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As filed with the Securities and Exchange Commission on October 22, 1996
Registration No. 33-97082
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
ON FORM S-3
TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BIG FLOWER PRESS HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-376-8322
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
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 Principal Executive Offices)
MARK A. ANGELSON, ESQ.
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND
SECRETARY OF THE BOARD
OF DIRECTORS
BIG FLOWER PRESS HOLDINGS, INC.
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
(212) 521-1621
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent For Service)
COPIES TO:
GREGG A. NOEL, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
300 SOUTH GRAND AVENUE, SUITE 3400
LOS ANGELES, CALIFORNIA 90071
(213) 687-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE HEREOF.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
reinvestment plans, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED OCTOBER __, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 21, 1995)
195,000 SHARES
BIG FLOWER PRESS HOLDINGS, INC.
COMMON STOCK
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The 195,000 shares of common stock, par value $.01 per share ("Common
Stock"), of Big Flower Press Holdings, Inc., a Delaware corporation ("Big
Flower"), offered hereby will be sold in negotiated transactions.
The Common Stock is listed on the New York Stock Exchange, Inc. ("NYSE")
under the trading symbol "BGF." The closing sale price of the Common Stock on
the NYSE on October 18, 1996 was $13 1/8 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE S-5 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 9 OF THE PROSPECTUS (AS DEFINED HEREIN) FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COM-
MISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PRO-
SPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS SUPPLEMENT IS OCTOBER __, 1996
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Information contained herein is subject to completion of Amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. This Prospectus Supplement and the
prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to negotiation
or qualification under the securities laws of any such State.
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AVAILABLE INFORMATION
Big Flower has filed with the Securities and Exchange Commission (the
"Commission") Post-Effective Amendment No. 1 on Form S-3 to the Registration
Statement on Form S-1 (together with all amendments, supplements, exhibits and
schedules thereto the "Registration Statement") under the Securities Act of
1933, as amended (the "Act") with respect to the shares of Common Stock offered
hereby. This Prospectus Supplement and the Prospectus dated November 21, 1995,
which is part of the Registration Statement, which Registration Statement
includes the documents incorporated by reference herein (collectively, the
"Prospectus"), does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to such exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
Big Flower is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Reports and
other information filed by Big Flower with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the regional
offices of the Commission at 7 World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The Commission also maintains a World Wide Web site that contains such reports,
proxy and information statements and other information at http://www.sec.gov.
In addition, such material may also be inspected at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by Big Flower with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference, except as
superseded or modified herein:
1. The description of Big Flower's capital stock which is contained in
Big Flower's Registration Statement on Form 8-A, dated November 14,
1995;
2. The description of Big Flower's preferred stock purchase rights which
is contained in Big Flower's Registration Statement on Form 8-A, dated
November 14, 1995, and Form 8-A/A, dated November 29, 1995;
3. Big Flower's Transition Report on Form 10-K for the transition period
from July 1, 1995 to December 31, 1995;
4. Big Flower's Amendment No. 1 to the Transition Report on Form 10-K/A
for the transition period from July 1, 1995 to December 31, 1995,
filed on June 24, 1996;
5. Big Flower's Amendment No. 2 to the Transition Report on Form 10-K/A
for the transition period from July 1, 1995 to December 31, 1995,
filed on August 27, 1996;
6. Big Flower's Current Report on Form 8-K, dated February 1, 1996;
7. Big Flower's Current Report on Form 8-K, dated March 14, 1996;
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8. Big Flower's Current Report on Form 8-K/A, dated March 14, 1996;
9. Big Flower's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996;
10. Big Flower's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996;
11. Pro Forma Condensed Combined Financial Information, and the
related Notes thereto; and PrintCo., Inc. Financial Statements, and
the related Notes thereto as of December 31, 1995 and 1994 and for the
years then ended, all of which are contained in Big Flower's and
Scanform's Proxy Statement/Prospectus, dated September 6, 1996,
forming part of Big Flower's Registration Statement on Form S-4, dated
September 6, 1996;
12. Big Flower's Proxy Statement for its Annual Meeting of Stockholders
filed on October 4, 1996;
13. Big Flower's Current Report on Form 8-K, dated October 1, 1996;
14. Big Flower's Current Report on Form 8-K/A, dated October 1, 1996;
15. Scanforms, Inc. and Subsidiary Financial Statements and Financial
Statement Schedules, and the related Notes thereto, filed with
Scanforms, Inc. Annual Report on Form 10-K for the year ended October
1, 1995; and
16. Scanforms, Inc. Financial Statements, and the related Notes thereto,
filed with Scanforms, Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
All documents filed by Big Flower pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus Supplement
and prior to the termination of the offering of the shares of Common Stock to
which this Prospectus Supplement relates shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus
Supplement.
Big Flower will provide a copy of the documents incorporated by reference
herein (other than exhibits to such documents) without charge to each person,
including any beneficial owner, to whom this Prospectus Supplement is delivered,
upon written or oral request by such person. Requests should be addressed to:
Big Flower Press Holdings, Inc., 3 East 54th Street, New York, New York 10022,
Attention: Mark A. Angelson (telephone number (212) 521-1600).
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THE FOLLOWING IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN, AND
INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS SUPPLEMENT. UNLESS THE CONTEXT
INDICATES OTHERWISE, REFERENCES TO THE "COMPANY" INCLUDE BIG FLOWER AND ITS
SUBSIDIARIES. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS 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
"RISK FACTORS" HEREIN, AS WELL AS WITHIN THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS GENERALLY. IN ADDITION, WHEN USED IN THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS, 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 THE 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 THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS 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.
THE COMPANY
The Company has three principal operating units: Treasure Chest
Advertising Company, Inc. ("Treasure Chest"), Laser Tech Color, Inc. ("Laser
Tech"), and Webcraft Technologies, Inc. ("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 is a leading provider of high quality electronic pre-media and
conventional graphics services. Webcraft is a market leader in producing and
marketing highly customized direct mail and other advertising products, and the
Company believes Webcraft is the largest in-line direct mail producer in the
United States. Although each of the Company's operating units provide a variety
of services to its customers, the majority of each operating unit's business is
comprised of providing advertising and marketing-related information services.
Treasure Chest, established in 1967, was one of the first companies to
produce and market advertising circulars in the United States. In 1982,
Treasure Chest expanded its business with the introduction of newspaper TV
listing guides and Sunday comics. Treasure Chest was acquired by Big Flower in
August 1993. In April 1994, Treasure Chest acquired KTB Associates, Inc.
("KTB") and Retail Graphics Holdings Company ("Retail Graphics"), increasing its
net sales in its fiscal year ended June 30, 1994 by more than 36% on a pro forma
basis. In calendar 1995, the Company produced more than 22.4 billion
advertising circulars, 1.5 billion Sunday comics and 616 million newspaper TV
listing guides.
In November 1995, the Company acquired Laser Tech, a leading provider of
high quality electronic pre-media and conventional graphics services to
advertising agencies, retailers, magazine publishers, and consumer products
companies. Laser Tech provides a full range of electronic pre-media services
and digital advertising services including illustration, design, digital
photographic capture, data warehousing and retrieval and on-site facilities
management.
In March 1996, the Company acquired Webcraft, which has leading market
positions in such specialty product markets as highly customized direct mail,
fragrance samplers, promotional stamps and scratch-off lottery tickets.
Webcraft's non-specialty products include enhanced envelopes and government
forms.
On October 1, 1996, Treasure Chest acquired PrintCo., Inc. ("Printco"), a
producer of newspaper advertising inserts, TV listing guides and other newspaper
products. Printco is headquartered in Greenville, Michigan, and offers
printing, finishing and pre-media services to a variety of customers.
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On October 4, 1996, a wholly-owned subsidiary of the Company merged with
Scanforms, Inc. ("Scanforms"), a full-service provider of direct mail
advertising with in-house forms manufacturing, laser and impact computer
personalization, bindery and mailing services. Scanforms' special capabilities
include up to ten color web heatset four color process printing, hot foil
stamping and embossing, die cutting, pressure sensitive labeling, tipped on
plastic and paper cards and remoist gluing.
October 7, 1996, Laser Tech acquired Pacific Color Connection, Inc.
("Pacific Color"), a provider of digital pre-media services for the advertising
and retail industries. Earlier this year, Pacific Color launched two new
businesses, Innerlogic, an internet group, and Big Color, a large format
advertising products group which services the outdoor advertising industry.
On March 21, 1996, Big Flower's Board of Directors elected to change the
Company's fiscal year from a 12-month period ending June 30th to a calendar
year.
Big Flower is a Delaware corporation with its principal executive offices
at 3 East 54th Street, New York, New York 10022; telephone (212) 521-1600.
RISK FACTORS
Prospective purchasers of the Common Stock should carefully review the
information contained elsewhere in, and incorporated by reference into, this
Prospectus Supplement and should particularly consider the following matters.
COMPETITION
Although commercial printing in the United States remains highly
fragmented, recent technological developments and over-capacity in the printing
industry have increased industry consolidation and competitive pressures. The
Company believes the major competitive elements in the printing business, as
well as the Company's principal methods of competition, are pricing, quality,
timeliness of delivery and customer service. Pricing is dependent in large part
upon the prices of paper and ink, which are the major components of the
Company's product. Pricing is also influenced by shipping costs, operating
efficiencies and the Company's ability to control costs. See - "Raw Materials-
Paper."
The advertising circular industry is highly fragmented, and Treasure Chest
competes with numerous regional and local printers for the printing of
advertising circulars. Treasure Chest also competes for national accounts with
several large printers, some of which have greater resources than the Company.
In addition, Treasure Chest's products compete with television, radio and other
forms of print media. Treasure Chest has one major competitor in the printing
of Sunday comics in the United States which is Sullivan Graphics, a division of
Sullivan Communications Incorporated, although numerous newspapers print their
own Sunday comics. Treasure Chest's newspaper TV listing guides, Sunday magazine
and newspaper supplement operations also face strong competition both from other
printers and newspapers. Treasure Chest's major competitors are R.R. Donnelley
& Sons Company, Quebecor Printing Corporation and Sullivan Communications
Incorporated.
In the electronic pre-media services market, Laser Tech's major competitors
are Applied Graphic Technologies, Inc., Wace USA and Schawk Graphics. Like
commercial printing, the pre-media industry is highly fragmented and undergoing
a period of consolidation. Pre-media manufacturing requires high degrees of
color management expertise applied to very large image data files. The
acceleration of digital manufacturing methodologies has necessitated greater
data processing expertise, as well as comparatively greater capital expenditure.
Webcraft competes with a number of different firms in each of its principal
lines of business. The primary competitive factors in its specialty market are
quality, flexibility, service, timeliness of delivery and price. However, in
certain non-specialty markets, such as the enhanced envelope and government
printing
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markets, price is often the dominant factor. In the personalized direct mail
market Webcraft's major competitors are Response Graphics, a division of Moore
Business Forms, Inc., and Communicolor, a division of Wallace Computer Services
Inc. Lottery contracts are awarded to printers through a competitive bidding
process based on preset criteria including product, security plan and features,
experience, service, quality and price. There can be no assurance that the
lottery contracts the Company currently has will be extended once their term has
expired. In the lottery market, Webcraft's major competitors are Scientific
Games, Inc., Dittler Brothers, Inc. and British American Bank Note. In the
fragrance sampler market, Webcraft believes that its major competitor is Arcade,
Inc.
RAW MATERIALS -- PAPER
The Company's results of operations are significantly impacted by the cost
of paper, and the ability of the Company to pass along any increases in the cost
of paper to its customers. During the twelve months ended June 30, 1995, the
Company experienced substantial increases in the cost of its paper but was able
to effectively pass on the paper cost increases to its customers. 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. To the
extent that there are future paper cost increases and the Company is not able to
pass such increases to its customers or its customers reduce the size of their
print advertising programs, the Company's results of operations could be
materially adversely affected.
Moreover, any loss of the sources for paper supply or any disruption in
such sources' business or failure by them to meet the Company's product needs on
a timely basis could cause, at a minimum, temporary shortages in needed
materials which could have a material adverse effect on the Company's results of
operations. Although the Company actively manages its paper supply and has
established strong relationships with its suppliers, which include many of the
leading paper companies in North America, there can be no assurance that the
Company's sources of supply for its paper will be adequate or, in the event that
such sources are not adequate, that alternative sources can be developed in a
timely manner.
ENVIRONMENTAL REGULATION
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances (together,
"Environmental Laws").
The Company uses certain substances and generates certain wastes that are
regulated or may be deemed hazardous under applicable Environmental Laws. From
time to time, operations of the Company have resulted or may result in certain
non-compliance with applicable requirements under the Environmental Laws.
However, the Company believes, based on currently available information, that
any such non-compliance under current Environmental Laws would not have a
material adverse effect on the Company's results of operations and financial
condition. However, there can be no assurance that such matters will not
ultimately have such an effect.
The Company's acquisition of Webcraft resulted in certain obligations under
the New Jersey Industrial Site Recovery Act, formerly known as the Environmental
Cleanup Responsibility Act (together, "ISRA"), which is triggered by the
transfer of industrial property. For all but three sites, the New Jersey
Department of Environmental Protection ("NJDEP") approved the transfer of
Webcraft's facilities without requiring any further investigatory or cleanup
work under ISRA. At two sites, Webcraft and the NJDEP agreed that Webcraft
would
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continue to maintain financial guarantees that were previously established
pursuant to ISRA (in the amount of $100,000 for one facility and $1,000,000 for
the second), continue site investigations that were already underway, and
institute remediation measures as appropriate, based on its investigations. At
the third site, Webcraft established a nominal financial guarantee which the
Company believes will be sufficient to cover the costs of investigating and
remediating any contamination discovered there. The Company has obtained an
indemnification from the selling shareholders of Webcraft for certain costs
resulting from pre-existing conditions pertaining to Webcraft, including but not
limited to environmental matters. This indemnification is subject to certain
limitations, including threshold requirements and a maximum liability cap of
$4.8 million. With respect to Webcraft's ISRA obligations, the Company believes,
based on the indemnification agreement, as well as potential contribution from a
third party for contamination at one such site, and existing cost estimates for
all such sites, that its liability for such matters will not have a material
adverse effect on the Company's consolidated financial position or results of
operations. However, there can be no assurance that such matters will not
ultimately have such an effect.
