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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended June 30, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ______________ to ______________
Commission File Number 1-14084
BIG FLOWER PRESS HOLDINGS, INC.
(FORMERLY KNOWN AS BFP HOLDINGS CORP.)
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-376-8322
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
3 East 54th Street
New York, New York 10022
(212)521-1600
(Address, including zip code, and telephone number, including
area code, of Registrant's Principle Executive Offices)
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 ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: As of July 31, 1996, there were
14,715,745 shares of the Registrant's Common Stock, par value $0.01 per share,
and 1,738,692 shares of the Registrant's Class B Common Stock, par value $0.01
per share, outstanding.
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PART I - FINANCIAL INFORMATION
THIS QUARTERLY REPORT ON FORM 10-Q (THE "REPORT") CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933.
DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AS WELL AS WITHIN THIS REPORT GENERALLY. IN ADDITION, WHEN USED IN
THIS REPORT, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS
IN THE FUTURE COULD DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-
LOOKING STATEMENTS AS A RESULT OF FLUCTUATIONS IN THE COST OF PAPER AND OTHER
RAW MATERIALS USED BY THE COMPANY, CHANGES IN THE ADVERTISING AND PRINTING
MARKETS, THE FINANCIAL CONDITION OF THE COMPANY'S CUSTOMERS, THE GENERAL
CONDITION OF THE UNITED STATES ECONOMY, AND THE MATTERS SET FORTH IN THE REPORT
GENERALLY. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE
MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1996 1995
--------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,538 $ 4,598
Accounts receivable, net 35,136 131,411
Inventories 29,630 41,797
Prepaid expenses 5,833 5,194
Income tax receivable and
deferred income taxes 30,767 22,623
--------------- ---------------
Total current assets 103,904 205,623
PROPERTY, PLANT AND EQUIPMENT, NET 234,092 137,838
OTHER ASSETS, NET 52,050 22,147
INTANGIBLES, NET 260,669 188,480
--------------- ---------------
TOTAL $ 650,715 $ 554,088
--------------- ---------------
--------------- ---------------
See the accompanying notes to the condensed consolidated financial statements.
(Continued)
2
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PART I - FINANCIAL INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ - $ 18,119
Current portion of long-term debt 1,550 3,335
Accounts payable 90,629 105,915
Compensation and benefits payable 30,410 18,344
Other current liabilities 29,113 33,687
------------- -------------
Total current liabilities 151,702 179,400
REVOLVING CREDIT FACILITY 183,124 144,500
LONG-TERM DEBT, Net of current portion 199,960 125,942
DEFERRED INCOME TAXES 20,662 14,934
OTHER LONG-TERM LIABILITIES 17,044 10,370
------------- -------------
Total liabilities 572,492 475,146
------------- -------------
COMMON STOCK SUBJECT TO REDEMPTION 1,064 1,011
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock 160 157
Additional paid-in-capital 105,337 100,892
Accumulated deficit (27,044) (21,680)
Subscription notes receivable (260) (263)
Unearned compensation (1,034) (1,175)
------------- -------------
Total stockholders' equity $ 77,159 $ 77,931
------------- -------------
TOTAL $ 650,715 $ 554,088
------------- -------------
------------- -------------
See the accompanying notes to the condensed consolidated financial statements.
(Concluded)
3
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PART I - FINANCIAL INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
QUARTER ENDED QUARTER ENDED
JUNE 30, JUNE 30,
1996 1995
------------- -------------
NET SALES $ 293,202 $ 233,372
COSTS OF PRODUCTION 250,525 200,867
------------ --------------
GROSS PROFIT 42,677 32,505
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 28,077 19,287
INTEREST EXPENSE 9,568 10,154
INTEREST INCOME (27) (27)
OTHER EXPENSE, NET 1,955 1,818
PREFERRED DIVIDENDS OF A SUBSIDIARY - 672
------------ --------------
INCOME BEFORE INCOME TAXES 3,104 601
PROVISION FOR INCOME TAXES 1,552 2,919
------------ --------------
NET INCOME/(LOSS) $ 1,552 $ (2,318)
------------ --------------
------------ --------------
Net income/(loss) per common
and common share equivalent $0.09 ($0.22)
Weighted average shares outstanding 16,921,579 10,763,416
See the accompanying notes to the condensed consolidated financial statements.
4
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PART I - FINANCIAL INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
6 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
-------------- -------------
NET SALES $ 514,580 $ 440,068
COSTS OF PRODUCTION 447,879 379,569
-------------- -------------
GROSS PROFIT 66,701 60,499
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 48,274 37,393
INTEREST EXPENSE 17,748 20,646
INTEREST INCOME (106) (236)
OTHER EXPENSE, NET 7,730 2,260
PREFERRED DIVIDENDS OF A SUBSIDIARY - 1,278
-------------- -------------
LOSS BEFORE INCOME TAXES (6,945) (842)
(BENEFIT)/PROVISION FOR INCOME TAXES (3,473) 3,247
-------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM (3,472) (4,089)
EXTRAORDINARY ITEM, NET 1,892
-------------- -------------
NET LOSS $ (5,364) $ (4,089)
-------------- -------------
-------------- -------------
Loss per common and common share equivalent
before extraordinary item ($0.21) ($0.38)
Extraordinary item - early
extinguishment of debt ($0.11) -
Net loss per common
and common share equivalent ($0.32) ($0.38)
Weighted average shares outstanding 16,680,400 10,790,160
See the accompanying notes to the condensed consolidated financial statements.
