1994 by DDI to NationsBank relating to Crystal Lake, Illinois
property (previously filed as Exhibit 10.27 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
10.28 Deed of Trust, Assignment of Leases and Rents and Fixture Filing dated as of
November 18, 1994 by DDI to Jonathan Hooper for NationsBank relating to Dallas,
Texas property (previously filed as Exhibit 10.28 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95804) and incorporated herein by
this reference).
</TABLE>
II-4
<PAGE> 83
<TABLE>
<S> <C>
10.29 Deed of Trust, Assignment of Leases and Rents and Fixture Filing dated as of
November 18, 1994 by DDI to the Public Trustee of Denver, Colorado for
NationsBank relating to Denver, Colorado property (previously filed as
Exhibit 10.29 to the Company's Registration Statement on Form S-1 (Registration
No. 33-95804) and incorporated herein by this reference).
10.30 Mortgage, Assignment of Leases and Rents and Fixture Filing dated as of November
18, 1994 by DDI for NationsBank relating to Lenexa, Kansas property (previously
filed as Exhibit 10.20 to the Company's Registration Statement on Form S-1
(Registration No. 33-95804) and incorporated herein by this reference).
10.31 Deed of Trust, Assignment of Leases and Rents and Fixture Filing dated as of
November 18, 1994 by DDI to Chicago Title Insurance Company for NationsBank
relating to Los Angeles, California property (previously filed as Exhibit 10.31
to the Company's Registration Statement on Form S-1 (Registration No. 33-95804)
and incorporated herein by this reference).
10.32 Deed of Trust, Assignment of Leases and Rents and Fixture Filing dated as of
November 18, 1994 by DDI to Chicago Title Insurance Company for NationsBank
relating to Omaha, Nebraska property (previously filed as Exhibit 10.32 to the
Company's Registration Statement on Form S-1 (Registration No. 33-95804) and
incorporated herein by this reference).
10.33 Deed of Trust, Assignment of Leases and Rents and Fixture Filing dated as of
November 18, 1994 by PBF to Chicago Title Insurance Company for NationsBank
relating to Tacoma, Washington property (previously filed as Exhibit 10.33 to
the Company's Registration Statement on Form S-1 (Registration No. 33-95804) and
incorporated herein by this reference).
10.34 Security Agreement dated as of January 4, 1996 by and between Cal Emblem Labels,
Inc. and The Bank of New York (previously filed as Exhibit 10.34 to the
Company's Registration Statement on Form S-1 (Registration No. 333-1340) and
incorporated herein by this reference).
10.35 Supplemental Indenture dated as of January 4, 1996 among DDI, the Guarantors
named therein and The Bank of New York (previously filed as Exhibit 10.35 to the
Company's Registration Statement on Form S-1 (Registration No. 333-1340) and
incorporated herein by this reference).
*11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Company (previously filed as Exhibit 21.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-1340) and incorporated
herein by this reference).
*23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Stoughton Davidson Accountancy Corporation.
23.3 Consent of Gibson, Dunn & Crutcher LLP (previously filed with Exhibit 5.1 to the
Company's Registration Statement on Form S-1 (Registration No. 333-1340) and
incorporated herein by this reference).
24.1 Power of Attorney (previously filed with the signature page to the Company's
Registration Statement on Form S-1 (Registration No. 333-1340) and incorporated
herein by this reference).
---------------
</TABLE>
* Filed herewith.
II-5
<PAGE> 84
(b) Financial Statement Schedules.
The following financial statement schedules are filed with Part II of
this Registration Statement:
Schedule I -- Condensed Financial Information of Registrant
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent any fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising out of the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense in any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
II-6
<PAGE> 85
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-7
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Omaha,
State of Nebraska, on August 19, 1996.
