UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-10475
PAGES, INC.
Incorporated - Delaware I.R.S. Identification No. 34-1297143
801 94th Avenue North, St. Petersburg, Florida 33702
Registrant's Telephone Number (813) 578-3300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of latest practicable date: 5,103,131 common shares outstanding
each with $0.01 par value, as of November 6, 1995.
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash $ 24,290 $ 671,602
Accounts receivable, net of allowance
for doubtful accounts of $270,000
and $168,000, respectively 8,655,491 13,965,086
Inventory 36,360,012 33,014,774
Prepaid expenses 3,654,461 3,394,212
Deferred income taxes 3,673,571 1,966,200
---------- ----------
Total current assets 52,367,825 53,011,874
---------- ----------
Property and equipment:
Buildings 4,064,904 3,313,721
Equipment 6,004,738 5,696,782
---------- ----------
10,069,642 9,010,503
Less accumulated depreciation (3,531,898) (3,014,424)
---------- ----------
6,537,744 5,996,079
Land 631,468 216,468
---------- -----------
Total property and equipment 7,169,212 6,212,547
---------- -----------
Other assets:
Assets held for disposition, net of allowance of
$270,838 1,195,520
Cost in excess of net assets acquired, net of
accumulated amortization of $433,933 and
$312,345, respectively 6,115,639 5,903,553
Deferred income taxes 153,200 153,200
Other 1,243,771 1,257,872
---------- ----------
7,512,610 8,510,145
---------- ----------
TOTAL ASSETS $67,049,647 $67,734,566
</TABLE>
See accompanying notes
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY 1995 1994
<S> <C> <C>
Current liabilities:
Accounts payable $14,106,896 $10,887,683
Short-term debt obligations 15,489,127 16,090,039
Accrued liabilities 988,765 2,678,058
Accrued tax liabilities 3,217,901 3,248,821
Deferred revenue 6,683,468 6,139,486
Current installments on long-term debt
obligations 160,453 144,035
Current installments on capitalized lease
obligations 119,975 26,468
---------- ----------
Total current liabilities 40,766,585 39,214,590
---------- ----------
Long-term obligations 10,577,054 8,927,312
---------- ----------
Stockholders' Equity:
Preferred shares: $.01 par value; authorized
300,000 shares; none issued and outstanding
Common shares: $.01 par value; authorized
20,000,000 shares; issued 5,401,844 and
5,087,921 shares, respectively 54,018 50,879
Capital in excess of par value 22,760,922 22,489,048
Foreign currency translation, net of tax (281,724) (400,295)
Accumulated deficit (6,586,085) (2,305,845)
---------- ----------
15,947,131 19,833,787
Less 298,713 shares of common stock in
treasury, at cost (241,123) (241,123)
---------- ----------
Total stockholders' equity 15,706,008 19,592,664
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $67,049,647 $67,734,566
</TABLE>
See accompanying notes
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months and the three months ended September 30, 1995
-----------------------------------------------------------------
For the nine months and the three months ended September 30, 1994
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Three Months
------------------------- -------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $47,495,957 $46,705,371 $10,190,865 $11,435,410
----------- ----------- ----------- -----------
Costs and expenses:
Cost of goods sold 28,821,758 27,899,474 6,913,834 7,379,099
Selling, general and
administrative 21,904,230 20,269,512 6,424,339 6,555,498
Interest 1,598,160 1,164,761 537,737 421,389
Depreciation and
amortization 1,149,323 1,029,187 371,742 345,055
Foreign exchange (274) (10,156) (244) (10,542)
----------- ----------- ----------- -----------
53,473,197 50,352,778 14,247,408 14,690,499
Loss before
income taxes (5,977,240) (3,647,407) (4,056,543) (3,255,089)
Income tax benefit 1,697,000 1,313,000 1,197,000 1,168,000
----------- ----------- ----------- -----------
NET LOSS $(4,280,240) $(2,334,407) $(2,859,543) $(2,087,089)
=========== =========== =========== ===========
Loss per common
and common
equivalent share $ (0.88) $ (0.62) $ (0.56) $ (0.50)
=========== =========== =========== ===========
Weighted average
common and common
equivalent shares
outstanding 4,870,000 3,741,000 5,105,000 4,160,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes
