UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1994
Commission File Number 0-10475
PAGES, INC.
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(Exact Name of Registrant as specified in its charter)
Delaware 34-1297143
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 94th Avenue North, St. Petersburg, Florida 33702
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 578-3300
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Shares, No par value
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(Title of Class)
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of the voting shares held by non-affiliates of
the Registrant as of March 7, 1995, was $23,360,714 (computed by reference to
the average bid and asked prices of such shares on such date).
Number of Common Shares, each without par value, of the Registrant
outstanding as of March 7, 1995: 4,789,208 Common Shares.
<PAGE>
PART I
ITEM 1. BUSINESS
BUSINESS
General
PAGES, Inc. (the "Company") operates principally through its
wholly-owned subsidiaries, School Book Fairs, Inc. and its affiliates ("SBF")
and Clyde A. Short Company, Inc. ("CAS"). The Company engages in the
children's literature and incentive/recognition awards businesses. SBF, which
the Company acquired in 1992, publishes and distributes children's
literature throughout the United States, Canada (other than Quebec), the
United Kingdom, and Ireland. The Company's children's literature segment
accounted for 67.9%, 61% and 59% of the Company's revenues in 1994, 1993 and
1992, respectively. CAS, which the Company acquired in 1990, creates,
markets, and administers safety, sales incentive, service recognition, and
holiday gift awards programs for businesses. The Company markets its
awards programs throughout the United States; however, its customer base is
concentrated in the Southeastern United States. The Company's
incentive/recognition awards segment accounted for 32.1%, 39% and 41% of
the Company's revenues in 1994, 1993 and 1992, respectively. See Note 10 to
the Company's Consolidated Financial Statements for certain financial
information attributable to the Company's two industry segments and its
operations by geographical area.
Children's Literature (School Book Fairs)
Publishing. The Company, through SBF, publishes and markets reasonably
priced, leisure-based children's printed literature and media products.
The Company's books generally have a retail price ranging from $.99 to
$17.95, depending, largely, on whether the books are soft or hardcover.
Most of the books sold are softcover having a retail price of less than $5.95
and an average retail price of approximately $3.50. The Company's
audio/video products generally have a retail price ranging from $9.95
to $44.95. In 1994, approximately 70-75% of the titles offered by the Company
were purchased from other publishers or were reprints licensed from other
publishers. The remaining titles offered by the Company were proprietary
titles produced and published by the Company's Publishing division under its
Willowisp Press (R), Hamburger Press (R), Worthington Press (R), and
Riverbank Press (Trademark pending) imprints. In 1994, the Company published
over 55 fiction and non-fiction books and related products under its
proprietary imprints. The Company's proprietary titles consistently rank at
the top of the best selling books in the Company's book fairs. All of the
Company's proprietary books are manufactured by independent printers, which
are generally selected on the basis of price and quality. The Company has no
agreements or contractual arrangements with any printer other than purchase
order commitments issued in the normal course of business. Although one
printer accounted in 1994 for approximately 25 % of the dollar amount of the
Company's book printing, the Company believes that there are other printers
available to the Company should that printer's services become unavailable.
The Company believes that it is not dependent on any one printer.
In addition to printed children's literature, the Company produces and
markets other literature products. The Company's Spoken Arts (R) division
produces and markets audio/video products for children such as readalong
audio cassette and video tapes used by teachers and librarians as teaching
resources. The Company's Creative Media Applications division produces and
markets to other publishers literature and media products in a variety of
formats, including books, posters, teachers' and parents' guides, computer
software, video games, CD-ROM, audio cassettes, and video tapes.
Market Overview. The Company markets its children's leisure-based
literature primarily through book fairs held at pre-schools, elementary
schools, and middle schools. There are approximately 75,000 pre-schools and
day care centers, 72,000 elementary schools, and 12,000 middle schools
in the United States, approximately 8,400 elementary and middle schools
in Canada, and approximately 28,000 schools in the United Kingdom which are
equivalent to elementary and middle schools in the United States school
system.
Total student enrollment in United States elementary schools is
approximately 26 million and in middle schools is approximately 8 million.
A relatively high number of births in the late 1980's and early 1990's is
expected to result in rapid growth in pre-school and elementary school
enrollment through 1995 and an increase in middle school enrollment during the
mid-1990's. The pre-school market also should benefit from the increasing
number of single-parent families.
The Company also markets children's literature directly to elementary
and middle school librarians and teachers. There are over 2,000,000
elementary and middle school teachers in the United States, Canada, and the
United Kingdom. In addition, the Company markets directly to librarians at
public libraries. There are over 18,000 public libraries in the United
States, Canada, and the United Kingdom.
School Book Fairs. The principal distribution channel for the Company's
children's literature is through its school book fairs. The Company currently
markets its book fairs under its "School Book Fairs (R)" trade name in the
United States and in the United Kingdom and Ireland and the "Great Owl"
trade name in Canada. The Company is changing the name of its elementary and
middle school book fairs conducted in North America to "Trumpet Book
Fairs". The Company sold more than 17 million children's books in 1994
through its book fairs. The Company's concentration in school-based
distribution distinguishes it from other children's book publishers. Based on
information obtained through the conduct of its business, the Company
believes that it currently operates the second largest book fair business in
North America and the largest book fair business in the United Kingdom. The
Company believes that it is the industry leader in the middle school book
fair market and that there is no national competition in the United States,
Canada, and the United Kingdom in the pre-school and day care book fair
market.
The typical book fair is generally one week in duration, is conducted at
a central location on school premises, and is sponsored as a fund-raising
event by parent groups, librarians, or media specialists. A school typically
conducts one or two book fairs during the school year. Book fairs give
students the opportunity to browse and purchase quality, reasonably-priced,
leisure-based paperback books, hardcover books, and related products such as
posters, pencils, erasers, and bookmarks. The Company provides to the
schools child friendly display cases which are fully stocked with books and
related products. The sponsor conducts the book fair, retains a percentage of
the sales receipts, and remits the balance to the Company.
In 1992, the Company began test marketing its early childhood products
in pre-schools and daycare centers under its "Storybook Express Book Fairs
(R)" trade name. Full implementation of the program began in early 1993.
Although the Company's revenues per pre-school book fair are lower than its
revenues for elementary and middle school book fairs, the Company believes
that further development of the pre-school market for children's books will
provide it with an opportunity to reach more children and to establish
relationships with children earlier in their school careers.
In 1992, the Company also developed its Reading Awareness Program as a
method of enhancing book fair sales. Under the Reading Awareness Program,
students are encouraged to choose books they enjoy and spend time reading
each day before the fair. The children's names are placed in a classroom box
from which the teacher draws a student's name. A winning student from
every participating classroom may choose a paperback book from the fair at no
cost to the school.
Strategic Alliances. Whenever feasible, the Company secures exclusive
book fair rights to titles as one means of differentiating itself in the
market place. In 1994, the Company entered into two exclusivity agreements,
one with Bantam Doubleday Dell and the other with HarperPaperbacks. The
agreement with Bantam Doubleday Dell expires on June 30, 1997, but provides
for automatic three year extensions unless sooner terminated by either party
in accordance with the provisions of the agreement. The agreement with
Bantam Doubleday Dell also licenses to the Company the rights to use the
"Trumpet" name in conjunction with its North American book fairs. On May
30, 1995, the Bantam Doubleday Dell license agreement was amended. On
January 23, 1996, Bantam Doubleday Dell notified the Company that the
license agreement would terminate on June 30, 1996. Commencing with the
Fall of 1996, the Company will be conducting the majority of its book fairs
held in North America under the name of PAGES Book Fairs. The agreement with
HarperPaperbacks expires on May 31, 1996, and may be renewed upon mutual
agreement. These agreements grant the Company exclusive paperback rights to
a selected number of titles for a given school year. In addition, these
agreements provide for additional marketing and promotional opportunities for
the Company's book fairs.
Distribution. Approximately 95% of the Company's elementary and middle
school book fairs are "case fairs," in which fully stocked book cases are
delivered to and retrieved from the schools by the Company's independent
distributors. The balance of the Company's book fairs are "box fairs," in
which the books and merchandise are delivered and retrieved through the
mail. Box fairs are utilized for elementary and middle schools located
in sparsely populated areas with a small number of schools where a case fair
would not be cost-effective and for pre-schools because fewer titles are
offered. Books and related merchandise for case fairs are distributed by
the Company to its distributors from its warehouses in Worthington, Ohio,
Christchurch, England, and Scarborough, Ontario, Canada. Books and
merchandise for box fairs are distributed directly to the schools from the
Company's three warehouses.
Currently, the Company has approximately 117 distributors located in
territories throughout the United States, Canada (other than Quebec), the
United Kingdom, and Ireland. The Company's distributors are independent
contractors who are compensated by the Company on a commission basis and are
responsible for the custody and care of an inventory of the Company's
products and for delivery, setup, and retrieval of the products at book
fairs. The Company believes its distribution structure is superior to others
in the book fair business because it allows the distributor to customize the
fairs to the needs of the customer and because it provides extraordinary
service. The distributors are exclusive as it relates to the distribution
of book fairs and related products and non exclusive as it relates to other
business endeavors.
Marketing and Customer Service. The Company markets its book fairs
through approximately 100 trained telephone sales representatives located in
its offices in Worthington, Ohio, St. Petersburg, Florida, Scarborough,
Ontario, Canada, and Christchurch, England, as well as through its network
of distributors. The telephone sales representatives undergo extensive
training, monitoring, and supervision to ensure quality control and
consistency. The Company's computer system allows telephone sales
representatives to sequence solicitations according to account
profitability.
In elementary and middle schools, decisions relating to book fairs are
usually made by school librarians, media specialists or coordinators, or
parent-teacher organizations, which also sponsor, organize, and conduct the
fairs. In pre-schools, decisions relating to book fairs are made by center
administrators or directors.
Surveys conducted by the Company indicate that product quality,
quantity, and customer service are the three most important factors considered
by sponsors of book fairs in selecting one book fair company over another.
The Company has established an on-line system which can be accessed by each
of its distributors and customer service representatives to retrieve messages
and special requests from customers and monitor and order inventory.
Additionally, the Company maintains a customer service department with a
national toll-free number. The customer service department collects a
representative number of book fair customer evaluations and incorporates
information derived from such evaluations into a database, which enables the
Company to measure the effectiveness of its marketing programs and monitor the
performance of its distributors.
The Company currently offers approximately 350 book titles and other
items in its North American book fairs and approximately 265 book titles and
other items in its United Kingdom and Ireland book fairs. The Company's
Creative Services department selects book titles and other items for sale at
its book fairs based upon such factors as sales potential, literary
quality, and educational and entertainment value. The Company determines the
sales potential for a particular book title or other item, in part, from
historical sales data and from qualitative and quantitative readership surveys
it conducts.
Growth opportunities. In 1994, the Company's 60,500 book fairs gave it
direct access to approximately 21 million students and teachers. This access
affords the Company an opportunity to cross-market other products, such as
book clubs, and to increase sales of its products directly to teachers
and librarians. Also in 1994, the Company launched a previously tested
"Teacher Book Fairs" in the United Kingdom market which includes
curriculum-type literary products for purchase by teachers and librarians.
The Company is researching this concept for potential application in North
America.
The Company believes that its existing book fair sales organization and
its marketing system are capable of absorbing additional volume and can be
utilized to expand further its book fair business into pre-school book fair
market and to increase its share of the existing elementary school and middle
school book fair markets. The Company also intends to increase its market
penetration and grow its book fair business through the continued
acquisition of local and regional book fair companies. Acquisitions have
been particularly useful to the Company as a method of expanding its share
of the upscale book fair market. Upscale book fairs, which are held at
schools attended by students from more affluent families, tend to produce
significantly higher sales volume than traditional book fairs. In 1994,
the Company acquired one regional upscale book fair Company (See Note 8 to
the Consolidated Financial Statements).
Except for its operations in Canada, the United Kingdom, and Ireland,
the Company does not currently operate in any foreign countries. However,
countries in Europe and South America offer longer-range opportunities for
sales of non-English language products. There is also a demand in North
America for Spanish language products which could be easily integrated
into the Company's current marketing and distribution systems. The Company
produces video and audio cassette tapes of literary works in both English
and Spanish and plans to actively pursue the addition of Spanish language
literature to its printed and electronic product lines.
Book Clubs. In order to open new markets for the sale of its products
outside of the school and library market, the Company acquired Parents
Magazine Read Aloud Book Club in late 1993 from the publisher of Parents
Magazine. Membership in the book club had not been actively marketed for a
period of approximately 14 months prior to its acquisition by the Company,
and active membership when it was acquired was approximately 15,000. Since its
acquisition, the Company has changed the selection of titles available to
members of the book club to appeal to two different segments of the market -
parents of children two years old and younger and parents of children over two
years old. The switch to age appropriate titles and the marketing of the
book club through advertising and telemarketing has resulted in club
membership increasing to over 50,000 members.
The Company currently markets book club memberships through
advertisements in Parents Magazine. The Company is also selling
memberships by outside telemarketers utilizing the subscriber list provided
to the Company from Parents Magazine as part of its purchase of the book
club. Parents Magazine has a circulation of approximately 1.8 million. The
Company intends to broaden its marketing efforts and to promote its book
club to students, parents, and teachers in conjunction with its book
fairs. The Company believes that its Storybook Express(R) book fairs will
provide an excellent opportunity to cross-market the book club to pre-school
students. The Company also plans to implement a school-based book club that
can be marketed, in part, through the elementary and middle schools.
Other Products. In addition to its newly-developed Teacher Book Fairs,
the Company sells children's leisure-based literature products directly to
teachers and librarians under its "Reading Resources(R)" trade name. These
products are marketed through telephone sales representatives and consist of
collections of books having common themes. Each collection includes a
teacher's guide with a methodology for use of the collection within a
classroom or library environment plus facts about the books and authors.
The Company's Spoken Arts(R) division also produces audio/video
products, including pre-packaged video tapes, read-alongs, and film strips,
which are sold directly to teachers and librarians for use as teaching
resources. In 1993, the Company acquired Creative Media Applications, a
full-service package of literature and multi-media products, to provide the
Company with a multi-media publishing capability. The products are created
in a variety of formats, including books, posters, teachers' and parents'
guides, multi-media computer software, video games, CD-ROM, audio
cassettes, and video tapes. Products produced by the Spoken Arts
division and Creative Media Applications are marketed directly to publishers
and others for both the educational and consumer markets by direct mail and
independent sales representatives.
In July, 1994, the Company acquired from Bantam Doubleday Dell the
business and assets of Junior Library Guild, Cornerstone Books, and the
Hurtt Book Company. The Junior Library Guild and Cornerstone Books offer
to school libraries annual subscriptions to classic and contemporary
children's literature. The Hurtt Book Company sells hardcover children's
books to the school library market. As part of the acquisition, the Company
acquired rights to over 100 titles. The Company expects this acquisition
will enhance its penetration of the library and school market.
Incentive/Recognition Awards (Clyde A. Short Company)
General. The Company creates, markets, and administers awareness and
incentive/recognition programs which address specific needs in employee
education, training, motivation, and recognition. Programs offered by the
Company include safety, sales incentive, quality control, production,
service recognition, attendance, birthday, and corporate holiday gift
programs. Virtually every program employs merchandise (alternatively,
jewelry or, occasionally, travel) as the principal incentive for the
reinforcement or modification of employee behavior. The common objective of
all the Company's programs is to reduce client operating costs by
increasing employee productivity.
The Company begins a typical "incentive" assignment by helping the client
to determine realistic performance goals and to establish an appropriate
budget. Next, the Company selects and recommends to the client an
assortment of merchandise which, in the Company's experience, will serve as
an effective incentive to the client's employees. Upon approval, the Company
publishes and distributes all materials (including appealing, full-color
catalogues or brochures) necessary to communicate the program's benefits. As
the client's employees become eligible to receive awards, the Company
processes their requests and, in most cases, ships the items directly to the
employees from the Company's distribution center in Shelby, North Carolina.
The Company then invoices the client, at prices approximating comparable
retail, as the merchandise is shipped.
Awareness and Incentive/Recognition Programs
Safety Awareness/Incentive Programs. Accidents in the workplace injure
thousands of workers each year and cost billions of dollars in worker's
compensation premiums, health care costs, and lost productivity. The
Company's safety programs are designed to reduce these costs by increasing
awareness and promoting safe work habits. Because each client has its own
unique set of safety concerns, the Company designs each safety program to meet
the specific needs and goals of the client. A typical safety program would
grant an award for accident-free operations over a specified period of time.
As a consequence of the present regulatory environment, clients are placing
increasing emphasis on safety and the Company has received a number of
client testimonials regarding the efficancy of the safety programs it has
designed.
Sales Incentive Programs. Sales incentive programs are designed to
achieve the client's specific goals, such as gaining market share,
launching new products or services, improving profitability, encouraging
early ordering, opening new territory, or boosting overall sales. When those
goals are met, the responsible employees are provided with awards.
Service Recognition Programs. Service awards programs grant awards based
on years of service with the employer. Service awards are designed to
improve morale, increase productivity, and reduce costly employee turnover by
delivering messages of recognition and strengthening bonds of loyalty between
employees and employers. The Company's experience is that employee recognition
is near the top of the list of motivating factors that create on-the-job
satisfaction.