DATA DOCUMENTS INCORPORATED
By: /s/ JOSEPH C. ADDISON
-------------------------------------
Joseph C. Addison, Vice President
Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WALTER J. KEARNS* Chairman, President and Chief August 19, 1996
- ----------------------------- Executive Officer (Principal
Walter J. Kearns Executive Officer)
/s/ JOSEPH C. ADDISON Vice President Finance and Chief August 19, 1996
- ----------------------------- Financial Officer (Principal
Joseph C. Addison Financial and Accounting Officer)
/s/ MARK R. ALLISON* Director August 19, 1996
- -----------------------------
Mark R. Allison
/s/ THOMAS W. BLUMENTHAL* Director August 19, 1996
- -----------------------------
Thomas W. Blumenthal
/s/ ROBERT W. CRUICKSHANK* Director August 19, 1996
- -----------------------------
Robert W. Cruickshank
*By: /s/ JOSEPH C. ADDISON
-----------------------------
Joseph C. Addison,
Attorney-in-Fact
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Data Documents Incorporated
Omaha, Nebraska
We have audited the consolidated financial statements of Data Documents
Incorporated (formerly Data Documents Holdings, Inc.) as of December 31, 1995
and 1994, and for each of the three years in the period ended December 31, 1995,
and have issued our report thereon dated February 16, 1996; such report is
included elsewhere in this Registration Statement. Our audits also included the
consolidated financial statement schedules of Data Documents Incorporated and
subsidiaries listed in Item 16(b). These consolidated financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 16, 1996
S-1
<PAGE> 88
DATA DOCUMENTS INCORPORATED SCHEDULE I
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
ASSETS 1995 1994
<S> <C> <C>
INVESTMENT IN AND ADVANCES TO (FROM)
SUBSIDIARY (Note A) $27,424 $(2,372)
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
COMMITMENTS AND CONTINGENCIES (Note B)
EXCHANGEABLE WARRANTS, less unamortized discount of
$1,229,000 $ - $ 2,771
------- -------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued - -
Common stock, $0.001 par value; 15,000,000 shares authorized;
8,873,016 and 5,424,062 shares issued; 8,603,409 and 5,121,819 shares
outstanding 9 5
Additional paid-in capital 32,162 921
Accumulated deficit (4,489) (5,843)
Stockholder notes receivable (258) (226)
Treasury stock, acquired at no cost, 269,607 and 302,243 shares - -
------- -------
Total Stockholders' Equity (Deficit) 27,424 (5,143)
------- -------
$27,424 $(2,372)
======= =======
</TABLE>
See notes to financial statements.
S-2
<PAGE> 89
DATA DOCUMENTS INCORPORATED SCHEDULE I
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
<S> <C> <C> <C>
EQUITY IN EARNINGS (LOSS) OF SUBSIDIARY AND
NET INCOME (LOSS) $ 1,354 $ (963) $ 971
CASH DIVIDENDS PAID TO PREFERRED STOCKHOLDERS - (620) (683)
ACCUMULATED DEFICIT - Beginning of year (5,843) (4,260) (4,548)
------- ------- -------
ACCUMULATED DEFICIT - End of year $(4,489) $(5,843) $(4,260)
======= ======= =======
</TABLE>
See notes to financial statements.
S-3
<PAGE> 90
DATA DOCUMENTS INCORPORATED SCHEDULE I
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,354 $ (963) $ 971
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Equity in (earnings) loss of subsidiary (1,354) 963 (971)
-------- -------- -------
Net cash flows from operating activities - - -
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to preferred stockholders - (620) (683)
Preferred stock redemptions - (6,829) -
Advances from and payments on intercompany account
with subsidiary (27,970) 7,449 683
Proceeds from sale of stock 27,970 - -
-------- -------- -------
Net cash flows from financing activities - - -
-------- -------- -------
NET INCREASE (DECREASE) IN CASH - - -
CASH, Beginning of year - - -
-------- -------- -------
CASH, End of year $ - $ - $ -
======== ======== =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Exchange of common stock purchase warrants with
exchangeable warrants $ 581
========
Acquisition of treasury stock at no cost $ -
========
Issuance of 32,636 and 407,947 shares of common stock
for stockholder notes receivable, respectively $ 55 $ 226
======== ========
</TABLE>
See notes to financial statements.