<PAGE>
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1995 and 1994
-----------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,280,240) $(2,334,407)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization 1,149,323 1,029,187
Deferred income taxes (1,697,000) (1,313,000)
Foreign exchange (274) (10,156)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 5,671,124 3,158,016
Inventory (3,112,853) (10,333,175)
Prepaid expenses and other assets (95,249) (1,528,690)
Increase in liabilities:
Accounts payable and accrued liabilities 1,469,457 3,140,324
Deferred revenue 193,982 443,174
----------- -----------
Total adjustments 3,578,510 (5,414,320)
----------- -----------
Net cash used in operating activities (701,730) (7,748,727)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 107,412 1,550
Payments for purchases of property and equipment (462,388) (524,703)
Payment for business acquisitions, net of cash
acquired and issuance of common stock and debt (733,000) (2,675,000)
----------- -----------
Cash used in investing activities (1,087,976) (3,198,153)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock, net of expense 275,013 7,876,637
Proceeds from debt and lease obligations 43,057,681 38,170,719
Principal payments on debt and lease obligations (42,194,986) (35,278,402)
----------- -----------
Cash provided by financing activities 1,137,708 10,768,954
----------- -----------
Effect of exchange rate changes on cash 4,686 (52,903)
----------- -----------
Decrease in cash (647,312) (230,829)
Cash, beginning of period 671,602 299,717
----------- -----------
Cash, end of period $ 24,290 $ 68,888
=========== ===========
Supplemental Information:
Cash paid for interest $ 1,292,682 $ 1,056,105
=========== ===========
Cash paid for income taxes $ 7,200 $ 18,000
=========== ===========
</TABLE>
During the nine months ended September 30, 1995, the Company acquired
approximately $254,000 of computer equipment through capital leases.
See accompanying notes
<PAGE>
PAGES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have not been audited,
but reflect all adjustments which, in the opinion of management, are necessary
for a fair presentation of financial position, results of operations and cash
flows for the periods presented, after elimination of all material intercompany
accounts and transactions. All adjustments are of a normal and recurring
nature. The consolidated group will be collectively referred to as "the
Company". The operations of School Book Fairs, Inc. ("SBF") are the Company's
children's literature business segment and the operations of Clyde A. Short
Company, Inc. ("CAS") are the Company's incentive/recognition awards business
segment.
The Company's business segments are highly seasonal with the children's
literature business cycle correlating the school year and the
incentive/recognition awards business skewed toward the end of a calendar year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Federal Income Taxes:
- ---------------------
During the Spring of 1993, the Company was advised that the Internal
Revenue Service ("IRS") may assess additional income taxes in connection with
the examination of the tax returns of School Book Fairs, Inc. and its affiliates
for the fiscal years ending July 31, 1989, 1990, and 1991. In June 1993, the
Company recorded a $2 million adjustment to its purchase price allocation of SBF
assets, which increased the cost in excess of assets acquired (i.e. - goodwill)
and recorded a corresponding increase in accrued tax liabilities and related
costs. The IRS has notified the Company that the significant issues being
examined relate to the transfer of assets between related companies during
fiscal 1989, interest imputed on intercompany accounts during fiscal 1989, 1990
and 1991 and rent deductions taken on certain rental properties in fiscal 1989,
1990 and 1991.
During December 1994, the IRS notified the Company of its preliminary
intent to make adjustments to taxable income related to these issues. If the
notice of proposed adjustments had become a final assessment and the assessment
was ultimately sustained, it could have generated a tax liability of as much as
approximately $5.2 million, exclusive of interest and penalties.