Quality Control Programs. Quality control programs are designed to
create and increase quality awareness and motivate workers to make a
personal commitment to quality. Participants are rewarded when corporate
goals and objectives are met. Effective programs result in reducing rework
and downtime, retaining existing business, and earning new business through
increased customer satisfaction.
Production Programs. Production programs are designed to motivate workers
by offering incentive awards for achieving corporate production quotas and
goals. By creating increased productivity awareness, thus increasing
production, the client is able to reduce its cost per unit and enhance
profitability.
Attendance Programs. The costs incurred by clients resulting from
absenteeism include loss of production, decrease in quality, downtime, extra
wages to replace absent workers, and added administration. Attendance
recognition programs are designed to reduce excessive absenteeism by
providing incentive awards to workers with perfect attendance.
Birthday and Holiday Gift Programs. Although a declining portion of
the Company's incentive/recognition business, many employers continue to have
a long-standing tradition of giving holiday gifts to employees as a way of
thanking them for their commitment and dedication throughout the year.
Finding the right gift has frequently posed a challenge for those
responsible for administration of the program. The Company's gift-giving
solution provides clients with a program that allows employees to select
exactly the gift they want, while eliminating the administrative burden
associated with other types of holiday gift programs.
Merchandise Selection and Brochures. The Company presents the
merchandise available for selection by its clients' employees in a
full-color catalog/brochure designed and produced by the Company's art
department. Except for apparel, the selection of which is limited, the
merchandise offered by the Company is similar to that found in a large retail
department store, including consumer electronics, housewares, hardware,
lawn and garden merchandise, sportswear, costume jewelry, and manufactured
fine jewelry. Unlike some of its competitors in the service award
business which manufacture the merchandise offered as awards, the Company has
no "product bias," allowing it to find the most reasonably priced, highest
quality supplier of merchandise for its programs. Merchandise is separated
into over 20 different price levels. This allows the client to select price
levels which fit its budget. The items in each of the price levels
selected by the client are presented to employees in separate brochures
corresponding to the applicable award level. The selection of merchandise
within each price level is carefully chosen to appeal to a wide segment of
the industry work force. Products are grouped by the Company within a
particular price level based on the Company's determination of the relative
value of all merchandise offered by the Company, rather than on the
Company's cost of those items. This results in different markups over the
Company's cost for each item.
Sales and Marketing. The Company markets its incentive/recognition
awards programs through a combination of approximately 100 independent
commissioned sales representatives, sales consultants, telephone sales
representatives and by direct mail, trade show participation, and trade
journal advertising. The Company employs a "consultative selling" or
"partner" approach to marketing its programs which relieves from the client
much of the design responsibilities associated with the programs. This often
requires personal client contact over extended periods of time. The Company's
proprietary computer software allows its sales consultants to monitor and
administer the programs of its clients, relieving the client from much of
the administrative burden associated with the program. Approximately 10% of
the indepdendent commission sales representatives are exclusive to the
Company in all their business activities and 90% are non exclusive and may
represent a competitor. Sales consultants and telephone sales representatives
are Company employees.
Growth Strategy. The Company intends to add additional sales
representatives in order to penetrate geographic markets in the United
States outside of the Southeastern market in which its sales are now
concentrated. Many of the Company's clients participate in only one or two
of the programs offered by the Company. As part of its growth strategy, the
Company also intends to expand its award programs and actively cross-sell
its broad range of programs to its existing clients.
Employees
As of December 31, 1994, the Company employed a total of approximately
377 permanent and 502 seasonal persons in the United States, Canada, Ireland,
and the United Kingdom. The number of seasonal employees fluctuated during
1994 from a high of 724 to a low of 50 due to the cyclical nature of the
Company's business. None of the Company's employees is represented by a labor
union. The Company considers its relationship with its employees to be
excellent. As of December 31, 1994, the Company's health care plan covered
295 of its domestic employees.
Trademarks, Copyrights, and Licenses
The Company owns or licenses the rights to the principal trademarks used
in its United States business and in the foreign markets in which it
participates. The Company's principal trademarks are registered in the
United States and, where appropriate, in other countries, and the Company
considers protection of such trademarks to be important to its business.
U.S. trademarks expire ten years after they are granted, but are renewable.
It is the Company's policy to renew all of its active trademarks. The names
"Willowisp Press(R)," "Hamburger Press(R)," "Rainbow Book Fairs (R),"
"Worthington Press(R)," "Reading Resources(R)," "Riverbank Press (TM) Pend,
"Storybook Express Book Fairs(R)," and others are registered trademarks or
have trademark registration pending in the United States. The Company has an
exclusive license to use the "Parents Magazine Read Aloud Book Club(R)"
trademark. The license agreement expires on December 20, 1998, but may be
renewed for an additional five year period. The use by the Company of
the "Great Owl Book Fairs" name in Canada has been objected to by a group
in Canada called the Young Naturalists which indicated that it publishes a
newsletter called the "Owl." As described below, the Company intends to change
the name of its book fairs in Canada. The Company is not aware of any other
pending claims of infringement or challenges to the Company's right to use its
trademarks.
As described above, the Company has acquired an exclusive license from
Bantam Doubleday Dell to use the Trumpet name in the United States in
conjunction with school book fairs. The agreement with Bantam Doubleday Dell
expires on June 30, 1997, but provides for automatic three year extensions
unless sooner termined by either party in accordance with the provisions of
the agreement. The agreement with HarperPaperbacks expires on May 31, 1996,
and may be renewed upon mutual agreement. Under the agreement, the Company
may, subject to the approval of Bantam Doubleday Dell, display the Trumpet
name prominently on advertisements, promotional materials, invoices,
stationery, business cards and elsewhere. The Company has received approval
for such use during the 1994-1995 school year. On May 30, 1995, the Bantam
Doubleday Dell license agreement was amended. On January 23, 1996, Bantam
Doubleday Dell notified the Company that the license agreement would
terminate on June 30, 1996. Commencing with the Fall of 1996, the Company
will be conducting the majority of its book fairs held in North America under
the name of PAGES Book Fairs.
The Company sometimes acquires license rights to reproduce characters
or images such as cartoon characters or pictures of sports figures, but
such licensing is not critical to its children's literature business.
Competition
The distribution of children's leisure-based literature is a highly
competitive business. The Company's major competitors are Scholastic
Corporation and Troll Associates, which are significantly larger and better
capitalized than the Company, and numerous small independent companies. The
Company competes on the basis of customer service, product quality, and
competitive pricing.
The incentive/recognition awards business is highly competitive, but
fragmented, with no company dominating the industry. The Company competes on
the basis of customer service, product quality and diversity, and
competitive pricing.
ITEM 2. PROPERTIES
<TABLE>
<S> <C> <C> <C> <C>
Owned/
Location Use Size Leased Principally Used By
St. Petersburg, Florida Office 48,760 sq. ft. Leased PAGES, Inc./School Book Fairs
Worthington, Ohio Office & Warehouse 84,000 sq. ft. Leased School Book Fairs
Worthington, Ohio Office & Warehouse 61,530 sq. ft. Owned Subleased
Christchurch, England Office & Warehouse 29,700 sq. ft. Leased School Book Fairs
Dublin, Ohio Office 4,700 sq. ft. Leased PAGES, Inc.
Scarborough, Ontario Canada Office & Warehouse 21,400 sq. ft. Leased School Book Fairs
Silver Spring, Maryland Office & Warehouse 5,200 sq. ft. Leased School Book Fairs
Los Angeles, California Office & Warehouse 1,029 sq. ft. Leased School Book Fairs
Anaheim, California Office & Warehouse 11,600 sq. ft. Leased School Book Fairs
St. Louis, Missouri Office & Warehouse 25,000 sq. ft. Leased School Book Fairs
Orlando, Florida Office & Warehouse 1,700 sq. ft. Leased School Book Fairs
Wilmington, Delaware Office & Warehouse 3,500 sq. ft. Leased School Book Fairs
Westport, Connecticut Office 1,499 sq. ft. Leased School Book Fairs
New York, New York Office 750 sq. ft. Leased School Book Fairs
Marietta, Georgia Office & Warehouse 13,000 sq. ft. Leased School Book Fairs
Oklahoma City, Oklahoma Office & Warehouse 5,500 sq. ft. Leased School Book Fairs
Shelby, North Carolina Office & Warehouse 134,000 sq. ft. Owned Clyde A. Short Company
Kings Mountain, North Carolina Warehouse 163,700 sq.ft. Owned Clyde A. Short Company
</TABLE>
The leases (including renewals) on the properties set forth above expire
as follows: St. Petersburg, Florida - December 31, 2002; Worthington, Ohio
- - October 31, 2001; Christchurch, England - July 13, 2007 through November
29, 2009; Dublin, Ohio - month to month term; Scarborough, Ontario,
Canada - August 31, 1997; Silver Spring, Maryland - December 31, 1997: Los
Angeles, California - June 30, 1995; Anaheim, California - August 31,
1997; St. Louis, Missouri - February 27, 1998; Orlando, Florida - September
30, 1995; Wilmington, Delaware - August 31, 1998; Westport, Connecticut -
May 31, 1999; New York, New York - February 28, 1998; Marietta, Georgia -
May 31, 1998; Oklahoma City, Oklahoma - June 30, 1996 These facilities are
all located in appropriately designed buildings which are kept in good
repair. All of the properties owned by the Company are, and will continue to
be, pledged to various lenders.
ITEM 3. LEGAL PROCEEDINGS
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 A. 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. The action seeks class certification, a
judgment declaring the conduct to be in violation of the law, an award of
unspecified damages and interest, costs attorneys' fees and expert witness
fees and costs along with such other further relief as the court deems proper
or just. The Company and the other defendants deny any wrongdoing and intend
to vigorously defend the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on October 13,
1994. The matters voted upon were the election of five directors and a
change in the Company's state of incorporation from Ohio to Delaware by means
of a merger of the Company with and into Pages Merger Corp, a Delaware
corporation, a newly formed, wholly-owned subsidiary of the Company. The
number of votes cast at the meeting were as follows:
Votes Cast Broker
---------------------------------
MATTER For Against Withheld Abstentions Non-Votes
Election of Directors
Nominees:
S. Robert Davis 3,887,346 133,540
Richard A. Stimmel 3,887,346 133,540
Charles R. Davis 3,885,596 135,290
Juan F. Sotos 3,887,346 133,540
Robert J. Tierney 3,887,346 133,540
Change in state of
incorporation: 2,775,366 137,640 17,065
PART II
ITEM 5. MARKET PRICE FOR THE COMPANY'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The Common Stock is traded on the NASDAQ National Market under the symbol
"PAGZ." The following table sets forth for the periods indicated the high
and low trading prices for shares of the Common Stock, as reported on the
NASDAQ National Market. The trading prices have been retroactively adjusted
to reflect the 5 for 4 stock split in October of 1993.
Trade Price
--------------------------
High Low
Calendar Year Ended December, 1994
Fourth Quarter 7 4
Third Quarter 9 1/2 6 3/8
Second Quarter 11 8 1/8
First Quarter 12 1/8 10 1/8
Calendar Year Ended December 31, 1993
Fourth Quarter 13 3/4 9 1/2
Third Quarter 11 7/8 9 5/8
Second Quarter 10 1/4 6
First Quarter 7 5 7/8
As of March 7, 1995, the Company had approximately 480 holders of record
of its Common Stock.
The Company has not paid dividends since December 27, 1985. The Company
anticipates that for the foreseeable future it will retain earnings in order
to finance the expansion and development of its business, and no cash
dividends will be paid on its common stock. The Loan Agreement between the
Company and The Huntington National Bank N.A. (the "Loan Agreement") does
not allow the Company to pay cash dividends which total in excess of
$100,000 on its common stock and only then when the Company is not in
default under the Loan Agreement.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
Ten Months Two Months
Year Ended Year Ended Ended Year Ended Year Ended Ended
December 31, December 31, December 31, February 29, February 28, February 28,
1994 1993 1992(2) 1992 1991 1990(1)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements of Operations
Data:
Revenues $ 79,068 $ 76,563 $ 44,507 $ 22,222 $ 24,320 $ 209
Costs and expenses 79,709 74,984 44,209 21,982 23,711 140
Income before income taxes and cumulative
effect of change in accounting principle (641) 1,579 298 240 609 69
(Provision) benefit for income taxes 169 (568) 700(4) (77) (8) -
---------- -------- ---------- ---------- ---------- ----------
Income (loss) before cumulative effect of
change in accounting principle (472) 1,011 998 163 601 69
Cumulative effect of change in accounting
principle - - - 828(3) - -
__________ ________ __________ __________ __________ __________
Net income (loss) $ (472) $ 1,011 $ 998 $ 991 $ 601 $ 69
---------- -------- ---------- ---------- ---------- ----------
Per Share Data(5):
Income (loss) per common share before
cumulative effect of change in
accounting principle $ (0.12) $ 0.18 $ 0.19 $ 0.04 $ 0.14 $ 0.02
Cumulative effect of change in accounting
principle - - - 0.17 - -
__________ ________ _________ _________ ________ ________
Net income (loss) per common share(6) $ (0.12) $ 0.18 $ 0.19 $ 0.21 $ 0.14 $ 0.02
---------- -------- --------- --------- -------- --------
Cash dividends per common share - - - - - -
Weighted average common and common
equivalent shares 4,055 5,757 5,546 4,941 4,855 3,110
</TABLE>
<TABLE>
At At At At At At
December 31, December 31, December 31, February 29, February 28, February 28,
1994 1993 1992 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheets Data:
Working capital $13,797 $10,054 $ 8,456 $ 2,328 $ 4,518 $ 7,403
Total assets 67,735 53,761 44,634 12,092 12,103 15,857
Long-term obligations 8,927 10,362 10,533 420 2,423 7,064
Stockholders' equity 19,593 12,814 8,734 7,803 6,810 5,161
</TABLE>
NOTE 1: Effective with the close of business on February 28, 1990, the
Company, in a transaction accounted for as a purchase, acquired all of the
outstanding stock of Clyde A. Short Company for an aggregate purchase price of
$11,050,000. Additionally, during 1990, the Company changed its year end from
December 31 to February 28.
NOTE 2: On May 19, 1992, Pages, in a transaction accounted for as a
purchase, acquired the outstanding stock of School Book Fairs, Inc. and
affiliated entities. The aggregate cost of this transaction, including
major debt refinancing, approximated $8,841,000. Additionally, during 1992,
the Company changed its year end from February 28 to December 31.
NOTE 3: Pursuant to the Financial Accounting Standards Board (FASB) statement
of Financial Accounting Standards (SFAS) No. 109, issued in February, 1992,
the Company, effective March 1, 1991, recorded a deferred tax asset of $828,287
with a corresponding credit to income.
NOTE 4: For the ten months ended December 31, 1992, the tax provision
included an $812,400 tax benefit attributable to the Company's reassessment of
the future realizability of deferred tax assets.
NOTE 5: Adjusted to give effect to five-for-four stock split in each of
April 1990 and October 1993.
NOTE 6: Represents earnings per common and common equivalent share both on
a primary and a fully diluted basis. On a fully diluted basis, dilution is
less than 3%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Selected Financial Data and the Consolidated Financial Statements and Notes
contained elsewhere herein. The Company's results of operations have been,
and in certain cases are expected to continue to be, affected by certain
general factors.
Acquisitions and Changes in Fiscal Years
On February 28, 1990, the Company acquired all of the outstanding
capital stock of Clyde A. Short Company, Inc. The transaction was accounted
for as a purchase and, as a result, operations of Clyde A. Short Company,
Inc. are included in the Company's Consolidated Financial Statements for the
fiscal years beginning March 1, 1990, forward.
Effective February 28, 1990, the Company changed its fiscal year end to
the last day of February in order to conform to the year end of Clyde A.
Short Company, Inc. which was, at that time, the Company's principal
subsidiary.
On May 19, 1992, the Company acquired all of the outstanding capital
stock of School Book Fairs. The transaction was accounted for as a purchase
and, as a result, operations of School Book Fairs are reflected in the
Company's Consolidated Financial Statements from May 20, 1992, forward. As
part of the transaction, the Company acquired certain School Book Fairs bank
indebtedness directly from School Book Fairs' primary lending institution, at
a substantial discount, and issued to such lender warrants to purchase Common
Shares of the Company. The Company also issued, to key management personnel
of School Book Fairs, stock options to purchase Common Shares of the Company.
During December 1992 as a consequence of the School Book Fairs
acquisition, the Company changed its fiscal year end from the last day of
February back to December 31 so that future reporting years would more
closely approximate the annual business cycle for the combined businesses.
During 1994 and 1993, the Company acquired several businesses involved
in the distribution and publishing of children's literature, including the
Junior Library Guild, National Library Service and Cornerstone books from
Bantam Doubleday Dell Publishing Group, Inc. in 1994 and Parents Magazine
Read Aloud Book Club from the publisher of Parents Magazine in 1993. The
aggregate cost of these acquisitions approximated $2.9 million and $1.7
million in 1994 and 1993, respectively, and was paid with a combination of
cash, Common Shares, and notes. The transactions were accounted for as
purchases and, as a result, the operations of the acquired entities are
included in the Company's consolidated financial statements commencing with
the respective dates of acquisition.
