<PAGE>
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 September 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 October 31, 1996, there
were 14,749,479 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.
<PAGE>
PART I - FINANCIAL INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(IN THOUSANDS)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,559 $ 4,598
Accounts receivable, net (Note 5) 96,878 131,411
Inventories (Note 6) 30,848 41,797
Prepaid expenses 7,182 5,194
Income tax receivable and
deferred income taxes 30,767 22,623
-------- --------
Total current assets 169,234 205,623
PROPERTY, PLANT AND EQUIPMENT, NET 240,754 137,838
OTHER ASSETS, NET 18,569 22,147
INTANGIBLES, NET 256,560 188,480
-------- --------
TOTAL $685,117 $554,088
-------- --------
-------- --------
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
(Continued)
2
<PAGE>
PART I - FINANCIAL INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 18,119
Current portion of long-term debt 1,526 3,335
Accounts payable 103,664 105,915
Compensation and benefits payable 34,848 18,344
Other current liabilities 33,136 33,687
-------- --------
Total current liabilities 173,174 179,400
REVOLVING CREDIT FACILITY (Notes 5,9) 192,704 144,500
LONG-TERM DEBT, Net of current portion
(Notes 5,9) 199,723 125,942
DEFERRED INCOME TAXES 20,663 14,934
OTHER LONG-TERM LIABILITIES 17,327 10,370
-------- --------
Total liabilities 603,591 475,146
-------- --------
COMMON STOCK SUBJECT TO REDEMPTION 1,072 1,011
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 160 157
Additional paid-in-capital 105,445 100,892
Accumulated deficit (23,937) (21,680)
Subscription notes receivable (251) (263)
Unearned compensation (963) (1,175)
-------- --------
Total stockholders' equity 80,454 77,931
-------- --------
TOTAL $685,117 $554,088
-------- --------
-------- --------
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
(Concluded)
3
<PAGE>
PART I - FINANCIAL INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
NET SALES $ 307,466 $ 242,066
COSTS OF PRODUCTION 254,565 209,963
----------- -----------
GROSS PROFIT 52,901 32,103
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 34,272 15,823
INTEREST EXPENSE (Note 5) 9,629 10,324
INTEREST INCOME (42) (32)
OTHER EXPENSE, NET (Note 5) 2,135 192
PREFERRED DIVIDENDS OF A SUBSIDIARY -- 617
----------- -----------
INCOME BEFORE INCOME TAXES 6,907 5,179
PROVISION FOR INCOME TAXES 3,800 2,800
----------- -----------
NET INCOME $ 3,107 $ 2,379
----------- -----------
----------- -----------
Net income per common
and common share equivalent $0.18 $0.21
Weighted average shares
outstanding 16,913,633 11,083,249
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------ --------------
<S> <C> <C>
NET SALES $ 822,046 $ 682,134
COSTS OF PRODUCTION 702,444 589,532
---------- -----------
GROSS PROFIT 119,602 92,602
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 82,546 53,216
INTEREST EXPENSE (Note 5) 27,377 30,970
INTEREST INCOME (148) (268)
OTHER EXPENSE, NET (Note 5) 9,865 2,452
PREFERRED DIVIDENDS OF A
SUBSIDIARY -- 1,895
---------- -----------
INCOME/(LOSS) BEFORE INCOME TAXES (38) 4,337
PROVISION FOR INCOME TAXES 327 6,047
---------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (Note 10) (365) (1,710)
EXTRAORDINARY ITEM, NET 1,892 --
---------- -----------
NET LOSS $ (2,257) $ (1,710)
---------- -----------
---------- -----------
Loss per common and common share equivalent
before extraordinary item ($0.02) ($0.16)
Extraordinary item - early
extinguishment of debt ($0.11) --
Net loss per common
and common share equivalent ($0.13) ($0.16)
Weighted average shares
outstanding 16,758,144 10,887,856
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
5
<PAGE>
PART I - FINANCIAL INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(IN THOUSANDS)
<TABLE>
<CAPTION>
9 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,257) $ (1,710)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for doubtful accounts 587 1,656
Depreciation and amortization 35,224 30,084
Amortization of deferred financing costs 2,230 2,594
Preferred dividends of a subsidiary -- 1,895
Loss on sale of accounts receivable 3,850 --
Loss on disposition of property,
plant and equipment 256 384
Extraordinary item 1,892 --
Changes in operating assets and liabilities:
Accounts receivable (9,544) (6,947)
Proceeds from sale of accounts receivable 91,567 --
Inventories 20,545 (27,219)
Prepaid expenses (1,007) 2,699
Other assets 1,122 (685)