During October 1995, the Company received a Notice of Deficiency from the
IRS relating to the aforementioned examination of tax returns. If the Notice of
Deficiency becomes a final assessment and the assessment is ultimately
sustained, it could generate a tax liability of as much as $4.7 million of which
$2 million is presently reserved in the Company's financial statements, and
additional penalties of $1.4 million for a total liability of $6.1 million,
exclusive of interest. The Company believes the IRS' position regarding the
Notice of Deficiency and the related adjustments to taxable income for the value
of assets transferred and related impact on intercompany interest is
substantially overstated. Accordingly, although no formal assessment has been
received from the IRS, the Company intends to vigorously defend its position
against such Notice of Deficiency and the related adjustments, including
litigation. Should the IRS ultimately prevail, the Company will commence
litigation against third parties to recover these amounts.
Class Action Suit:
- ------------------
On February 28, 1995, John Minnick d/b/a Minnick Capital Management filed a
class action suit in the United States District Court, Middle District of
Florida, Tampa Division on behalf of all persons who sold PAGES, Inc. common
stock between 11:49 a.m., January 9, 1995 and January 16, 1995, against PAGES,
Inc. and corporate officers S. Robert Davis, Richard A. Stimmel and Charles R.
Davis alleging that those defendants violated Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder by selectively disclosing only
adverse information while in possession of material non-public positive
information about the Company during the period between January 9 and January
16, 1995. In October 1995, all parties to the aforementioned pending class
action lawsuit have agreed to settle such litigation subject to court approval.
The Company maintains its contention that it engaged in no wrongful conduct.
However, the settlement of the action avoids additional defense costs and
management diversion, and allows the Company to remain focused on its 1995
operating plan. Total cost of the settlement to the Company, including defense
costs, should not exceed $125,000. This cost of $125,000 has been reflected in
the accompanying third quarter 1995 financial statements.
Reclassification to Property and Equipment:
- -------------------------------------------
The Company plans to move from a leased warehouse facility of approximately
80,000 square feet to a building, presently owned by the Company, in the same
area. Accordingly, the owned building and related land, previously classified
as an asset held for disposition, have been reclassified to property and
equipment in the accompanying September 30, 1995 balance sheet.
Stock Options and Warrants:
- ---------------------------
As of November 6, 1995, options and warrants for the purchase of
2,336,391 shares of common stock were outstanding. During 1995, options were
granted for the purchase of 115,933 shares of common stock (including options
for 92,308 shares of common stock in connection with the May 1992 acquisition of
School Book Fairs, Inc.) Options for the purchase of 504,890 shares of common
stock expired or were canceled and options for the purchase of 313,923 shares of
common stock were exercised. Additionally, as of November 6, 1995, 5,103,131
shares of PAGES, Inc. common stock were outstanding.
Dividends:
- ----------
There were no dividends paid on common and common equivalent shares for
any of the periods presented.
<PAGE>
Quarter and Nine Months Ended September 30, 1995 Compared to
- ------------------------------------------------------------
Quarter and Nine Months Ended September 30, 1994:
- -------------------------------------------------
The Company continues to implement specific plans to reduce operating
costs, streamline operating procedures, and renew marketing strategies. As of
November 1, 1995, full-time staffing levels have been reduced by approximately
52 personnel or 16% from year end 1994 levels. The immediate objective is to
return both business segments to profitability. For the long-term, PAGES is
focusing resources and efforts on the primary business segment - children's
literature - and its core channel of distribution - book fairs. The Company
continues to anticipate an operating profit during the fourth quarter. However,
the full impact of the Company's re-engineering efforts will not be realized
until 1996 and it is highly unlikely the current year will be profitable.
As of November 6, 1995, and as a result of continued losses, the Company
has disposed of two channels of product distribution (Spoken Arts and Creative
Media Applications) unrelated to book fairs. The combined loss on disposition
on the aforementioned transactions approximated $165,000 and is reflected in the
accompanying financial statements. Revenues associated with the two channels of
distribution approximated $1,537,000 in 1994 and $63,000 and $752,000 for the
current quarter and nine months as compared to $363,000 and $1,174,000 for the
comparable quarter and nine months of last year. Cost of sales and direct costs
and expenses approximated $235,000 and $932,000 for the current quarter and nine
months as compared to $370,00 0 and $1,017,000 for the quarter and nine months
of last year.