5
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PART I - FINANCIAL INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
6 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,364) $ (4,089)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for doubtful accounts - 758
Depreciation and amortization 22,480 20,825
Amortization of deferred financing costs 1,473 1,738
Preferred dividends of a subsidiary - 1,278
Loss on sale of A/R 2,545 -
Loss on disposition of property,
plant and equipment 307 374
Extraordinary item 1,892 -
Changes in operating assets and liabilities:
Accounts receivable 18,742 15,417
Proceeds from sale of A/R 91,567 -
Inventories 21,763 (19,317)
Prepaid expenses 642 2,768
Other assets 3,162 (605)
Deferred income taxes and
income taxes receivable (2,468) (5,351)
Accounts payable, compensation and benefits
payable and other liabilities (49,026) 29,082
Deferred interest 65 4,060
------------ ------------
Net cash provided by operating activities 107,780 46,938
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (21,321) (3,417)
Proceeds from sales of property,
plant and equipment 428 869
Acquisition of Webcraft net (76,710)
Acquisition of Laser Tech (1,060)
------------ ------------
Net cash used in investing activities (98,663) (2,548)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of long-term debt (98,614) (2,848)
Payment of notes payable (16,489)
Borrowing of long-term debt 75,000 120
Deferred financing costs (1,313) 150
Net increase in revolving credit facility 38,624 (23,577)
Proceeds from issuance of common stock 24 424
Repurchase of common stock - (522)
Decrease in cash overdraft (8,409) (19,114)
------------ ------------
Net cash used in financing activities (11,177) (45,367)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,060) (977)
CASH AND CASH EQUIVALENTS, BEGINNING 4,598 2,372
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 2,538 $ 1,395
------------ ------------
------------ ------------
See the accompanying notes to the condensed consolidated financial statements.
6
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BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The unaudited interim consolidated financial statements of Big Flower Press
Holdings, Inc. (the "Company" or "Big Flower") and its subsidiaries, including
for periods prior to November 22, 1995, Big Flower Press, Inc. ("BFP") which was
merged with and into the Company on such date, Treasure Chest Advertising
Company, Inc. ("Treasure Chest"), Laser Tech Color, Inc. ("Laser Tech") and
Webcraft Technologies Inc. ("Webcraft") have been prepared on the basis of
generally accepted accounting principles and, in the opinion of management,
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation for the periods presented. On March 21, 1996 the Company
changed its fiscal year from the twelve months ended June 30 to the calendar
year ended December 31. Prior period results presented in this Report reflect
this change. The results of operations and cash flows for the interim
periods presented are not necessarily indicative of results for the full year.
2. ACQUISITIONS
The Company and BFP and its wholly owned subsidiary, TCA Merger Corp.
("Merger Corp.") were organized to effect the acquisition of Treasure Chest
(the "TCA Acquisition"). On August 12, 1993, the Company acquired Treasure
Chest. Treasure Chest is a leading producer and marketer of advertising
circulars for many large United States retailers and publishes TV listing
guides, Sunday comics, Sunday magazines and/or special supplements for many
widely circulated United States newspapers. The TCA Acquisition was effected
pursuant to (a) an Agreement and Plan of Merger dated as of May 10, 1993 by
and among certain stockholders of Treasure Chest, BFP and Merger Corp. and
(b) a Stock Purchase Agreement, dated as of July 15, 1993, by and among BFP,
Treasure Chest and the Treasure Chest Advertising Company, Inc. Employee
Stock Ownership Trust (the "ESOT"). In connection with the TCA Acquisition,
Treasure Chest purchased certain other assets which were used by Treasure
Chest in the operation of its business, from certain former stockholders and
their affiliates, and BFP entered into a non-compete agreement (the
"Non-Compete Agreement") with the founders and former principal owners of
Treasure Chest. Prior to the TCA Acquisition, the Company, BFP and Merger
Corp. did not have any significant assets or liabilities or engage in any
activities other than those incident to their formation, the TCA Acquisition
and the financing related to the TCA Acquisition.