Deferred income taxes and income taxes receivable 1,013 (5,351)
Accounts payable, compensation and benefits
payable and other liabilities (61,408) 8,693
Deferred interest 105 6,161
-------- -------
Net cash provided by operating activities 84,175 12,254
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (36,799) (15,268)
Proceeds from sales of property, plant and equipment 461 913
Acquisition of Webcraft, net (76,710) --
Acquisition of Laser Tech (1,060) --
-------- -------
Net cash used in investing activities (114,108) (14,355)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of long-term debt (98,614) (5,506)
Payment of notes payable (16,788) --
Borrowing of long-term debt 75,000 120
Deferred financing costs (1,313) 150
Net increase in revolving credit facility 48,204 8,090
Proceeds from issuance of common stock 49 540
Repurchase of common stock -- (522)
Decrease in cash overdraft 22,356 (1,505)
-------- -------
Net cash provided by financing activities 28,894 1,367
-------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,039) (734)
CASH AND CASH EQUIVALENTS, BEGINNING 4,598 2,372
-------- -------
CASH AND CASH EQUIVALENTS, ENDING $ 3,559 $ 1,638
-------- -------
-------- -------
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
6
<PAGE>
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") and, for the periods after
their acquisition by the Company, 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 adjustments)
necessary for a fair presentation of such information for the interim 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 produces TV listing
guides, Sunday comics, Sunday magazines and/or special supplements for many
widely circulated United States newspapers. 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 the founders and former principal
owners of Treasure Chest entered into a non-compete agreement with Treasure
Chest. The TCA Acquisition has been accounted for as a purchase.
7
<PAGE>
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.
Treasure Chest obtained the funds necessary to effect the Acquisitions, to
make payments pursuant to 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 Credit Agreement as amended in connection with the Acquisitions (the
"Amended Credit Agreement"), (ii) a contribution of capital by BFP of a
portion of the proceeds of a sale 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. The Acquisitions have been accounted for as purchases.
On November 27, 1995 BFP acquired Laser Tech, a leading provider of high
quality electronic pre-media and conventional graphics services.
The acquisition of Laser Tech has been accounted for as a purchase.
On March 19, 1996, Big Flower consummated the acquisition of Webcraft
by merging a Big Flower subsidiary into Webcraft. 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. The acquisition of Webcraft has
been accounted for as a purchase. 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.
8
<PAGE>
3. SUBSEQUENT EVENTS
-----------------
On October 1, 1996, Treasure Chest consummated the acquisition of all of the
outstanding capital stock of PrintCo., Inc. ("Printco"), and certain real
estate assets of an affiliated Printco entity which are used in Printco's
business, pursuant to a Purchase Agreement, dated as of October 1, 1996,
among Treasure Chest, all of the stockholders of Printco and Park Properties,
a Michigan general partnership. Headquartered in Greenville, Michigan,
Printco is a producer of newspaper advertising inserts, TV listing guides and
other newspaper products, and offers printing, finishing and pre-media
services. The acquisition of Printco is expected to be accounted for as a
purchase.
On October 4, 1996, Big Flower consummated the acquisition of Scanforms, Inc., a
Delaware corporation ("Scanforms"), pursuant to an Agreement and Plan of Merger,
dated as of July 31, 1996, by and among Big Flower, Scanforms and Scanforms
Acquisition Corp., a wholly owned, indirect subsidiary of Big Flower ("Merger
Sub"), whereby Merger Sub was merged with and into Scanforms, with Scanforms as
the surviving corporation. Scanforms is a full-service provider of direct mail
advertising with in-house forms manufacturing, laser and impact computer
personalization, bindery and mailing services. Big Flower issued rights to
receive 1,549,489 full shares of its common stock in exchange for all the
outstanding common stock of Scanforms. The acquisition of Scanforms will be
accounted for as a pooling of interests.