Accounting Change
Effective March 1, 1991, the Company implemented SFAS No. 109 issued by
FASB in February, 1992, entitled "Accounting For Income Taxes." SFAS No.
109 significantly changed the method of accounting for income taxes and income
tax expense, for financial statement purposes, without affecting actual cash
tax liability. Under SFAS No. 109, income taxes are recognized for the
tax consequences of all events that have been recognized in the
financial statements, calculated based on provisions of enacted tax laws,
including the tax rates in effect for current or future years. Deferred
tax assets are recognized subject to an assessment as to future
realizability. The implementation of SFAS No. 109, effective for the year
ended February 29, 1992, resulted in the Company's recording a deferred tax
asset of $1,640,687 relating to the tax benefit of operating loss and tax
credit carryovers, less a valuation allowance of $812,400, resulting in a
cumulative effect adjustment increase to income of $828,287. As a result of
the acquisition of School Book Fairs, the addition and inclusion of the
School Book Fairs operations in the Company's consolidated financial
statements from May 20, 1992, forward, the operating history of School Book
Fairs adjusted by the Company's management for what it deems to be
excessive costs and expenses incurred by School Book Fairs as a private
company, and the forecasted School Book Fairs operating results,
management determined, as of December 31, 1992, that it was more likely than
not that additional deferred tax assets aggregating $812,400 would be
realized in the future and that the previously provided valuation allowance
of $812,400 would no longer be necessary. The elimination of the
valuation allowance resulted in a $812,400 reduction in the provision for
income tax expense for the year ended December 31, 1992. The aforementioned
deferred tax assets principally relate to tax operating loss
carryforwards, and other tax attributes, the ultimate realization of which
are contingent upon the Company earning future taxable income. The Company
currently anticipates it will have sufficient earnings to fully utilize
deferred tax assets before the related net operating losses expire. Based
on available evidence, a valuation allowance has been established for an
amount of the asset more likely than not, not to be recognized.
Potential IRS Assessment
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 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.
In 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 becomes a final assessment and the assessment is
ultimately sustained, it could generate a tax liability of as much as
approximately $5.2 million, exclusive of interest and penalties. The Company
believes the IRS' position regarding the proposed 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 proposed adjustments, including
litigation, if necessary. The Company is unable to determine the ultimate
outcome of this uncertainty and accordingly, has not provided for any
additional amounts in excess of the $2 million relating to this proposed
assessment in its fiscal 1994 financial statements. As of December 31,
1994, the Company had issued and outstanding 4,789,000 common shares and an
additional 3,039,000 common equivalent shares held under options and warrants
for a total of 7,828,000 common and common equivalent shares. Should the
IRS prevail on its entire $5.2 million of proposed income taxes, the
additional $3.2 million above the $2 million recorded by the Company during
1993 would approximate $0.41 per common and common equivalent share.
Currency Exchange Rates
The Company's international operations in the children's literature
business segment contributed approximately one-fourth of the revenues for
that segment during 1994. The Company believes that fluctuations of currency
exchange rates present the greatest risk to the financial success of its
foreign operations. The following table sets forth, for the periods and
dates indicated, certain information concerning the exchange rates for the
British Pound Sterling and the Canadian dollar expressed in U.S. dollars per
unit of foreign currency:
Period - end Average
-------------- ----------------
Period Canada U.K. Canada U.K.
- ------ ----- ----- ----- -----
Year Ended 12/31/94 0.713 1.566 0.731 1.542
Year Ended 12/31/93 0.755 1.478 0.775 1.505
Year Ended 12/31/92 0.788 1.511 0.829 1.676
05/20/92 - 12/31/92 0.788 1.511 0.816 1.769
08/01/91 - 05/19/92 0.836 1.839 0.863 1.769
08/01/90 - 07/31/91 0.868 1.674 0.867 1.830
The Company's market share in its United Kingdom operations is
significantly higher than its market share in its North American
operations. The Company believes that the higher market share, combined with
customer loyalty, in its foreign operations justify the risk of currency
fluctuation which arises from such foreign operations.
Trends
The Company believes that the public's interest in education and
general demographic conditions will continue for the foreseeable future to
have a favorable impact on the Company's domestic and international
operations, particularly with regard to the sale of children's literature
products. The Company has experienced a slight increase in the amount of
revenue generated per book fair, which management attributes, in part, to an
increased emphasis on education. Additionally, public elementary and
secondary enrollment is projected to continue to grow through the year 2000.
As the population of school children increases, the number of schools and
teachers will likely increase.
Seasonality and Quarterly Data
Both the children's literature and the incentive/recognition awards
segments are significantly seasonal. The majority of the Company's book fairs
are held during the school year. As a result, most of the revenues of SBF are
generated between the months of September and May and the Company must build
up inventory in anticipation of sales during the season. Approximately
one-half of the revenues of CAS and most of its profits are recorded
during the months of November through January. Working capital
requirements, inventory, and receivables are at their peak levels at that
time and the Company experiences negative cash flow and losses in the summer
months.
The following table sets forth certain information pertaining to each of
the Company's last twelve quarters. The operating results for any quarter are
not necessarily indicative of results for any future period.
<TABLE>
Twelve Months Ended December 31, 1994
------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 19,370,192 $ 15,899,769 $ 11,435,410 $ 32,362,758
Gross profit 8,113,301 6,636,285 4,056,311 13,415,235
Income (loss) before income taxes 339,243 (731,561) (3,255,089) 3,006,275
Net income (loss) 211,243 (458,561) (2,087,089) 1,861,975
Net income (loss) per share $ 0.04 $ (0.13) $ (0.50) $ 0.28
Weighted average common shares 5,831,000 3,531,000 4,160,000 6,592,000
and equivalents
</TABLE>
<TABLE>
Twelve Months Ended December 31, 1993
------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 17,585,185 $ 15,029,265 $ 11,108,858 $ 32,839,356
Gross profit 7,157,224 6,046,775 3,510,780 13,511,935
Income (loss) before income taxes 190,389 (888,195) (3,377,732) 5,654,058
Net income (loss) 121,946 (583,195) (2,229,732) 3,701,501
Net income (loss) per share $ 0.02 $ (0.18) $ (0.55) $ 0.64
Weighted average common shares
and equivalents 5,754,000 3,201,000 4,020,000 5,757,000
</TABLE>
<TABLE>
Ten Months Ended December 31, 1992
------------------------------------------------------
One Month
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
May 31 August 31 November 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 4,472,318 $ 5,294,105 $ 24,948,459 $ 9,792,019
Gross profit 1,694,015 1,787,464 10,572,509 4,010,252
Income (loss) before income taxes (662,521) (4,423,259) 3,168,438 2,215,245
Net income (loss) (462,521) (2,923,259) 2,118,438 2,265,145
Net income (loss) per share $ (0.15) $ (0.94) $ 0.40 $ .39
Weighted average common shares
and equivalents 3,116,000 3,116,000 5,685,000 5,733,000
</TABLE>
Recent Development
Historically, the Company incurs losses in the second and third calendar
quarters. This experience results from the effect of school vacation on the
Company's children's literature business, and from preparation for the holiday
gift giving season in the incentive/recognition awards business. While the
Company has taken steps to improve revenues during these quarters, it has also
committed to additional costs and expenses in anticipation of continued
growth.
Consequently, while losses may narrow during these periods, the
Company anticipates second and third quarters will continue to produce losses
for the foreseeable future.
Results of Operations
The table below sets forth certain financial data expressed as a
percentage of revenues (percentage may not total 100% due to rounding):
Percentage of Revenues
-----------------------------------------
Twelve Months Twelve Months Ten Months
Ended Ended Ended
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- -----------
Total revenue 100.0% 100.0% 100.0%
Cost of goods sold 59.3 60.5 59.4
----------- ----------- -----------
Gross profit 40.7 39.5 40.6
Selling,general,and administration 37.7 34.0 35.9
Interest 2.2 1.7 1.9
Depreciation and amortization 1.8 1.7 1.9
Foreign exchange 0.1 0.0 0.2
----------- ----------- -----------
Income (loss) before income taxes (0.8%) 2.1% 0.7%
----------- ----------- -----------
Year Ended December 31, 1994, Compared to Year Ended December 31, 1993
Consolidated revenues for the year ended December 31, 1994, approximated
$79.1 million compared to approximately $76.6 million for the year ended
December 31, 1993, an increase of 3% or approximately $2.5 million.
The Company's children's literature business segment accounted for
approximately $53.7 million of revenues for the year ended December 31,
1994, compared to approximately $46.9 million of revenues for the year ended
December 31, 1993, an increase of 14% or approximately $6.8 million. The
increase in children's literature segment revenues is principally due to the
inclusion of a full year of revenues in 1994 for 1993 business acquisitions
as well as revenues generated from 1994 business acquisitions (book clubs and
upscale book fairs). Although revenues were up, they were less than
anticipated.
International revenues in U.S. dollars associated with the children's
literature business segment were approximately $15.6 million for each of the
years ended December 31, 1994, and 1993. In local currencies,
international revenues for 1994 decreased by 1.4% over the comparable 1993;
however, due to foreign currency fluctuations, the U.S. dollar revenues from
foreign operations declined 0.4% from last year.
The Company's incentive/recognition awards business segment accounted
for approximately $25.2 million of revenues for the year ended December 31,
1994, compared to approximately $29.7 million of revenues for the year ended
December 31, 1993, a decrease of 15% or approximately $4.5 million. The
decline in revenue was due to disappointing year end holiday sales and
the Company's inability to timely replace low margin and unprofitable
accounts purposefully eliminated that were previously serviced in connection
with the 1993 marketing alliance. The majority of revenues generated by
the incentive/recognition awards business segment are from the sale of
products, and revenues from services are insignificant.
Approximately $0.2 million of revenues for the year ended December 31,
1994 were principally attributable to gain on assets held for disposition and
rental income.
Consolidated cost of goods sold was approximately $ 46.8 million for
the year ended December 31, 1994, compared to approximately $46.3 million for
the year ended December 31, 1993, an increase of 1.1% or approximately $0.5
million. The Company's children's literature business segment accounted for
approximately $31.4 million of costs of goods sold for the year ended
December 31, 1994, compared to approximately $27.1 million for the year ended
December 31, 1993, an increase of 16% or approximately $4.3 million. The
increase in cost of goods sold in 1994 is due to the increase in revenues.
As a percentage of revenues from the children's literature business
segment, cost of goods sold increased, registering 58.5% during 1994 compared
to 57.9% during 1993. The 0.6% increase in cost of goods sold as a
percentage of revenues is due to the adverse effect of competitive pricing
pressures somewhat offset by the favorable gross margin impact of distributing
product through additional channels.
The Company's incentive/recognition awards business segment accounted
for approximately $15.5 million of cost of goods sold for the year ended
December 31, 1994, compared to approximately $19.2 million for the year ended
December 31, 1993, a decrease of 19% or approximately $3.7 million. The
decrease in cost of goods sold was attributable to the decrease in revenues.
As a percentage of revenues from the incentive/recognition awards business
segment, cost of goods sold improved to 61.4% in 1994 from 64.7% in 1993. The
3.3% decrease in cost of goods sold is principally attributable to the change
in product mix.
Consolidated selling, general, and administrative expense was
approximately $29.8 million for the year ended December 31, 1994, compared to
approximately $26.1 million for the year ended December 31, 1993, an
increase of 14% or approximately $3.7 million. Selling, general, and
administrative expense associated with the Company's children's literature
business segment was approximately $20.0 million for the year ended December
31, 1994, compared to approximately $16.8 million for the year ended December
31, 1993, an increase of 19% or approximately $3.2 million. Approximately
$2.4 million of the increase in selling, general and administrative expenses
attributable to the children's literature business segment in 1994 was due to
reflecting a full year of expense relating to 1993 business acquisitions
as well as an approximate $500,000 additional expenses relating to the
operations of the 1994 business acquisitions and approximately $300,000 of
expenditures to further develop historical acquired channels of distribution.
Selling, general, and administrative expense associated with the Company's
incentive/recognition awards business was approximately $8.8 million for the
year ended December 31, 1994, compared to approximately $8.2 million for the
year ended December 31, 1993, an increase of 7% or approximately $600,000.
The increase in selling, general and administrative expenses was due to a
substantial shift from non-commissioned sales to commissioned sales which
accounted for approximately $400,000 of the increase. Additionally, the
incentive/recognition awards business segment's selling, general and
administrative expenses includes approximately $200,000 of staffing and
marketing costs associated with anticipated fourth quarter sales which did not
materialize.
Consolidated general corporate and administrative expense was
approximately $1.0 million for the year ended December 31, 1994, compared to
$1.1 million for the year ended December 31, 1993, a decrease of 9.1% or
$100,000.
Consolidated interest expense was approximately $1.7 million for the
year ended December 31, 1994, compared to $1.3 million for the year ended
December 31, 1993, an increase of 31% or $400,000. During 1994, both business
segments had higher levels of borrowings at slightly higher interest rates.
The average outstanding debt by quarter in 1994 approximated $23.3 million
compared to approximately $20 million for 1993. Additionally, the average
interest rate for 1994 approximated 7.9% compared to 7% for 1993. The higher
levels of borrowings resulted from seasonal needs, business acquisitions and
business expansion.
Consolidated depreciation and amortization expense was approximately
$1.4 million for the year ended December 31, 1994, compared to $1.3 million
for the year ended December 31, 1993, an increase of 8% or approximately
$100,000. The increase in depreciation and amortization expense in 1994 was
primarily due to the inclusion of a full year of expense in 1994 for
acquisitions made in the children's literature business segment in 1993,
which increased depreciable assets. The increase is due also to the addition
of depreciable and amortizable assets associated with the 1994 business
acquisitions in the children's literature business segment.
The benefit provision for income taxes is less than the statutory rates
due to permanent differences between financial and tax reporting and the
change in state and local tax rates somewhat offset by the exclusion of
losses of United Kingdom operations.
The loss for the year was attributable to a combination of
disappointing fourth quarter sales coupled with additional costs and expenses
incurred for the integration of acquisitions, acceleration of the growth of
book clubs and to further develop historical channels of distribution.
Earnings (loss) per common and common equivalent share decreased to a
loss of $0.12 in 1994 from earnings of $0.18 in 1993. The decrease in per
share amounts was attributable to a $1,482,952 decrease in earnings from
income of $1,010,520 and a 1,702,000 decrease in the weighted average common
and common equivalent shares used to compute per share amounts. The
decrease in common equivalent shares was attributable to the exclusion of
such common stock equivalents when they are anti-dilutive and was somewhat
offset by additional shares issued in the August, 1994 stock offering.
Year Ended December 31, 1993, Compared to Year Ended December 31, 1992 (Ten
Months)
Consolidated revenues for 1993 approximated $76.6 million compared to
approximately $44.5 million for 1992, an increase of 72% or approximately
$32.1 million. The Company's children's literature business segment
accounted for approximately $46.9 million of 1993 revenues compared to
approximately $26 million for 1992, an increase of 80% or approximately
$20.9 million. The principal reason for the increase in revenues associated
with the Company's children's literature business segment is that the 1993
consolidated financial statements include 12 months of operations of the
children's literature business segment while the 1992 consolidated financial
statements include approximately seven and one-half months of operations of
the children's literature business (from the May 20, 1992, acquisition date
through December 31, 1992). The Company estimates that, if the 1992
consolidated financial statements had included all 12 months of operations of
the children's literature business (January through December 1992), revenues
attributable to children's literature for such 12-month period would have
approximated $45.5 million.
International revenues in U.S. dollars associated with the children's
literature business segment were approximately $15.6 million in 1993 compared
to approximately $11 million for 1992, an increase of 42% or approximately
$4.6 million. Again, the principal reason for the increase was that 1993
included 12 months, while 1992 included approximately seven and a half
months, of the children's literature business segment. The Company estimates
that, if the 1992 financial statements had included 12 months of international
operations for the children's literature business segment (January
through December 1992), international revenues attributable to children's
literature operations for such 12-month period would have approximated
$17.2 million. In local currency, international revenues grew by 1.7%, but
decreased by 9.9% in U.S. dollars for 1993, when 1993 is compared to the
aforementioned 12-month period for 1992, as a result of currency fluctuation.
The Company's incentive/recognition awards business segment accounted
for approximately $29.7 million of 1993 revenues compared to approximately
$18.5 million of 1992 revenues, an increase of 61% or approximately $11.2
million. The increase in revenues was partially attributable to the
1993 consolidated financial statements including 12 months of
operations of the incentive/recognition awards business segment as compared to
the 1992 financial statements including only 10 months. During 1992, the
Company changed its fiscal year end to December 31 with the result that
fiscal 1992 included only 10 months. The Company also sold more products and
services in 1993. Additionally, during 1993, the Company expanded its
customer base and recognition awards business segment through a marketing
alliance with L. G. Balfour Company, Inc. (a manufacturer of emblematic
jewelry). The Company estimates that this strategic alliance resulted in
approximately $7.1 million of additional sales. The Company estimates that,
if the 1992 consolidated financial statements had included 12 months of
operations of the incentive/recognition awards business segment (January
through December, 1992), revenues attributable to the incentive/recognition
awards business segment for such 12-month period would have approximated
$22.6 million. The majority of revenues generated by the incentive/recognition
awards business segment are from the sale of products. Revenues from
services are insignificant.