The Company obtained the funds necessary to effect the TCA Acquisition and
related transactions, to retire existing indebtedness and to pay fees and
expenses of the TCA Acquisition from (i) borrowings under a $75.0 million
revolving credit agreement entered into by Treasure Chest and a group of banks
led by BT Commercial Corporation (the "Credit Agreement"), (ii) the proceeds of
a $150.0 million aggregate principal amount of 10 3/4% Senior Subordinated Notes
due 2003 (the "Subordinated Notes") offering by BFP, (iii) issuance by BFP of
$15.0 million of Preferred Stock (the "Preferred Stock") to the ESOT and (iv)
the contribution by Big Flower of $32.5 million in cash, which included the
proceeds from $15.0 million principal
7
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amount of 11% debentures due on August 12, 2005, (the"11% Debentures") in
exchange for all the shares of common stock of BFP. The TCA Acquisition has
been accounted for as a purchase, applying the provisions of Accounting
Principles Board Opinion No. 16. The total purchase cost has been allocated to
Treasure Chest's assets and liabilities based on their relative fair values as
of August 12, 1993 (the closing date of the TCA Acquisition) valuations and
other studies. A portion of the excess of the purchase cost over the historical
book value of the net assets acquired was allocated to specific identified
intangibles and the remainder, representing goodwill, is being amortized over 40
years.
On January 24, 1994 and March 16, 1994 Big Flower entered into definitive
agreements (the "Agreements") to acquire Retail Graphics Holding Company
("Retail Graphics") and KTB Associates, Inc. ("KTB"), respectively (the
"Acquisitions"). Big Flower subsequently assigned its rights under the
Agreements to Treasure Chest. Following the consummation of the Acquisitions,
KTB changed its name to Treasure Chest Advertising Company of New York, Inc. and
Retail Graphics changed its name to Treasure Chest Advertising Holding Company
of Texas, Inc.
Pursuant to the Agreements, on April 27, 1994, Treasure Chest acquired (i) all
of the issued and outstanding shares of common stock of Retail Graphics for an
aggregate consideration of $39,088,000; (ii) certain printing equipment leased
by Retail Graphics from D. Enterprises, Inc. ("DE"), an affiliate of Retail
Graphics, for an aggregate consideration of approximately $32,390,000 (which
amount was used by DE to retire indebtedness related to such equipment); (iii)
all of the issued and outstanding shares of common stock of KTB for an aggregate
consideration of $34,631,000 and (iv) certain fee interests in real property
from Tomsons Properties and TKB Properties, affiliates of KTB, for an aggregate
consideration of approximately $4,800,000.
In conjunction with the Acquisitions, the Credit Agreement was amended (the
"Amended Credit Agreement"). The Amended Credit Agreement consisted of a $50.0
million term loan and a $100.0 million revolving credit facility.
Treasure Chest obtained the funds necessary to effect the Acquisitions, to
enter into certain non-compete and other agreements, to retire certain existing
indebtedness of Retail Graphics, KTB and their affiliates and to pay related
fees and expenses from (i) borrowings under Treasure Chest's Amended Credit
Agreement, (ii) a contribution of capital by BFP of a portion of the proceeds of
an offering of $40,000,000 aggregate principal amount of its 10 3/4% Senior
Subordinated notes due 2003 (the "BFP Notes"), and (iii) a contribution of
capital by Big Flower of a portion of the proceeds of an offering by Big Flower
of 76,543 Units consisting of an aggregate of $76,543,000 principal amount of
Big Flower 13 1/2% Senior Discount Notes due 2004 (the "13 1/2% Notes") and
612,344 shares of Class D common stock of Big Flower.
8
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The Acquisitions have been accounted for as purchases, applying the provisions
of Accounting Principles Board Opinion No. 16. The total purchase cost has been
allocated to Retail Graphics' and KTB's assets and liabilities based on their
relative fair values as of April 27, 1994 (the closing date of the
Acquisitions), as determined by valuations and other studies. A portion of the
excess of the purchase cost over the historical book value of the net assets
acquired was allocated to specific identified intangibles and the remainder,
representing goodwill, is being amortized over 40 years.
On November 27, 1995 BFP acquired Laser Tech, a leading provider of high
quality electronic pre-media and conventional graphics services. The
aggregate purchase price for Laser Tech totaled approximately $29.4 million
consisting of cash, Big Flower Common Stock and repayment of certain
indebtedness and other obligations of Laser Tech.
The acquisition of Laser Tech has been accounted for as a purchase, applying
the provisions of Accounting Principles Board Opinion No. 16. The total
purchase cost has been allocated to Laser Tech's assets and liabilities based
on their relative fair values as of November 27, 1995 (the closing date of
this acquisition), as determined by preliminary valuations and other studies.
Laser Tech is in the process of finalizing those valuations and studies.
The excess of the purchase cost over the fair value of the net amounts
acquired, representing goodwill, will be amortized over 40 years.
On March 19, 1996, Big Flower consummated the acquisition of Webcraft
pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated
February 1, 1996, by and among Big Flower, Webcraft and WTI Acquisition
Corp., a wholly owned subsidiary of Big Flower ("Merger Sub"), whereby Merger
Sub was merged with and into Webcraft, with Webcraft as the surviving
corporation (the "Merger"). Webcraft is a market leader in producing and
marketing highly-customized direct mail and other advertising products and
Big Flower believes Webcraft is the largest in-line direct mail producer in
the United States. Pursuant to the terms of the Merger Agreement, the equity
holders of Webcraft received approximately $111 million in cash, of which (i)
approximately $4.0 million represented a portion of the proceeds received by
Webcraft in connection with the settlement of a certain patent litigation and
(ii) $4.8 million was deposited in escrow to fund any claims for
indemnification by the Company.