As a result of decreasing revenues per event and the resultant
unprofitibility, the distribution of early childhood product through the mail to
pre-schools and daycare centers under the Storybook Express trade name has been
drastically curtailed. When feasible, the distribution of such events is now
through the school book fair distribution network. The Company anticipates that
its future revenues associated with pre-school and daycare center book fair
events will be insignificant. Revenues associated with the Storybook Express
name for calendar 1994 approximated $1,233,000 and revenues for the current
quarter and nine months approximated $33,000 and $761,000 as compared to $40,000
and $570,000 for the comparable quarter and nine months of last year.
As a result of unprofitibility and the investment in inventory and
accounts receivable, the Company has identified an additional channel of product
distribution (a book club) unrelated to book fairs that most likely will be
discontinued through sale or phase-out over the next six to eight months.
Revenues for calendar 1994 approximated $2,732,000 and revenues for the current
quarter and nine months approximated $622,000 and $2,441,000 as compared to
$627,000 and $1,823,000 for the comparable quarter and nine months of last year.
Cost of sales and other direct costs and expenses approximated $876,000 and
$2,779,000 for the quarter and nine months of the current year compared to
$731,000 and $1,738,000 for the quarter and nine months of last year. The
Company anticipates it will incur additional losses on the aforementioned
channel of product distribution during the fourth quarter of 1995.
<PAGE>
Information about the Company's operations by business segments:
<TABLE>
<CAPTION>
Incentive/ Children's
Recognition Awards Literature Corporate Consolidated
Millions Percentage Millions Percentage Millions Millions Percentage
Quarter Ended
September 30, 1995:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $3.5 100.0 $6.7 100.0 $10.2 100.0
Gross Profit 1.2 34.3 2.1 31.3 3.3 32.3
Selling, general & admin. 1.7 48.6 4.4 65.6 0.3 6.4 62.7
Depreciation & amort. 0.1 2.9 0.3 4.5 0.4 3.9
Operating loss (0.6) (17.1) (2.6) (38.8) (0.3) (3.5) (34.3)
Interest expense 0.5 4.9
Foreign exchange 0.0 0.0
Loss before income taxes (4.0) (39.2)
Quarter Ended
September 30, 1994:
Revenues 3.8 100.0 7.6 100.0 11.4 100.0
Gross Profit 1.1 28.9 2.9 38.1 4.0 35.1
Selling, general & admin. 2.0 52.6 4.4 57.9 0.2 6.6 57.8
Depreciation & amort. 0.1 2.6 0.2 2.6 0.3 2.6
Operating loss (1.0) (26.3) (1.7) (22.3) (0.2) (2.9) (25.4)
Interest expense 0.4 3.5
Foreign exchange 0.0 0.0
Loss before income taxes (3.3) (28.9)
Nine Months Ended
September 30, 1995:
Revenues 12.7 100.0 34.8 100.0 47.5 100.0
Gross Profit 4.9 38.6 13.8 39.7 18.7 39.4
Selling, general & admin. 5.6 44.1 15.6 44.8 0.7 21.9 46.1
Depreciation & amort. 0.2 1.6 0.9 2.5 1.1 2.3
Operating loss (0.9) (7.1) (2.7) (7.8) (0.7) (4.3) (9.0)
Interest expense 1.6 3.3
Foreign exchange 0.0 0.0
Loss before income taxes (5.9) (12.4)
Nine Months Ended
September 30, 1994:
Revenues 14.6 100.0 32.1 100.0 46.7 100.0
Gross Profit 5.7 39.0 13.1 40.8 18.8 40.2
Selling, general & admin. 6.0 41.1 13.6 42.3 0.6 20.2 43.2
Depreciation & amort. 0.2 1.3 0.8 2.5 1.0 2.1
Operating loss (0.5) (3.4) (1.3) (4.0) (0.6) (2.4) (5.1)
Interest expense 1.2 2.6
Foreign exchange 0.0 0.0
Loss before income taxes (3.6) (7.7)
</TABLE>
<PAGE>
Consolidated revenues for the three months ended September 30, 1995,
approximated $10.2 million compared to $11.4 million for the three months ended
September 30, 1994, a decrease of 11%, or approximately $1.2 million. The
Company's children's literature business segment accounted for approximately
$6.7 million of revenues for the three months ended September 30, 1995, compared
to $7.6 million in revenues for the three months ended September 30, 1994, a
decrease of 12%, or approximately $900,000. $700,000 of the decrease in
revenues is principally due to a reduction in the number and revenues per book
fair event held in the current quarter compared to the same quarter in 1994.