Treasure Chest and Webcraft have been identified as potentially responsible
parties ("PRPs") for the cleanup of contamination resulting from disposals of
hazardous waste pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA" or "Superfund")
and analogous state laws. Courts have interpreted CERCLA to impose strict, joint
and several liability upon all persons liable for response costs at a cleanup
site if the harm at the site is indivisible. This generally means that each
responsible party could be held liable for the entire costs of the necessary
response actions at a Superfund site. As a practical matter, however, at sites
where there are multiple PRPs for a cleanup, the costs of cleanup typically are
allocated, according to a volumetric or other standard, among the parties.
CERCLA also provides that responsible parties generally may seek contribution
for the costs of cleaning up a site from other responsible parties. Thus, if one
party is required to clean up an entire site, that party can seek reimbursement
or recovery of such costs from other responsible parties.
Treasure Chest has been identified as a PRP at two sites pursuant to
CERCLA, and one additional site pursuant to analogous state laws, to which sites
Treasure Chest, among others, sent waste in the past. Treasure Chest believes
that, with respect to one site, its liability will not be material, and the
Company has established a nominal reserve to cover any such liability. With
respect to the other two sites, Treasure Chest believes that it is, or may be
responsible for a very minor portion, if any, of the total cleanup costs at each
such site. As a result, based on a review of the data available to the Company
regarding each such site, including the number and viability of other PRPs, the
minor volumes of waste which Treasure Chest is alleged to have contributed, the
range of likely cleanup costs, and a comparison of Treasure Chest's alleged
liability at each such site to settlements previously reached by Treasure Chest
in similar cases, the Company believes that such matters will not result in
liabilities or expenditures that will have a material adverse effect on the
Company's consolidated financial position or results of operations. Nonetheless,
because neither the final total cleanup costs at each of the remaining sites
have been ascertained nor Treasure Chest's final proportionate share determined,
there can be no assurance that such matters, or any similar liabilities that
arise in the future, will not ultimately have such an effect.
Webcraft has been identified as a PRP at one site pursuant to CERCLA and
analogous state law, to which site Webcraft, among others, sent waste in the
past. Based on the minor volumes of waste which Webcraft is alleged to have
contributed, the range of likely cleanup costs, and the indemnification
agreement between the Company and the selling shareholders of Webcraft, the
Company believes that this matter will not result in liabilities or expenditures
that will have a material adverse effect on the Company's consolidated financial
position or results of operations. However, because neither the final total
cleanup costs at this site have been ascertained nor Webcraft's final
proportionate share determined, there can be no assurance that such matters, or
any similar
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liabilities that arise in the future, will not ultimately have such an effect.
In addition, in 1990, the United States Environmental Protection Agency (the
"EPA") identified Webcraft as a PRP, among others, pursuant to CERCLA for
regional groundwater contamination in the vicinity of Webcraft's Chalfont,
Pennsylvania facility. Webcraft responded to the EPA notice disclaiming any
responsibility for such contamination. As of the present time, Webcraft has
heard nothing further from the EPA regarding this matter. Based on an
indemnification agreement with the prior site owner, as well as the
indemnification agreement with the selling shareholders of Webcraft, the Company
believes that its liability, if any, at this site will not be material. However,
there can be no assurance that this matter will not ultimately have such an
effect.
HIGH LEVEL OF INDEBTEDNESS
In connection with the acquisitions of Treasure Chest, KTB, Retail
Graphics, Laser Tech and Webcraft (the "Transactions"), Big Flower incurred a
significant amount of indebtedness. At June 30, 1996, Big Flower's indebtedness
was approximately $384.6 million and its total stockholders' equity was
approximately $77.2 million. Subsequent to June 30, 1996, Big Flower borrowed
an additional $4.5 million, $50.7 million and $20.5 million to fund its
acquisitions (including repayments of debt) of Scanforms, Printco and Pacific
Color, respectively. In addition, the Company has significant commitments
under operating leases and approximately $75 million was outstanding under
Big Flower's securitized financing whereby certificates secured by Big Flower's
receivables were originally purchased by Bankers Trust Company and Credit
Suisse. See note 11 of the notes to consolidated financial statements of
Big Flower relating to future lease commitments. At June 30, 1996, the
Company had approximately $149.5 million of borrowing capacity for acquisitions,
working capital and capital expenditures under its loan agreement. In addition,
the Company could incur additional indebtedness, which amounts could be
significant, in connection with any future acquisitions. The level of the
Company's indebtedness could have important consequences to stockholders,
including: (i) a substantial portion of the Company's cash flow from operations
must be dedicated to debt service and will not be available for other purposes;
(ii) the Company's ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions may be limited;
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to changes in the printing industry and economic conditions generally;
and (iv) the Company is subject to restrictions on the ability of the Company
to pay dividends. Certain of the Company's competitors currently operate on
a less leveraged basis, and have significantly greater operating and financing
flexibility, than the Company.
CONTROL
R. Theodore Ammon (Chairman of the Board of Big Flower) and Apollo Big
Flower Partners, L.P. ("Apollo") beneficially own approximately 15.2% and 30.4%,
respectively, of the outstanding Common Stock, excluding in such calculations
1,738,692 shares of non-voting Class B Stock, which under certain circumstances
is convertible into Common Stock. As a result of such ownership and certain
provisions of Big Flower's Restated Certificate of Incorporation (the
"Certificate"), Amended and Restated Bylaws (the "Bylaws"), and the Shareholders
Rights Plan (the "Rights Plan"), Mr. Ammon and Apollo could have the ability to
effectively control the Company. See "--Anti-takeover Effects of Provisions of
the Restated Certificate of Incorporation, Bylaws and Rights Plan."
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CERTIFICATE OF
INCORPORATION, BYLAWS AND RIGHTS PLAN
Certain provisions of the Certificate and Bylaws may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that a
stockholder might consider in its best interest. Among other things, these
provisions (i) classify the Company's Board of Directors into three classes,
each of which will serve for different three-year periods, (ii) provide that
only the Board of Directors or certain members thereof or
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officers of the Company may call special meetings of the stockholders, (iii)
eliminate the ability of the stockholders to take any action without a meeting,
and (iv) provide for an 85% supermajority vote of holders of Common Stock to
remove directors (who may be removed only for cause) and to amend such
provisions or the Bylaws. In addition, the Bylaws establish certain advance
notice procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders' meetings. The Company
has also adopted a Rights Plan designed to prevent any person or group from
acquiring beneficial ownership of 15% or more of the Common Stock without the
prior approval of the Company's Board of Directors.
PLAN OF DISTRIBUTION
BT Securities Corporation originally acquired the shares of Common
Stock offered hereby in Big Flower's initial public offering of 6,724,688
shares on November 21, 1995. BT Securities Corporation has advised Big Flower
that it will sell the shares of Common Stock offered hereby in negotiated
transactions to certain members of Big Flower's management and institutional
investors.
LEGAL MATTERS
Certain legal matters with respect to the shares of the Common Stock
offered hereby have been passed upon for Big Flower by Skadden, Arps, Slate,
Meagher & Flom, Los Angeles, California.
EXPERTS
The consolidated financial statements of Big Flower and Treasure Chest and
the related consolidated financial statement schedules for the year ended
December 31, 1995 included in Big Flower's Transition Report on Form 10-K for
the transition period from July 1, 1995 to December 31, 1995 and incorporated
herein by reference have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, appearing therein and incorporated by
reference herein. Such consolidated financial statements and related financial
statement schedules are incorporated by reference herein in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Webcraft at December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995
included in Big Flower's Current Report on Form 8-K reporting an event on March
14, 1996 which is incorporated by reference herein have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated therein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and consolidated financial statement
schedule of Scanforms at October 1, 1995, and for each of the three years in
the period ended October 1, 1995, included in Scanforms' Annual Report on
Form 10-K for the year ended October 1, 1995, which is incorporated by
reference herein, have been audited by Grant Thornton LLP, independent auditors,
as set forth in their reports thereon included therein and incorporated herein
by reference. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The financial statements of PrintCo., Inc. as of December 31, 1995 and 1994
and for the years then ended appearing in Big Flower's and Scanforms' Proxy
Statement/Prospectus dated September 6, 1996, which financial statements are
incorporated by reference herein, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report thereon included
therein and incorporated herein by reference. Such
S-9
<PAGE>
financial statements are incorporated herein by reference in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
S-10
<PAGE>
[LOGO]
6,724,688 SHARES
BIG FLOWER PRESS HOLDINGS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
Of the 6,724,688 shares of Common Stock offered, 5,379,750 shares are being
offered in the United States and 1,344,938 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the underwriting discount per share will be identical for
both offerings. See "Underwriting".
Of the 6,724,688 shares of Common Stock offered, 5,500,000 shares are being
sold by the Company and 1,224,688 shares are being sold by certain of the
Selling Stockholders. See "Ownership of Common Stock and Selling Stockholders".
The Company will not receive any of the proceeds from the sale of the shares
being sold by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of Big Flower. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock offered hereby has been approved for listing, subject to
notice of issuance, on the New York Stock Exchange under the symbol "BGF".
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
---------------- ---------------- -------------- --------------------
<S> <C> <C> <C> <C>
Per Share............................. $16.00 $0.98 $15.02 $15.02
Total(3).............................. $107,595,008 $6,590,194 $82,610,000 $18,394,814
</TABLE>
- -------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $2,000,000 payable by the Company.
(3) Certain of the Selling Stockholders have granted the Underwriters an option
for 30 days to purchase up to an additional 1,008,703 shares at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. If such option is exercised in full, the total
initial public offering price, underwriting discount and proceeds to such
Selling Stockholders will be $16,139,248, $988,529 and $15,150,719,
respectively. See "Underwriting".
-------------------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
November 28, 1995.
GOLDMAN, SACHS & CO. BT SECURITIES CORPORATION
------------
The date of this Prospectus is November 21, 1995.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I)
ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED; (II)
GIVES EFFECT TO THE COMPLETION OF THE TRANSACTIONS DESCRIBED UNDER
"RECAPITALIZATION", WHICH WILL BE EFFECTED IMMEDIATELY PRIOR TO, OR
SIMULTANEOUSLY WITH, THE CONSUMMATION OF THE OFFERINGS; AND (III) HAS BEEN
ADJUSTED TO REFLECT A STOCK SPLIT EFFECTED ON APRIL 27, 1994. REFERENCES TO "BIG
FLOWER" MEANS BIG FLOWER PRESS HOLDINGS, INC., AND UNLESS THE CONTEXT INDICATES
OTHERWISE, REFERENCES TO THE "COMPANY" INCLUDE BIG FLOWER AND ITS SUBSIDIARIES.
THE COMPANY
The Company is a leading producer and marketer of advertising circulars,
newspaper TV listing guides and Sunday comics in the United States. In the
fiscal year ended June 30, 1995, the Company produced more than 21 billion
advertising circulars, 1.5 billion Sunday comics and 535 million newspaper TV
listing guides. During fiscal 1995, the Company generated net sales of $896.6
million and operating profit of $48.3 million. The Company operates a national
network of 20 production facilities with 122 heatset and cold web offset
presses, enabling it to market an array of highly flexible printing services
meeting the diverse needs of its customers.
Advertising circulars are printed advertisements inserted in newspapers,
mailed to consumers or distributed in stores. These products represented
approximately 86% of the Company's net sales in fiscal 1995. Major advertising
circular customers include many leading U.S. retailers such as American Stores,
Circuit City, Home Depot, J.C. Penney, Kmart, Lowes, Montgomery Ward, Safeway,
Sears, Walgreens and Wal-Mart. The Company believes it is the largest producer
of advertising circulars in the United States.
The Company also prints TV listing guides, Sunday comics, Sunday magazines
and/or special supplements for approximately two-thirds of the 50 most
widely-circulated newspapers in the United States. These newspapers include The
Baltimore Sun, The Boston Globe, The Los Angeles Times, The New York Times, The
Philadelphia Inquirer and The Newark Star Ledger. Providing printing services to
approximately 300 newspapers nationwide, the Company is the largest printer of
newspaper TV listing guides and Sunday comics in the United States. Newspaper TV
listing guides, Sunday comics, other newspaper products and other publications
represented approximately 14% of the Company's net sales in fiscal 1995.
Big Flower's principal subsidiary, Treasure Chest Advertising Company, Inc.
("Treasure Chest"), established in 1967, was one of the first commercial
printers specializing in advertising circulars in the United States. In 1982,
Treasure Chest expanded its business with the introduction of newspaper TV
listings guides and Sunday comics. Treasure Chest was acquired by Big Flower in
August 1993. In 1994, the Company acquired KTB Associates, Inc. ("KTB") and
Retail Graphics Holding Company ("Retail Graphics"), increasing its net sales in
fiscal 1994 by more than 36% on a pro forma basis.
MARKET BACKGROUND
Based on recent industry studies, the Company believes the U.S. market for
advertising circulars exceeds $3.8 billion and has grown at a faster rate in
recent years than overall newspaper advertising expenditures as well as overall
advertising expenditures. Advertising circulars are a low cost, flexible and
highly effective advertising medium for retailers. Management believes that the
costs associated with advertising circulars have increased at a slower rate over
the past five years than the costs associated with advertising in alternative
media, such as radio and television, thus enhancing the relative cost
effectiveness of such circulars for advertisers. Industry research indicates
that more than 75% of consumers read advertising circulars appearing in their
Sunday newspaper. A recent Gallup Poll indicated 59% of respondents used
advertising circulars once a month or more to make buying decisions and that 25%
used advertising circulars on a consistent, weekly basis to make buying
decisions.