On October 7, 1996 Laser Tech consummated the acquisition of all of the
outstanding capital stock of Pacific Color Connection, Inc. ("Pacific
Color"). Pacific Color, previously a privately-owned company, offers
digital pre-media services for the advertising and retail industries.
The acquisition of Pacific Color is expected to be accounted for as a
purchase.
For the acquisitions accounted for as purchases, Big Flower paid
approximately $42.5 million in cash and assumed debt of approximately
$20.3 million.
9
<PAGE>
4. PRO FORMA INFORMATION
---------------------
The following supplemental unaudited pro forma information has been prepared as
though the acquisitions of Laser Tech, Webcraft and Scanforms and related
financing transactions had occurred at January 1, 1995 (in thousands except per
share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Net Sales $908,311 $931,672
Income before extraordinary item $ 4,392 $ 1,595
Income per common and common share
equivalent before extraordinary item $ 0.24 $ 0.13
</TABLE>
5. ACCOUNTS RECEIVABLE
-------------------
In addition to the Company's obligations under the Restated Credit Agreement
(hereinafter defined), on October 4, 1996 the Company entered into a six-year
agreement (the "A/R Securitization") pursuant to which it may sell fractional
undivided beneficial interests in a designated pool of certain eligible
accounts receivable. The maximum allowable amount of receivables to be sold is
$150 million. The amount outstanding at any measurement date varies based upon
the level of eligible receivables. Under the terms of the agreement, the
Company has retained substantially the same risk of credit loss as if the
receivables had not been sold and, accordingly, the full amount of the
allowance for doubtful accounts has been retained. Since March, 1996 the
Company has operated under a bridge facility with similar terms and
conditions as the A/R Securitization. At September 30, 1996 a $70 million
interest had been sold under the A/R Securitization and is reflected as a
reduction of accounts receivable in the accompanying condensed consolidated
balance sheets. Fees of this program vary from LIBOR plus a margin of 1/4%
to 3/4% per annum on the amount of interest sold. The rate is lower than the
rate under the Company's existing credit agreement (see Note 9). These costs,
which were approximately $1.3 million and $3.8 million for the three and
nine-month periods ended September 30, 1996, respectively, are included in
other expense, net in the accompanying condensed consolidated statements of
operations.
10
<PAGE>
6. INVENTORIES
-----------
Inventories as of September 30, 1996 and December 31, 1995 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Paper $25,309 $37,878
Ink 1,279 1,468
Other 4,260 2,451
--------- ---------
TOTAL $30,848 $41,797
-------- --------
-------- --------
</TABLE>
7. 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 stockholders
of the Company. A portion of the net proceeds of the Offering to Big Flower
of $80.3 million was used to redeem, on a pro rata basis, at a premium, a
portion of the 13 1/2% Notes, and a portion of the Company's 10 3/4% Senior
Subordinated notes due 2003 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 9, were used to purchase at a
premium the remaining balance of the 13 1/2% Notes, purchase all of the
Company's 11% debentures due on August 12, 2005 (the "11% Debentures") at
100% of principal amount, repay all amounts owing under the Amended Credit
Agreement, purchase all outstanding shares of the BFP's preferred stock and
terminate the Company's interest rate swap agreement. In connection with the
Offering, BFP was merged with and into the Company.
8. 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
<PAGE>
9. EXISTING CREDIT AGREEMENT
-------------------------
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 (as amended to date, 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.
10. EXTRAORDINARY ITEM
------------------
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.
12
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
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 SIGNIFICANT RISKS AND
UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM
THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS
OUTSIDE THE CONTROL OF THE COMPANY, INCLUDING 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. CONSEQUENTLY, SUCH FORWARD-LOOKING STATEMENTS SHOULD BE
REGARDED SOLELY AS THE COMPANY'S CURRENT PLANS, ESTIMATES AND BELIEFS. 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.
GENERAL
The discussion below compares the consolidated financial condition and
results of operations of Big Flower for the three months ended September 30,
1996 with the three months ended September 30, 1995 and for the nine months
ended September 30, 1996 with the nine months ended September 30, 1995.