$200,000 of the decrease in revenues is associated with the Library and School
market in 1995.
International revenues in U.S. dollars associated with the children's
literature business segment were approximately $1.5 million for the three months
ended September 30, 1995 and 1994. In local currencies, before the impact of
foreign currency fluctuations, international revenues for the three months ended
September 30, 1995 declined approximately $50,000 over the comparable period in
1994.
The Company's incentive/recognition awards business segment accounted
for approximately $3.5 million in revenues for the three months ended September
30, 1995, compared to $3.8 million in revenues for the three months ended
September 30, 1994, a decrease of 8%, or approximately $300,000. The decline in
revenues is principally attributable to a decrease in customer base and a
decrease in volume on certain existing customers, coupled with delayed
redemption on new accounts. The majority of revenues generated by the
incentive/recognition awards business segment are from the sale of products, and
revenues from services are insignificant.
Consolidated revenues for the nine months ended September 30, 1995,
approximated $47.5 million compared to $46.7 million for the nine months ended
September 30, 1994, an increase of 1.7%, or approximately $800,000. The
Company's children's literature business segment accounted for approximately
$34.8 million of revenues for the nine months ended September 30, 1995, compared
to $32.1 million in revenues for the nine months ended September 30, 1994, an
increase of 8%, or approximately $2.7 million. The increase in revenues for
the children's literature business segment is principally attributable to
increased book club revenues, and to the current period including nine months
of revenues from the operations of third quarter 1994 acquisitions, as well as
revenues from the operations of an acquisition made in January 1995.
International revenues in U.S. dollars associated with the children's
literature business segment were approximately $8.5 million for the nine months
ended September 30, 1995, compared to $8.8 million for the nine months ended
September 30, 1994. In local currencies, before the impact of foreign currency
fluctuations, international revenues for the nine months ended September 30,
1995 declined approximately 7.2% over the comparable period in 1994; however,
due to foreign currency fluctuations, the U.S. dollar revenues from foreign
operations were down 3.5%. The decline in international revenues is principally
attributable to lower revenues per book fair event and a decline in revenues
associated with the Library and School market.
The Company's incentive/recognition awards business segment accounted
for approximately $12.7 million of revenues for the nine months ended September
30, 1995, compared to $14.6 million for the same period in 1994, a decline of
$1.9 million or approximately 13%. The decrease in revenues is attributable to
a decrease in customer base and a decrease in volume on certain existing
customers coupled with delayed redemption on new customer accounts.
Consolidated cost of goods sold was approximately $6.9 million for the
three months ended September 30, 1995, compared to approximately $7.4 million
for the same period in 1994, a decrease of 6%, or approximately $500,000. The
Company's children's literature business segment accounted for approximately
$4.6 million of consolidated cost of goods sold for the three months ended
September 30, 1995, compared to $4.7 million for the three months ended
September 30, 1994, a decrease of 3%, or approximately $100,000. The decrease
in cost of goods sold for the children's literature business segment is a result
of decreased revenues for the current quarter. As a percentage of revenues,
cost of goods sold for the children's literature business segment increased 6%
from 62% to 68%. The increase is due to a temporary change in product mix sold
and the related channel of product distribution.