Subsequent to the acquisition of Webcraft, the Company repurchased substantially
all of Webcraft's outstanding debt at a premium which generated an extraordinary
loss of $1.9 million, net of income tax benefit of $1.3 million.
Big Flower obtained the funds necessary to finance the Merger from (i)
borrowings under the Restated Credit Agreement, as defined in Note 6, (ii) a
securitized financing based on the accounts receivable of Treasure Chest, Laser
Tech, and Webcraft and certain of their respective subsidiaries, whereby
certificates secured by such receivables were originally purchased by Bankers
Trust Company and Credit Suisse (the "A/R Securitization"), and (iii) cash on
hand at Webcraft.
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The acquisition of Webcraft has been accounted for as a purchase, applying the
provisions of Accounting Principles Board Opinion No. 16. The total purchase
cost has been allocated to Webcraft's assets and liabilities based on their
relative fair values as of March 19, 1996, as determined by preliminary
valuations and other studies. Those valuations and studies are not yet
complete. The excess of the purchase cost over the fair value of the net
amounts acquired, representing goodwill, will be amortized over 40 years.
The following supplemental unaudited pro forma information has been prepared
as though the acquisitions of Laser Tech and Webcraft and related financing
transactions had occurred at January 1, 1995 (in thousands except per share
data):
SIX MONTHS ENDED
JUNE 30,
---------------------------------------
1996 1995
----------------- -----------------
Net sales $ 579,030 $583,331
Loss before extraordinary item $ (460) $ (4,103)
Loss per common and common share
equivalent before extraordinary item $ (0.03) $ (0.38)
On July 31, 1996, Big Flower entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement"), providing for the acquisition by Big Flower of
Scanforms, Inc. ("Scanforms"). Scanforms is a full-service provider of
personalized direct mail advertising products, offering in-house forms
manufacturing, laser and impact computer personalization, bindery and mailing
services. The Merger Agreement provides, among other things, that (i) Scanforms
Acquisition Corp., a Delaware corporation and an indirect wholly owned
subsidiary of Big Flower ("Merger Sub"), will be merged with and into
Scanforms, pursuant to the General Corporation Law of the State of Delaware (the
"Merger"), with Scanforms continuing as the surviving corporation existing under
the laws of the State of Delaware, and (ii) each of the issued and outstanding
shares of common stock of Scanforms (the "Shares"), other than the Shares held
by Scanforms as treasury stock or owned by Big Flower, will be converted into
the right to receive a fraction of a share of Big Flower Common Stock ,
determined by dividing $5.75 by the average closing price of Big Flower Common
Stock during the ten trading day period ending three trading days prior to the
date of Scanforms' stockholders special meeting to vote on the Merger; provided
that Big Flower would not issue more than 0.4423 nor less than 0.3833 shares of
its common stock for each share of Scanforms common stock.
In connection with this transaction, Big Flower has been granted a voting proxy
on, and an option to purchase, approximately 44% of Scanforms' outstanding
Shares by Scanforms' two principal stockholders, including Scanforms President
and Chairman of the Board.
Consummation of the Merger is subject to a number of conditions, including
approval by Scanforms stockholders. Big Flower anticipates closing the Merger
in the third quarter of 1996.
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3. INVENTORIES
Inventories as of June 30, 1996 and December 31, 1995 are summarized as follows
(in thousands):
JUNE 30, DECEMBER 31,
1996 1995
----------- -------------
(unaudited)
Paper $ 23,165 $ 37,878
Ink 1,465 1,468
Other 5,000 2,451
----------- -------------
TOTAL $ 29,630 $ 41,797
----------- -------------
----------- -------------
4. INITIAL PUBLIC OFFERING
On November 22, 1995, Big Flower consummated an initial public offering (the
"Offering") of 6,724,688 shares of its common stock, of which 5,500,000 shares
were sold by Big Flower and 1,224,688 shares were sold by selling stockholders.
The net proceeds of the Offering to Big Flower of $80.3 million were used to
redeem, on a pro rata basis, at a premium, a portion of the 13 1/2% Notes, and
a portion of the Subordinated Notes and the BFP Notes (collectively the "10
3/4% Notes"). The remainder of the net proceeds, together with borrowings under
the New Credit Agreement as defined in Note 6, were used to purchase at a
premium the remaining balance of the 13 1/2% Notes, purchase all of the
Company's 11% Debentures at 100% of principal amount, repay all amounts owed
under the Amended Credit Agreement, purchase all outstanding shares of the
Preferred Stock and terminate the Company's interest rate swap agreement. In
connection with the Offering, BFP was merged with and into the Company.
5. EARNINGS PER SHARE
Per share information is computed using the weighted average number of shares of
Common Stock outstanding and dilutive common equivalent shares from stock
options using the treasury stock method. Common equivalent shares for all
common stock and options issued within one year prior to the Offering have been
calculated using the treasury stock method and have been treated as outstanding
for all periods prior to the Offering.