Big Flower has three principle operating units: Treasure Chest, Laser
Tech and Webcraft. Treasure Chest is a leading producer and marketer of
advertising circulars for many large United States retailers and produces TV
listing guides, Sunday comics, Sunday magazines and/or special supplements
for many widely circulated United States newspapers. Laser Tech provides high
quality electronic pre-media and conventional graphic services. Webcraft is
a specialty printer of personalized direct mail and other products, and the
Company believes Webcraft is the largest in-line commercial printer in the
United States. Although each of the Company's operating units provides a
variety of services to its customers, the majority of each operating unit's
business involves providing advertising-related services.
Because the cost of paper is a principal factor in the Company's pricing to
its customers, the cost of paper significantly affects the Company's net sales.
The Company usually is able to pass increases in the cost of paper to its
customers, while declines in paper costs generally result in
13
<PAGE>
lower prices to customers. Volatility in paper costs results in a
corresponding volatility in the Company's net sales, but generally does not
affect volume or profits to any significant extent.
Because capacity in the paper industry has remained relatively stable in
recent years, increases or decreases in demand for paper have led to
corresponding pricing changes and, in periods of high demand, to limitations
on the availability of certain grades of paper, including grades utilized by
the Company. The Company believes that it maintains sufficiently strong
relationships with major North American paper suppliers that the Company
should be able to satisfy its paper requirements on competitive terms even in
periods of high demand.
During the soft retail advertising environment experienced during the
first three months of 1996, the Company experienced weaknesses in volumes
and, in some instances, prices. Although the retail advertising environment
has improved since the first quarter, the Company believes it will continue
to feel the residual effects of a soft retail advertising environment
throughout the remainder of the year.
14
<PAGE>
RESULTS OF OPERATIONS
The following table presents the major components from the Condensed
Consolidated Statements of Operations as a percent of net sales for the three
and nine month periods ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- ---------------
1996 1995 1996 1995
------ ------ ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Costs of production 80.1% 84.8% 82.8% 84.4%
Depreciation and
amortization 2.7% 1.9% 2.7% 2.0%
------ ------ ------- -------
Gross profit 17.2% 13.3% 14.5% 13.6%
Selling, general and
administrative expense 9.7% 4.7% 8.4% 5.5%
Depreciation and
amortization 1.4% 1.8% 1.6% 2.3%
Interest expense, net 3.1% 4.3% 3.3% 4.5%
Other expense, net 0.7% 0.1% 1.2% 0.4%
------ ------ ------- -------
Income/(loss) before
taxes 2.2% 2.1% 0.0% 0.6%
Income taxes 1.2% 1.2% 0.0% 0.9%
------ ------ ------- -------
Income/(loss) before
extraordinary item 1.0% 1.0% 0.0% -0.3%
------ ------ ------- -------
Net income/(loss) 1.0% 1.0% -0.3% -0.3%
------ ------ ------- -------
EBITDA (in thousands) $31,373 $25,351 $72,327 $68,979
------ ------ ------- -------
------ ------ ------- -------
</TABLE>
"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 unconsolidated 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. EBITDA is not a measure of
financial performance and should not be considered an alternative to net
income as a measure of operating performance or to cash flows from operating
activities as a measure of liquidity.
15
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 WITH THE THREE
MONTHS ENDED SEPTEMBER 30, 1995
Net sales increased to $307.5 million for the three months ended
September 30, 1996 from $242.1 million for the three months ended September
30, 1995, an increase of $65.4 million or 27.0%. The addition of Laser Tech
and Webcraft operations for the three months ended September 30, 1996
favorably affected net sales. Due to a soft retail advertising environment,
Treasure Chest's volume (measured in press hours) for the three months ended
September 30, 1996 was slightly below that of the comparable period in 1995.
Gross profit for the three months ended September 30, 1996 was $52.9 million
compared to $32.1 million for the three months ended September 30, 1995, an
increase of $20.8 million or 64.8%. The higher gross profit in the three
months ended September 30, 1996 resulted from the inclusion of Laser Tech and
Webcraft operations, partially offset by the slightly lower volume and lower
waste paper sales at Treasure Chest.