The Company's incentive/recognition awards business segment accounted
for approximately $2.3 million of consolidated cost of goods sold for the three
months ended September 30, 1995, compared to $2.7 million for the three months
ended September 30, 1994, a decrease of approximately 12% or $400,000. The
decline in cost of goods sold is attributable to the decline in revenues. As a
percentage of revenues, cost of goods sold from the incentive/recognition awards
business segment decreased 3.5% from 70.2% to 66.7%. This decrease is a result
of the change in product mix sold.
Consolidated cost of goods sold for the nine months ended September
30, 1995 was approximately $28.8 million, compared to $27.9 million for the same
period in 1994, an increase of approximately 3% or $900,000. Cost of goods sold
associated with the Company's children's literature business segment was
approximately $21 million for the nine months ended September 30, 1995, compared
to approximately $19 million for the nine months ended September 30, 1994, an
increase of approximately 11% or $2 million. The increase in cost of goods sold
is principally associated with the increase in revenues for the children's
literature business segment.
The Company's incentive/recognition awards business segment accounted
for $7.8 million of cost of goods sold for the nine months ended September 30,
1995, compared to approximately $8.9 million for the same period in 1994, a 12%
decline or approximately $1.1 million. This decline in cost of goods sold is a
result of the incentive/recognition awards business segment's decline in
revenues for the nine months ended September 30, 1995.
Consolidated selling, general and administrative expense was approximately
$6.4 million for the three months ended September 30, 1995, compared to
approximately $6.6 million for the three months ended September 30, 1994, a
decrease of 2% or approximately $200,000. Selling, general and administrative
expenses associated with the Company's children's literature business segment
for the three months ended September 30, 1995 and 1994 was approximately $4.4
million. During the current quarter, the Company continued to implement
measures to reduce operating costs associated with the book fair channel of
product distribution which was somewhat offset by additional selling and
promotional costs associated with the Company's book clubs and library and
school markets. Additionally, selling, general and administrative expenses for
the three months ended September 30, 1995 in the children's literature business
segment includes $165,000 for the loss on disposition of the two channels of
distribution previously discussed.
Selling, general and administrative expense associated with the Company's
incentive/recognition awards business segment was approximately $1.7 million for
the three months ended September 30, 1995, compared to $2 million for the three
months ended September 30, 1994, a decrease of 12% or approximately $300,000.
As a percentage of revenues, selling, general and administrative expense
associated with the incentive/recognition awards business decreased 10%. The
decrease in selling, general and administrative expenses is due to the decline
in sales and the cost reduction efforts implemented by the Company and a
reduction in promotional costs incurred.
Consolidated selling, general and administrative expense for the nine
months ended September 30, 1995 was approximately $21.9 million, compared to
approximately $20.2 million for the same period in 1994, an increase of 8%, or
approximately $1.7 million. Selling, general and administrative expense
associated with the Company's children's literature business segment was
approximately $15.6 million for the nine months ended September 30, 1995,
compared to approximately $13.6 million for the nine months ended September 30,
1994, an increase of 14% or approximately $2 million. The increase in selling,
general and administrative expense for the nine months ended September 30, 1995
is due to the late 1994 and early 1995 children's literature business
acquisitions previously mentioned, as well as the Company incurring additional
selling and promotional costs associated with the Company's book clubs and
library and school markets.
The Company's incentive/recognition awards business segment incurred
selling, general and administrative expense for the nine months ended September
30, 1995 of approximately $5.6 million, compared to $6 million for the same
period in 1994, a decrease of 8%, or approximately $400,000. The decrease in
selling, general and administrative expense is primarily due to lower sales
levels, reduction in promotional costs incurred and the results of cost
reduction efforts implemented by the Company.