11
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6. OTHER
On November 28, 1995, Treasure Chest entered into a $350 million revolving
credit facility (the "New Credit Agreement"). The New Credit Agreement was
amended and restated on March 19, 1996 (the "Restated Credit Agreement") to add
a $75 million term loan. The revolving credit facility will be reduced by $33.3
million on the last day of 1998, 1999 and 2000 and will mature on the last day
of 2001. Principal payments on the term loan of $0.75 million are due on the
last day of 1996 through 2001 and will mature on the last day of 2002. Interest
on revolving loans will be payable at Treasure Chest's option (a) at a base rate
plus a margin which ranges from 0.00% to 1.25% or (b) at a Eurodollar rate plus
a margin which ranges from 0.50% to 2.25%. Interest on the term loan will be
payable at Treasure Chest's option (a) at a base rate plus a margin of 1.50% or
(b) at a Eurodollar rate plus a margin of 2.50%. The Restated Credit Agreement
also contains covenant requirements and certain dividend restrictions which
are customary for such financings.
12
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BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The discussion below compares the consolidated financial condition and
results of operations of Big Flower for the three months ended June 30, 1996
with the three months ended June 30, 1995 and the six months ended June 30,
1996 with the six months ended June 30, 1995.
Because the cost of paper is a principal factor in the Company's pricing to
its customers, the cost of paper significantly affects its net sales. The
Company typically is able to pass increases in the cost of paper to its
customers, while declines in paper costs result in lower prices to customers.
As a result of volatile changes in paper costs, there is significant volatility
in the Company's net sales, but when properly managed, not in volume or profits.
Capacity in the paper industry has generally remained fixed over recent
years. Prior to mid-1994, paper supply exceeded demand, creating a significant
downward pressure on paper prices. In mid-1994, higher demand surpassed the
fixed capacity in all paper grades industry-wide. This created a global
tightening of paper supply which resulted in higher paper prices. However, in
early 1996, reduced demand has made certain grades of paper more readily
available, which has resulted in paper price decreases with respect to such
grades. The Company has developed strong relationships with its paper
suppliers, which include many of the leading paper companies in North America.
Through these relationships, if the market begins to tighten again, the Company
anticipates that its paper requirements will continue to be met. The Company
anticipates that its relationships and purchasing leverage will ensure its
material costs will remain highly competitive.
13
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RESULTS OF OPERATIONS
The following table presents the major components from the Condensed
Consolidated Statements of Operations as a percent of sales for the three and
six-month periods ended June 30, 1996 and 1995:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Costs of production 85.4% 86.1% 87.0% 86.3%
----- ----- ----- -----
Gross profit 14.6% 13.9% 13.0% 13.7%
Selling, general and
administrative expense 9.6% 8.3% 9.4% 8.5%
Interest expense, net 3.3% 4.3% 3.4% 4.6%
Other expense 0.7% 0.8% 1.5% 0.5%
---- ---- ---- ----
Income before taxes 1.1% 0.3% -1.3% -0.2%
Income taxes 0.5% 1.3% -0.7% 0.7%
---- ---- ---- ----
Income before extraordinary item 0.5% -1.0% -0.7% -0.9%
---- ---- ---- ----
EBITDA (in thousands) $ 27,507 $ 23,300 $ 40,954 $ 43,628
--------- --------- --------- ---------
--------- --------- --------- ---------
"EBITDA" represents the sum of income before income taxes, depreciation and
amortization, interest income and expense, equity in (earnings) loss of
unconsolidated companies, other expense, net, and asset writedowns. The
exclusion of equity in (earnings) loss of on consolidated companies and asset
writedowns is consistent with the definitions in the Company's debt agreements.
EBITDA is presented here to provide additional information regarding the
Company's ability to meet its future debt service, capital expenditures and
working capital requirements and should not be construed as a better indicator
of operating performance than income from continuing operations or a better
indicator of liquidity than cash flow from operating activities.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996 WITH THE THREE MONTHS ENDED
JUNE 30, 1995
Net sales increased to $293.2 million for the three months ended June
30, 1996 from $233.4 million for the three months ended June 30, 1995, an
increase of $59.8 million or 25.6%. The addition of Laser Tech and Webcraft
operations for the full three months ended June 30, 1996 favorably impacted net
sales. Impacted by a soft retail advertising market, Treasure Chest's volume
for the three months ended June 30, 1996 was below that of the comparable prior
14
<PAGE>
year's period. Gross profit for the three months ended June 30, 1996 was $42.7
million compared to $32.5 million for the three months ended June 30, 1995, an
increase of $10.2 million or 31.3%. The higher gross profit in the three months
ended June 30, 1996 is the result of the favorable impact of Laser Tech and
Webcraft operations as discussed above, offset by the lower volume at Treasure
Chest.