The Company estimates that, if the 1992 consolidated financial
statements had included all 12 months of both business segments, revenues for
the 12 months of operations would have approximated $68.1 million.
Consolidated cost of goods sold was approximately $46.3 million for
1993 compared to approximately $26.4 million for 1992, an increase of
75% or approximately $19.9 million. The Company's children's literature
business segment accounted for approximately $27.1 million of costs of goods
sold for 1993 as compared to approximately $15.5 million for 1992, an increase
of 75% or approximately $11.6 million. The principal reason for the
approximate $11.6 million increase in cost of goods sold is that the 1993
consolidated financial statements reflect 12 months of operations of the
children's literature business segment as compared to approximately seven
and a half months for 1992. As a percentage of revenues, cost of goods sold
improved 1.6% to 57.9% in 1993 from 59.5% in 1992. Better margins
accounted for approximately .6% of this improvement. The remaining 1% of
this improvement is attributable to the fact that the 10 months in fiscal
1992 were not representative of a full 12 months of product sales because of
the seasonal nature of the children's literature segment business cycle.
The Company's incentive/recognition awards business segment accounted
for approximately $19.2 million of cost of goods sold for 1993 compared
to approximately $10.9 million for 1992, an increase of 76% or approximately
$8.3 million. The increase in cost of goods sold is partially attributable
to the 1993 consolidated financial statements reflecting 12 months of
operations of the Company's incentive/recognition awards business segment as
compared to the 1992 consolidated financial statements reflecting 10 months
of operations and the Company selling more products and services during
1993. As a percentage of revenues, cost of goods sold increased 5.4%, to
64.7% in 1993 from 59.3% in 1992. The 5.4% increase in cost of goods sold is
principally attributable to the lower margins associated with the
approximately $7.1 million of additional direct and indirect sales
generated as a result of expansion through the previously mentioned
marketing alliance, slightly offset by improved margins on the Company's
historical and existing business base. The alliance, which the Company
believes allows it to better penetrate the service awards market, gave
the Company access to numerous accounts to which the Company believes it
can cross-sell its other awards programs.
Consolidated selling, general, and administrative expense was
approximately $26.1 million in 1993 compared to approximately $16.0 million
in 1992, an increase of 63% or approximately $10.1 million. The increase
is partially attributable to the 1993 consolidated financial statements
reflecting 12 months of operations and selling, general, and administrative
expenses as compared to 10 months in the 1992 consolidated financial
statements. Additionally, the Company's children's literature business
segment is reflected in the 1993 consolidated financial statements for 12
months as compared to approximately seven and a half months for 1992
and the operations of the Company's incentive/recognition awards business
segment is reflected in the 1993 consolidated financial statements for 12
months as compared to 10 months for 1992. Selling, general, and
administrative expense associated with the Company's children's literature
business segment was approximately $16.8 million in 1993 compared to
approximately $9.1 million in 1992, an increase of 85% or approximately $7.7
million. In addition to the 1993 consolidated financial statements
containing 12 months of operations as compared to the 1992 consolidated
financial statements containing seven and a half months of operations of
the children's literature business segment which resulted in an approximate
$6.5 million increase in selling, general and administrative expenses,
the 1993 consolidated financial statements reflect approximatley $1.2 million
of additional selling and general expense for sales promotion, selling, and
marketing expenses associated with the expansion and development of product
lines, all relating to a concerted effort by the Company to increase its
market share.
Selling, general, and administrative expense associated with the
Company's incentive/recognition awards business segment was approximately $8.2
million in 1993 compared to approximately $6.3 million in 1992, an increase
of 30% or approximately $1.9 million. In addition to 1993 containing 12
months of operations as compared to 1992 containing 10 months of
operations which accounted for approximately $1.1. million of the
increase in the incentive/recognition awards business segment,
selling, general, and administrative expense also increased approximately
$800,000 as a result of increased expenses associated with the previously
mentioned expansion. Such increase in expense principally consisted of
additional sales commissions and the costs of additional sales support,
administrative personnel, and warehousing personnel. As a percentage of
revenues from the incentive/recognition awards business segment, sales,
selling, general, and administrative expense decreased from 33.87% of revenues
in 1992 to 27.70% in 1993.
Consolidated general, corporate and administrative expenses were
approximately $1.1 million in 1993 compared to approximately $657,000 in
1992, an increase of 63% or approximately $416,000. In addition to 1993
containing 12 months of operations as compared to 10 months for 1992, the
additional costs include the cost of additional personnel, additional
professional fees, and a general increase in the costs associated with a much
larger business enterprise.
Consolidated interest expense was approximately $1.3 million in 1993
compared to $864,000 in 1992, an increase of 48% or $417,000. In addition
to 1993 containing 12 months of operations as compared to 1992 containing 10
months of the operations of the Company's incentive/recognition awards business
segment and seven and a half months of the operations of the Company's
children's literature business segment, the 1993 financial statements reflect
higher levels of borrowings by both business segments (the average outstanding
debt by quarter in 1993 approximated $20 million compared to $17 million in
1992) at slightly lower interest rates. The higher levels of borrowings
resulted from seasonal needs and business expansion.
Consolidated depreciation and amortization expense was approximately
$1.3 million in 1993 compared to $850,000 in 1992, an increase of 54% or
$459,000. In addition to 1993 containing 12 months of operations as
compared to 1992 containing 10 months of the operations of the Company's
incentive/recognition awards business segment and seven and a half months of
the operations of the Company's children's literature business segment,
the 1993 consolidated financial statements reflect additional depreciation
and amortization expense associated with children's literature business
segment fixed asset additions of $651,000 and incentive/recognition awards
business segment fixed asset additions of $814,000, as well as the
amortization of $2 million of costs in excess of net assets acquired
associated with the previously mentioned School Book Fairs purchase price
allocation. Children's literature asset additions principally related to
computer equipment and the acquisition of several small operations involved in
the distribution and publishing of children's literature. The
incentive/recognition awards asset additions related to additional equipment
required in connection with the previously mentioned customer base and
product line expansion.
Consolidated income before income taxes was approximately $1.6 millionin
1993 compared to $298,000 in 1992, an increase of 436% or approximately
$1.3 million.
The income tax expense provision increased approximately $1.3 million to
a $568,000 tax expense provision in 1993 as compared to a $699,900 tax benefit
in 1992. The 1992 benefit included a $812,400 tax benefit attributable to
the Company's reassessment pursuant to SFAS No. 109 of the future
realizability of deferred tax assets.
Net income (after provision for income taxes) remained constant during
1993 and 1992 at approximately $1 million.
Earnings per common and common equivalent share decreased to $0.18 in
1993 from $0.19 in 1992. The decrease in per share amount was
principally attributable to 211,000 additional weighted average common and
common equivalent shares outstanding during 1993.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been cash generated
from operating activities from both of its business segments, amounts available
under its existing credit facilities, and proceeds from the public offering of
Common Shares during the third quarter of 1994. The Company's primary uses
of funds consist of financing inventory and receivables for both business
segments, with the making of acquisitions a secondary use.
The following table presents a historical summary of the Company's cash
flows (in thousands):
-----------------------------------------
Twelve Months Twelve Months Ten Months
Ended Ended Ended
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- -----------
Cash used in operating activities $ (6,737) $ (4,305) $ (5,803)
Capital expenditures (854) (1,363) (385)
Net borrowings on debt obligations 3,336 3,554 12,960
Payment for Company acquisitions (2,720) (558) (6,308)
Proceeds from issuance of Common Shares 7,206 2,140 -
Other 141 2 187
----------- ----------- -----------
Increase(decrease) in cash $ 372 $ (530) $ 651
----------- ----------- -----------
The Company has a $25 million revolving credit facility which consists of
the following: a $6 million short-term credit line for use in the
incentive/recognition awards business (the "CA Short Line"), a $7 million
short-term credit loan for use in the children's literature business (the
"School Book Fairs Line"). a $9.5 million line 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 1, 1995,
subject to annual renewal. The Time Credit is due in full on June 30, 1995
and the Acquisition Line is due on June 1, 1996. Additionally, the Company
has a $2.7 million credit facility in the United Kingdom for use in its
children's literature business. The United Kingdom facility is payable on
demand.
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. The Company
does not anticipate any material expenditures for property, plant and
equipment during the next twelve months. Should the Internal Revenue
Service prevail in a potential tax assessment, it would place additional
demands on the Company's cash and lines of credit.
Seasonality
Both the children's literature and the incentive/recognition awards
businesses are extremely seasonal. The majority of the Company's school
book fairs are held during the school year. As a result, most of the income
of SBF is generated between the months of September and May. Approximately
45% of the revenues of CAS and all of its profits are recorded during the
months of November through January. Working capital requirements,
inventory, and receivables are at their peak levels at that time and the
Company experiences negative cash flow in the other months.
Inflation
Although the Company cannot determine the precise effects of inflation,
inflation has an influence on the cost of the Company's products and
services, supplies, salaries, and benefits. The Company attempts to minimize
or offset the effects of inflation through increased sales volumes and sales
prices, improved productivity, alternative sourcing of products and supplies,
and reduction of other costs. The Company generally has been able to offset
the impact of price increases from suppliers by increases in the selling
prices of the Company's products and services.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Previously reported in Form 8-K dated November 2, 1994 and Form 8-K/A
relating thereto.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors and Executive Officers
The following table sets forth certain information concerning the
directors and executive officers of the Company.
Director or
Executive
Name Age Position (1) Officer Since
S. Robert Davis 56 Chairman of the Board
Assistant Secretary, and Director 1990
Richard A. Stimmel 56 President, Treasurer and Director;
President of School Book Fairs, Inc. 1981
Charles R. Davis (2)33 Executive Vice President, Secretary,
and Director; President of Clyde A. 1983
Short Company, Inc.
John C. Sontheimer 47 Senior Vice President; Executive Vice
President and General Manager of 1992
School Book Fairs, Inc.
Randall J. Asmo 30 Vice President 1992
Richard B. Erven 47 Managing Director of School Book 1992
Fairs, Limited
Juan F. Sotos, M.D. 67 Director 1992
Robert J. Tierney 47 Director 1992
(1) All positions are those held with the Company, except as otherwise
indicated.
(2) S. Robert Davis is the father of Charles R. Davis.
Executive officers are elected by the Board of Directors and serve until
their successors are duly elected and qualify, subject to earlier removal by
the Board of Directors. Directors are elected at the annual meeting of
shareholders to serve for one year and until their respective successors are
duly elected and qualify, or until their earlier resignation, removal from
office, or death. The remaining directors may fill any vacancy in the Board
of Directors for an unexpired term.
Business Experience of Directors and Executive Officers
S. Robert Davis was elected a director and Chairman of the Board in
March, 1990, and Assistant Secretary in May, 1992. Prior to his election to
the Board of Directors, he served as Assistant to the President from
January, 1988, to March, 1990, on a part-time basis. Additionally, during the
past five years, Mr. Davis has operated several private businesses involving
the developing, sale and/or leasing of real estate but devotes substantially
all of his business time to the Company.
Richard A. Stimmel joined the Company as its Secretary and a director
in 1981. In September, 1983, he was elected Chairman of the Board and he served
in that capacity through March, 1990. In September, 1989, Mr. Stimmel was
also elected Treasurer of the Company. In March, 1990, he resigned as Chairman
of the Board, and in June, 1990, he was elected as President. In May, 1992, Mr.
Stimmel was elected President of School Book Fairs, Inc., a subsidiary of the
Company. Additionally, during the past five years, Mr. Stimmel has
operated several private businesses involving the developing, sale and/or
leasing of real estate but devotes substantially all of his business time to
the Company.
Charles R. Davis became a director of the Company in December, 1983. He
was elected as Vice President of the Company in April, 1986, and served as
Secretary and Assistant Treasurer of the Company from January, 1984, until
April, 1986. In September, 1989, Mr. Davis was again elected Secretary of
the Company and, in July, 1991, he was elected Executive Vice President
of the Company. In September, 1992, Mr. Davis was elected President of
Clyde A. Short Company, Inc., a subsidiary of the Company. Additionally,
during the past five years, Mr. Davis has operated several private
businesses involving the developing, sale and/or leasing of real estate but
devotes substantially all of his business time to the Company.
John C. Sontheimer was elected Senior Vice President in February, 1993,
and has served as the Executive Vice President and General Manager of School
Book Fairs since May, 1992. Prior to the Company's acquisition of School Book
Fairs in May, 1992, Mr. Sontheimer served as its Vice President -
Finance and Operations from January, 1985, through August, 1989, and as its
Chief Financial Officer from June, 1991, through May, 1992. From September,
1990, through June, 1991, Mr. Sontheimer served as Senior Vice President of
the Lodge Keeper Group, a hospitality business which filed for federal
bankruptcy protection in 1991.
Randall J. Asmo was elected Vice President in September, 1992. Prior to
that time, he served as Assistant to the President from February, 1990 to
September, 1992. Additionally, since October, 1987, Mr. Asmo has served as
Vice President of Mid-States Development Corp., a privately-held real estate
development and leasing company, as Vice President of American Home Building
Corp., a privately-held real estate development company, and an officer of
several other small business enterprises.
Richard B. Erven has served as Managing Director of School Book Fairs,
Ltd., a wholly-owned subsidiary of the Company, since September, 1986. Mr.
Erven has also served as Chairman and Managing Director of Nervends, Ltd., a
publishing consultant, since September, 1986.
Juan F. Sotos, M.D. was elected as a director on December 22, 1992.
Dr. Sotos has been a Professor of Pediatrics at The Ohio State University
College of Medicine since 1962 and also serves as Chief of Endocrinology and
Metabolism at Children's Hospital in Columbus, Ohio.
Robert J. Tierney was elected as a director on October 21, 1992. Dr.
Tierney currently serves as the Acting Chairperson of the Ohio State
University Department of Education Theory and Practice. Dr. Tierney is also
active in education research and has served as a Professor at The Ohio State
University since 1984.
Section 16(a) of the Securities Exchange Act of 1934 requires
executive officers and directors, and persons who beneficially own more than
10% of the Company's Common Stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC") and the National Association of Securities Dealers, Inc. Executive
officers, directors and greater than 10% beneficial owners are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
During 1992 and 1993, the Company granted stock options to John C.
Sontheimer, Richard B. Erven, and Randall J. Asmo who are officers of the
Company and with respect to which reports required under Section 16(a)
were delinquent or omitted. The total options granted aggregated 195,750
shares including the grant of options to purchase 27,000 shares pursuant to
the 1993 Incentive Stock Option Plan. Additionally, Mr. John C. Sontheimer
purchased approximately 116 common shares pursuant to the employee stock
purchase plan.
Other than the foregoing, and based solely on a review of the copies of
such forms furnished to the Company and written copies of such forms furnished
to the Company and written representations from the executive officers and
directors, the Company believes that all Section 16(a) filing requirements
applicable to its executive officers, directors, and greater than 10%
beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Each director who is not an officer of the Company receives a fee of
$1,100 for attendance at each Board meeting, a fee of $550 for attendance
at each telephonic Board meeting, and a fee of $500 for attendance at each
meeting of a Board committee of which he is a member. Directors who are also
officers of the Company receive no additional compensation for their services
as directors.
The following table shows, for the fiscal years ended December 31, 1994
and 1993 and the 10 months ended December 31, 1992, the cash compensation
paid by the Company and its subsidiaries, as well as certain other
compensation paid or accrued for those years, to the Company's President and
each of its four other most highly paid executive officers (the "Named
Executive Officers") in the principal capacity in which they served:
Summary Compensation Table
Annual Long-term
Compensation Compensation
Name and Other Annual Number of Options
Principal Position Year Salary Bonus Compensation Awarded(1)
S. Robert Davis, 12/31/94 $185,000 $0 $0 0
Chairman 12/31/93 $185,000 $0 $0 0
12/31/92 $142,762 $0 $0 43,750
Richard A. Stimmel, 12/31/94 $160,000 $0 $0 0
President 12/31/93 $160,000 $0 $0 0
12/31/92 $121,539 $0 $0 43,750
Charles R. Davis, 12/31/94 $140,000 $0 $0 0
Executive Vice 12/31/93 $140,000 $0 $0 0
President 12/31/92 $108,846 $0 $0 43,750
John C. Sontheimer, 12/31/94 $150,000 $0 $2,271(3) 0
Senior Vice 12/31/93 $150,000 $0 $4,990(3) 12,000
President (2) 12/31/92 $ 93,750 $0 $2,557(3) 125,000
Richard B. Erven, 12/31/94 $166,378 $0 $5,787(5) 0
Managing Director of12/31/93 $136,963 $22,575 $4,810(5) 36,250
School Book Fairs, 12/31/92 $ 96,739 $26,550 $4,715(5) 0
Ltd (4)
(I) Stock options previously granted to the Named Executive Officers, bytheir
terms, automatically adjust to reflect certain changes in the outstanding
Common Shares of the Company, including stock dividends.
(2) Mr. Sontheimer did not render services to the Company prior to May 20,
1992, the date upon which the Company acquired SBF. The compensation payments
for 1992 to Mr. Sontheimer reflect the period from May 20, 1992, through
December 31, 1992.