3
<PAGE>
The Company believes that Big Flower and three other companies account for
approximately 50% of the advertising circular market in the United States, with
more than 130 regional and local printers accounting for the balance. Management
believes that the Company's national network of printing facilities, advanced
marketing services and ability to produce high quality products at a low cost
will enable it to continue to compete effectively in this environment. See
"Business--Competition".
In recent years, newspapers have increased their emphasis on TV listing
guides, Sunday comics and other products to enhance circulation in a competitive
market. The Company believes that these publications represent attractive media
for advertisers. For example, a recent industry study indicated that more than
70% of respondents keep the TV listing guide from their Sunday newspaper for
future consultation, creating opportunities for multiple viewings of
advertisements carried in such publications. See "Business--Competition".
BUSINESS STRATEGY
The Company's business strategy is to increase revenues and maximize
profitability in its core business of printing advertising circulars and
newspaper publications. The strategy is also focused on achieving additional
revenue growth through the development of new products and services and through
strategic acquisitions and investments.
The cornerstone of this strategy is the continued development of a high
quality sales, marketing and printing organization with an emphasis on assisting
customers in maximizing the effectiveness of their advertising dollars. This
customer focus is designed to increase demand for the Company's products and
services. The Company believes it is well positioned to realize further gains
due to its nationwide printing network and competitive cost position.
NATIONWIDE PRINTING NETWORK. The Company operates a nationwide network of
sales offices and printing plants which are strategically located to service
major population centers throughout the United States. As the only advertising
circular printer offering a national network of both heatset and cold web offset
printing locations, the Company is able to meet the diverse needs of its
customers and achieve significant cost and distribution advantages.
COMPETITIVE COST POSITION. The Company maintains stringent cost controls
and has implemented programs to enhance efficiency and improve profitability in
recent years. These programs have resulted in increased press speeds, reduced
paper waste and improved capacity utilization. As one of the largest consumers
of newsprint and ink in the United States, the Company believes it is able to
achieve significant purchasing economies under most market conditions.
The Company believes it has significant opportunities to generate new
sources of revenue through the following initiatives:
ENHANCED IMAGE MANAGEMENT SYSTEMS AND ELECTRONIC PRE-PRESS SERVICES. The
Company is designing an interactive image management system which would link
advertisers and graphic designers with a database of images to streamline
production flows and provide information to help customers plan their
advertising programs more effectively. The Company is also enhancing its
computerized electronic pre-press ("EPP") services. Such services provide
customers the flexibility of changing their print advertisements through on-line
connections from their offices and enable the Company to service its customers
from inception of an advertising concept through layout design to final press
run. See "Recent Developments" for information regarding the proposed
acquisition (the "LTC Acquisition") of Laser Tech Color, Inc. ("Laser Tech"), a
pre-press company.
DATABASE PROGRAM. The Company is developing a database information system
designed to enable advertisers to use advertising circulars to target messages
specifically to potential customers meeting the advertisers' desired geographic,
demographic and purchase pattern profiles, resulting in more cost-effective
advertising.
NEWSPAPER TV LISTING GUIDES PROGRAMS. The Company currently offers a
variety of programs to increase newspaper revenues by including advertising in
their TV listing guides. These programs
4
<PAGE>
include bound-in inserts, cover wraps, pullout or stand-alone inserts and
promotional ink jet numbering. In addition, the Company has organized a network
of newspapers in the western part of the United States which it is marketing as
an effective way for advertisers to include regional advertising in newspaper TV
listing guides. The Company will seek to establish similar networks in other
regions of the United States.
STRATEGIC ACQUISITIONS AND INVESTMENTS. The Company routinely reviews
opportunities to acquire businesses with operations in its core business of
printing advertising circulars and newspaper publications. In addition, the
Company may seek to acquire or invest in businesses operating in other segments
of the printing industry, including free-standing pre-press businesses. Upon the
consummation of the Offerings, the Company will have significant borrowing
capacity for acquisitions. See "Use of Proceeds" and "Bank Refinancing". The
Company is currently negotiating a stock purchase agreement for the LTC
Acquisition. If consummated, the Company expects that it will continue to have
significant borrowing capacity for acquisitions. The Company does not have a
binding commitment for the LTC Acquisition and no assurance can be given that
such acquisition will be consummated. See "--Recent Developments".
RECENT DEVELOPMENTS
The Company is currently negotiating a stock purchase agreement to acquire
Laser Tech. Laser Tech is a pre-press company which provides high quality
electronic and conventional graphic services for the advertising, trading card
and printed collectibles, catalog and packaging industries. Services include
digital and conventional photography, image scanning, digital image archiving
through electronic databases, computerized image retouching, desktop publishing,
and flexographic pre-press services for such industries. Laser Tech's customers
include some of the leading U.S. advertisers and packagers, including Compaq
Computer, J.C. Penney, Mary Kay Cosmetics, Marvel Holdings, Pepsico and Tyson
Foods.
During its fiscal year ended December 31, 1994 and for the nine-month period
ended September 30, 1995, Laser Tech generated net sales of $18.3 million and
$17.6 million, respectively, and operating profit of $2.0 million and $2.5
million, respectively. As of October 1, 1995, Laser Tech had 200 employees.
The Company expects to acquire Laser Tech for approximately $31.3 million,
of which $3.0 million will be paid in cash, $18.1 million will be paid in a note
due in January, 1996, $4.5 million will be paid in shares of Common Stock based
on the trading price of the Common Stock at or about the time of the closing of
the LTC Acquisition (or, if the closing of the LTC Acquisition is at or prior to
the closing of the Offerings, at the initial public offering price on the cover
page of this Prospectus) and $5.7 million will be used to repay indebtedness of
Laser Tech. The final cash portion of the purchase price may be adjusted at or
after the closing of the LTC Acquisition based on changes in Laser Tech's
balance sheet.
Sullivan Communications, Inc. ("SCI") has alleged that the LTC Acquisition
violates a confidentiality agreement that was entered into between Big Flower
and SCI (the "Confidentiality Agreement") in connection with a proposed merger
between the two companies. The discussions regarding such proposed merger were
terminated in May 1995. In a letter dated November 8, 1995, SCI alleged that the
Company used information about Laser Tech that the Company learned during its
merger discussions with SCI in violation of the Confidentiality Agreement. In
such letter, SCI further claimed that the Company solicited two employees to
leave SCI to work for Laser Tech in violation of the Confidentiality Agreement.
SCI indicated that it would pursue all available remedies for any breach of the
Confidentiality Agreement. The Company understands that if SCI files a lawsuit
it may seek to recover damages or obtain injunctive relief. The Company believes
that SCI's claims as set forth in its letter are without merit. If any lawsuit
is filed, the Company intends to vigorously defend itself and does not believe
that any such lawsuit would have a material adverse effect on the financial
condition of the Company. There can be no assurance, however, that the Company
would prevail in any such lawsuit or that any such lawsuit would not delay the
LTC Acquisition.
5
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock initially offered in(1):
The U.S. Offering.......................... 5,379,750 shares
The International Offering................. 1,344,938 shares
Common Stock to be outstanding
after Offerings............................ 16,173,187 shares (2)
Use of net proceeds.......................... The net proceeds received by the Company,
together with borrowings under the New Credit
Agreement (as defined), will be used to
redeem or retire approximately $213.2 million
indebtedness of the Company, and to
repurchase all outstanding preferred stock of
Big Flower Press, Inc. ("BFP"), a wholly
owned subsidiary of Big Flower and the parent
of Treasure Chest, which will be merged with
and into Big Flower in connection with the
Offerings. The Company will not receive any
of the proceeds of the shares sold by the
Selling Stockholders. See "Use of Proceeds"
and "Bank Refinancing".
</TABLE>
- --------------
(1) Of the 6,724,688 shares of Common Stock offered, 5,500,000 shares are being
sold by Big Flower and 1,224,688 shares are being sold by certain
institutional investors (the "Institutional Investors"). Does not include
shares of Common Stock which may be purchased from Apollo Big Flower
Partners, L.P. ("Apollo") and BT Investment Partners, Inc. ("BTIP", and
together with Apollo and the Institutional Investors, the "Selling
Stockholders") pursuant to the Underwriters' over-allotment option.
(2) Includes 1,738,692 shares issuable in certain circumstances upon conversion
of non-voting Class B Common Stock, par value of $0.01 per share (the "Class
B Stock"), of Big Flower held by BTIP. See "Description of Capital
Stock--Class B Stock". Does not include (i) 861,769 shares of Common Stock
reserved for issuance upon the exercise of stock options, of which 248,569
stock options are presently exercisable or will become exercisable in
January 1996 or (ii) approximately 281,250 shares of Common Stock issuable
in the LTC Acquisition assuming a price of $16 per share. See
"Management--Incentive and Bonus Plans" and "Recent Developments".
The closing of the offering of 5,379,750 shares of Common Stock being
offered in the United States (the "U.S. Offering") is conditioned upon the
closing of the offering of 1,344,938 shares of the Common Stock being offered
outside the United States (the "International Offering"), and vice versa. Such
offerings are referred to collectively as the "Offerings".
RISK FACTORS
An investment in the Common Stock involves significant risks that a
potential investor should carefully consider. See "Risk Factors".
6
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth summary historical and pro forma financial
data of Treasure Chest and its subsidiaries prior to its acquisition by Big
Flower ("Predecessor Treasure Chest") and of Big Flower and its subsidiaries
(including Treasure Chest) following Big Flower's acquisition of Treasure Chest.
The summary historical operating and balance sheet data as of and for each of
the three fiscal years in the period ended June 30, 1993 and for the 42 days
ended August 11, 1993 were derived from the audited consolidated financial
statements of Predecessor Treasure Chest. The summary historical financial data
of Big Flower as of and for the 323 day period ended June 30, 1994 and for the
fiscal year ended June 30, 1995 were derived from the audited consolidated
financial statements of Big Flower. The summary historical financial data of Big
Flower for the three months ended September 30, 1994 and 1995 were derived from
the unaudited financial statements of Big Flower, which, in the opinion of
management, include all adjustments (consisting only of normal recurring
accruals) necessary for the fair presentation of the financial data for such
periods. The results of the interim periods are not necessarily indicative of
the results to be expected for the full fiscal year. For additional information,
see the consolidated financial statements of Predecessor Treasure Chest and Big
Flower and the notes thereto included elsewhere in this Prospectus. The pro
forma balance sheet data as of September 30, 1995 give effect to the pro forma
adjustments to reflect the Offerings, the New Credit Agreement, the transactions
referred to under "Use of Proceeds" and the LTC Acquisition as if they had
occurred on September 30, 1995. The pro forma operating data of Big Flower for
the fiscal year ended June 30, 1995 and for the three months ended September 30,
1995 give effect to pro forma adjustments to reflect the Offerings, the New
Credit Agreement, the transactions referred to under "Use of Proceeds" and the
LTC Acquisition as if they had occurred on July 1, 1994. The pro forma financial
data should not be considered indicative of actual results that would have been
achieved had the Offerings, the New Credit Agreement, the transactions referred
to under "Use of Proceeds" and the LTC Acquisition been consummated on July 1,
1994 and do not purport to indicate results of operations for any future period.
The summary historical financial data should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
BIG FLOWER
-----------------------------------------------------------------
PREDECESSOR TREASURE CHEST PRO FORMA
-------------------------------------- PRO FORMA THREE THREE THREE
42 DAYS 323 DAYS YEAR YEAR MONTHS MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED ENDED ENDED ENDED ENDED ENDED
---------------------------- AUG. 11, JUNE 30, JUNE 30, JUNE 30, SEPT. 30, SEPT. 30, SEPT. 30,
1991 1992 1993 1993 1994 1995 1995(A) 1994 1995 1995(A)
-------- -------- -------- -------- -------- -------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales........... $529,605 $536,113 $555,013 $59,584 $565,046 $896,595 $918,276 $210,458 $242,066 $248,404
Gross profit........ 46,009 62,621 63,328 4,892 71,971 118,867 128,346 26,166 32,103 34,887
Selling, general and
administrative
expense........... 34,380 39,146 40,892 4,227 48,777 70,587 77,239 15,981 15,823 17,688
Interest
expense(b)........ 12,145 9,249 6,792 578 19,350 37,049 27,225 8,940 9,468 7,537
Income (loss) before
income taxes...... (4,551) 7,696 10,204 (228) (2,678 ) 2,793 18,754 (484) 5,179 8,824
Net income (loss)... (4,211) 4,196 4,685 (139) (4,442 ) (3,046) 7,322 (1,084) 2,379 4,747
Net income (loss)
per common and
common equivalent
share(c).......... (.46 ) (.28) 0.44 (.10) .21 0.28
Average shares
outstanding(c).... 9,668 10,832 16,613 10,880 11,083 16,865
OTHER DATA:
EBITDA(d)........... $ 22,978 $ 37,115 $ 34,560(e) $ 1,901 $50,312 $89,756 $ 20,701 $ 25,351
Capital
expenditures(f)... 12,211 7,354 6,967 1,280 5,537 7,142 1,613 11,851
Cash flows provided
by (used in)
operating
activities........ 23,844 19,017 21,823 (6,363) 6,498 44,614 (3,175) (34,684)
Cash flows provided
by (used in)
investing
activities........ (19,538) (2,183) 10,708 (1,280) (269,629) (5,837) (1,194) (11,807)
Cash flows provided
by (used in)
financing
activities........ (10,448) (16,336) (31,543) 6,209 264,981 (39,795) 4,334 46,734
BALANCE SHEET DATA (AT PERIOD END):
Working capital..... $ (2,988) $ 4,567 $ (3,597) $24,574 $32,112 $20,600 $ 54,799
Net property, plant
and equipment..... 96,533 84,238 62,850 144,737 129,181 136,110 139,442
Total assets........ 207,244 185,710 160,356 505,127 486,502 526,478 557,727
Long-term debt...... 80,923 73,183 34,485 328,788 297,976 288,482 305,271
Redeemable preferred
stock of a
subsidiary........ -- -- -- 16,913 19,357 19,974 --
Common stock subject
to redemption..... -- -- -- 1,648 2,782 2,898 1,615
Common stockholders'
equity............ 24,456 27,595 32,663 15,773 11,483 13,933 79,457
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
7
<PAGE>
(FOOTNOTES FOR PRECEDING PAGE)
- --------------
(a) Pro forma balance sheet data as of September 30, 1995 reflect the LTC
Acquisition and the net proceeds to the Company from the issuance of
5,500,000 shares of Common Stock in the Offerings together with the proceeds
from the New Credit Agreement. Such proceeds will be used to repay amounts
outstanding under the Former Credit Agreement, $63.3 million aggregate
principal amount of the 10 3/4% Notes, the BFP Preferred Stock, the 13 1/2%
Notes and the 11% Debentures. See "Use of Proceeds." Pro forma operating
data for the year ended June 30, 1995 and the three months ended September
30, 1995 reflect the LTC Acquisition and a reduction of interest expense,
net of income taxes, and the elimination of preferred dividends of a
subsidiary to reflect the use of proceeds discussed above. Weighted average
shares outstanding have been increased to reflect the issuance of 5,500,000
shares of Common Stock and approximately 281,250 shares of Common Stock
issuable in the LTC Acquisition assuming a price of $16 per share. The
Company does not have a binding commitment for the LTC Acquisition and no
assurance can be given that such acquisition will be consummated. For pro
forma information concerning the effects of the Offerings and related
transactions, but excluding effects of the LTC Acquisition, see "Pro Forma
Financial Data".