Selling, general and administrative expenses increased to $28.1 million in
the three months ended June 30, 1996 from $19.3 million for the three months
ended June 30, 1995, an increase of $8.8 million or 45.6%. Amortization of
intangibles included in selling, general and administrative expense for the
three months ended June 30, 1996 was $4.3 million compared to $5.3 million for
the three months ended June 30, 1995. Amortization of certain intangible assets
associated with the acquisitions of Treasure Chest, KTB and Retail Graphics was
$1.9 million lower in the three months ended June 30, 1996 compared to the prior
comparable period in 1995 as several of these assets became fully amortized.
Offsetting the lower amortization of intangible assets in the three months ended
June 30, 1996 was $13.3 million in selling, general and administrative expenses
due to the addition of Laser Tech and Webcraft operations.
Net interest expense for the three months ended June 30, 1996 was $9.5
million compared to $10.1 million for the three months ended June 30, 1995.
Amortization of deferred financing costs were $0.5 million for the three months
ended June 30, 1996 and $0.9 million for the three months ended June 30, 1995.
Other expense, net, was $2.0 million in the three months ended June 30,
1996 compared to $1.8 million in the prior comparable period in 1995. The other
expense, net, for the three months ended June 30, 1996 included $1.2 million for
the loss on the sale of accounts receivable, which represents the recurring cost
of funds obtained through the A/R Securitization.
Income before income taxes was $3.1 million for the three months ended June
30, 1996 compared to $0.6 million for the prior comparable quarter due to the
factors mentioned above.
The effective income tax rate for the three months ended June 30, 1996 and
1995 exceeded the federal statutory tax rate due primarily to amortization of
goodwill (which is not deductible for income tax purposes), preferred dividends
of a subsidiary (for the 1995 period) and state income taxes.
15
<PAGE>
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 WITH THE SIX MONTHS ENDED JUNE
30, 1995
Net sales increased to $514.6 million for the six months ended June 30,
1996 from $440.1 million for the six months ended June 30, 1995, an increase of
$74.5 million or 16.9%. The addition of Laser Tech and Webcraft operations for
the full six months ended June 30, 1996 favorably impacted net sales. Impacted
by a soft retail advertising market, Treasure Chest's volume for the six months
ended June 30, 1996 was below that of the comparable prior year's period.
Gross profit for the six months ended June 30, 1996 was $66.7 million
compared to $60.5 million for the six months ended June 30, 1995, an increase of
$6.2 million or 10.3%. The higher gross profit in the six months ended June 30,
1996 is the result of the favorable impact of Laser Tech and Webcraft operations
as discussed above, offset by lower volume at Treasure Chest.
Selling, general and administrative expenses increased to $48.3 million in
the six months ended June 30, 1996 from $37.4 million for the six months ended
June 30, 1995, an increase of $10.9 million or 29.1%. Amortization of
intangibles included in selling, general and administrative expense for the six
months ended June 30, 1996 was $8.3 million compared to $11.0 million for the
six months ended June 30, 1995. Amortization of certain intangible assets
associated with the acquisitions of Treasure Chest, KTB and Retail Graphics was
$3.8 million lower in the six months ended June 30, 1996 compared to the prior
comparable period in 1995 as several of these assets became fully amortized.
Offsetting the lower amortization of intangible assets in the six months ended
June 30, 1996 was $17.1 million in selling, general and administrative expenses
due to the addition of Laser Tech and Webcraft operations and an additional $0.3
million in higher personnel and related costs.
Net interest expense for the six months ended June 30, 1996 was $17.6
million compared to $20.4 million for the six months ended June 30, 1995.
Amortization of deferred financing costs were $1.5 million for the six months
ended June 30, 1996 and $1.7 million for the six months ended June 30, 1995.
Other expense, net, was $7.7 million in the six months ended June 30, 1996
compared to $2.3 million in the prior comparable period in 1995. The other
expense, net, for the six months ended June 30, 1996 included $5.0 million for
non-recurring charges related to the acquisition of Webcraft and related
financing transactions and $1.4 million for the loss on sale of accounts
receivable, which represented the recurring cost of funds obtained through the
A/R Securitization.
Loss before income taxes and extraordinary item was $6.9 million for the
six months ended June 30, 1996 compared to a loss before income taxes of $0.8
million for the prior comparable quarter due to the factors mentioned above.
The effective income tax rate for the six months ended June 30, 1996 and
1995 exceeded the federal statutory tax rate due primarily to amortization of
goodwill (which is not deductible for
16
<PAGE>
income tax purposes), preferred dividends of a subsidiary (for the 1995 period)
and state income taxes.
The extraordinary item, net of tax, of $1.9 million, in the six months
ended June 30, 1996 was due to the early extinguishment of certain Webcraft debt
refinanced subsequent to the Webcraft acquisition.
Excluding the effects of the non-recurring charges related to the
acquisition of Webcraft and related financing transactions, loss before
extraordinary item for the six months ended June 30, 1996 would have been $0.9
million, or $.05 cents per share.
LIQUIDITY AND CAPITAL RESOURCES
The operations of the Company historically have been funded with internally
generated funds, term debt and borrowings under a revolving credit facility.