(3) Represents, for the years ended December 31, 1994, 1993, and 1992,
contributions to Mr. Sontheimer's 401(k) retirement plan in the amount of
$2,082, $4,510 and $2,250, respectively, and life insurance premiums paid
for the benefit of Mr. Sontheimer in the amounts of $189, $480 and
$307, respectively. Two hundred thousand dollars in term life insurance is
provided to Mr. Sontheimer as part of the health insurance plan provided to
employees of SBF generally.
(4) Mr. Erven did not render services to the Company prior to May 20, 1992,
the date upon which the Company acquired School Book Fairs. The amounts shown
for Mr. Erven represent the estimated U.S. dollar equivalent of salary and
bonus paid or accrued in Pounds Sterling per U.S. Dollar, based upon a
weighted average of $1.542, $1.505 and $1.77 for each Pound Sterling for the
years ended December 31, 1994, 1993 and the ten months ended December
31, 1992, respectively. Conversion fluctuations during the period from May,
1992, through December 31, 1994, ranged from 1.839 to 1.478 Pounds Sterling
per U.S. Dollar. The bonus amount paid to Mr. Erven represents a bonus
arrangement established for Mr. Erven prior to the Company's acquisition of
School Book Fairs, but paid subsequent to such acquisition.
(5) Represents the estimated U.S. Dollar equivalent (based upon a weighted
average of $1.542, $1.505 and $1.77 for each Pound Sterling for the years
ended December 31, 1994 and 1993, and the ten months ended December 31,
1992, respectively) of contributions to an annuity insurance retirement
product purchased for the benefit of Mr. Erven prior to the Company's
acquisition of School Book Fairs, the cost of a Company-provided health club
membership and the estimated value of the personal use of a Company-provided
automobile.
Option Holdings
None of the Named Executive Officers exercised options during the year
ended December 31, 1994. The following table sets forth information with
respect to unexercised options held by such officers as of the end of the year:
Year End Option Values
Number of Unexercised Value of Unexercised In-the-Money
Options at Year End Options at Year End (1)
-------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Richard A. Stimmel 733,307 - $2,595,444 -
S. Robert Davis 577,057 - 1,995,757 -
Charles R. Davis 581,168 - 2,032,258 -
John C. Sontheimer 127,400 9,600 106,250 $0
Richard B. Erven 32,250 4,000 0 0
(1) The value of unexercised in-the-money options at year end represents
the difference between the fair market value of the Common Shares underlying
the options on December 31, 1994, and the exercise price of the options.
On June 11, 1991, prior to the Company's acquisition of School Book
Fairs, John C. Sontheimer entered into an Executive Employment Agreement with
School Book Fairs. The agreement was for a term of two years and provided for
a salary of $125,000 per year, subject to adjustment based upon Mr.
Sontheimer's performance or other business reasons. The agreement provided
Mr. Sontheimer one year's severance pay if Mr. Sontheimer was not offered
continued employment, pursuant to his agreement, following a change in
ownership of School Book Fairs. Mr. Sontheimer's agreement was amended on
June 11, 1991, to provide Mr. Sontheimer one year's severance pay in the
event the agreement was terminated by School Book Fairs without cause. On
May 19, 1992, the Company acquired all of the outstanding stock of School
Book Fairs. On June 19, 1992, the Company offered Mr. Sontheimer continued
employment under the terms of his agreement, through June 11, 1994, at a
salary of $150,000 per year.
On July 23, 1987, Richard B. Erven entered into a Service Agreement
with School Book Fairs, Ltd., a United Kingdom corporation with School Book
Fairs. The agreement was for an undetermined period, terminable upon six
months notice, and provided for a salary of 52,500 Pounds Sterling per year,
which increased at a rate at least equal to the rate of inflation. Mr.
Erven's agreement also provided for discretionary bonus payments and salary
increases, from time to time. Mr. Erven's agreement does not contain a
change-in-control provision.
Compensation Committee Interlocks and Insider Participation
In March, 1993, the Board of Directors of the Company appointed Juan
F. Sotos, M.D. and Robert J. Tierney to serve as the Executive
Compensation Committee. Neither Dr. Tierney nor Dr. Sotos serve or have served
as an employee of the Company or any of its subsidiaries. In May 1994, the
Company appointed Richard A. Stimmel, the Company's President, to serve
on the Executive Compensation Committee along with Drs. Tierney and Sotos.
None of such persons serves on the Board of Directors of any other public
company.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 7, 1995,
with respect to the beneficial ownership of shares of the Company's common
stock by each person known to the Company to be the beneficial owner of more
than 5% of the Company's outstanding common stock, by each director, by the
President and each of the Company's four other most highly paid executive
officers serving as of December 31, 1994, and by all directors and executive
officers of the Company as a group:
Amount and Nature
of Beneficial Percent
Name and Address Ownership(1) of Class(2)
S. Robert Davis 1,271,572 (3) 23.70%
801 94th Avenue North
St. Petersburg, Florida 33702
Richard A. Stimmel 870,736 (4) 15.77%
801 94th Avenue North
St. Petersburg, Florida 33701
Charles R. Davis 672,351 (5) 12.52%
801 94th Avenue North
St. Petersburg, Florida 33702
American Home Building Corporation 164,062 (6) 3.43%
5720 Avery Road
Amlin, OH 43002
First Union National Bank of Florida 250,000 (7) 4.96%
100 South Ashley Drive
Tampa, Florida 33602
Richard B. Erven 76,000 1.58%
5 Air Speed Road
Priory Industrial Park
Christchurch, Dorset BH23 4HD
John C. Sontheimer 127,516 (8) 2.59%
801 94th Avenue North
St. Petersburg, Florida 33702
Juan F. Sotos, M.D. 57,812 1.21%
4400 Squirrel Bend
Columbus, Ohio 43220
Robert J. Tierney 2,760 0.06%
4805 Olentengy Blvd.
Columbus, OH 43214
Carret and Company, Inc. 423,500 8.84%
560 Lexington Ave.
New York, NY 10022
All executive officers and directors
as a group (8 persons) 3,280,434 (9) 47.75%
(1) Represents sole voting and investment power unless otherwise indicated.
(2) Based on 4,789,208 shares of common stock outstanding as of March 7,
1995, plus, as to each person listed, . that portion of the 2,828,333 unissued
shares of common stock subject to outstanding options and warrants which
may be exercised by such person, and as to all officers and directors as a
group, unissued shares of common stock as to which the members of such group
have the right to acquire beneficial ownership upon the exercise of stock
options.
(3) Includes 6,000 shares owned by Mr. Davis' wife as to which Mr.
Davis disclaims beneficial ownership and includes 577,057 unissued Common
Shares as to which Mr. Davis has the right to acquire beneficial ownership
upon the exercise of stock options within the next 60 days. Does not include
Common Shares owned by American Home Building Corporation as to which Mr.
Davis could be deemed to have beneficial ownership.
(4) Includes 1,952 shares held jointly by Mr. Stimmel and his wife, as to
which Mr. Stimmel exercises shared voting and investment power, and 733,307
unissued Common Shares as to which Mr. Stimmel has the right to acquire
beneficial ownership upon the exercise of stock options within the next 60
days. Does not include Common Shares owned by American Home Building
Corporation as to which Mr. Stimmel could be deemed to have beneficial
ownership.
(5) Includes 781 shares owned by Mr. Davis' wife and 3,874 shares owned by
Mr. Davis' children as to which Mr. Davis disclaims beneficial ownership
and includes 581,168 unissued Common Shares as to which Mr. Davis has the
right to acquire beneficial ownership upon the exercise of stock options
within the next 60 days. Does not include Common Shares owned by
American Home Building Corporation as to which Mr. Davis could be deemed to
have beneficial ownership.
(6) American Home Building Corporation is a private corporation owned equally
by S. Robert Davis, Charles R. Davis, and Richard A. Stimmel. Therefore,
54,687 of the 164,062 Common Shares owned by American Home Building
Corporation could be attributed to each of Messrs. Davis, Davis, and Stimmel.
Accordingly, S. Robert Davis could be deemed the beneficial owner of
1,326,259 Common Shares, constituting 24.71% of the class; Charles R.
Davis could be deemed the beneficial owner of 727,038 Common Shares,
constituting 13.54% of the class; and Richard A. Stimmel could be deemed
the beneficial owner of 925,423 Common Shares, constituting 16.76% of the
class.
(7) On May 19, 1992, the Company granted warrants to First Union National
Bank of Florida as part of a debt restructure in furtherance of the
purchase of School Book Fairs and its affiliated entities.
(8) Includes 127,400 unissued Common Shares as to which Mr. Sontheimer has
the right to acquire beneficial ownership upon the exercise of stock options
within the next 60 days.
(9) The number of shares of common stock beneficially owned by all officers
and directors as a group includes 2,081,307 unissued shares of common stock
as to which they have the right to acquire beneficial ownership upon the
exercise of stock options within the next 60 days, 1,952 shares of common
stock held jointly by Mr. Stimmel and Mr. Stimmel's wife, 4,655 shares of
common stock owned by Mr. Charles Davis' wife and children as to which Mr.
Davis disclaims any beneficial ownership, and 6,000 shares of common stock
owned by Mrs. S. Robert Davis as to which Mr. Davis disclaims any beneficial
ownership. This number also includes 7,500 shares owned and 30,125
unissued shares of common stock as to which Randall J. Asmo, an officer of
the Company, has the right to acquire beneficial ownership upon exercise of
stock options within the next 60 days; 57,812 shares owned by Dr. Juan Sotos,
a Director of the Company; 2,760 shares owned by Dr. Tierney, a Director of
the Company; 164,062 shares of common stock held by American Home Building
Corporation, to which Messrs. Davis, Davis, and Stimmel could be deemed to
have beneficial ownership; 116 shares owned and 127,400 unissued shares of
common stock as to which John C. Sontheimer, an officer of the Company, has
the right to acquire beneficial ownership upon exercise of stock options
within the next 60 days; and 43,750 shares owned and 32,250 unissued shares
of common stock as to which Richard B. Erven, a "named executive officer", has
the right to acquire beneficial ownership upon the exercise of stock options
within the next 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Incorporated by reference to List of Financial Statements and
Financial Statement Schedules following "Signatures."
2. Financial Statement Schedules:
Incorporated by reference to List of Financial Statements and
Financial Statement Schedules following "Signatures."
3. Exhibits:
Incorporated by reference to Exhibit Index immediately
following Financial Statement Schedules.
(b) Reports on Form 8-K filed by the Registrant during the quarter ended
December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Dated: February 22, 1996 By: /s/Richard A. Stimmel
------------------ ---------------------
Richard A. Stimmel
Principal Accounting and
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
Dated: February 22, 1996 By: /s/S. Robert Davis
------------------ ---------------------
S. Robert Davis
Chairman of the Board and
Director
Dated: February 22, 1996 By: /s/Richard A. Stimmel
------------------ ---------------------
Richard A. Stimmel
President, Treasurer, and
Director
Dated: February 22, 1996 By: /s/Charles R. Davis
------------------ ---------------------
Charles R. Davis
Executive Vice President
and Director
ANNUAL REPORT ON FORM 10-K/A
YEAR ENDED DECEMBER 31, 1994
PAGES, INC. AND SUBSIDIARIES
ST. PETERSBURG, FLORIDA
FORM 10-K/A--ITEM 8, ITEM 14(a)(1), (2) AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of PAGES, Inc. and
Subsidiaries are included in Item 8:
Independent Auditors' Report
Deloitte & Touche LLP - for the year ended December 31, 1994.
Hausser + Taylor and Arthur Andersen - for the year ended December 31,
1993 and the ten months ended December 31, 1992.
Consolidated statements of operations--
Years ended December 31, 1994 and 1993 and ten months ended December
31, 1992.
Consolidated balance sheets--
December 31, 1994 and December 31, 1993
Consolidated statements of cash flows--
Years ended December 31, 1994 and 1993, and ten months ended December
31, 1992.
Consolidated statements of stockholders' equity--
Years ended December 31, 1994 and 1993 and ten months ended December
31, 1992.
Notes to the consolidated financial statements--
Years ended December 31, 1994 and 1993 and ten months ended December
31, 1992.
The following consolidated financial statement schedule of PAGES, Inc.
and Subsidiaries is included in Item 14(d):
Schedule II--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PAGES, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheet of PAGES, Inc. and
subsidiaries (the "Company") as of December 31, 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. Our audit also included the information included in the
consolidated financial statement schedule listed in the index at Item 14(d) as
of and for the period ended December 31, 1994. These consolidated financial
statements and consolidated financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and consolidated financial statement
schedule based on our audit. The Company's consolidated financial statements
and consolidated financial statement schedule for the year ended December 31,
1993 and the period May 20, 1992 through December 31, 1992 was audited by other
auditors whose reports thereon dated March 25, 1994 and March 23, 1994, with
respect to the December 31, 1993 financial statements and for the period May 20,
1992 through December 31, 1992, expressed unqualified opinions on those
statements.
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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1994, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, the consolidated financial statement schedule as of and for the year
ended December 31, 1994, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth herein.
As discussed in Note 12 to the consolidated financial statements, the Company
has been informed by the Internal Revenue Service of proposed adjustments for
additional income taxes which exceed the Company's estimate. During 1993, the
Company recorded a $2 million liability as its best estimate of amounts owed
relating to these proposed adjustments and intends to vigorously defend the
correctness of this amount. However, the ultimate amount of this matter cannot
presently be determined. Accordingly, no additional provision for income taxes
related to this matter has been recorded in the accompanying 1994 consolidated
financial statements.
/s/ Deloitte & Touche LLP
---------------------
Tampa, Florida
March 29, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Pages, Inc.
We have audited the accompanying consolidated balance sheets of Pages, Inc.
and Subsidiaries, as of December 31, 1993, and the related consolidated
statements of operations, shareholders', equity and cash flows for the year
ended December 31, 1993 and the ten months ended December 31, 1992 and the
financial statement schedules as listed in Item 14 (a)(1) and (2) of this Form
10-K. 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 did not audit the combined financial
statements of Great British Book Fairs, Inc. and School Book Fairs Limited,
wholly-owned subsidiaries, as of December 31, 1993, and for the year ended
December 31, 1993, and period May 20, 1992 through December 31, 1992, which
statements reflect total assets constituting 15.8% of the related consolidated
total and revenues of 15.6% and 19.3%, respectively, of the consolidated totals.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for Great
British Book Fairs, Inc. and School Book Fairs Limited, is based solely on the
report of other auditors.
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 and the report of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Pages, Inc. and Subsidiaries as of
December 31, 1993, and the results of their operations and their cash flows for
year ended December 31, 1993 and the ten months ended December 31, 1992, in
conformity with generally accepted accounting principles. In addition, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly the information
required to be included therein.
/s/ Hausser + Taylor
----------------
HAUSSER + TAYLOR
Columbus, Ohio
March 25, 1994
Auditors' Report
To the Shareholders of Great British Book Fairs Inc. and School Book Fairs
Limited:
We have audited the accompanying combined balance sheets of Great British Book
Fairs Inc. and School Book Fairs Limited at 31 December 1993 and the related
combined statements of operations, owners' equity and cash flows for the year
ended 31 December 1993 and the period from 20 May 1992 to 31 December 1992.
These combined financial statements are the responsibility of the companies'
management. Our responsibility is to express an opinion of 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 Great British Book Fairs Inc.
and School Book Fairs Limited at 31 December 1993 and the results of their
operations and their cash flows for the year ended 31 December 1993 and the
period from 20 May 1992 to 31 December 1992 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen
---------------
Arthur Andersen
Chartered Accountants and Registered Auditors
1 Surrey Street
London
WC2R 2PS
23 March 1994
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1994 and 1993 and
the ten months ended December 31, 1992.