S-4
<PAGE> 91
SCHEDULE I
DATA DOCUMENTS INCORPORATED
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN AND ADVANCES TO (FROM) SUBSIDIARY - Data Documents
Incorporated (Incorporated) accounts for its investment in Data
Documents, Inc. (Company) under the equity method of accounting.
Advances to (from) the Company are included within the investment in
subsidiaries. Certain immaterial franchise taxes are paid by the Company
for Incorporated and are expensed in the operations of the Company.
B. COMMITMENTS AND CONTINGENCIES
Data Documents Incorporated has provided guarantees of the indebtedness of
its subsidiary Data Documents, Inc.
S-5
<PAGE> 92
SCHEDULE II
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
DATA DOCUMENTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER NET END OF
OF YEAR EXPENSES ACCOUNTS CHARGE-OFFS YEAR
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts $199,964 $165,759 $125,000(a) $ (33,222) $457,501
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts $ 155,781 $138,756 $ - $ (94,573) $199,964
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts $384,838 $ 71,774 $ - $(300,831) $155,781
</TABLE>
(a) Balance of allowance for doubtful accounts of Cal Emblem Labels, Inc. on the
date of acquisition.
S-6
<PAGE> 1
Exhibit 11.1
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1991 1992 1993 1994
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Common stock outstanding 5,505,652 5,505,652 5,505,652 5,203,409
Common stock equivalents - - 4,520,052 4,250,085
------------ -------------- ------------- -------------
Weighted average shares
outstanding 5,505,652 5,505,652 10,025,704 9,453,494
============ ============== ============= =============
Net income (loss), as adjusted:
Before extraordinary item $ (572) $ (3,898) $ 288 $ 1,233
Extraordinary item - - - (2,795)
------------ -------------- ------------- -------------
Net income (loss)
available for common stock $ (572) $ (3,898) 288 (1,562)
============ ============== ============= =============
Primary earnings per share:
Before extraordinary item $ (0.10) $ (0.71) $ 0.03 $ (0.13)
Extraordinary item - - - (0.30)
------------ -------------- ------------- -------------
Net income (loss) per
common share $ (0.10) $ (0.71) $ 0.03 $ (0.17)
============ ============== ============= =============
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 10,025,704 5,505,652 10,025,704 9,453,494
Convertible preferred stock 8,136,094 8,136,094 8,136,094 7,458,086
------------ -------------- ------------- -------------
Weighted average shares outstanding
on fully diluted earnings per
share 18,161,798 13,641,746 18,161,798 16,911,580
============ ============== ============= =============
Net income (loss), as adjusted:
Before extraordinary item $ 58 $ (3,268) $ 918 $ 1,805
Extraordinary item - - - (2,795)
------------ -------------- ------------- -------------
Net income (loss) available
for common stock $ 58 $ (3,268) $ 918 $ (990)
============ ============== ============= =============
Fully diluted earnings per share:
Before extraordinary item $ - $ (0.24) $ 0.05 $ 0.11
Extraordinary item - - - (0.17)
------------ -------------- ------------- -------------
Fully diluted income(loss)
per common share $ - $ (0.24) $ 0.05 (0.06)
============ ============== ============= =============
NET INCOME(LOSS) AS ADJUSTED
PRIMARY EARNINGS PER SHARE:
Net income (loss) before
extraordinary item $ 124 $ (3,211) $ 971 $ 1,832
Less: dividends on preferred stock (696) (687) (683) (620)
Add: amortization of original
issue discount of exchangeable
warrants $ - - - 21
------------ -------------- ------------- -------------
Net income (loss) before extra-
ordinary, item, as adjusted $ (572) $ (3,898) $ 288 $ 1,233
============ ============== ============= =============
FULLY DILUTED EARNINGS PER SHARE:
Net income (loss) before extra-