(b) Interest expense excludes amortization of deferred financing fees of $0.1
million, $0.3 million, $2.4 million, and $0.1 million for fiscal 1991,
fiscal 1992, fiscal 1993 and for the 42 day period ended August 11, 1993,
respectively, and of $1.9 million, $3.4 million, $0.9 million and $0.9
million for the 323 day period ended June 30, 1994, the fiscal year ended
June 30, 1995, the three months ended September 30, 1994 and the three
months ended September 30, 1995, respectively. Pro forma interest expense
for the year ended June 30, 1995 and the three months ended September 30,
1995 excludes amortization of deferred financing fees of $2.6 million and
$0.7 million, respectively.
(c) Earnings per share and average shares outstanding have been adjusted to
reflect the 2 for 1 stock split, to be effected in the form of a stock
dividend, immediately prior to the consummation of the Offerings.
(d) "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 about
the Company's ability to meet its future debt service, capital expenditure
and working capital requirements and should not be construed as a better
indicator of operating performance than income from operations as determined
in accordance with Generally Accepted Accounting Principles ("GAAP") or a
better indicator of liquidity than cash flow from operating activities as
determined in accordance with GAAP.
(e) EBITDA for the fiscal year ended June 30, 1993 was reduced by unusual bad
debt charges of $3.1 million related to the bankruptcy of Phar-Mor, Inc., a
continuing customer of the Company. In addition, EBITDA for the fiscal year
ended June 30, 1993 was reduced by $1.3 million due to rent expense related
to a sale leaseback transaction entered into on December 28, 1992. For the
323 day period ended June 30, 1994, the fiscal year ended June 30, 1995 and
the three months ended September 30, 1995, the additional rent expense
related to the sale leaseback transaction was offset by a decrease in rent
expense resulting from the acquisition of Treasure Chest in which certain
assets were purchased which had previously been leased to Treasure Chest
from its former owners.
(f) Capital expenditures do not include operating leases for equipment with
equivalent purchase value of $6.6 million, $1.0 million, $9.5 million, zero,
$13.7 million, $5.9 million, $0.1 million and $2.0 million for fiscal 1991,
fiscal 1992, fiscal 1993, the 42 days ended August 11, 1993, the 323 days
ended June 30, 1994, the fiscal year ended June 30, 1995, the three months
ended September 30, 1994 and the three months ended September 30, 1995,
respectively.
8
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matters.
COMPETITION
The commercial printing industry in the United States is highly competitive.
Competition is largely based on price, quality and servicing the specialized
needs of customers. Recent technological developments, vigorous competition and
over-capacity in the printing industry have increased industry consolidation.
The advertising circular industry is highly fragmented, and the Company competes
with numerous regional and local printers for the printing of advertising
circulars. The Company also competes for national accounts with several large
national printers, some of which have greater resources than the Company. See
"Business--Market Background".
The Company has one major competitor in the printing of Sunday comics in the
United States, although numerous newspapers print their own Sunday comics. The
Company's newspaper TV listing guides, Sunday magazine and newspaper supplement
operations also face strong competition.
RAW MATERIALS--PAPER
The Company's results of operations depend to a large extent on the cost of
paper, and the ability of the Company to pass along any increases in the cost of
paper to its customers. During fiscal 1995, the Company experienced substantial
increases in the cost of its paper but was able to effectively pass on the paper
cost increases to its customers. To the extent that there are future paper cost
increases and the Company is not able to pass such increases to its customers or
its customers reduce the size of their print advertising programs, the Company's
results of operations could be materially adversely affected.
Moreover, any loss of the sources for paper supply or any disruption in such
sources' business or failure by them to meet the Company's product needs on a
timely basis could cause, at a minimum, temporary shortages in needed materials
which could have a material adverse effect on the Company's results of
operations. Although the Company actively manages its paper supply and has
established strong relationships with its suppliers, there can be no assurance
that the Company's sources of supply for its paper will be adequate or, in the
event that such sources are not adequate, that alternative sources can be
developed in a timely manner.
ENVIRONMENTAL REGULATION
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances (together,
"Environmental Laws"). From time to time, operations of the Company have
resulted or may result in noncompliance with or liability for cleanup pursuant
to Environmental Laws. In addition, Treasure Chest has been identified as a
potentially responsible party under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, and under certain
analogous state laws, for the cleanup of contamination resulting from past
disposals of hazardous waste at certain sites to which Treasure Chest, among
others, sent waste in the past. The Company believes that any such noncompliance
or liability under current Environmental Laws would not have a material adverse
effect on its results of operations. Nonetheless, there can be no assurance that
such matters, or any similar matters that arise in the future, will not
ultimately have a material adverse effect on Treasure Chest's results of
operations. See "Business--Environmental Issues".
9
<PAGE>
HIGH LEVEL OF INDEBTEDNESS
In connection with the acquisitions of Treasure Chest, KTB and Retail
Graphics, the Company incurred a significant amount of indebtedness. At
September 30, 1995, after giving effect to the Offerings, the bank credit
agreement described under "Bank Refinancing" (the "New Credit Agreement"), the
other transactions referred to under "Use of Proceeds" and the LTC Acquisition,
the Company's indebtedness would have been approximately $336.3 million and its
total stockholders' equity would have been approximately $81.1 million
(including common stock subject to redemption). In addition, at September 30,
1995, the Company had significant commitments under operating leases. See note
10 of the notes to consolidated financial statements of Big Flower relating to
future lease commitments. At September 30, 1995, after giving effect to the
Offerings, the transactions referred to under "Use of Proceeds" and the LTC
Acquisition, the Company would have had approximately $140.8 million of
borrowing capacity for acquisitions, working capital and capital expenditures
under the New Credit Agreement. See "Bank Refinancing". In addition, the Company
could incur additional indebtedness, which amounts could be significant, in
connection with any future acquisitions. The level of the Company's indebtedness
could have important consequences to stockholders, including: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to debt
service and will not be available for other purposes; (ii) the Company's ability
to obtain additional debt financing in the future for working capital, capital
expenditures or acquisitions may be limited; (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the printing
industry and economic conditions generally; and (iv) the Company is subject to
restrictions on the ability of the Company to pay dividends. Certain of the
Company's competitors currently operate on a less leveraged basis, and have
significantly greater operating and financing flexibility, than the Company. The
Company had an accumulated deficiency of $5.1 million at September 30, 1995.
CONTROL
Upon completion of the Offerings, Theodore Ammon (Chairman of the Board of
Big Flower) and Apollo will beneficially own approximately 14.9% and 31.0%,
respectively, of the outstanding Common Stock, excluding in such calculations
1,738,692 shares of Class B Stock. See "Description of Capital Stock". As a
result of such ownership and certain supermajority voting requirements set forth
in Big Flower's Restated Certificate of Incorporation, as amended (the
"Certificate"), and Bylaws (the "Bylaws"), Mr. Ammon and Apollo could have the
ability to effectively control the Company. See "--Anti-takeover Effects of
Provisions of the Restated Certificate of Incorporation, Bylaws and Rights
Plan".
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CERTIFICATE OF
INCORPORATION, BYLAWS AND RIGHTS PLAN
Certain provisions of the Certificate and Bylaws that will become operative
upon consummation of the Offerings may be deemed to have anti-takeover effects
and may delay, defer or prevent a takeover attempt that a stockholder might
consider in its best interest. These provisions (i) classify the Company's Board
of Directors into three classes, each of which will serve for different
three-year periods, (ii) provide that only the Board of Directors or certain
members thereof or officers of the Company may call special meetings of the
stockholders, (iii) eliminate the ability of the stockholders to take any action
without a meeting, and (iv) provide for an 85% supermajority vote of holders of
Common Stock to amend such provisions or the Bylaws. In addition, the Bylaws
establish certain advance notice procedures for nomination of candidates for
election as directors and for stockholder proposals to be considered at
stockholders' meetings. The Company will also adopt a stockholder rights plan to
become effective upon consummation of the Offerings. See "Description of Capital
Stock--Anti-takeover Effects of Provisions of the Company's Amended and Restated
Certificate of Incorporation and Bylaws" and "Description of Capital
Stock--Rights Plan".
10
<PAGE>
NO PRIOR MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICES
Prior to the Offerings, there has been no public market for the Common
Stock, and Big Flower is not aware of any price quotations for the Common Stock.
There can be no assurance that an active public market will develop for the
Common Stock. The public offering price will be determined through negotiations
among Big Flower and the Selling Stockholders, and Goldman, Sachs & Co. and BT
Securities Corporation, the representatives of the Underwriters (the
"Representatives"), and may not be indicative of the market price for the Common
Stock after the Offerings. The market price for shares of the Common Stock may
be highly volatile depending on a number of factors. See "Underwriting".
SHARES ELIGIBLE FOR FUTURE SALES
Upon completion of the Offerings, Big Flower will have 16,421,756 shares of
Common Stock outstanding, including 1,738,692 shares of Common Stock which are
issuable in certain circumstances upon conversion of non-voting Class B Stock
owned by BTIP, and 248,569 shares of Common Stock issuable upon exercise of
options which are presently exercisable or will become exercisable in January
1996, but not including any shares of Common Stock issuable in the LTC
Acquisition (See "Recent Developments"). The 6,724,688 shares of Common Stock to
be sold in the Offerings (7,733,391 shares if the Underwriters' over-allotment
option is exercised in full) will be eligible for sale in the public market
after the completion of the Offerings. The 6,615,866 shares of Common Stock
owned by Mr. Ammon and Apollo, the 1,738,692 shares issuable in certain
circumstances upon conversion of the non-voting Class B Stock owned by BTIP, and
the 171,596 shares owned by one other stockholder prior to consummation of the
Offerings are "restricted securities" for purposes of the Securities Act of
1933, as amended (the "Act"). Big Flower, Mr. Ammon, Apollo and BTIP have agreed
(subject to certain exceptions) not to offer, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives. Subject to
such agreements, the shares owned by Mr. Ammon, Apollo and BTIP and 171,596
shares of Common Stock owned by one other stockholder will be available for sale
into the open market pursuant to Rule 144 under the Act (including the volume
limitations in that rule) upon consummation of the Offerings. Mr. Ammon, Apollo
and BTIP have certain rights to request that the Company register shares of
Common Stock under the Act. See "Shares Eligible for Future Sale--Registration
Rights". Certain other officers, members of management and key employees own
957,866 shares of Common Stock (including 205,195 shares underlying options
which are presently exercisable) which may be transferrable, subject to certain
restrictions, under Rule 144 or pursuant to certain registration rights (See
"Shares Eligible for Future Sales--Registration Rights"). Additionally, certain
other officers, members of management and key employees own 213,048 shares of
Common Stock (including 43,374 shares underlying options which are presently
exercisable or will become exercisable in January 1996) which may be sold
pursuant to the requirements of Rule 144 beginning in January 1997. If the LTC
Acquisition is consummated and shares of Common Stock are issued at $16 per
share, the seller of Laser Tech will own approximately 281,250 shares of Common
Stock, which may be sold pursuant to the requirements of Rule 144 upon
expiration of a two-year holding period or pursuant to certain "piggyback"
registration rights (See "Shares Eligible for Future Sale--Registration
Rights"). Actual sales of shares of Common Stock under a registration statement,
pursuant to Rule 144 or otherwise in the future, or the prospect of such sales,
may depress the price of the Common Stock. See "Shares Eligible for Future
Sale".
DILUTION
The pro forma net tangible book value (excluding net deferred financing
costs and other intangible assets) of Big Flower as of September 30, 1995 was
approximately $(125.8) million or $(7.65) per share after giving effect to the
Offerings, the New Credit Agreement, the transactions referred to under "Use of
Proceeds" and the LTC Acquisition. Based upon an initial offering price of $16
per share, persons purchasing shares of Common Stock in the Offerings will incur
immediate dilution in net tangible book value of $23.65 per share. See
"Dilution".
11
<PAGE>
THE COMPANY
The Company is a leading producer and marketer of advertising circulars,
newspaper TV listing guides and Sunday comics in the United States. In fiscal
1995, the Company produced more than 21 billion advertising circulars, 1.5
billion Sunday comics and 535 million newspaper TV listing guides. During fiscal
1995, the Company generated net sales of $896.6 million and operating profit of
$48.3 million. The Company operates a national network of 20 production
facilities with 122 heatset and cold web offset presses, enabling it to market
an array of highly flexible printing services meeting the diverse needs of its
customers.