-----------------------------------------
Twelve Months Twelve Months Ten Months
Ended Ended Ended
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- -----------
Revenues $79,068,129 $76,562,664 $44,506,901
----------- ----------- -----------
Costs and Expenses:
Cost of goods sold 46,846,997 46,335,950 26,442,661
Selling, general and administrative 29,805,357 26,062,298 15,967,028
Interest 1,704,897 1,280,761 864,027
Depreciation and amortization 1,421,814 1,309,458 850,452
Foreign exchange (69,804) (4,323) 84,830
----------- ----------- -----------
79,709,261 74,984,144 44,208,998
----------- ----------- -----------
Income/(loss) before income taxes (641,132) 1,578,520 297,903
(Provision) benefit for income taxes 168,700 (568,000) 699,900
----------- ----------- -----------
NET INCOME/(LOSS) $ (472,432) $ 1,010,520 $ 997,803
----------- ----------- -----------
Income/(loss) per common share $ (0.12) $ 0.18 $ 0.19
----------- ----------- -----------
Weighted average common and
common equivalent shares 4,055,000 5,757,000 5,546,000
----------- ----------- -----------
The accompanying notes are an integral
part of the consolidated financial statements
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
ASSETS 1994 1993
----------- -----------
Current Assets:
Cash $ 671,602 $ 299,717
Accounts receivable, net of allowance for
doubtful accounts of $168,000 and $45,028,
respectively 13,965,086 11,376,688
Inventory 33,014,774 24,918,624
Prepaid expenses 3,394,212 2,260,848
Deferred income taxes 1,966,200 1,782,700
----------- -----------
Total current assets 53,011,874 40,638,577
Property and equipment:
Buildings 3,313,721 3,320,093
Equipment 5,696,782 4,780,560
----------- -----------
9,010,503 8,100,653
Less accumulated depreciation (3,014,424) (1,765,395)
----------- -----------
5,996,079 6,335,258
Land 216,468 416,468
----------- -----------
Total property and equipment 6,212,547 6,751,726
----------- -----------
Other assets:
Assets held for disposition, net of allowance
of $270,838 and $398,983, respectively 1,195,520 1,067,375
Cost in excess of net assets acquired, net of
accumulated amortization of $312,345 and
$189,147, respectively 5,903,553 3,826,520
Deferred income taxes 153,200 156,000
Other 1,257,872 1,320,513
----------- -----------
8,510,145 6,370,480
----------- -----------
TOTAL ASSETS $67,734,566 $53,760,711
The accompanying notes are an integral
part of the consolidated financial statements
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
----------- -----------
Current Liabilities:
Accounts payable $10,887,683 $ 9,621,735
Short-term debt obligations 16,090,039 8,398,847
Accrued liabilities 2,678,058 3,130,218
Accrued tax liabilities 3,248,821 3,142,742
Deferred revenue 6,139,486 3,470,696
Current maturities on long-term debt
obligations 144,035 2,767,233
Current maturities on capitalized lease
obligations 26,468 52,611
----------- -----------
Total current liabilities 39,214,590 30,584,082
----------- -----------
Long-term obligations 8,927,312 10,362,317
----------- -----------
Committments and contingencies
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 5,087,921
shares and 3,829,546 shares, respectively 50,879 38,295
Capital in excess of par value 22,489,048 15,296,093
Foreign currency translation, net of tax (400,295) (445,540)
Accumulated deficit (2,305,845) (1,833,413)
----------- -----------
19,833,787 13,055,435
Less 298,713 shares of common stock in
treasury, at cost (241,123) (241,123)
----------- -----------
Total stockholders' equity 19,592,664 12,814,312
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $67,734,566 $53,760,711
The accompanying notes are an integral
part of the consolidated financial statements
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994 and 1993 and
the ten months ended December 31, 1992.
-----------------------------------------
Twelve Months Twelve Months Ten Months
Ended Ended Ended
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- -----------
Cash flows from operating activities:
Net (loss)/income $ (472,432) $ 1,010,520 $ 997,803
----------- ----------- -----------
Adjustments to reconcile net
(loss)/ income to cash provided
by operating activities:
Depreciation and amortization 1,421,814 1,309,458 850,452
Deferred income taxes (168,700) 550,000 (699,900)
Foreign exchange (69,804) (4,323) 84,830
Gain on sale of property and
equipment 194 (4,728) (50,103)
Changes in assets and liabilities net
of effects of acquisitions by
children's literature segment (1994
and 1993 and acquisition of School
Book Fairs, Inc. and affiliates (1992):
Increase in assets:
Accounts receivable (1,793,672) (2,341,905) (2,750,148)
Inventory (6,846,635) (3,761,611) (7,445,928)
Prepaid expenses and other assets (1,024,307) (330,635) (561,557)
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities 686,620 (1,505,424) 3,619,851
Deferred revenue 1,530,046 774,141 151,653
----------- ----------- -----------
Total adjustments (6,264,444) (5,315,027) (6,800,850)
----------- ----------- -----------
Net cash used in operating activities (6,736,876) (4,304,507) (5,803,047)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from assets held for
disposition 55,412
Payments for purchases of property
and equipment (854,396) (1,363,276) (384,872)
Proceeds from sale of property and
equipment 266,282 65,818 42,850
Payment for acquisition of School Book
Fairs, Inc. and affiliates, net of
cash acquired and issuance of
common stock (6,308,040)
Payment for acquisitions by children's
literature segment, net of cash and debt
acquired and stock issued (2,720,000) (557,596)
----------- ----------- -----------
Cash used in investing activities (3,308,114) (1,855,054) (6,594,650)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock,
net of expense 7,205,539 2,139,718
Proceeds from debt obligations 58,282,852 37,454,680 30,439,854
Principal payments on debt and
lease obligations (54,946,414) (33,900,704) (17,480,279)
----------- ----------- -----------
Cash provided by financing
activities 10,541,977 5,693,694 12,959,575
----------- ----------- -----------
Effect of exchange rate changes
on cash (125,102) (63,758) 89,317
----------- ----------- -----------
Increase (decrease) in cash 371,885 (529,625) 651,195
Cash, beginning of period 299,717 829,342 178,147
----------- ----------- -----------
Cash, end of period $ 671,602 $ 299,717 $ 829,342
----------- ----------- -----------
The accompanying notes are an integral
part of the consolidated financial statements
PAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1994 and 1993 and
the ten months ended December 31, 1992
<TABLE>
Capital in Foreign
Common Excess of Currency Accumulated Treasury
Shares Stock Par Value Translation Deficit Stock Total
---------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance February 29, 1992 3,415,376 $ 34,153 $11,851,668 $ $(3,841,736) $ (241,123) $ 7,802,962
Ten months ended December 31, 1992:
Issuance of common shares
in connection with acquisitions 43,750 438 270,812 271,250
Foreign Currency Translation (337,560) (337,560)
Net income 997,803 997,803
---------- ----------- ----------- ----------- ----------- ----------- ----------
Balance December 31, 1992 3,459,126 34,591 12,122,480 (337,560) (2,843,933) (241,123) 8,734,455
Year ended December 31, 1993:
Issuance of common shares
in connection with acquisitions 109,243 1,092 1,036,445 1,037,537
Exercise of employee stock options 1,000 10 3,265 3,275
Private placement issuance of
common shares, net of expenses
of $75,000 260,177 2,602 2,133,903 2,136,505
Foreign Currency Translation (107,980) (107,980)
Net income 1,010,520 1,010,520
---------- ----------- ----------- ----------- ----------- ----------- ----------
Balance December 31, 1993 3,829,546 38,295 15,296,093 (445,540) (1,833,413) (241,123) 12,814,312
Year ended December 31, 1994:
Exercise of employee stock options 375 4 296 300
Issuance of common stock through
public offering, net of expenses
of $671,099 1,258,000 12,580 7,192,659 7,205,239
Foreign Currency Translation 45,245 45,245
Net loss (472,432) (472,432)
---------- ----------- ----------- ----------- ----------- ----------- ----------
Balance December 31, 1994 5,087,921 $ 50,879 $22,489,048 $(400,295) $(2,305,845) $ (241,123) $19,592,664
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements
PAGES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of PAGES,
Inc. and its wholly-owned subsidiaries after elimination of all material
intercompany accounts and transactions, collectively referred to as "the
Company." The Company has operations in the United States, Canada, Ireland,
and the United Kingdom. There are no material differences in the accounting
principles used in the preparation of the consolidated financial statements
for the locations in which the Company operates. The Company's children's
literature business segment is operated principally through School Book Fairs,
Inc. and related entities ("SBF") and the Company's incentive/recognition
awards business segment is operated through Clyde A. Short Company, Inc. ("CAS")
Financial Statement Presentation
The Company changed its year end from the last day in February to
December 31, effective December 31, 1992. Accordingly, the accompanying
consolidated financial statements include the consolidated balance sheets of
the Company as of December 31, 1994 and 1993 and the consolidated statements
of operations for the years ended December 31, 1994 and 1993 and the ten
months ended December 31, 1992.
On May 19, 1992, PAGES, Inc. purchased all of the outstanding stock of
SBF headquartered in St. Petersburg, Florida. The aggregate cost of
this transaction including major debt refinancing of SBF, approximated
$8,841,000 (see Note 7). The transaction was accounted for as a purchase The
net assets relating to the acquisition have been included in the accompanying
consolidated balance sheets at December 31, 1994 and 1993. The consolidated
statements of operations include the results of operations of SBF from May
20, 1992 through December 31, 1994.
Revenue Recognition
Revenues from the sale of children's literature and incentive awards
are recognized upon shipment and delivery of the related merchandise. Revenues
from services are insignificant. The Company provides for estimated returns
from the sale of children's literature when those products are shipped.
Returns from the sales of incentive awards and from services are insignificant.
Accounts Receivable
The Company sells its products to numerous commercial and industrial
customers, as well as to schools and school organizations across the United
States, Canada, the United Kingdom and Ireland. The accounts receivable are
well diversified and are expected to be repaid in the normal course of
business.
Inventory
Inventory consists of finished goods which are comprised of books and
general retail merchandise. Inventory is valued at the lower of cost or
market using the first-in, first-out (FIFO) method. Internal and external
production costs (which include costs for design, art, editorial services
and color separations in the publishing of finished goods inventory) are
expensed as incurred.
Prepaid Expenses
Prepaid expenses at December 31, 1994 and 1993, reflect
approximately $2,340,000 and $1,483,000, respectively, of prepaid selling
costs that include employee costs and incentive payments to distributors and
salespeople for the scheduling of future sales events and sales of incentive
and recognition awards programs. Such costs are directly attributable to
obtaining specific future commitments to hold a selling event and are
expensed in the year the related sales occur.
Buildings and Equipment
Buildings and equipment are recorded at cost and depreciated over
their estimated useful life on the straight-line method. Estimated useful
lives range from three to thirty-one years. Major repairs and betterments are
capitalized; minor repairs are expensed as incurred. Depreciation expense for
the year ended December 31, 1994 and 1993 and the ten months ended
December 31, 1992 and totaled, $1,198,602, $1,180,396, and $821,984,
respectively.
Assets Held For Disposition
Assets held for disposition are principally non-performing real
estate acquired in connection with the SBF acquisition and have been reduced
by an allowance for estimated losses on disposition reducing the net carrying
values to their estimated net realizable values.
Cost In Excess of Net Assets Acquired and Other Assets
Cost in excess of net assets acquired are amortized on a straight line
basis over 40 years. Management periodically evaluates its accounting for
cost in excess of net assets acquired by considering such factors as
historical performance, current operating results and future operating
income. At each balance sheet date, the Company evaluates the
realizability of goodwill based upon expectation of nondiscounted cash
flows and operating income for each subsidiary having a material goodwill
balance. Based upon its most recent analysis, the Company believes that no
material impairment of goodwill exists at December 31, 1994. Based on this
periodic review, management believes that the carrying value of cost in
excess of net assets acquired is reasonable and the amortization period is
appropriate. Amortization expense on cost in excess of net assets acquired
for the year ended December 31, 1994 and 1993 and the ten months ended
December 31, 1992 and totaled $123,198, $92,355, and $28,468 respectively.
Other assets include payments for covenants not to compete, cash
surrender value of life insurance and deferred loan costs. The covenants not
to compete and deferred loan costs are amortized using the straight line
method over the terms of the related contracts. Amortization expense
totaled $100,014, $36,707 and $0 for the year ended December 31, 1994 and
1993 and the ten months ended December 31, 1992 respectively.
Deferred Revenue
Deferred revenue represents customer prepayments for goods and services
that the Company will deliver in the future. Upon delivery of such goods
and services, deferred revenues are recognized as revenues.
Foreign Currency Translation
The international organizations' transactions are recorded in their
functional currency. Balance sheet accounts are translated at the year end
exchange rate and the cumulative translation adjustment is included as a
separate component of shareholders' equity. Statements of operations
amounts are translated at the average monthly exchange rate. The gain or
loss on foreign exchange reflected in the statement of operations relates to
realized and unrealized gains on transactions and current account
balances between domestic and international operations.
Profit Sharing Plans
The Company has two noncontributory profit sharing retirement plans
(the "Plans"), covering a significant number of employees for which accrued
costs are funded. Company contributions to the Plans are discretionary. The
Company's contributions to both plans approximated $44,000, $81,000 and
$76,000 for the year ended December 31, 1994 and 1993 and the ten months
ended December 31, 1992, respectively.
Per Share Data
Per share amounts have been computed based on the weighted average
number of common and common share equivalents outstanding during the period
(adjusted for the April 1990 and August 1993 five for four stock splits)
using the treasury stock method.
2. STOCK OPTIONS AND WARRANTS
At December 31, 1994, 122,450 common shares of the Company were
reserved for issuance under the incentive stock option plan. 2,666,821
shares were reserved under non-statutory stock options and 250,000 shares
were reserved under outstanding warrants.
Information for the stock options is summarized as follows:
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- -----------
Incentive Stock Option Plans
- ----------------------------
Outstanding, beginning of period 139,825 375 375
Granted None 139,450 None
Canceled (17,000) None None
Exercised (375) None None
-------- --------- -------
Outstanding, end of period 122,450 139,825 375
Exercise price range of
options outstanding $10.88 $0.80 $0.80
to
$10.88
Exercise price range of options
exercised during the period $0.80 None None
Non-Statutory Stock Options
- ---------------------------
Outstanding, beginning of period 2,639,132 2,960,845 2,530,281
Granted 66,064 189,662 485,000
Canceled (38,375) (510,375) (54,436)
Exercised None (1,000) None
---------- ---------- ----------
Outstanding, end of period 2,666,821 2,639,132 2,960,845
Exercise price range of
options outstanding $0.80 $0.80 $0.80
to to to
$11.75 $11.25 $5.75
Exercise price range of options
exercised during the period None $3.20 None
to
$3.40
The Incentive Stock Options are exercisable at the fair market value on
the date of grant, and were granted from shares available for issuance from
the Company's 1993 Incentive Stock Option Plan. The options outstanding at
December 31, 1994 are exercisable through November 18, 1999.
The non-statutory options are exercisable at the fair market value on
the date of grant. The non-statutory options outstanding at December 31, 1994,
are all presently exercisable and expire at various dates through February
2000.
Warrants to purchase 250,000 shares of PAGES, Inc. common stock were
issued in May 1992 as part of the acquisition of SBF. The warrants were
issued to the SBF primary lender. The warrants are exercisable for five
years from date of issuance at $3.90 per share, market value of the
common stock at date of issuance of the warrants.
A summary of options and warrants outstanding at December 31, 1994 is as
follows:
Date Proceeds
Granted or Shares Shares Exercise To Company
Issued Reserved Exercisable Price Upon Exercise
--------------- -------- ----------- -------- -------------
Incentive Stock Options:
1993 Plan:
November 18, 1993 122,450 24,490 $10.88 $1,332,256.00
--------- --------- -------------
Non-Statutory
Stock Options:
July 19, 1985 243,423 243,423 0.88 214,212.24
March 31, 1986 281,250 281,250 0.88 247,500.00
September 14, 1987 210,938 210,938 0.80 168,750.40
October 9, 1989 399,673 399,673 1.20 479,607.60
February 6, 1990 640,625 640,625 1.12 717,500.00
February 28, 1990 210,938 210,938 1.68 354,375.84
August 27, 1990 20,500 20,500 3.40 69,700.00
May 19, 1992 266,250 266,250 3.90 1,038,375.00
June 2, 1992 131,250 131,250 4.20 551,250.00
June 15, 1992 50,000 50,000 4.50 225,000.00
August 31, 1992 12,500 12,500 5.30 66,250.00
March 25, 1993 31,250 31,250 6.10 190,625.00
March 26, 1993 3,125 3,125 6.10 19,062.50
April 1, 1993 90,910 90,910 6.60 600,006.00
April 30,1993 3,125 3,125 7.20 22,500.00
November 22, 1993 5,000 5,000 11.25 56,250.00
January 1, 1994 15,000 15,000 10.50 157,500.00
March 9, 1994 51,064 51,064 11.75 600,002.00
--------- --------- ------------
2,666,821 2,666,821 5,778,466.58
Warrants: May 19, 1992 250,000 250,000 $ 3.90 975,000.00
--------- --------- ------------
Total 3,039,271 2,941,311 $8,085,722.58
As of December 31, 1994 the Company is obligated to issue $600,000
worth of stock options prior to May 31, 1995 to the prior owner of
School Book Fairs. The option will be granted with an exercise price
at the mean between the bid and the ask price of the Company's
stock on the day of grant. The option granted February 28, 1990 for
210,938 shares expired February 28, 1995 within the terms of the
agreement.
3. STOCK SPLITS
On August 31, 1993, the Company declared a stock split effected in
the form of a 5 for 4 stock dividend payable October 15, 1993, to
stockholders of record on October 15, 1993. Accordingly, the average
number of shares outstanding, per share amounts and stock option data have
been restated for periods prior to the split. As a result of the split,
691,825 additional shares were issued, capital in excess of par value was
reduced by $6,919, and the consolidated financial statements for all
years presented have been retroactively adjusted for the stock split. For
every four common shares held by a stockholder of record, that stockholder
received an additional common share on October 15, 1993. There was no
distribution or cash payment relating to fractional shares.