Consolidated general corporate and administrative expense was approximately
$332,000 and $766,000 for the three and nine months ended September 30, 1995,
respectively, compared to $194,000 and $601,000 for the three and nine months
ended September 30, 1994, respectively. The increase of approximately $138,000
and $165,000 for the three and nine months ended is a result of approximately
$125,000 of costs incurred to settle the previously mentioned pending class
action lawsuit.
Consolidated interest expense was approximately $538,000 for the three
months ended September 30, 1995, compared to $421,000 for the three months ended
September 30, 1994, an increase of 28%, or approximately $$117,000. For the
nine months ended September 30, 1995, consolidated interest expense approximated
$1.6 million, compared to $1.2 million for the same period in 1994, an increase
of approximately $400,000 or 37%. The increase in both the three and nine
months ended September 30, 1995, is due to the children's literature business
segment having higher levels of borrowing on higher interest rates.
Consolidated depreciation and amortization expense was approximately
$372,000 for the three months ended September 30, 1995, compared to
approximately $345,000 for the three months ended September 30, 1994, an
increase of 8%, or approximately $27,000. Consolidated depreciation and
amortization expense was approximately $1.1 million and $1 million for the nine
months ended September 30, 1995 and 1994, respectively, an increase of 12% or
approximately $100,000. The increase for both of the three and nine months
ended September 30, 1995 is primarily due to acquisitions made in the children's
literature business segment during the third quarter of 1994 and the first
quarter of 1995 which increased depreciable assets.
The income tax benefits reflected in the accompanying financial statements
are based on the Company's anticipated annual effective tax rates. At September
30, 1995, the Companyhas a deferred tax asset of $3,826,771. The Company is not
required to record valuation allowances for deferred tax assets where management
believes it is more likely than not that the tax benefit will be realized. In
addition to tax planning strategies, the Company will need to generate taxable
income through future operations in order to fully realize the deferred tax
asset. Based on the Company's history of taxable income and its projections of
future earnings, management beleives that it is more likely than not that
sufficient taxable income will be generated in the foreseeable future to realize
the deferred tax asset.
Loss per common and common equivalent share increased to a loss of $0.56
for the three months ended September 30, 1995, compared to a loss of $0.50 per
share for the three months ended September 30, 1994. Loss per common and common
equivalent share increased to a loss of $0.88 for the nine months ended
September 30, 1995, compared to a loss of $0.62 per share for the nine months
ended September 30, 1994. The increase in loss per common and common equivalent
share for both periods in 1995 compared to 1994 is due to the decline in
earnings, somewhat offset by an increase in common and common equivalent shares
outstanding.
Liquidity and Capital Resources:
- --------------------------------
The Company's primary sources of liquidity have been cash generated from
operating activities from both of its business segment, and amounts available
under its existing credit facilities. The Company's primary uses of funds
consist of financing inventory and receivables for both business segments, with
the funding of acquisitions as a secondary use.
The following table presents a summary of the Company's cash flows (in
thousands) for the nine months ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1995 1994
<S> <C> <C>
Cash used in operating activities $ (702) $ (7,749)
Capital expenditures, net (355) (523)
Net borrowings on debt obligations 863 2,892
Payment for business acquisitions (733) (2,675)
Proceeds from issuance of common shares 275 7,877
Other 5 (53)
----------- -----------
Net decrease in cash $ (647) $ (231)
=========== ===========
</TABLE>
The decrease in cash used in operating activities is principally due to
reduced inventory purchasing in the current year, as compared to the prior year.
The Company has a $25 million revolving credit facility which consists of
the following: a $6 million short-term credit line ($3,020,596 unused at
September 30, 1995) for use in the incentive/recognition awards business (the
"CA Short Line"), a $7 million short-term credit line ($ 0 unused at September
30, 1995) for use in the children's literature business (the "School Book
Fairs Line"), a $9.5 million line ($310,117 unused at September 30, 1995) for
acquisitions and for working capital (the "Acquisition Line") and a $2.5
million short term note obtained in July 1994 for use in funding an
acquisition (the "Time Credit"). The CA Short Line and School Book Fairs Line
are due in full on June 7, 1996, subject to annual renewal. The Time Credit is
due in full on June 7, 1996 and the Acquisition Line is due on June 3, 1997.