Big Flower's principal subsidiary, Treasure Chest, established in 1967, was
one of the first commercial printers specializing in advertising circulars in
the United States. In 1982, Treasure Chest expanded its business with the
introduction of newspaper TV listings guides and Sunday comics. Treasure Chest
was acquired by Big Flower in August 1993. In 1994, the Company acquired KTB and
Retail Graphics, increasing its net sales in fiscal 1994 by more than 36% on a
pro forma basis.
Big Flower is a Delaware corporation with its principal executive offices at
3 East 54th Street, New York, New York 10022; telephone (212) 521-1600.
RECENT DEVELOPMENTS
The Company is currently in active negotiations to acquire Laser Tech. Laser
Tech is a pre-press company which provides high quality electronic and
conventional graphic services for the advertising, trading card and printed
collectibles, catalog and packaging industries. Services include digital and
conventional photography, image scanning, digital image archiving through
electronic databases, computerized image retouching, desktop publishing, and
flexographic pre-press services for such industries. Laser Tech operates a
65,000 square foot facility in Irving, Texas and has sales offices in Rosemont,
Illinois and Atlanta, Georgia. In addition, the Company recently agreed to lease
a 15,588 square foot facility in Atlanta, Georgia beginning in March 1996. Laser
Tech's customers include some of the leading U.S. advertisers and packagers,
including Compaq Computer, J.C. Penney, Mary Kay Cosmetics, Marvel Holdings,
Pepsico and Tyson Foods.
During its fiscal year ended December 31, 1994 and for the nine-month period
ended September 30, 1995, Laser Tech generated net sales of $18.3 million and
$17.6 million, respectively, and operating profit of $2.0 million and $2.5
million, respectively. As of October 1, 1995, Laser Tech had 200 employees.
The Company expects to acquire Laser Tech for approximately $31.3 million,
of which $3.0 million will be paid in cash, $18.1 million will be paid in a note
due January 1996, $4.5 million will be paid in shares of Common Stock based on
the trading price of the Common Stock at or about the time of the closing of the
LTC Acquisition (or, if the closing of the LTC Acquisition is at or prior to the
closing of the Offerings, at the initial public offering price on the cover page
of this Prospectus) and $5.7 million will be used to repay indebtedness of Laser
Tech. The final cash portion of the purchase price may be adjusted at or after
the closing of the LTC Acquisition based on changes in Laser Tech's balance
sheet.
SCI has alleged that the LTC Acquistion violates the Confidentiality
Agreement that was entered into between Big Flower and SCI in connection with a
proposed merger between the two companies. The discussions regarding such
proposed merger were terminated in May 1995. In a letter dated November 8, 1995,
SCI alleged that the Company used information about Laser Tech that the Company
learned during its merger discussions with SCI in violation of the
Confidentiality Agreement. In such letter, SCI further claimed that the Company
solicited two employees to leave SCI to work for Laser Tech in violation of the
Confidentiality Agreement. SCI indicated that it would pursue all available
remedies for any breach of the Confidentiality Agreement. The Company
understands that if SCI files a lawsuit it may seek to recover damages or obtain
injunctive relief. The Company believes that SCI's claims as set forth in its
letter are without merit. If any lawsuit is filed, the Company intends to
vigorously defend itself and does not believe that any such lawsuit would have a
material adverse effect on the financial condition of the
12
<PAGE>
Company. There can be no assurance, however, that the Company would prevail in
any such lawsuit or that any such lawsuit would not delay the LTC Acquisition.
DILUTION
The pro forma net tangible book value (excluding net deferred financing
costs and other intangible assets) of the Common Stock at September 30, 1995 was
$(170,230,000), or $(15.95) per share. After giving effect to the Offerings, the
New Credit Agreement, the transactions referred to under "Use of Proceeds" and
the LTC Acquisition, the pro forma net tangible book value at September 30, 1995
would have been $(125,834,000) or $(7.65) per share of Common Stock. This
represents an immediate dilution in net tangible book value of $23.65 per share
to new investors purchasing shares in the Offerings. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share of Common Stock(1)....... $ 16.00
Pro forma net tangible book value per share before the
Offerings and the LTC Acquisition(2)......................... $ (15.95)
---------
Pro forma net tangible book value per share after the Offerings
and the LTC Acquisition........................................ (7.65)
---------
Dilution per share to new investors(3)........................... $ 23.65
---------
---------
</TABLE>
- --------------
(1) Before deducting underwriting discount and estimated expenses of the
offerings.
(2) Pro forma net tangible book value per share of Common Stock is determined by
dividing the Company's tangible net worth (total assets excluding net
deferred financing costs and other intangible assets less total liabilities
and BFP Preferred Stock (as defined)) by the number of shares of Common
Stock and Class B Stock outstanding.
(3) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offerings from the initial public offering price per
share.
The following table summarizes, on a pro forma basis, at September 30, 1995,
the differences between the number of shares purchased from Big Flower, the
total consideration paid and the average price per share paid by the existing
holders of Common Stock and Class B Stock and by the investors purchasing shares
of Common Stock in the Offerings:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- ----------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 10,673,187 66.0% $ 22,602,000 20.4% $ 2.12
New investors............................ 5,500,000 34.0 88,000,000 79.6 16.00
------------- ----- ---------------- -----
Total................................ 16,173,187 100.0% $ 110,602,000 100.0%
------------- ----- ---------------- -----
------------- ----- ---------------- -----
</TABLE>
The foregoing tables assume no exercise of the Underwriters' over-allotment
option and excludes any shares issued in connection with the LTC Acquisition.
See "Management--Incentive and Bonus Plans--Stock Plan" for information
regarding stock options and see "Underwriting" for information concerning the
Underwriters' over-allotment option.
13
<PAGE>
DIVIDEND POLICY
Big Flower has never declared or paid cash dividends on its Common Stock.
Big Flower intends to continue this policy for the foreseeable future and retain
earnings for repayment of indebtedness and investment in its business. Any
future determination to pay cash dividends will be at the discretion of the
Board of Big Flower and will be dependent on the Company's results of
operations, financial condition, contractual restrictions (including
restrictions in each of the indentures governing the 10 3/4% Notes (as defined)
and the New Credit Agreement), legal restrictions and other factors deemed to be
relevant by the Board. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
USE OF PROCEEDS
The net proceeds of the Offerings to the Company, estimated at $80.6
million, plus approximately $182.4 million to be borrowed under the New Credit
Agreement (see "Bank Refinancing"), will be used to (i) repay all amounts
outstanding under the Company's bank credit agreement entered into in April 1994
(the "Former Credit Agreement"), which, as of September 30, 1995 had a weighted
average interest rate of 8.24%, (ii) redeem one-third of the outstanding
aggregate principal amount of BFP's 10 3/4% Senior Subordinated Notes due 2003
(the "10 3/4% Notes") at a redemption price of 108.00% of principal amount,
(iii) terminate the Company's interest rate swap agreements for a price of $2.9
million, (iv) purchase all the outstanding shares of BFP's Series A Preferred
Stock (the "BFP Preferred Stock") at a purchase price of approximately $22.0
million, (v) redeem and purchase all of the Company's 13 1/2% Senior Discount
Notes due 2004 (the "13 1/2% Notes") at a total price of approximately $57.9
million, and (vi) purchase all of the Company's 11% Debentures due 2005 (the
"11% Debentures") at 100% of principal amount (See "Certain Relationships and
Related Transactions"). The Company will not receive any proceeds from the sale
of the shares by the Selling Stockholders. The following table does not give
effect to the LTC Acquisition.
The following table illustrates the sources of funds to the Company and uses
of funds by the Company, assuming the Offerings and transactions referred to
herein were consummated as of September 30, 1995:
<TABLE>
<CAPTION>
AMOUNT
------------
(IN
MILLIONS)
<S> <C>
SOURCES OF FUNDS
Gross Proceeds to the Company from the Offerings............................... $ 88.0
Borrowings under the New Credit Agreement...................................... 182.4
------------
Total Sources.............................................................. $ 270.4
------------
------------
USES OF FUNDS
Repayment of indebtedness under Former Credit Agreement........................ $ 88.5
Redemption of 10 3/4% Notes.................................................... 62.4
Premium...................................................................... 5.9
Termination of Swap Agreement.................................................. 2.9
Purchase of BFP Preferred Stock................................................ 20.0
Premium...................................................................... 2.0
Redemption and purchase of 13 1/2% Notes....................................... 43.4
Premium...................................................................... 14.5
Purchase of 11% Debentures..................................................... 18.9
Fees and expenses.............................................................. 11.9
------------
Total Uses................................................................. $ 270.4
------------
------------
</TABLE>
If the LTC Acquisition is consummated, the Company will use $26.8 million of
borrowings under the New Credit Agreement and will issue approximately 281,250
shares of Common Stock, assuming a trading price of $16 per share, to acquire
Laser Tech and to repay certain indebtedness in connection therewith.
14
<PAGE>
BANK REFINANCING
On October 11, 1995, Treasure Chest received commitments from Bankers Trust
Company ("BTCo") and Credit Suisse with respect to a new $350 million senior
secured reducing revolving credit facility (the "New Credit Agreement"). The
following brief discussion of the material terms of the New Credit Agreement
does not purport to be complete and is qualified in its entirety by reference to
the New Credit Agreement, which is currently being negotiated.
The New Credit Agreement will provide for a six-year $350 million revolving
facility, with reductions of $33.3 million after each of three, four and five
years into the term of the New Credit Agreement. Up to $70 million of the
facility will be available for working capital purposes only and up to $15
million will be made available for stand-by and trade letters of credit. The
remainder of the facility will be available for certain acquisitions,
investments in subsidiaries and general corporate and working capital purposes.
The obligations of Treasure Chest under the New Credit Agreement will be
unconditionally guaranteed by the Company and its subsidiaries and will be
secured by a first priority perfected pledge of all capital stock and notes held
by the Company and its subsidiaries. Interest on borrowings under the New Credit
Agreement will be payable, at Treasure Chest's option, (a) at a base rate plus a
margin which ranges from 0.00% to 1.00% or (b) at a eurodollar rate plus a
margin which ranges from 0.50% to 2.00%.
The New Credit Agreement will provide for mandatory commitment reductions,
with certain exceptions, for asset sales, the net proceeds of debt issuances,
the net proceeds of certain equity offerings (not including the Offerings), and
excess cash flow. The New Credit Agreement also provides for an optional
commitment reduction and optional prepayment of the facility, in whole or in
part, without penalty.
The New Credit Agreement will contain usual and customary representations
and warranties. The New Credit Agreement will have, among other covenants, a
leverage ratio test and an interest coverage ratio test, as well as restrictions
on: liens, indebtedness, acquisition and investing activities, sale-leaseback
transactions, early prepayment of other indebtedness, dividends, capital
expenditures, affiliate transactions and a lines of business covenant. The
Credit Agreement will also restrict the ability of Treasure Chest to pay
dividends to the Company and the Company's ability to pay dividends to its
stockholders but will allow cash dividends to the Company for operating expenses
in the ordinary course of business in an amount which starts at $2.75 million
and increases 10% each year. Additionally, dividends are permitted (i) to enable
the Company to pay interest on its public debt, pay dividends on its preferred
stock and undertake debt buybacks and (ii) up to 25% of cumulative consolidated
net income.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Big Flower at September
30, 1995 and as adjusted for the consummation of the Offerings, the New Credit
Agreement, the transactions referred to under "Use of Proceeds" and the LTC
Acquisition. This table should be read in conjunction with the Summary Financial
Data, the Selected Financial Data and the Consolidated Financial Statements and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt................................................... $ 50,888 $ 30,998(a)
----------- ------------
----------- ------------
Long-term debt:
Former Credit Agreement............................................................. 38,000 --
New Credit Agreement................................................................ -- 179,196
10 3/4% Notes, net of discount...................................................... 187,431 124,985
13 1/2% Notes, net of discount(b)................................................... 43,396 --
11% Debentures...................................................................... 18,916 --
Other long-term debt................................................................ 739 1,090
----------- ------------
Total long-term debt.......................................................... 288,482 305,271
----------- ------------
BFP Preferred Stock................................................................. 19,974 --
-----------
Common stock subject to redemption(c)............................................... 2,898 1,615
----------- ------------
Total common stockholders' equity................................................... 13,933 79,457
----------- ------------
Total capitalization................................................................ $ 325,287 $ 386,343
----------- ------------
----------- ------------
</TABLE>
- --------------
(a) The pro forma current portion of long-term debt includes $30 million of
borrowings under the New Credit Agreement which represents the seasonal
portion of the Company's working capital requirements.
(b) Represents accreted value. The 13 1/2% Notes, with an aggregate principal
amount of $76.5 million, and certain shares of stock were originally sold as
units for gross proceeds of $40 million (of which $4.7 million was allocated
to such shares of stock).
(c) Certain officers, members of management and key employees have "put" rights
with respect to shares held by them under certain circumstances. Upon the
consummation of the Offerings, the "put" rights for vested shares of Class C
common stock will terminate.
16
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical and pro forma financial
data of Predecessor Treasure Chest and of Big Flower and its subsidiaries
(including Treasure Chest) following Big Flower's acquisition of Treasure Chest.