4. DEBT OBLIGATIONS
Short term debt obligations consisted of the following:
1994 1993
---- ----
Line of credit with interest at prime plus
1/2 percent; interest payable monthly,
maturing on June 1, 1995 and 1994, respectively
collateralized by substantially all
assets of the Company ($111,739 available at
December 31, 1994) $5,888,261 $6,000,000
Line of credit with interest at prime plus
1/2 percent; interest payable monthly,
maturing on June 1, 1995 collaterized by
substantially all assets of the Company
($1,258,452 available at December 31, 1994) 5,741,548 -
United Kingdom $2,741,375 line of credit
with interest at base plus 2 percent
(8 1/4% at December 31, 1994),payable on
demand, collateralized by substantially all
assets of the United Kingdom operations
($781,145 available at December 31, 1994) 1,960,230 1,653,309
Note with interest at prime plus 1/2 percent;
interest payable monthly; repaid on
September 15, 1994 - 745,538
Note with interest of prime plus 1 percent;
interest payable monthly, maturing June 30, 1995 2,500,000 -
----------- -----------
$16,090,039 $ 8,398,847
Long-term debt obligations consisted of the following:
1994 1993
---- ----
Revolving loan payable with interest at prime
plus 1/2 percent; interest payable monthly,
maturing on June 1, 1996; collateralized by
substantially all assets of the Company
($1,923,217 unused at December 31, 1994) $ 7,576,783 $ -
Revolving loan payable with interest at prime
plus 1 percent; interest payable monthly,
maturing on August 3, 1994; collateralized by
substantially all assets of the Company - 11,659,201
Mortgage payable with interest at prime plus
1 1/4 percent; principal and interest payable in
monthly installments of $11,280, maturing on
March 1, 2008, collateralized by office and
warehouse facility 781,131 849,928
Second mortgage note payable with interest at
12.825 percent; principal and interest payable
in monthly installments of $5,313, maturing on
November 1, 2008, collateralized by office and
warehouse faclity 427,665 438,797
Promissory note payable with interest at 10
percent, payable in five annual installments
due through April 29, 1998 98,508 118,750
Promissory note payable with interest at 7
percent payable quarterly through August 16, 1997 138,658 -
---------- ----------
Total long-term debt obligations 9,022,745 13,066,676
Less - current maturities 144,035 2,767,233
---------- ----------
Long-term portion $ 8,878,710 $10,299,443
The prime interest rate at December 31, 1994 and 1993, was 8 1/2 percent and 6
percent respectively.
Future maturities on long-term debt as of December 31, 1994 and during the
next five years and thereafter are as follows:
1995 $ 144,035
1996 7,733,928
1997 157,529
1998 128,848
1999 112,115
Thereafter 746,290
-----------
$ 9,022,745
-----------
The maximum line amount on the revolving loan and short-term credit
are calculated, in part, based on the Company's eligible borrowing base that
includes inventory and other eligible accounts. In addition to the
limitations on borrowings imposed by the eligible borrowing base, the loan
contains maximum allowable principal balances that vary during the period of
the loan. The revolving loan and short-term credit agreements contain
certain restrictive provisions including, among others, limitation on
dividends paid on common stock to $100,000 annually and certain other
restrictions on actions which require lender pre-approval.
5. LEASE OBLIGATIONS
The Company is obligated under various noncancelable operating and
capital leases. Operating leases are principally for office and warehouse
facilities, equipment and vehicles. Rent expense under operating leases
amounted to $1,523,935 for the year ended December 31, 1994, $1,372,742 for
the year ended December 31, 1993 and $839,454 for the ten months ended
December 31, 1992. Future minimum lease payments under leases are as follows:
Year Ended
December 31, Capital Operating
- ------------ ----------- -----------
1995 $ 32,880 $1,277,954
1996 25,193 1,252,145
1997 16,565 780,340
1998 11,281 272,080
1999 1,506 207,881
Thereafter - 1,491,198
----------- -----------
87,425 $5,281,598
Less - amounts representing
interest and executory costs (12,355)
Less - current installments,
capital lease obligations (26,468)
-----------
Long-term lease obligations $ 48,602
-----------
The property and equipment under capital leases, primarily consisting of
computer, telephone, office and warehouse equipment, automobiles and cases
are recorded at December 31, 1994 as follows:
Property and equipment $ 210,651
Less - accumulated depreciation (53,126)
-----------
$ 157,525
-----------
6. INCOME TAXES
The Company is required to use Statement of Financial Accounting
Standards, No. 109 -- Accounting for Income Taxes ("SFAS 109"). Under
SFAS 109, the liability method is used in accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and are
measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Under SFAS 109, if on the basis
of available evidence, it is more likely than not that all or a portion of
the deferred tax asset will not be realized, the asset must be reduced
by a valuation allowance. Based on available evidence, a valuation
allowance has been established for an amount of the asset more likely than
not, not to be recognized.
Temporary differences between income for financial reporting purposes
and tax reporting purposes relate primarily to accounting methods for
doubtful accounts, inventory costs, accrued and prepaid expenses and
reserves, and depreciation and amortization expense.
For the periods presented, the provision for income taxes consisted of the
following:
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- -----------
Current
Federal $ - $ - $ -
State and local 18,000
----------- ----------- -----------
Net current 18,000
Deferred
Federal (76,300) 550,000 105,500
State and local (92,400)
Utilization of net operating losses 7,000
Adjustment to valuation allowance (812,400)
----------- ----------- -----------
Net deferred provision (benefit) (168,700) 550,000 (699,900)
----------- ----------- -----------
Net provision (benefit) for taxes $ (168,700) $ 568,000 $ (699,900)
----------- ----------- -----------
A reconciliation of the effective tax rates with the federal statutory tax
rate is as follows:
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- -----------
Expected tax expense (Benefit) $ (218,000) $ 537,000 $ 101,000
United Kingdom operations 95,300 - -
Goodwill amortization 29,000 29,000 12,000
State taxes net of federal benefit (92,400) 18,000 -
Reversal of valuation allowance - - (812,400)
Other 17,400 (16,000) (500)
----------- ----------- ------------
Total provision (benefit) for
income taxes $ (168,700) $ 568,000 $ (699,900)
The components of net deferred tax assets as of December 31, 1994 and 1993,
are as follows:
December 31, December 31,
1994 1993
----------- -----------
Assets
Provision for doubtful accounts $ 114,900 $ 15,300
Inventory costs capitalized for
tax purposes 736,300 510,600
Accruals and reserves to be expensed
as paid for tax purposes 819,950 638,500
Other 9,300 9,300
Net operating loss carryforwards 2,162,300 1,932,300
Investment tax credit carryforwards 122,000 122,000
Losses on foreign currency
translation 217,500 229,500
----------- -----------
4,182,250 3,457,500
Less valuation allowance (416,650) -
----------- -----------
Deferred tax asset, net of
valuation allowance 3,765,600 3,457,500
----------- -----------
Liabilities:
Costs deducted as paid for tax purposes (718,300) (900,700)
Excess of tax over financial accounting (927,900) (618,100)
depreciation and amortization
----------- -----------
(1,646,200) (1,518,800)
Net deferred tax asset $2,119,400 $1,938,700
----------- -----------
Current portion $1,966,200 $1,782,700
Noncurrent portion 153,200 156,000
----------- -----------
Net deferred tax asset $2,119,400 $1,938,700
----------- -----------
At December 31, 1994, operating loss carryforwards of
approximately $6,100,000 are available to offset future taxable income and
will expire during the years 1997 through 2010. Investment tax credit
carryforwards will expire in 1997 and 1998.
7. SCHOOL BOOK FAIRS, INC. AND AFFILIATES (SBF) ACQUISITION
Acquisition
Effective with the close of business on May 19, 1992, PAGES, Inc.
acquired all the outstanding stock of SBF, doing business as School Book
Fairs, for $8,841,000. This included the issuance of 35,000 shares of PAGES,
Inc. common stock. The business combination has been accounted for as a
purchase and accordingly the aggregate purchase price of $8,841,000 has been
assigned as follows:
Cash $ 2,262,000
Accounts receivable 3,855,000
Inventories 10,364,000
Prepaid expenses and other assets 3,074,000
Property and equipment 4,793,000
Accounts payable and accrued liabilities (10,501,000)
Debt (5,006,000)
-----------
$ 8,841,000
The unaudited pro forma combined statements of operations of PAGES,
Inc. and subsidiaries and School Book Fairs, Inc. and affiliates for the ten
months ended December 31, 1992 account for the acquistion of School Bookl
Fairs, Inc. and affiliates as if it had occurred on March 1, 1992. The pro
forma results include the historical results of the combined entities
adjusted for occupancy costs, a reduction in depreciation expense, and a
reduction of interest expense relating to the cancellation of indebtedness in
connection with the acquisition.
The business combination included cancellation of indebtedness of
$11,031,000 (as part of the acquisition, PAGES, Inc. acquired $19,131,000 of
SBF's indebtedness directly from SBF's primary lender for $8,100,000).
The corporate headquarters property with an undepreciated historical cost
of $11,774,000 was deeded back to the lender in lieu of foreclosure for payment
of the related $10,661,000 of debt obligations. Additionally, SBF Services,
Inc. continued to occupy the premises on a month-to-month basis and
subsequently moved to a different location at a more favorable occupancy rate.
On a pro forma basis, occupancy costs increased as a result of a
provision for rent, which was approximately offset by an elimination of real
estate taxes. The depreciation expense reduction reflects the exclusion of
the depreciation on the building deeded back to the lender. The reduction
in interest expense reflects the elimination of interest expense related
to debt obligations associated with the property deeded back to the lender
and a reduction of interest expense on debt obligations that were
cancelled as part of the acquisition.
The operations of School Book Fairs, Inc., and affiliates and the
combined pro forma statements of operations for the ten months ended December
31, 1992, include expenses associated with School Book Fairs, Inc., and
affiliate's change in ownership, change in management, and change in
direction; the resulting re-valuation of related assets and recognition of
related liabilities (all prior to School Book Fairs, Inc., and affiliates
becoming a wholly owned subsidiary of PAGES, Inc.). Additionally, no income
has been recognized in the pro forma statement of operations in connection
with the $11,031,000 cancellation of indebtedness that occurred in connection
with the change in ownership. Major expenses associated with change in
ownership, management, and direction reflected in the ten months ended
December 31, 1992, statement of operations of School Book Fairs, Inc., and
affiliates and also included in the pro forma operating statement are
summarized as follows:
Loss on disposition of real estate
(deed in lieu of foreclosure) $ 1,113,000
Abandonment of property, equipment
and related improvements due to
obsolescence and excess capacity 1,936,000
Write down of inventory to net
realizable values 1,188,000
Write off of goodwill and related
costs with a previously acquired
product line 752,000
-----------
$ 4,989,000
Pro forma operating results reflect a statutory tax rate of 34%. The
pro forma weighted average common and common equivalent shares assumes all
shares, options, and warrants issued or granted in connection with the
acquisition were outstanding at the beginning of the periods. However, common
equivalent shares are anti-dilutive for all periods presented.
Pro forma information does not purport to be indicative of the results
that would have been obtained if the combined operations actually had been
conducted during the periods presented and is not intended to be a projection
of future results.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Ten months ended December 31, 1992
<TABLE>
PAGES, Inc., and School Book Fairs, PAGES, Inc. and
Subsidiaries Inc. and Affiliates Subsidiaries
March 1, 1992 to March 1, 1992 to Pro Forma Pro Forma
December 31, 1992 May 19, 1992 Adjustments December 31, 1992
<S> <C> <C> <C> <C>
Revenues $ 44,506,901 $ 13,757,711 $ 58,264,612
------------ ------------ ----------- ------------
Cost and Expenses:
Cost of goods sold 26,442,661 9,792,177 36,234,838
Selling, general and administrative 15,967,028 12,108,860 $ 9,064 28,084,952
Interest 864,027 483,328 (338,865) 1,008,490
Depreciation and amortization 850,452 1,176,730 (76,613) 1,950,569
Foreign exchange 84,830 68,661 153,491
------------ ------------ ----------- ------------
44,208,998 23,629,756 (406,414) 67,432,340
------------ ------------ ----------- ------------
Income (loss) before taxes 297,903 (9,872,045) 406,414 (9,167,728)
(Provision) benefit for income taxes 699,900 3,356,495 (939,367) 3,117,028
------------ ------------ ----------- ------------
Net income (loss) $997,803 $(6,515,550) $(532,953) $ (6,050,700)
------------ ------------ ----------- ------------
</TABLE>
During June 1993, the Company recorded a $2 million adjustment to its
purchase price allocation of SBF assets, increasing the cost in excess of net
assets acquired (i.e., goodwill), and recorded corresponding increases in
accrued tax liabilities and related costs (refer to footnote 12).
8. CHILDREN'S LITERATURE ACQUISITIONS
During 1994 and 1993, the children's literature business acquired
several small operations involved in the publishing and distribution of
children's literature. These acquisitions were accounted for using the
purchase method of accounting. The aggregate cost of these acquisitions
approximated $2,870,000 in 1994 and $1,725,000 in 1993 and was allocated to
the net assets acquired based upon their fair value. The Company paid cash
of $2,720,000 and $150,000 in a promissory note for the 1994
acquisitions. In connection with the 1993 acquisitions and in partial
payment of the purchase price, the Company issued 109,243 shares of common
stock with a market value of $1,037,537 at date of issuance. The balance
was paid in $568,750 cash and a $118,750 promissory note. In connection with
the aforementioned acquisitions, costs assigned to cost in excess of net
assets acquired approximated $2,185,000 and $649,000 in 1994 and 1993,
respectively.
9. SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION
Cash paid for interest during the years ended December 31, 1994 and
1993 and the ten months ended December 31, 1992 aggregated $1,654,755,
$1,284,564 and $621,469 and cash paid for taxes was $18,000, $3,698 and
$40,997 respectively.
In connection with the 1993 children's literature business segment
acquisitions, the Company issued 109,243 shares of common stock with a
market value of $1,037,537 at date of issuance.
In connection with the May 19, 1992 purchase of SBF, the Company
issued 35,000 shares of common stock with a market value of $271,250 at
date of issuance.
During the year ended December 31, 1994, the Company acquired $9,227
in office equipment through capital leases. The Company acquired $292,080
in equipment in the ten month period ended December 31, 1992, through
short-term financing and capital leases.
10. SEGMENT REPORTING
Subsequent to the acquisition of SBF on May 19, 1992, the Company
operates principally in two lines of business: children's
literature and incentive/recognition awards. The children's literature
operation creates and distributes books, posters, audio/video products and
related merchandise. The Company's markets for children's literature include
elementary and junior high school fund raising events and product lines
marketed directly to schools and libraries throughout the United States,
Canada, the United Kingdom and Ireland. Operations in the
incentive/recognition awards business consists of the design, implementation
and fulfillment of incentive awards and recognition programs for businesses
throughout the United States.
Operating profit is total sales less operating expenses. In computing
operating profit, none of the following items have been added or deducted:
general corporate expenses, interest expense, interest income or income taxes.
PAGES INC. AND SUBSIDIARIES
INFORMATION ABOUT THE COMPANY'S OPERATIONS BY BUSINESS SEGMENTS
<TABLE>
INCENTIVE/
RECOGNITION CHILDRENS
AWARDS LITERATURE ELIMINATIONS CONSOLIDATED
Year Ended December 31, 1994
<S> <C> <C> <C> <C>
Revenues $25,157,704 $53,697,824(c) $ 212,601 $79,068,129
----------- ----------- ----------- -----------
Operating profit $ 532,922 $ 1,317,774(c) $ 212,601 $ 2,063,297
----------- ----------- ----------- -----------
Interest Expense $(1,704,897)
General Corporate Expenses $ (999,532)
-----------
Income/(loss) before Taxes $ (641,132)
-----------
Segment Depreciation &
Amortization $ 282,642 $ 1,139,172 $ 1,421,814
----------- ----------- ----------- -----------
Segment Capital Expenditures $ 277,779 $ 576,617 $ 854,396
----------- ----------- ----------- -----------
Identifiable Assets at
December 31, 1994 $25,267,281 $39,876,825 $65,144,106
----------- ----------- -----------
Corporate Assets $ 2,590,460
-----------
Assets at December 31, 1994 $67,734,566
-----------
Year Ended December 31, 1993
Revenues $29,700,082 $46,862,582 $ $76,562,664
----------- ----------- ----------- -----------
Operating profit $ 1,992,713 $ 1,939,378 $ $ 3,932,091
----------- ----------- ----------- -----------
Interest Expense (1,280,761)
General Corporate Expenses (1,072,810)
-----------
Income before Taxes $ 1,578,520
-----------
Segment Depreciation &
Amortization $ 264,966 $ 1,044,492 $ 1,309,458
----------- ----------- ----------- -----------
Segment Capital Expenditures $ 814,363 $ 651,457 $ 1,465,820
----------- ----------- ----------- -----------
Identifiable Assets at
December 31, 1993 $24,926,327 $26,575,713 $51,502,040
----------- ----------- -----------
Corporate assets $ 2,258,671
-----------
Assets at December 31, 1993 $53,760,711
-----------
Year Ended December 31, 1992
Revenues $18,466,443(a) $26,040,458(b) $ $44,506,901
----------- ----------- ----------- -----------
Operating profit $ 1,103,240(a) $ 715,866(b) $ $ 1,819,106
----------- ----------- ----------- -----------
Interest expense (864,027)
General Corporate Expenses (657,176)
-----------
Income before Taxes $ 297,903
-----------
Segment Depreciation &
Amortization $ 166,532(a) $ 683,920(b) $ 850,452
----------- ----------- ----------- -----------
Segment Capital Expenditures $ 89,533(a) $ 581,056(b) $ 670,589
----------- ----------- ----------- -----------
Identifiable Assets at
December 31, 1992 $17,634,161 $24,277,965 $41,912,126
----------- ----------- -----------
Corporate Assets $ 2,722,255
-----------
Assets at December 31, 1992 $44,634,381
-----------
</TABLE>
(a) Represents the period from March 1,1992 to December 31, 1992 for
incentive/recognition awards.