Big Flower's current liabilities exceeded current assets by $47.8 million
at June 30, 1996 compared with working capital of $26.2 million at December 31,
1995 a decrease of $74.0 million due to the A/R Securitization closing in March
1996. The ratio of current assets to current liabilities as of June 30, 1996
was .68 to 1 and as of December 31, 1995 was 1.15 to 1.
Net cash provided by operating activities for the six months ended June 30,
1996 was $107.8 million, an increase of $60.9 million from the prior comparable
period in 1995. This increase was primarily due to the net impact of the A/R
Securitization and a reduction in paper inventories, offset by a higher net loss
and a volume related reduction in current liabilities. Net cash used in
investing activities were financed primarily through borrowings under the
Restated Credit Agreement and the A/R Securitization.
Capital expenditures of $21.4 million and $3.4 million for the six months
ended June 30, 1996 and 1995, respectively, were financed by cash from
operations and borrowings under Treasure Chest's revolving credit facility.
The Company anticipates total acquisitions of capital equipment, whether
funded by capital expenditures or operating leases, with an equivalent value of
approximately $45 million in the twelve months ended December 31, 1996.
On November 22, 1995, Big Flower consummated the Offering of 6,724,688
shares of its common stock, of which 5,500,000 shares were sold by Big Flower
and 1,224,688 shares were sold by selling stockholders. The net proceeds of the
Offering to Big Flower of $80.3 million were used to redeem, on a pro rata basis
at a premium, a portion of the 13 1/2% Notes, and a portion of the 10 3/4%
Notes. The remainder of the net proceeds, together with borrowings under the
New Credit Agreement, were used to purchase at a premium the remaining balance
of the 13 1/2 % Notes, purchase all of the Company's 11% Debentures at 100% of
principle amount, repay all amounts owed under the Amended Credit Agreement,
purchase all outstanding shares of the Preferred Stock and terminate the
Company's interest rate swap agreements. In connection with the Offering, BFP
was merged with and into the Company.
17
<PAGE>
Simultaneously with the Offering, the outstanding shares of Class B Common
Stock, Class C Common Stock and Class D Common Stock of the Company (except for
certain shares of Class B Common Stock owned by BT Investment Partners, Inc.
("BTIP")) were converted into shares of Common Stock on a share-for-share basis
(with any fractional shares rounded up to one full share). Immediately prior to
the consummation of the Offering, Big Flower paid a stock dividend of one share
of Common Stock for each outstanding share of its Class B Common Stock owned by
Apollo Big Flower Partners, L.P., Class C Common Stock and Class D Common Stock
and a stock dividend of one share of Class B Common Stock for each outstanding
share of Class B Common Stock owned by BTIP due to certain restrictions in the
banking laws and regulations. In addition, the outstanding options to purchase
shares of Class C Common Stock became options to purchase shares of Common Stock
at a rate of two shares of Common Stock for each share of Class C Common Stock
underlying such options: and fractional shares were rounded up to one full
share. In addition, the put rights of the holders of Class C Common Stock
expired for their vested shares.
On November 27, 1995 BFP acquired Laser Tech, a leading provider of high
quality electronic pre-media and conventional graphics services. The
aggregate purchase price for Laser Tech totaled approximately $29.4 million
consisting of cash, Big Flower Common Stock and repayment of certain
indebtedness and other obligations of Laser Tech.
The acquisition of Laser Tech has been accounted for as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16. The
total purchase cost has been allocated to Laser Tech's assets and liabilities
based on their relative fair values as of November 27, 1995 (the closing date
of this acquisition), as determined by preliminary valuations and other
studies. Laser Tech is in the process of finalizing those valuations and
studies. The excess of the purchase cost over the fair value of the net
amounts acquired, representing goodwill, will be amortized over 40 years.
On November 28, 1995, Treasure Chest entered into the New Credit Agreement.
The New Credit Agreement was amended and restated in the Restated Credit
Agreement which added a $75 million term loan. The revolving facility will be
reduced by $33.3 million on the last day of 1998, 1999 and 2000 and will mature
on the last day of 2001. Principal payments on the term loan of $0.75 million
are due on the last day of 1996 through 2001 and will mature on the last day of
2002. Interest on revolving loans will be payable at Treasure Chest's option
(a) at a base rate plus a margin which ranges from 0.00% to 1.25% or (b) at a
Eurodollar rate plus a margin of 2.50%. The Restated Credit Agreement also
contains covenant requirements and certain dividend restrictions which are
customary for such financings.
On March 19, 1996, Big Flower consummated the acquisition of Webcraft
pursuant to the Merger Agreement whereby Merger Sub was merged with and into
Webcraft, with Webcraft as the surviving corporation. Pursuant to the terms of
the Merger Agreement, the equity holders of Webcraft received approximately $111
million in cash, of which (i) approximately $4.0 million represented a portion
of the proceeds received by Webcraft in connection with the settlement of a
certain patent litigation and (ii) $4.8 million was deposited in escrow to fund
any claims for indemnification by the Company.