The selected historical operating and balance sheet data as of and for each of
the three fiscal years in the period ended June 30, 1993 and for the 42 days
ended August 11, 1993 were derived from the audited consolidated financial
statements of Predecessor Treasure Chest. The selected historical financial data
of Big Flower as of and for the 323 day period ended June 30, 1994 and for the
fiscal year ended June 30, 1995 were derived from the audited consolidated
financial statements of Big Flower. The selected historical financial data of
Big Flower for the three months ended September 30, 1994 and 1995 were derived
from the unaudited financial statements of Big Flower, which, in the opinion of
management, include all adjustments (consisting only of normal recurring
accruals) necessary for the fair presentation of the financial data for such
periods. The results of the interim periods are not necessarily indicative of
the results to be expected for the full fiscal year. For additional information,
see the consolidated financial statements of Predecessor Treasure Chest and Big
Flower and the notes thereto included elsewhere in this Prospectus. The pro
forma balance sheet data as of September 30, 1995 give effect to the pro forma
adjustments to reflect the Offerings, the New Credit Agreement, the transactions
referred to under "Use of Proceeds" and the LTC Acquisition as if they had
occurred on September 30, 1995. The pro forma operating data of Big Flower for
the fiscal year ended June 30, 1995 and for the three months ended September 30,
1995 give effect to pro forma adjustments to reflect the Offerings, the New
Credit Agreement, the transactions referred to under "Use of Proceeds" and the
LTC Acquisition as if they had occurred on July 1, 1994. The pro forma financial
data should not be considered indicative of actual results that would have been
achieved had the Offerings, the New Credit Agreement, the transactions referred
to under "Use of Proceeds" and the LTC Acquisition been consummated on July 1,
1994 and do not purport to indicate results of operations for any future period.
The selected historical financial data should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
PREDECESSOR TREASURE CHEST BIG FLOWER
-------------------------------------- ----------------------------------------------------------------
PRO PRO FORMA
FORMA THREE THREE THREE
42 DAYS 323 DAYS YEAR YEAR MONTHS MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED ENDED ENDED ENDED ENDED ENDED
---------------------------- AUG. 11, JUNE 30, JUNE 30, JUNE 30, SEPT. 30, SEPT. 30, SEPT. 30,
1991 1992 1993 1993 1994 1995 1995(A) 1994 1995 1995(A)
-------- -------- -------- -------- --------- -------- -------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............. $529,605 $536,113 $555,013 $59,584 $565,046 $896,595 $918,276 $210,458 $242,066 $248,404
Gross profit.......... 46,009 62,621 63,328 4,892 71,971 118,867 128,346 26,166 32,103 34,887
Selling, general and
administrative
expense............. 34,380 39,146 40,892 4,227 48,777 70,587 77,239 15,981 15,823 17,688
Interest expense(b)... 12,145 9,249 6,792 578 19,350 37,049 27,225 8,940 9,468 7,537
Income (loss) before
income taxes........ (4,551) 7,696 10,204 (228) (2,678) 2,793 18,754 (484) 5,179 8,824
Net income (loss)..... (4,211) 4,196 4,685 (139) (4,442) (3,046) 7,322 (1,084) 2,379 4,747
Net income (loss) per
common and common
equivalent
share(c)............ (.46) (.28) 0.44 (.10) .21 0.28
Average shares
outstanding(c)...... 9,668 10,832 16,613 10,880 11,083 16,865
OTHER DATA:
EBITDA(d)............. 22,978 37,115 34,560(e) 1,901 50,312 89,756 20,701 25,351
Capital
expenditures(f)..... 12,211 7,354 6,967 1,280 5,537 7,142 1,613 11,851
Cash flows provided by
(used in) operating
activities.......... $ 23,844 $ 19,017 $ 21,823 $(6,363) $6,498 $44,614 $ (3,175) $(34,684)
Cash flows provided by
(used in) investing
activities.......... (19,538) (2,183) 10,708 (1,280) (269,629) (5,837) (1,194) (11,807)
Cash flows provided by
(used in) financing
activities.......... (10,448) (16,336) (31,543) 6,209 264,981 (39,795) 4,334 46,734
BALANCE SHEET DATA (AT PERIOD END):
Working capital....... $ (2,988) $ 4,567 $ (3,597) $24,574 $32,112 $20,600 $54,799
Net property, plant
and equipment....... 96,533 84,238 62,850 144,737 129,181 136,110 139,442
Total assets.......... 207,244 185,710 160,356 505,127 486,502 526,478 557,727
Long-term debt........ 80,923 73,183 34,485 328,788 297,976 288,482 305,271
Redeemable preferred
stock of a
subsidiary.......... -- -- -- 16,913 19,357 19,974 --
Common stock subject
to redemption....... -- -- -- 1,648 2,782 2,898 1,615
Common stockholders'
equity.............. 24,456 27,595 32,663 15,773 11,483 13,933 79,457
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
17
<PAGE>
(FOOTNOTES FOR PRECEDING PAGE)
- --------------
(a) Pro forma balance sheet data as of September 30, 1995 reflect the LTC
Acquisition and the net proceeds to the Company from the issuance of
5,500,000 shares of Common Stock in the Offerings together with the proceeds
from the New Credit Agreement. Such proceeds will be used to repay amounts
outstanding under the Former Credit Agreement, $63.3 million aggregate
principal amount of the 10 3/4% Notes, the BFP Preferred Stock, the 13 1/2%
Notes, and the 11% Debentures. See "Use of Proceeds." Pro forma operating
data for the year ended June 30, 1995 and the three months ended September
30, 1995 reflect the LTC Acquisition and a reduction of interest expense,
net of income taxes, and the elimination of preferred dividends of a
subsidiary to reflect the use of proceeds discussed above. Weighted average
shares outstanding have been increased to reflect the issuance of 5,500,000
shares of Common Stock and approximately 281,250 shares of Common Stock
issuable in the LTC Acquisition assuming a price of $16 per share. The
Company does not have a binding commitment for the LTC acquisition and no
assurance can be given that such acquisition will be consummated. For pro
forma information concerning the effects of the Offerings and related
transactions, but excluding effects of the LTC Acquisition, see "Pro Forma
Financial Data".
(b) Interest expense excludes amortization of deferred financing fees of $0.1
million, $0.3 million, $2.4 million, and $0.1 million for fiscal 1991,
fiscal 1992, fiscal 1993 and for the 42 day period ended August 11, 1993,
respectively, and of $1.9 million, $3.4 million, $0.9 million and $0.9
million for the 323 day period ended June 30, 1994, the fiscal year ended
June 30, 1995, the three months ended September 30, 1994 and the three
months ended September 30, 1995, respectively. Pro forma interest expense
for the year ended June 30, 1995 and the three months ended September 30,
1995 excludes amortization of deferred financing fees of $2.6 million and
$0.7 million, respectively.
(c) Earnings per share and average shares outstanding have been adjusted to
reflect a 2 for 1 stock split, to be effected in the form of a stock
dividend, immediately prior to the consummation of the Offerings.
(d) "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 about
the Company's ability to meet its future debt service, capital expenditure
and working capital requirements and should not be construed as a better
indicator of operating performance than income from operations as determined
in accordance with GAAP or a better indicator of liquidity than cash flow
from operating activities as determined in accordance with GAAP.
(e) EBITDA for the fiscal year ended June 30, 1993 was reduced by unusual bad
debt charges of $3.1 million related to the bankruptcy of Phar-Mor, Inc., a
continuing customer of the Company. In addition, EBITDA for the fiscal year
ended June 30, 1993 was reduced by $1.3 million due to rent expense related
to a sale leaseback transaction entered into on December 28, 1992. For the
323 day period ended June 30, 1994, the fiscal year ended June 30, 1995 and
the three months ended September 30, 1995, the additional rent expense
related to the sale leaseback transaction was offset by a decrease in rent
expense resulting from the acquisition of Treasure Chest in which certain
assets were purchased which had previously been leased to Treasure Chest
from its former owners.
(f) Capital expenditures do not include operating leases for equipment with
equivalent purchase value of $6.6 million, $1.0 million, $9.5 million, zero,
$13.7 million, $5.9 million, $0.1 million and $2.0 million, for fiscal 1991,
fiscal 1992, fiscal 1993, the 42 days ended August 11, 1993, the 323 days
ended June 30, 1994, the fiscal year ended June 30, 1995, the three months
ended September 30, 1994 and the three months ended September 30, 1995,
respectively.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following Pro Forma Operating Data compares the pro forma consolidated
results of operations of Big Flower for the twelve months ended June 30, 1993
and 1994 and the historical results of operations of Big Flower for the twelve
months ended June 30, 1995. The pro forma information has been derived by the
application of pro forma adjustments to the historical consolidated results of
operations of Predecessor Treasure Chest for the 42 days ended August 11, 1993
and the twelve months ended June 30, 1993. These pro forma tables give effect to
the acquisition of Treasure Chest and other related financing transactions as if
they were consummated as of the beginning of the periods presented. For
information regarding the pro forma adjustments for the Offerings, the New
Credit Agreement and the transactions referred to under "Use of Proceeds", see
"Selected Financial Data". The three month periods ended September 30, 1994 and
1995 are presented on a comparable historical basis as the acquisition of
Treasure Chest preceded both periods.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1994
-------------------------------------------------------
PREDECESSOR
YEAR ENDED JUNE 30, 1993 TREASURE
----------------------------------------- CHEST BIG FLOWER YEAR
ACQUISITION OF 42 DAYS 323 DAYS ACQUISITION OF ENDED
PREDECESSOR TREASURE CHEST ENDED ENDED TREASURE CHEST JUNE 30,
TREASURE PRO FORMA BIG FLOWER AUGUST 11, JUNE 30, PRO FORMA BIG FLOWER 1995
CHEST ADJUSTMENTS PRO FORMA 1993 1994 ADJUSTMENTS PRO FORMA BIG FLOWER
----------- -------------- ---------- ------------ ---------- -------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........ $555,013 $ -- $555,013 $59,584 $565,046 $ -- $624,630 $896,595
Costs of
production..... 491,685 (1,322) 490,363 54,692 493,075 (310) 547,457 777,728
----------- -------------- ---------- ------------ ---------- -------------- ---------- ----------
Gross profit..... 63,328 1,322 64,650 4,892 71,971 310 77,173 118,867
Selling, general
and
administrative
expense........ 40,892 14,333 55,225 4,227 48,777 1,467 54,471 70,587
Interest
expense........ 9,227 13,478 22,705 704 21,286 1,956 23,946 40,486
Interest
income......... (1,153) 1,009 (144) (22) (53) 20 (55) (279)
Other expense
(income),
net............ 4,158 (702) 3,456 211 2,726 (3,658) (721) 2,836
Preferred
dividends of a
subsidiary..... -- 2,151 2,151 -- 1,913 238 2,151 2,444
----------- -------------- ---------- ------------ ---------- -------------- ---------- ----------
Income (loss)
before income
taxes.......... 10,204 (28,947) (18,743) (228) (2,678) 287 (2,619) 2,793
Provision
(benefit) for
income taxes... 5,519 (9,878) (4,359) (89) 1,764 308 1,983 5,839
----------- -------------- ---------- ------------ ---------- -------------- ---------- ----------
Net income
(loss)......... $ 4,685 ($19,069) ($14,384) ($ 139) ($ 4,442) ($ 21) ($ 4,602) ($ 3,046)
----------- -------------- ---------- ------------ ---------- -------------- ---------- ----------
----------- -------------- ---------- ------------ ---------- -------------- ---------- ----------
Gross profit
margin......... 11.6% 12.4% 13.3%
</TABLE>
The pro forma adjustments applied to the historical consolidated results of
operations are the following: elimination of rent expense relating to certain
assets purchased by the Company as part of the acquisition of Treasure Chest,
net of depreciation charges; elimination of salaries and expenses of the former
owners which did not continue, net of estimated additional corporate and
employee benefit expenses; adjustment of interest expense and related
amortization of deferred financing fees as a result of the credit agreement
entered into in connection with the acquisition of Treasure Chest, the 10 3/4%
Notes and the 11% Debentures; elimination of interest income on notes receivable
from related parties and the Treasure Chest Employee Stock Ownership Trust
("ESOT"), which were repaid in connection with the acquisition of Treasure
Chest; elimination of a non-recurring contribution to the ESOT which the Company
made pursuant to the acquisition of Treasure Chest; amortization of the excess
of purchase cost over net assets acquired, intangibles and non-compete
agreements; and dividends on the BFP Preferred Stock.
19
<PAGE>
GENERAL
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 is typically 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 has created a global
tightening of paper supply which has resulted in higher paper prices. Management
believes that this condition will continue for the foreseeable future. The
Company has developed strong relationships with its paper suppliers, which
include many of the leading paper companies in North America. Through these
relationships, despite tight paper supply, the Company anticipates that its
paper requirements will continue to be met. The Company has been successful in
passing through paper price increases to its customers and, although there can
be no assurances in this regard, it expects to be able to continue to pass
through future increases.
The Company's results of operations for the periods presented have been
significantly impacted by the amortization of intangible assets which arose as a
result of the acquisitions of Treasure Chest, KTB and Retail Graphics.
Intangible assets related to customer backlog which arose as a result of such
acquisitions of $18,405,000 had estimated lives of 1 to 2 years. Such intangible
assets will be fully amortized in the fourth quarter of fiscal 1996.
Amortization of customer backlog on a historical basis was $9,679,000 and
$6,703,000 for the year ended June 30, 1995 and the 323 days ended June 30,
1994, respectively, and will be $2,023,000 for the year ending June 30, 1996.
During 1989, the Company began the implementation of its Quality Improvement
Process ("QIP"), which provides for the continuous improvement of all its
processes through employee involvement and statistical process control. The
Company believes that the QIP program has led to improvements in training,
maintenance, production methods, sales and administration and, together with its
capital investment program, has led to efficiency improvements in each year
since fiscal 1989.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1995 WITH THE THREE
MONTHS
ENDED SEPTEMBER 30, 1994
Net sales increased to $242.1 million for the three months ended September
30, 1995 from $210.5 million for the three months ended September 30, 1994, an
increase of $31.6 million or 15.0%. Volume (as measured by standard hours of
press activity) increased 1.2%. Paper costs, which significantly affect net
sales, were 51.4% of net sales for the three months ended September 30, 1995
compared to 45.1% of sales for the three months ended September 30, 1994.