ordinary item $ 124 $ (3,211) $ 971 $ 1,832
Less: dividends on redeemable
preferred stock (66) (57) (53) (48)
Add: amortization of original issue
discount of exchangeable warrants - - - 21
------------ -------------- ------------- -------------
Net income (loss) before extra-
ordinary item, as adjusted $ (58) $ (3,268) $ 918 $ 1,805
============ ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31 June 30,
------------- --------------------------------------
1995 1995 1996
<C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Common stock outstanding 6,053,409 5,203,409 9,173,771
Common stock equivalents 1,280,455 1,280,455 758,560
------------ -------------- -------------
Weighted average shares
outstanding 7,333,864 6,483,864 9,932,331
============ ============== =============
Net income (loss), as adjusted:
Before extraordinary item $ 4,468 1,459 $ 5,154
Extraordinary item (2,921) - (54)
------------ -------------- -------------
Net income(loss)
available for common stock $ 1,547 $ 1,459 $ 5,100
============ ============== =============
Primary earnings per share:
Before extraordinary item $ 0.61 $ 0.22 $ 0.52
Extraordinary item (0.40) - (0.01)
------------ -------------- -------------
Net income (loss) per
common share $ 0.21 $ 0.22 $ 0.51
============ ============== =============
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 7,333,864 6,483,864 9,932,331
Convertible preferred stock - - -
------------ -------------- -------------
Weighted average shares outstanding
on fully diluted earnings per share 7,333,864 6,483,864 9,932,331
============ ============== =============
Net income (loss), as adjusted:
Before extraordinary item $ 4,468 $ 1,459 $ 5,154
Extraordinary item (2,921) - (54)
------------ -------------- -------------
Net income (loss) available
for common stock $ 1,547 $ 1,459 $ 5,100
============ ============== =============
Fully diluted earnings per share:
Before extraordinary item $ 0.61 $ 0.22 $ 0.52
Extraordinary item (0.40) - (0.01)
------------ -------------- -------------
Fully diluted income (loss)
per common share $ 0.21 $ 0.22 $ 0.51
============ ============== =============
NET INCOME(LOSS) AS ADJUSTED
PRIMARY EARNINGS PER SHARE:
Net income (loss) before
extraordinary item $ 4,275 $ 1,330 $ 5,154
Less: dividends on preferred stock - - -
Add: amortization of original
issue discount of exchangeable
warrants 193 129 -
------------ -------------- -------------
Net income (loss) before extra-
ordinary, item, as adjusted $ 4,468 $ 1,459 $ 5,154
============ ============== =============
FULLY DILUTED EARNINGS PER SHARE:
Net income (loss) before extraordinary
item $ 4,275 $ 1,330 $ 5,154
Less: dividends on redeemable
preferred stock - - -
Add: amortization of original issue
discount of exchangeable warrants 193 129 -
------------ -------------- -------------
Net income (loss) before extra-
ordinary item, as adjusted $ 4,468 $ 1,459 $ 5,154
============ ============== =============
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 2 to Registration
Statement No. 333-1340 of Data Documents Incorporated of our report dated
February 16, 1996, appearing in the Prospectus, which is part of such
Registration Statement, and of our report dated February 16, 1996 relating to
the financial statement schedules appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 20, 1996
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Prospectus constituting part of this Registration
Statement No. 333-1340 of Data Documents Incorporated on Post-Effective
Amendment No. 2 to Form S-1 of our report dated June 19, 1995 (except for Note
11, as to which the date is July 12, 1995), relating to the April 30, 1995
financial statements of Cal Emblem Labels, Inc. which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
Stoughton Davidson Accountancy Corporation
Fresno, California
August 20, 1996