(b) Represents the period from May 20, 1992 to December 31, 1992 for
children's literature.
(c) Principally gain on sale of assets held for disposition and rental
income.
PAGES, INC. AND SUBSIDIARIES
INFORMATION ABOUT THE COMPANY'S OPERATIONS BY GEOGRAPHIC AREAS
<TABLE>
UNITED
STATES INTERNATIONAL ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- -----------
Year Ended December 31, 1994
<S> <C> <C> <C> <C>
Revenues $63,488,653 $15,579,476 $ $79,068,129
----------- ----------- ----------- -----------
Operating Profit $ 2,131,026 $ (67,729) $ $ 2,063,297
----------- ----------- ----------- -----------
Interest Expense $(1,704,897)
General Corporate Expenses $ (999,532)
-----------
Income/(loss) Before Taxes $ (641,132)
-----------
Assets at December 31, 1994 $57,206,921 $10,527,645 $67,734,566
----------- ----------- ----------- -----------
Year Ended December 31, 1993
Revenues $60,963,325 $15,599,339 $ $76,562,664
----------- ----------- ----------- -----------
Operating Profit $ 3,588,532 $ 343,559 $ $ 3,932,091
----------- ----------- ----------- -----------
Interest Expense (1,280,761)
General Corporate Expenses (1,072,810)
-----------
Income Before Taxes $ 1,578,520
-----------
Assets at December 31, 1993 $43,550,678 $10,210,033 $53,760,711
----------- ----------- ----------- -----------
Ten Months Ended December
31, 1992
Revenues $33,552,043 $10,954,858 $ $44,506,901
----------- ----------- ----------- -----------
Operating Profit $ 1,141,148 $ 677,958 $ $ 1,819,106
----------- ----------- ----------- -----------
Interest Expense (864,027)
General Corporate Expenses (657,176)
-----------
Income Before Taxes $ 297,903
-----------
Assets at December 31, 1992 $35,720,397 $ 8,913,984 $44,634,381
----------- ----------- ----------- -----------
</TABLE>
11. INTERIM FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
Twelve Months Ended December 31, 1994
--------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 Sept 30 Dec 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $19,370,192 $15,899,769 $11,435,410 $32,362,758
Gross Profit 8,113,301 6,636,285 4,056,311 13,415,235
Income (loss) before income taxes 339,243 (731,561) (3,255,089) 3,006,275
Net income (loss) 211,243 (458,561) (2,087,089) 1,861,975
Net income (loss) per share: $ 0.04 $ (0.13) $ (0.50) $ 0.28
----------- ----------- ----------- -----------
Weighted average common shares 5,831,000 3,531,000 4,160,000 6,592,000
and equivalents
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
Twelve Months Ended December 31, 1993
--------------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 Sept 30 Dec 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $17,585,185 $15,029,265 $11,108,858 $32,839,356
Gross Profit 7,157,224 6,046,775 3,510,780 13,511,935
Income (loss) before income taxes 190,389 (888,195) (3,377,732) 5,654,058
Net income (loss) 121,946 (583,195) (2,229,732) 3,701,501
Net income (loss) per share: $ 0.02 $ (0.18) $ (0.55) $ 0.64
----------- ----------- ----------- -----------
Weighted average common
shares and equivalents 5,754,000 3,201,000 4,020,000 5,757,000
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
Ten Months Ended December 31, 1992
--------------------------------------------------------
One Month
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
May 31 Aug 31 Nov 30 Dec 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 4,472,318 $ 5,294,105 $24,948,459 $ 9,792,019
Gross profit 1,694,015 1,787,464 10,572,509 4,010,252
Income (loss) before income taxes (662,521) (4,423,259) 3,168,438 2,215,245
Net income (loss) (462,521) (2,923,259) 2,118,438 2,265,145
Net income (loss) per share: $ (0.15) $ (0.94) $ 0.40 $ 0.39
----------- ----------- ----------- -----------
Weighted average common
shares and equivalents 3,116,000 3,116,000 5,685,000 5,733,000
----------- ----------- ----------- -----------
</TABLE>
Per share calculations are based on the average number of shares and
dilutive share equivalents outstanding for each quarter using the treasury
stock method. Thus, the sum of the quarters may not necessarily be equal to
the full year's earnings per share amounts.
12. COMMITMENTS AND CONTINGENCIES
During February 1995, a class action was filed on behalf of all persons
who sold common stock during a seven day period in January 1995, against the
Company and three of its officers and directors, alleging that those defendants
violated Section 10(b) of the Securities and Exchange Act of 1034 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 seven day period in January 1995. The action seeks class
certification, a judgment declaring the conduct to be in violation of the law
and an award of unspecified damages. The action is in its early stages and
no discovery has been taken, accordinly, it is not possible to currently
estimate a range of loss if any. The Company and the other defendants deny
any wrongdoing and intend to vigorously defend the action.
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 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.
In 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 become a final assessment and the assessment is
ultimately sustained, it could generate a tax liability of as much as
approximately $5.2 million, exclusive of interest and penalties. The Company
believes the IRS' position regarding the proposed 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 proposed adjustments, including
litigation, if necessary. The Company is unable to determine the ultimate
outcome of this uncertainty and accordingly, has not provided for any
additional amounts in excess of the $2 million relating to this proposed
assessment in its fiscal 1994 financial statements.
Additionally, the Company is the subject of a state sales tax audit for
one of its subsidiaries. Management believes the outcome of this audit will
not result in any significant adjustments that would be material to the
Company's financial statement. Additionally, the Company is subject to
litigation which is incidental to its business and is not considered material
individually or in the aggregate to the Company's financial statement.
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
PAGES, INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------------------------------------------------------------------------------------
Additions Additions
Balance Charged Charged Balance
at Beginning to Costs to Other at End
Description of Period and Expenses Accts. Deductions of Period
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $ 45,028 $ 148,230 $ 25,258(b) $ 168,000
----------- ----------- ----------- ----------- -----------
Allowance for valuation on
deferred tax assets $ $ 416,650(e) $ 416,650
----------- ----------- ----------- ----------- -----------
Allowance for loss on assets
held for disposition $ 398,983 $ 128,145(f) $ 270,838
----------- ----------- ----------- ----------- -----------
Year ended December 31, 1993:
Allowance for doubtful accounts $ 74,112 $ 29,926 $ 59,010(b) $ 45,028
----------- ----------- ----------- ----------- -----------
Allowance for loss on assets
held for disposition $ 521,857 $ 122,874(f) $ 398,983
----------- ----------- ----------- ----------- -----------
Year ended December 31, 1992:
Allowance for doubtful accounts $ 40,000 $ 1,384 $ 57,013(a) $ 24,285(b) $ 74,112
----------- ----------- ----------- ----------- -----------
Allowance for loss on assets
held for disposition $ 115,204 $ 609,995(a) $ 203,342(f) $ 521,857
----------- ----------- ----------- ----------- -----------
Allowance for valuation on
deferred tax assets $ 812,400 $ 812,400(d)
----------- ----------- ----------- ----------- -----------
</TABLE>
(a) Acquisition of School Book Fairs, Inc. and affiliates.
(b) Doubtful accounts written off against reserve.
(c) Asset written off against reserve.
(d) Change in valuation allowance relating to change in assessment as to
future realizability of deferred tax asset.
(e) Principally relates to a reclass of amounts previously netted against
the asset.
(f) Amounts charged against the reserve.
EXHIBIT INDEX
PAGES, INC. FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1994
(a) 1. Financial Statements. See Index to Financial Statements and
Financial Schedules on page 38.
2. Financial Statement Schedules. See Index to Financial
Statements and Financial Statement Schedules on Page 38.
3. Exhibits. The following exhibits are required to be filed
as part of this report:
3(a) Certificate of Incorporation dated October 5, 1994
3(b) Bylaws of the Company
3(c)1 Agreement of merger
10(a)5 $25,000,000 Amended and Restated Loan Agreement.
10(b)2 Stock Purchase Agreement Dated May 16, 1992, for the Purchase of
Stock of SBF Services, Inc. and affiliated entities
10(c)3 Lease Dated January 1, 1993, for St. Petersburg, Florida, Office
and Warehouse
10(d)4 Unconditional Guaranty of Lease Effective January 1, 1993, for Lease
of St. Petersburg, Florida, Office and Warehouse
10(e)4 Lease Dated August 26, 1991, for Columbus, Ohio, Office and Warehouse
10(f)4 Lease Dated July 13, 1987, for Christchurch, England, Office and
Warehouse
10(g)4 Lease Dated January 1, 1989, for Scarborough, Ontario, Canada,
Office and Warehouse
*10(h)4 Non-Qualified Stock Option Agreement Dated July 19, 1985, between
the company and Richard A. Stimmel, S. Robert Davis, and Charles R.
Davis
*10(i)4 Non-Statutory Stock Option Agreement Dated March 31, 1986, between
the company and Richard A. Stimmel
*10(j)4 Non-Statutory Stock Option Agreement Dated March 31, 1986, between
the Company and Charles R. Davis
*10(k)4 Non-Statutory Stock Option Agreement Dated September 14, 1987,
between the Company and Richard A. Stimmel
*10(l)4 Non-Statutory Stock Option Agreement Dated September 14, 1987,
between the Company and S. Robert Davis
*10(m)4 Non-Statutory Stock Option Agreement Dated September 14, 1987,
between the Company and Charles R. Davis
*10(n)4 Non-Statutory Stock Option Agreement Dated October 9, 1989, between
the Company and Richard A. Stimmel
*10(o)4 Non-Statutory Stock Option Agreement Dated October 9, 1989, between
the Company and S. Robert Davis
*10(p)4 Non-Statutory Stock Option Agreement Dated October 9, 1989, between
the Company and Charles R. Davis
*10(q)4 Non-Statutory Stock Option Agreement Dated February 6, 1990, between
the Company and Richard A. Stimmel
*10(r)4 Non-Statutory Stock Option Agreement Dated February 6, 1990, between
the Company and S. Robert Davis
*10(s)4 Non-Statutory Stock Option Agreement Dated February 6, 1990, between
the Company and Charles R. Davis
*10(t)3 Non-Statutory Stock Option Agreement Dated May 19, 1992, between the
Company and Randall J. Asmo
*10(u)3 Non-Statutory Stock Option Agreement Dated May 19, 1992, between the
Company and John C. Sontheimer
*10(v)3 Non-Statutory Stock Option Agreement Dated June 3, 1992, between the
Company and S. Robert Davis
*10(w)3 Non-Statutory Stock Option Agreement Dated June 3, 1992, between the
Company and Charles R. Davis
*10(x)3 Non-Statutory Stock Option Agreement Dated June 3, 1992, between the
Company and Richard A. Stimmel
*10(y)4 Non-Statutory Stock Option Agreement Dated March 25, 1993, between
the Company and Richard B. Erven
*10(z)3 PAGES, Inc. 1993 Incentive Stock Option Plan
*10(bb)3 Letter Agreement Dated June 19, 1992, between School Book Fairs,
Inc. and John C. Sontheimer
*10(dd)3 Share Purchase Agreement Dated March 5, 1993, between the Company
and Richard B. Erven
11 Statement Regarding Computation of Per Share Earnings
21 Subsidiaries of the Company
23(a) Consent of Hausser & Taylor
23(b) Consent of Arthur Andersen
23(c) Consent of Deloitte & Touche LLP
____________________
1 Incorporated by reference to the Company's Proxy Statement dated August
4, 1994, File Number 0-10475, Filed in Washington, D.C.
2 Incorporated by reference to the Company's Current Report on Form 8-K
dated May 19, 1992, File Number 0-10475, Filed in Washington, D.C.
3 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, File Number 0-10475, filed in
Washington, D.C.
4 Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, File Number 0-10475, filed in
Washington, D.C.
5 Incorporated by reference to the Company's 10Q for the quarter ended June
30, 1994, File Number 0-10475, filed in Washington, D.C.
* Indicates a management contract or compensatory plan or arrangement
required to be filed herewith. No other exhibits required by Form 10-K
are listed as they are not applicable.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated November 2, 1994 and
a report on Form 8-K/A dated November 15, 1994.
AVAILABILITY OF EXHIBITS TO FORM 10-K/A
Exhibits to Form 10-K/A Report are on file with the Securities and Exchange
Commission and are referenced on the Exhibit Index contained hereinabove.
Exhibits are available upon request, at $0.25 per page, representing the
Registrants reasonable expenses in furnishing such exhibit(s). Exhibits may
be obtained by writing to Charles R. Davis, Secretary, PAGES, Inc.
EXHIBIT II
PAGES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
-----------------------------------------
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
1994 1993 1992
----------- ----------- -----------
Primary
Weighted average number of
common shares outstanding 4,055,000 3,214,000 3,151,000
Adjustment of stock options
which have a dilutive effect
based upon the average market
price per common stock:
Add dilutive stock options - 3,178,000 3,025,000
Deduct shares that could be
repurchased from the proceeds
of dilutive options - (635,000) (630,000)
----------- ----------- -----------
Weighted average common and
common equivalent shares 4,055,000 5,757,000 5,546,000
----------- ----------- -----------
Net income/(loss) $ (472,432) $ 1,010,520 $ 997,803
Earnings adjustment (20% rule) - 41,000 86,000
----------- ----------- -----------
Net income/(loss) for
computation purposes $ (472,432) $ 1,051,520 $ 1,083,803
----------- ----------- -----------
Earnings/(loss) per common and
common equivalent share $ (0.12) $ 0.18 $ 0.19
----------- ----------- -----------
Fully Diluted:
Weighted average number of
common shares outstanding 4,055,000 3,214,000 3,151,000
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 - 3,178,000 3,211,000
Deduct shares that could be
repurchased from the proceeds
of the dilutive options - (616,000) (630,000)
----------- ----------- -----------
Fully diluted shares 4,055,000 5,776,000 5,732,000
----------- ----------- -----------
Net income/(loss) $ (472,432) $ 1,010,520 $ 997,803
Earnings adjustment (20% rule) - - 88,000
----------- ----------- -----------
Net income/(loss) for
computation purposes $ (472,432) $ 1,010,520 $ 1,085,803
----------- ----------- -----------
Earnings/(loss) per common
and common equivalent share
assuming full dilution $ (0.12) $ 0.18 $ 0.19
----------- ----------- -----------
EXHIBIT 21
SUBSIDIARIES OF
PAGES, INC.
State of Percent of Stock
Name of Subsidiary Incorporation Owned by Registrant
- ----------------------------- -------------- -------------------
CLYDE A. SHORT COMPANY, INC North Carolina 100%
CRAFTMARK, INC. Ohio 100%
SCHOOL BOOK FAIRS, INC. Florida 100%
GREAT BRITISH BOOK FAIRS, INC. Florida 100%
SCHOOL BOOK FAIRS, LTD. United Kingdom 100%
CREATIVE MEDIA APPLICATIONS, INC. New York 100%
JDRV, INC. Delaware 100%
PAGES LIBRARY SERVICES, INC. Florida 100%
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
72294 of PAGES, Inc. on Form S-8 of our report dated March 29, 1995 (which
includes an explanatory paragraph referring to an uncertainty concerning a
potential income tax assessment by the Internal Revenue Service), appearing in
the Annual Report on Form 10-K/A of PAGES, Inc. for the year ended December 31,
1994.
/s/ Deloitte & Touche LLP
---------------------
Tampa, Florida
February 22, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated March 25, 1994, on our audits of
the consolidated financial statements of Pages, Inc. and Subsidiaries as of
December 31, 1993 and for the year ended December 31, 1993 and for the ten
months ended December 31, 1992 which report is included in the amended Annual
Report on Form 10-K/A.
/s/ Hausser + Taylor
----------------
HAUSSER + TAYLOR
Columbus, Ohio
January 22, 1996
To the Board of Directors of Pages, Inc.
As independent chartered accountants we hereby consent to the inclusion of our
report dated 23 March 1994 on our audit of the combined financial statements of
Great British Book Fairs, Inc., and School Book Fairs Limited for the year ended
31 December 1993 and the period from 20 May 1992 to 31 December 1992 which were
consolidated into the financial statements of Pages, Inc., which report is
included in this Annual Report on Form 10-K/A.
/s/ Arthur Andersen
---------------
Arthur Andersen
Chartered Accountants
1 Surrey Street
London
WC2R 2PS
6 February 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 671,602
<SECURITIES> 0
<RECEIVABLES> 14,133,086
<ALLOWANCES> 168,000
<INVENTORY> 33,014,774
<CURRENT-ASSETS> 53,011,874
<PP&E> 9,226,971
<DEPRECIATION> 3,014,424
<TOTAL-ASSETS> 67,734,566
<CURRENT-LIABILITIES> 39,214,590
<BONDS> 8,927,312
0
0
<COMMON> 50,879
<OTHER-SE> 19,541,785
<TOTAL-LIABILITY-AND-EQUITY> 67,734,566
<SALES> 79,068,129
<TOTAL-REVENUES> 79,068,129
<CGS> 46,846,997
<TOTAL-COSTS> 46,846,997
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,704,897
<INCOME-PRETAX> (641,132)
<INCOME-TAX> (168,700)
<INCOME-CONTINUING> (472,432)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (472,432)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