Selling, general and administrative expenses increased to $34.3 million
in the three months ended September 30, 1996 from $15.8 million for the three
months ended September 30, 1995, an increase of $18.5 million or 116.6%. The
addition of Webcraft and Laser Tech operations resulted in an increase of
$15.6 million in selling, general and administrative expenses. Amortization
of intangibles included in selling, general and administrative expense for
the three months ended September 30, 1996 was $3.9 million compared to $4.3
million for the three months ended September 30, 1995, a decline attributable
to the complete amortization of certain intangible assets associated with
earlier acquisitions.
Net interest expense for the three months ended September 30, 1996 was
$9.6 million compared to $10.3 million for the three months ended September
30, 1995. Amortization of deferred financing costs was $0.8 million for the
three months ended September 30, 1996 and $0.9 million for the three months
ended September 30, 1995.
Other expense, net, was $2.1 million in the three months ended September
30, 1996 compared to $0.2 million in the comparable period in 1995. The
other expense, net, for the three months ended September 30, 1996 includes
charges of $1.5 million on the A/R Securitization and certain
non-recurring charges.
Income before income taxes was $6.9 million for the three months ended
September 30, 1996 compared to $5.2 million for the prior comparable quarter
due to the factors mentioned above.
The effective income tax rate for the three months ended September 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.
16
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 WITH THE NINE MONTHS
ENDED SEPTEMBER 30, 1995
Net sales increased to $822.0 million for the nine months ended September
30, 1996 from $682.1 million for the nine months ended September 30, 1995, an
increase of $139.9 million or 20.5%. The inclusion of Laser Tech operations
in the full nine months and Webcraft operations for the six months and 12
days ended September 30, 1996 favorably affected net sales. Due to a soft
retail advertising environment, Treasure Chest's volume (measured in press
hours) for the nine months ended September 30, 1996 was below that of the
comparable period in 1995. Gross profit for the nine months ended September
30, 1996 was $119.6 million compared to $92.6 million for the nine months
ended September 30, 1995, an increase of $27.0 million or 29.2%. The higher
gross profit in the nine months ended September 30, 1996 resulted from the
inclusion of Laser Tech and Webcraft operations as discussed above, offset by
lower volume at Treasure Chest.
Selling, general and administrative expenses increased to $82.5 million
in the nine months ended September 30, 1996 from $53.2 million for the nine
months ended September 30, 1995, an increase of $29.3 million or 55.1%. The
addition of Webcraft and Laser Tech operations resulted in an increase of
$32.7 million in selling, general and administrative expenses. Amortization
of intangibles included in selling, general and administrative expense for
the nine months ended September 30, 1996 was $11.9 million compared to $15.3
million for the nine months ended September 30, 1995, a decline attributable
to the complete amortization of certain intangible assets associated with
earlier acquisitions. Offsetting the lower amortization of intangible assets
in the nine months ended September 30, 1996 was an additional $0.3 million in
higher personnel and related costs.
Net interest expense for the nine months ended September 30, 1996 was
$27.2 million compared to $30.7 million for the nine months ended September
30, 1995. Amortization of deferred financing costs was $2.2 million for the
nine months ended September 30, 1996 and $2.6 million for the nine months
ended September 30, 1995.
Other expense, net, was $9.9 million in the nine months ended September
30, 1996 compared to $2.5 million in the prior comparable period in 1995.
The other expense, net, for the nine months ended September 30, 1996 included
$5.2 million for non-recurring charges related to the acquisition of Webcraft
and related financing transactions and a $2.7 million loss on sale of
accounts receivable, which represented the continuing cost of the A/R
Securitization, net of one-time charges.
Loss before income taxes and extraordinary item was $0.0 million for the
nine months ended September 30, 1996 compared to income before income taxes
of $4.3 million for the prior comparable period in 1995 due to the factors
mentioned above.
The effective income tax rate for the nine months ended September 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.