Additionally, the Company has a $3 million credit facility in the United Kingdom
($77,059 unused at September 30, 1995) for use in its children's
literature business. The United Kingdom facility is payable on demand.
During October 1995, the Company notified its primary lender, The
Huntington National Bank ( the "Bank"), that as of September 30, 1995, and due
to the cyclical nature of its business, the Company may have incurred possible
events of default under certain provisions of its Bank loan agreement. The
possible events of default relate to borrowing base requirements and certain
financial ratios. Accordingly, due to the cyclical nature of the Company's
business, the Bank has waived the possible events of default and modified
provisions of the Bank loan agreement relating to borrowing base requirements
and certain financial ratios through December 30, 1995, whereby the Company must
then be in compliance with the original terms of the Bank loan agreement.
The Company anticipates that operating cash flows during the next twelve
months, coupled with the renewal or extension of short-term credit facilities
will cover operating expenditures and meet the current maturities on long-term
obligations. The Company has no reason to believe existing short-term credit
facilities will not be renewed or extended. Other than rehabilitation and
improvement costs of approximately $500,000 to $600,000 associated with the
anticipated move from leased warehouse facilities to owned facilities, the
Company does not anticipate any material expenditures for property, plant and
equipment during the next twelve months.
Seasonality:
- ------------
Both of the Company's business segments are highly seasonal with the
children's literature cycle closely correlating the school year and the
incentive awards business skewed towards the end of a calendar year. Due to the
seasonality of its businesses, the Company experiences negative cash flow during
the summer months. Further, in order to build its inventory for its fall sales,
the Company's borrowings increase over the summer and generally peak during late
fall. As a result of the Company's seasonality, inventory and receivables reach
peak levels during the months of October through December.
<PAGE>
PART II
ITEM 1: LEGAL PROCEEDINGS
The description of the legal proceedings included in Management's
Discussion and Analysis of Financial Condition and Results of
Operations included in Part I of this report is incorporated herein by
reference.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number 11
Computation of Earnings Per Share
(b) A report on Form 8-K dated October 6, 1995 was filed on October 6,
1995. The Company reported that it agreed to settle a pending class
action lawsuit subject to court approval.
<PAGE>
Signature
---------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAGES, INC.
Registrant
Date: December 13, 1995 By: /S/ R.A. Stimmel
----------------- ------------------------
R.A. Stimmel, President
and Principal Financial Officer
<PAGE>
EXHIBIT 11
PAGES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 31, September 30,
1995 1994
<S> <C> <C>
Primary:
Weighted average number of
common shares outstanding 5,105,000 4,870,000
Adjustment for stock options
which have a dilutive effect
based upon the average market
price for common stock:
Add dilutive stock options
Deduct shares that could be
repurchased from the proceeds
of dilutive options
___________ ___________
Weighted average common and
common equivalent shares 5,105,000 4,870,000
=========== ===========
Net (loss) $(2,859,433) $(4,280,240)
Earnings adjustment (20% rule)
----------- -----------
Net income for computation purposes $(2,859,543) $(4,280,240)
=========== ===========
Earnings per common and
common equivalent share $ (0.56) $ (0.88)
Fully Diluted:
Weighted average number of
common shares outstanding 5,105,000 4,870,000
Adjustment for stock options
which have a dilutive effect
based upon the market price
for common stock at end of period:
Add dilutive stock options
Deduct shares that could be
repurchased from the proceeds
of the dilutive options
----------- -----------
Fully diluted shares 5,105,000 4,870,000
=========== ===========
Net loss $(2,859,543) $(4,280,240)
Earnings adjustment (20% rule)
----------- -----------
Net loss for computation purposes $(2,859,543) $(4,280,240)
=========== ===========
Earnings per common and common
equivalent share assuming full
dilution $ (0.56) $ (0.88)
=========== ===========
</TABLE>