Gross profit for the three months ended September 30, 1995 increased to
$32.1 million compared to $26.2 million for the three months ended September 30,
1994, an increase of $5.9 million or 22.5%. Despite higher paper costs, gross
profit as a percent of net sales increased to 13.3% for the three months ended
September 30, 1995 from 12.4% for the three months ended September 30, 1994. Per
unit variable costs (excluding paper and ink costs) were lower for the three
months ended September 30, 1995 compared to the prior comparable quarter. These
reduced per unit variable costs were the result of higher volume and utilization
rates due to efficiency improvements and cost controls. The increase in gross
profit for the quarter ended September 30, 1995 was also favorably impacted by
improved operating performance at the facilities acquired in April 1994. The
integration of these facilities was substantially completed in the second half
of fiscal 1995 and therefore increases in gross profit for the remainder of
fiscal 1996 are not expected to continue at the rate experienced in the first
quarter. Depreciation was 2.2% of the costs of production for the three months
ended September 30, 1995 compared to 2.6% for the three months ended September
30, 1994.
20
<PAGE>
Selling, general and administrative expense decreased to $15.8 million in
the three months ended September 30, 1995 from $16.0 million for the three
months ended September 30, 1994, a decrease of $0.2 million or 1.3%.
Amortization of intangibles included in selling, general and administrative
expense for the three months ended September 30, 1995 was $4.3 million compared
to $5.6 million for the three months ended September 30, 1994. Amortization of
certain intangible assets associated with the acquisitions of Treasure Chest,
KTB and Retail Graphics was $1.3 million lower in the three months ended
September 30, 1995 as these assets became fully amortized. Offsetting the lower
amortization of intangible assets in the three months ended September 30, 1995
was a higher provision for doubtful accounts of $0.8 million and higher
personnel-related costs of $0.3 million. Selling, general and administrative
expense as a percentage of sales was 6.5% for the three months ended September
30, 1995 compared to 7.6% for the prior comparable quarter.
Net interest expense for the three months ended September 30, 1995 was $10.3
million compared to $9.8 million for the three months ended September 30, 1994.
Amortization of deferred financing fees was $0.9 million for the three months
ended September 30, 1995 and 1994. Interest for the three months ended September
30, 1995 included $6.7 million in net interest on the 10 3/4% Notes and the
13 1/2% Notes, and $3.6 million in net interest on other debt, primarily the
Former Credit Agreement.
Income before income taxes was $5.2 million for the three months ended
September 30, 1995 compared to loss before income taxes of $0.5 million for the
prior quarter due to the factors mentioned above.
COMPARISON OF TWELVE MONTHS ENDED JUNE 30, 1995 WITH THE PRO FORMA TWELVE
MONTHS ENDED JUNE 30, 1994
Net sales increased to $896.6 million for the twelve months ended June 30,
1995 from $624.6 million for the comparable prior pro forma period, an increase
of $272.0 million or 43.5%. The facilities acquired from KTB and Retail Graphics
in April 1994 produced $189.7 million of this increase. For the twelve months
ended June 30, 1995, advertising circulars were 85.8%, Sunday comics 5.3%,
newspaper TV listing guides 5.1% and other newspaper products and other
publications 3.8% of net sales. Volume (as measured by standard hours of press
activity) increased 54.2%. Paper costs, which significantly affect net sales,
were 47.0% of sales for the twelve months ended June 30, 1995 compared to 44.4%
of sales in the comparable prior pro forma period.
Gross profit for the twelve months ended June 30, 1995 increased to $118.9
million compared to $77.2 million for the comparable prior pro forma period, an
increase of $41.7 million or 54.0%. Despite higher paper costs, gross profit as
a percent of net sales increased to 13.3% for the twelve months ended June 30,
1995 from 12.4% in the comparable prior pro forma period. Per unit variable
costs (excluding paper and ink costs) were lower for the twelve months ended
June 30, 1995 compared to the prior pro forma period. These reduced per unit
variable costs were the result of higher volume and utilization rates due to the
acquisitions of KTB and Retail Graphics, efficiency improvements and cost
controls. Depreciation was 2.5% of the costs of production for the twelve months
ended June 30, 1995 compared to 2.3% for the comparable prior pro forma period.
Selling, general and administrative expense increased to $70.6 million in
the twelve months ended June 30, 1995 from $54.5 million in the comparable prior
pro forma period, an increase of $16.1 million or 29.6%. This increase was
primarily the result of the acquisitions of KTB and Retail Graphics.
Amortization of intangibles included in selling, general and administrative
expense for the twelve months ended June 30, 1995 was $22.1 million compared to
$17.2 million for the comparable prior pro forma period. The increase of $4.9
million was due to the acquisitions of KTB and Retail Graphics. Selling, general
and administrative expense as a percentage of sales was 7.9% for the twelve
months ended June 30, 1995 compared to 8.7% for the comparable prior pro forma
period.
Net interest expense for the twelve months ended June 30, 1995 was $40.2
million compared to $23.9 million for the comparable prior pro forma period.
This increase is principally the result of the financing associated with the
acquisitions of KTB and Retail Graphics. Amortization of deferred financing
21
<PAGE>
fees was $3.4 million for the twelve months ended June 30, 1995 compared to $2.1
million for the comparable prior pro forma period. The increase of $1.3 million
was principally due to the acquisitions of KTB and Retail Graphics. Interest for
the twelve months ended June 30, 1995 included $26.3 million in net interest on
the 10 3/4% Notes and the 13 1/2% Notes, and $10.7 million in net interest on
other debt, primarily the Former Credit Agreement.
Other expense, net for the twelve months ended June 30, 1995 was $2.8
million compared to other income, net of $0.7 million for the comparable prior
pro forma period. The twelve months ended June 30, 1995 had a loss on the
disposition of equipment of $0.4 million and $1.7 million for the relocation of
Treasure Chest's executive offices. The comparable prior pro forma period had a
gain on the disposition of equipment of $0.6 million and a $0.7 million gain on
the sale of the Company's interest in an unconsolidated used printing equipment
sales and remanufacturing company.
Income before income taxes was $2.8 million for the twelve months ended June
30, 1995 compared to loss before income taxes of $2.6 million for the comparable
prior pro forma period due to the factors mentioned above.
The effective income tax rate for the twelve months ended June 30, 1995
exceeded the federal statutory tax rate due primarily to amortization of
goodwill (which is not deductible for income tax purposes), dividends on the BFP
Preferred Stock and state income taxes.
COMPARISON OF PRO FORMA TWELVE MONTHS ENDED JUNE 30, 1994 WITH THE PRO FORMA
TWELVE MONTHS ENDED JUNE 30, 1993
Net sales increased to $624.6 million for the pro forma twelve months ended
June 30, 1994 from $555.0 million for the comparable prior pro forma period, an
increase of $69.6 million or 12.5%. This increase was primarily due to a 10.2%
increase in volume (as measured by standard hours of press activity), and $34.1
million of the increase was attributable to two months sales of KTB and Retail
Graphics. Paper costs, which significantly affect net sales, were 44.4% of sales
for the pro forma twelve months ended June 30, 1994 compared to 43.7% of sales
in the comparable prior pro forma period.
Gross profit for the pro forma twelve months ended June 30, 1994 increased
to $77.2 million compared to $64.7 million for the comparable prior pro forma
period, an increase of $12.5 million or 19.4%. Gross profit as a percent of net
sales increased to 12.4% for the pro forma twelve months ended June 30, 1994
from 11.6% in the comparable prior pro forma period. Per unit variable costs
(excluding paper and ink costs) were lower for the pro forma twelve months ended
June 30, 1994 compared to the comparable prior pro forma period. These reduced
per unit variable costs were the result of efficiency improvements and cost
controls. Per unit paper and ink costs decreased for the pro forma twelve months
ended June 30, 1994 from the comparable prior pro forma period. This was the
result of lower paper prices and favorable contract re-negotiations with major
ink vendors which especially impacted the fourth quarter results. Depreciation
was 2.3% of the cost of production for the twelve pro forma months ended June
30, 1994 compared to 2.5% for the comparable prior pro forma period.
Selling, general and administrative expense decreased to $54.5 million in
the pro forma twelve months ended June 30, 1994 from $55.2 million in the
comparable prior pro forma period, a decrease of $0.7 million or 1.4%. Selling
general and administrative expense for the pro forma twelve months ended June
30, 1993 included a $3.1 million bad debt reserve related to the bankruptcy of
Phar-Mor, Inc. Excluding the effect of this item, selling, general and
administrative expense increased $2.4 million for the pro forma twelve months
ended June 30, 1994. This was the result of $1.0 million in increased
amortization of goodwill, intangible assets and the non-compete agreements for
the acquisitions of KTB and Retail Graphics. Amortization of intangibles
included in selling, general and administrative expense for the twelve months
ended June 30, 1994 was $17.2 million compared to $16.2 million for the
comparable prior pro forma period. Payouts under Treasure Chest's executive and
sales incentive plans increased $1.2 million as a result of operating and sales
performance improvements in 1994.
22
<PAGE>
Net interest expense for the pro forma twelve months ended June 30, 1994 was
$23.9 million compared to $22.6 million for the comparable prior pro forma
period. Amortization of deferred financing fees totaled $2.1 million for the pro
forma twelve months ended June 30, 1994 compared to $1.9 million for the
comparable prior pro forma period. Interest expense increased due to the
interest on borrowings to fund the acquisitions of KTB and Retail Graphics.
Other income, net for the pro forma twelve months ended June 30, 1994, was a
$0.7 million compared to other expense, net of $3.5 million for the comparable
prior pro forma period. This change was the result of lower expenses of $0.6
million related to previously closed facilities, lower expense related to an
unconsolidated used printing equipment sales and remanufacturing company of $1.9
million, and a $1.4 million favorable change in gain/loss on disposition of
assets.
Loss before income taxes was $2.6 million for the pro forma twelve months
ended June 30, 1994 compared to a loss of $18.7 million for the comparable prior
pro forma period due to the factors mentioned above.
The effective income tax rate for the twelve months ended June 30, 1994
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 and state income taxes.
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 and
certain sale leaseback transactions. The Company believes that internally
generated funds from operations and the proceeds from the Offerings and the New
Credit Agreement will be sufficient to meet its operating requirements for at
least the next twelve months.
The net proceeds of the Offerings to the Company, estimated at $80.6
million, plus approximately $182.4 million to be borrowed under the New Credit
Agreement (see "Bank Refinancing"), will be used to (i) repay all amounts owed
under the Former Credit Agreement, (ii) redeem a portion of the 10 3/4% Notes,
(iii) terminate the Company's interest rate swap agreements, (iv) purchase all
the outstanding shares of BFP Preferred Stock, (v) redeem and purchase all of
the 13 1/2% Notes and (vi) purchase all of the 11% Debentures. If the LTC
Acquisition is consummated, the Company will use $26.8 million of borrowings
under the New Credit Agreement and will issue approximately 281,250 shares of
Common Stock, assuming a trading price of $16 per share, to acquire Laser Tech
and to repay certain indebtedness in connection therewith. See "Use of Proceeds"
and "Recent Developments".
On October 11, 1995, Treasure Chest entered into the Commitment Letter with
respect to the New Credit Agreement. The New Credit Agreement will provide for a
six-year $350 million revolving credit facility, with reductions of $33.3
million after each of three, four and five years into the term of the New Credit
Agreement. At September 30, 1995, after giving effect to the Offerings and the
transactions referred to under "Use of Proceeds", approximately $182.4 million
of the facility would have been used to repay the Former Credit Agreement and
redeem and purchase certain existing public debt and preferred stock. At least
$70 million of the New Credit Agreement will be available for working capital
purposes only and up to $15 million will be available under the facility for
stand-by and trade letters of credit. The remainder of the New Credit Agreement
will be available for certain acquisitions and general corporate and working
capital purposes. Interest on borrowings under the New Credit Agreement will be
payable, at Treasure Chest's option, (a) at a base rate plus a margin which
ranges from 0.00% to 1.00% or (b) at a eurodollar rate plus a margin which
ranges from 0.50% to 2.00%. The New Credit Agreement will also restrict the
ability of Treasure Chest to pay dividends to the Company and the Company's
ability to pay dividends to its stockholders but will allow cash dividends to
the Company for operating expenses in the ordinary course of business in an
amount which starts at $2.75 million and increases 10% each year. Additionally,
dividends are permitted (i) to enable the Company to pay interest on its public
debt, pay dividends on its preferred stock and undertake debt buybacks and (ii)
up to 25% of the consolidated net income for the prior year. See "Bank
Refinancing".
23
<PAGE>
Since the acquisition of Treasure Chest, Big Flower's principal use of cash
has been debt service and capital expenditures. Capital expenditures for the
fiscal year ended June 30, 1995 totalled $7.1 million. Big Flower's working
capital at June 30, 1995 was $32.1 million, compared with $24.6 million at June
30, 1994, an increase of $7.5 million. The ratio of current assets to current
liabilities as of June 30, 1995 was 1.25 to 1 and as of June 30, 1994 was 1.21
to 1. These changes in working capital and current ratio were primarily due to
higher inventories resulting from significant paper price increases, restricted
availability and longer lead times caused by changed paper market conditions. In
addition, certain suppliers are no longer warehousing paper until needed,
creating an increase in the Company's inventory.
Net cash provided by operating activities increased to $44.6 million in the
fiscal year ended June 30, 1995 from $0.1 million in the twelve months ended
June 30, 1994, an increase of $44.5 million. This increase was principally due
to increased depreciation and amortization of $15.8 million and the $21.8
million in deferred financing fees paid in conjunction with the acquisition of
Treasure Chest and the acquisitions of KTB and Retail Graphics. Net cash used in
investing activities decreased to $5.8 million in the fiscal year ended June 30,
1995 from $270.9 million in the twelve months ended June 30, 1994 since the
latter included the cash used for the acquisition of Treasure Chest and the
acquisitions of KTB and Retail Graphics. Net cash used in financing activities
was $39.8 million for the fiscal year ended June 30, 1995 compared to $271.2
million provided by financing activities for the twelve months ended June 30,
1994. This change was due to the financing activities related to the acquisition
of Treasure Chest and the acquisitions of KTB and Retail Graphics.