17
<PAGE>
The extraordinary item, net of tax, of $1.9 million, in the nine months
ended September 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, income before
extraordinary item for the nine months ended September 30, 1996 would have
been $2.8 million, or $.16 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 $3.9 million
at September 30, 1996 compared with working capital of $26.2 million at
December 31, 1995, a decrease of $30.1 million due to the A/R Securitization
closing in March 1996. Excluding the effects of the A/R Securitization,
working capital at September 30, 1996 would have been $71.2 million. The
ratio of current assets to current liabilities as of September 30, 1996 was
.98 to 1 (1.39 to 1 excluding the A/R Securitization), and as of December
31, 1995 was 1.15 to 1.
Net cash provided by operating activities for the nine months ended
September 30, 1996 was $84.2 million, an increase of $71.9 million from the
prior comparable period in 1995. This increase was primarily due to the net
effect 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 $36.8 million and $15.3 million for the nine
months ended September 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 approximately $45 million
in value of capital equipment in the twelve months ended December 31, 1996,
which acquisitions will be funded by capital expenditures or operating leases.
On November 22, 1995, Big Flower consummated the Offering of 6,724,688
shares of Common Stock, of which 5,500,000 shares were sold by Big Flower
and 1,224,688 shares were sold by stockholders of the Company. A portion of
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.
18
<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 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). In addition, each outstanding option to purchase a share of Class C
Common Stock was converted to an option to purchase two shares of Common
Stock (with any fractional shares rounded up to one full share), and the put
rights of holders of vested shares of Class C Common Stock expired.
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 (other than shares of Class B Common Stock owned by
BTIP), Class C Common Stock and Class D Common Stock and, due to certain
banking law restrictions, a stock dividend of one share of Class B Common
Stock for each outstanding share of Class B Common Stock owned by BTIP.
On November 28, 1995, Treasure Chest entered into the New Credit
Agreement. The New Credit Agreement was amended and restated on March 19,
1996 to add 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 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.
The Company believes that internally-generated funds from operations,
the Restated Credit Agreement and the A/R Securitization will be sufficient to
meet its operating requirements for the next twelve months.
Big Flower has grown through acquisitions, and expects to continue to
seek to acquire businesses in similar or complementary businesses. Such
acquisitions are likely to require the incurrence and/or assumption of
indebtedness and other obligations, the issuance of equity securities or some
combination thereof. In addition, Big Flower may from time to time determine
to sell or otherwise dispose of certain of its existing businesses. However,
Big Flower cannot predict if any transactions will be consummated, nor the
terms or forms of consideration required in such transactions. Big Flower's
recent acquisitions are discussed in Notes 2 and 3 to the Unaudited Condensed
Consolidated Financial Statements included herein.
19
<PAGE>
PART II - OTHER INFORMATION
BIG FLOWER PRESS HOLDINGS, INC.
AND SUBSIDIARIES
Item 1. Legal Proceedings -
-----------------
No reportable developments occurred with respect to legal
proceedings during the quarter ended September 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 -
-----------------
None
Item 6. Exhibits and Reports on Form 8-K -
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, dated October 1, 1996
concerning the Registrant consummating the acquisitions of
Printco, Scanforms and Pacific Color;
(ii) Current Report on Form 8-K/A, dated October 1, 1996
amending the Form 8-K which was filed on October 1, 1996,
to include certain pro forma financial data.
20
<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: November 14, 1996
21
<TABLE> <S> <C>
<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 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR
TO DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,559
<SECURITIES> 0
<RECEIVABLES> 104,845
<ALLOWANCES> 7,967
<INVENTORY> 30,848
<CURRENT-ASSETS> 169,234
<PP&E> 306,449
<DEPRECIATION> 65,695
<TOTAL-ASSETS> 685,117
<CURRENT-LIABILITIES> 173,174
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 80,294
<TOTAL-LIABILITY-AND-EQUITY> 685,117
<SALES> 822,046
<TOTAL-REVENUES> 822,046
<CGS> 702,444
<TOTAL-COSTS> 702,444
<OTHER-EXPENSES> 91,676
<LOSS-PROVISION> 587
<INTEREST-EXPENSE> 27,377
<INCOME-PRETAX> (38)
<INCOME-TAX> 327
<INCOME-CONTINUING> (365)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,892)
<CHANGES> 0
<NET-INCOME> (2,257)
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