18
<PAGE>
Big Flower obtained the funds necessary to finance the Merger from (i)
borrowings under the Restated Credit Agreement, (ii) the A/R Securitization, and
(iii) cash on hand at Webcraft.
The Company believes that internally-generated funds from operations and
from the Restated Credit Agreement will be sufficient to meet its operating
requirements for at least the next twelve months.
On July 31, 1996, Big Flower entered into a definitive Merger Agreement,
providing for the acquisition by Big Flower of Scanforms. Scanforms is a
full-service provider of personalized direct mail advertising products,
offering in-house forms manufacturing, laser and impact computer
personalization, bindery and mailing services. The Merger Agreement
provides, among other things, that (i) Merger Sub will be merged with and
into Scanforms, pursuant to the General Corporation Law of the State of
Delaware, with Scanforms continuing as the surviving corporation existing
under the laws of the State of Delaware, and (ii) each of the issued and
outstanding Shares, other than the Shares held by Scanforms as treasury stock
or owned by Big Flower, will be converted into the right to receive a
fraction of a share of Big Flower Common Stock, determined by dividing $5.75
by the average closing price of Big Flower Common Stock during the ten trading
day period ending three trading days prior to the date of Scanforms'
stockholders special meeting to vote on the Merger; provided that Big Flower
would not issue more than 0.4423 nor less than 0.3833 shares of its common
stock for each share of Scanforms common stock.
In connection with this transaction, Big Flower has been granted a voting
proxy on, and an option to purchase, approximately 44% of Scanforms' outstanding
Shares by Scanforms' two principal stockholders, including Scanforms President
and Chairman of the Board.
Consummation of the Merger is subject to a number of conditions, including
approval by Scanforms' stockholders. Big Flower anticipates closing the Merger
in the third quarter of 1996.
19
<PAGE>
PART II - OTHER INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
Item 1. LEGAL PROCEEDINGS -
No reportable developments occurred in Legal Proceedings
during the quarter ended June 30, 1996.
Item 2. CHANGES IN SECURITIES -
None
Item 3. DEFAULTS UPON SENIOR SECURITIES -
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS -
None
Item 5. OTHER INFORMATION -
On July 31, 1996, Big Flower entered into a definitive Agreement
and Plan of Merger (the "Merger Agreement"), providing for the
acquisition by Big Flower of Scanforms, Inc. ("Scanforms"). Scanforms
is a full-service provider of personalized direct mail advertising
products, offering in-house forms manufacturing, laser and impact
computer personalization, bindery and mailing services. The Merger
Agreement provides, among other things, that (i) Scanforms Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of Big
Flower ("Merger Sub"), will be merged with and into Scanforms,
pursuant to the General Corporation Law of the State of Delaware (the
"Merger"), with Scanforms continuing as the surviving corporation
existing under the laws of the State of Delaware, and (ii) each of the
issued and outstanding shares of common stock of Scanforms (the
"Shares"), other than the Shares held by Scanforms as treasury stock
or owned by Big Flower, will be converted into the right to receive
a fraction of a share of Big Flower Common Stock, determined by
dividing $5.75 by the average closing price of Big Flower Common
Stock during the ten trading day period ending three trading days
prior to the date of Scanforms' stockholders special meeting to vote on
the Merger; provided that Big Flower would not issue more than 0.4423
nor less than 0.3833 shares of its common stock for each share of
Scanforms common stock.
In connection with this transaction, Big Flower has been granted
a voting proxy on, and an option to purchase, approximately 44% of
Scanforms' outstanding Shares
20
<PAGE>
by Scanforms' two principal stockholders, including Scanforms
President and Chairman of the Board.
Consummation of the Merger is subject to a number of conditions,
including approval by Scanforms' stockholders. Big Flower anticipates
closing the Merger in the third quarter of 1996.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
None
(b) Reports on Form 8-K
None
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIG FLOWER PRESS HOLDINGS, INC.
/s/R. Theodore Ammon
R. Theodore Ammon
Chairman of the Board
Principal Financial Officer
Principal Accounting Officer
DATE: August 14, 1996
22
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS FOUND ON PAGES 2 THROUGH 5 OF THE COMPANY'S FORM 10-Q FOR THE YEAR
TO DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,538
<SECURITIES> 0
<RECEIVABLES> 37,400
<ALLOWANCES> 2,264
<INVENTORY> 29,630
<CURRENT-ASSETS> 103,904
<PP&E> 288,435
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<TOTAL-ASSETS> 650,715
<CURRENT-LIABILITIES> 151,702
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0
<COMMON> 160
<OTHER-SE> 76,999
<TOTAL-LIABILITY-AND-EQUITY> 650,715
<SALES> 514,580
<TOTAL-REVENUES> 514,580
<CGS> 447,879
<TOTAL-COSTS> 447,879
<OTHER-EXPENSES> 55,695
<LOSS-PROVISION> 203
<INTEREST-EXPENSE> 17,748
<INCOME-PRETAX> (6,945)
<INCOME-TAX> (3,473)
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