Net cash used in operating activities for the three months ended September
30, 1995 was $34.7 million, an increase of $31.5 million from the prior year
comparable quarter. This increase was primarily due to an increase in accounts
receivable and a decrease in accounts payable and other current liabilities from
the balances at June 30, 1995. The increase in accounts receivable was
principally due to a 13% increase in sales for September 1995 compared to June
1995 and the timing of cash collections. The number of days sales outstanding in
accounts receivable was 43, 38 and 46 at September 30, 1994, June 30, 1995 and
September 30, 1995, respectively. The decrease in accounts payable and other
current liabilities was largely offset by an increase in cash overdrafts,
included in financing activities. Capital expenditures for the three months
ended September 30, 1995 were $11.9 million. Net cash used in operating and
investing activities were financed through increased borrowings on the Company's
line of credit and the increase in cash overdrafts discussed above.
Capital expenditures of $7.0 million, $6.8 million and $7.1 million in the
fiscal years ended June 30, 1993, 1994, and 1995, respectively, were financed by
cash from operations, and borrowings under Treasure Chest's revolving credit
facility. In addition, the Company has entered into operating leases with an
equivalent equipment purchase value of $9.5 million, $13.7 million and $5.9
million in the fiscal years ended June 30, 1993, 1994 and 1995, respectively.
(See note 10 of the "Notes to the Consolidated Financial Statements".)
The Company anticipates total acquisitions of capital equipment, whether
funded by capital expenditures or operating leases, with an equivalent value of
$30 million in fiscal 1996.
SEASONALITY
The Company's advertising circular business is seasonal in nature, with
activity increasing prior to the following advertising periods: Easter (March
15-April 15); Memorial Day (April 15-May 15); Back to School (July 15-August
15); and Thanksgiving/Christmas (October 1-December 15). On a monthly basis, the
Company's sales are generally highest in April, May, October and November.
Sunday comics, newspaper TV listing guides, other newspaper products and other
publications are not seasonal in nature. Net sales for the Company by quarter
for the twelve months ended June 30, 1995 were 23.5%, 27.4%, 23.1% and 26.0% of
total net sales for the quarters ended September 30, December 31, March 31 and
June 30, respectively. Based on its historical experience, the Company expects
its operating results to be highest in the second quarter of its fiscal year and
weakest in the third quarter of its fiscal year.
24
<PAGE>
BUSINESS
MARKET BACKGROUND
Based on recent industry studies, the Company believes the U.S. market for
advertising circulars exceeds $3.8 billion and has grown at a faster rate in
recent years than overall newspaper advertising expenditures as well as overall
advertising expenditures. Advertising circulars are a low cost, flexible and
highly effective advertising medium for retailers. Management believes that the
costs associated with advertising circulars have increased at a slower rate over
the past five years than the costs associated with advertising in alternative
media, such as radio and television, thus enhancing the relative cost
effectiveness of such circulars for advertisers. In addition, the development of
sophisticated distribution programs has allowed the Company's retailing
customers to utilize advertising circulars to target specific demographic or
geographic groups. Industry research indicates that more than 75% of consumers
read advertising circulars appearing in their Sunday newspaper. A recent Gallup
Poll indicated 59% of respondents used advertising circulars once a month or
more to make buying decisions and that 25% used advertising circulars on a
consistent, weekly basis to make buying decisions.
The Company believes that Big Flower and three other companies account for
approximately 50% of the advertising circular market in the United States, with
more than 130 regional and local printers accounting for the balance. Management
believes that the Company's national network of printing facilities, advanced
marketing services and ability to produce high quality products at a low cost
will enable it to continue to compete effectively in this environment. See
"--Competition".
In recent years, newspapers have increased their emphasis on TV listing
guides, Sunday comics and other products to enhance circulation in a competitive
market. The Company believes that these publications represent attractive media
for advertisers. For example, a recent industry study indicated that more than
70% of respondents keep the TV listing guide from their Sunday newspaper for
future consultation, creating opportunities for multiple viewings of
advertisements carried in such publications. See "--Competition".
Market data used throughout this Prospectus consists of information
currently used in the industry and internal Company estimates. Although the
Company is not able to verify all of such market data, it believes such
information is credible.
BUSINESS STRATEGY
The Company's business strategy is to increase revenues and maximize
profitability in its core business of printing advertising circulars and
newspaper publications. The strategy is also focused on achieving additional
revenue growth through the development of new products and services and through
strategic acquisitions and investments.
The cornerstone of this strategy is the continued development of a high
quality sales, marketing and printing organization with an emphasis on assisting
customers in maximizing the effectiveness of their advertising dollars. This
customer focus is designed to increase demand for the Company's products and
services.
Since the acquisition of Treasure Chest in August 1993, the Company has
achieved significant gains in revenues and profitability, through internally
generated growth and through the April 1994 acquisitions of KTB and Retail
Graphics. The Company believes it is well positioned to realize further gains
due to its nationwide printing network and competitive cost position.
NATIONWIDE PRINTING NETWORK. The Company operates a nationwide network of
sales offices and printing plants which are strategically located to service
major population centers throughout the United States. As the only advertising
circular printer offering a national network of both heatset and cold web offset
printing locations, the Company is able to meet the diverse needs of its
customers and achieve significant cost and distribution advantages.
25
<PAGE>
COMPETITIVE COST POSITION. The Company maintains stringent cost controls
and has implemented programs to enhance efficiency and improve profitability in
recent years. These programs have resulted in increased press speeds, reduced
paper waste and improved capacity utilization. As one of the largest consumers
of newsprint and ink in the United States, the Company believes it is able to
achieve significant purchasing economies under most market conditions.
The Company believes it has significant opportunities to generate new
sources of revenue through the following initiatives:
ENHANCED IMAGE MANAGEMENT SYSTEMS AND ELECTRONIC PRE-PRESS SERVICES. The
Company is designing an interactive image management system which would link
advertisers and graphic designers with a database of images and product
information intended for the creation of circulars and potentially on-line
advertising. This system is intended to streamline production flows and provide
information to help customers plan their advertising programs more effectively.
The Company is also enhancing its computerized EPP services, which include
imaging, layout and platemaking, enabling the Company to service its customers
from inception of an advertising concept through layout design to final press
run. EPP services provide customers the flexibility of changing their print
advertisements through on-line connections from their offices. This increased
flexibility reduces costs and gives customers improved control over their print
advertisements. See "Recent Developments" for information regarding the LTC
Acquisition.
DATABASE PROGRAM. The Company is developing a database information system
designed to enable advertisers to use advertising circulars to target messages
specifically to potential customers meeting the advertisers' desired geographic,
demographic and purchase pattern profiles, resulting in more cost-effective
advertising. The Company intends to use this system to create additional demand
for its advertising circulars.
NEWSPAPER TV LISTING GUIDES PROGRAMS. The Company currently offers a
variety of programs to increase newspaper revenues by including advertising in
their TV listing guides. These programs include bound-in inserts, cover wraps,
pullout or stand-alone inserts and promotional ink jet numbering. In addition,
the Company has organized a network of newspapers in the western part of the
United States (The Arizona Republic Gazette, The Los Angeles Times, The San
Diego Union-Tribune, The San Francisco Chronicle and The San Jose Mercury News)
which the Company is marketing as an effective way for advertisers to include
regional advertising in newspaper TV listing guides. The Company will seek to
establish, and market to advertisers, newspaper TV listing guide networks in
other regions of the United States.
STRATEGIC ACQUISITIONS AND INVESTMENTS. The Company routinely reviews
opportunities to acquire businesses with operations in its core business of
printing advertising circulars and newspaper publications. In addition, the
Company may seek to acquire or invest in businesses operating in other segments
of the printing industry, including free-standing pre-press businesses. In
evaluating acquisition or investment opportunities, the Company will consider
such factors as the opportunity to expand or extend product offerings; market
position; technology; personnel; synergies; opportunities to lessen seasonal
variations and smooth business cycles; and access to raw materials. Upon the
consummation of the Offerings, the Company will have significant borrowing
capacity for acquisitions. See "Use of Proceeds" and "Bank Refinancing". The
Company is currently negotiating a stock purchase agreement for the LTC
Acquisition. If consummated, the Company expects that it will continue to have
significant borrowing capacity for acquisitions. The Company does not have a
binding commitment for the LTC Acquisition and no assurance can be given that
such acquisition will be consummated. See "Recent Developments".
PRODUCTS
ADVERTISING CIRCULARS. Advertising circulars are printed, stand-alone
advertisements which contain no editorial comment, are generally in color, and
display a broad range of products sold by a single
26
<PAGE>
retailer or manufacturer. The primary users of advertising circulars are general
merchandisers, specialty retailers, grocery stores, home improvement centers and
drug stores. Many non-traditional users have recently turned toward advertising
circular use, including banks and insurance companies, shopping mall operators,
major manufacturers and recreational and entertainment businesses. Advertising
circulars are inserted in newspapers, mailed to consumers or distributed in
stores. Because advertising circulars typically advertise a specific sale event,
they generally have a limited life span ranging from one to four weeks.
Advertising circulars can be produced in color on better quality paper than
the reproductions which typically appear in newspapers. Advertising circulars
also allow users to vary layout, artwork, design, trim size, paper types, color
and formats.
The Company's mix of printing capabilities, which include both heatset and
cold web offset presses, enables it to provide a variety of formats and designs
to meet the diverse needs of its retailing customer base. The Company produces
advertising circulars for many leading U.S. retailers such as American Stores,
Circuit City, Home Depot, J.C. Penney, Kmart, Lowes, Montgomery Ward, Safeway,
Sears, Walgreens and Wal-Mart. The Company believes it is the largest producer
of advertising circulars in the United States.
NEWSPAPER TV LISTING GUIDES, SUNDAY COMICS, OTHER NEWSPAPER PRODUCTS AND
OTHER PUBLICATIONS. The Company prints TV listing guides, Sunday comics, Sunday
magazines and/or special supplements for approximately two-thirds of the 50 most
widely circulated newspapers in the United States. In recent years, newspapers
have further emphasized these products in an effort to offset downward trends in
circulation and regular newspaper advertising. The Company believes that the
ability to provide timely delivery and high quality products at a cost-effective
price is critical to success in the printing of these products.
The Company is the largest printer of newspaper TV listing guides in the
United States. The Company's significant customers include The Baltimore Sun,
The Boston Globe, The Los Angeles Times, Newsday, The New York Times, The
Philadelphia Inquirer, the San Francisco Examiner and The Newark Star Ledger.
Treasure Chest began printing Sunday comics in the western United States in
1982 and in the eastern United States in 1985 and is the largest printer of
Sunday comics nationwide. As of June 30, 1995, the Company printed Sunday comics
for approximately 280 newspapers, including the Atlanta Journal, Miami Herald,
San Francisco Examiner, The Baltimore Sun, The Denver Post, The Los Angeles
Times, The Philadelphia Inquirer and The Seattle Times.
The Company also prints general publications for the U.S. Government,
various state agencies, religious organizations and other associations.
SALES AND DISTRIBUTION
Consistent with the Company's decentralized management structure, the
Company's sales force is organized into three regional geographic groups in the
eastern, central and western United States. The Company's sales professionals
draw upon their industry expertise, knowledge of retailing and the Company's
printing capabilities to help customers achieve their advertising objectives on
a cost-effective basis. The Company believes its interactive approach to
servicing customers' needs distinguishes its sales professionals. Many of the
Company's customers rely on the Company's sales professionals to aid in the
planning or design of their advertising campaigns. The Company maintains 17
sales locations throughout the United States, including five sales offices
located in printing plants, and has 47 sales professionals who collectively have
an average of approximately 16 years of experience in the printing industry.
27
<PAGE>
The following table presents the sales by type of customer as a percentage
of total Company sales:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
FISCAL YEAR ENDED
CUSTOMER TYPE JUNE 30, 1995
- ----------------------------------------------------------------------- -----------------------
<S> <C>
General merchandisers.................................................. 27.0%
Home improvement centers............................................... 16.5
Specialty retail and furniture......................................... 14.7
Drug stores............................................................ 12.4
Grocery stores......................................................... 11.7
Non-retail............................................................. 3.5
-----
Total advertising circulars...................................... 85.8
Sunday comics.......................................................... 5.3
Newspaper TV listing guides............................................ 5.1
Other newspaper products and other publications........................ 3.8
-----
Total............................................................ 100.0%
-----
-----
</TABLE>
The Company's top ten customers, which accounted for 37.5% of sales in
fiscal 1995, were American Stores, Builder's Square, Home Depot, J.C. Penney,
Kmart, Lowes, Montgomery Ward, Sears and Walgreens, for advertising circulars,
and Western Colorprint, through which the Company markets its Sunday comics to
its newspaper customers. The Company's largest customer, Sears, accounted for
approximately 5.9% of sales in fiscal 1995. As of June 30, 1995, the Company had
an average relationship with these customers of approximately 14 years.
Consistent with industry practice, the Company generally does not have contracts
with its customers requiring them to use the Company's products or services. The
Company does not believe that the loss of any single customer would have a
material adverse effect on its business.
The Company's products are delivered at the direction of its customers to
specified distribution locations, including newspapers, direct mailers and
retail stores. Each of the Company's printing plants is strategically located in
or near major metropolitan areas in the United States. Management believes that
the size of its printing plants as well as their close proximity to major
population centers provide the Company with a significant cost advantage in
distribution. The Company simultaneously prints major national advertising
circulars in multiple locations, thereby accelerating turnaround and reducing
shipping costs.
PRE-PRESS AND PRINTING SERVICES
ELECTRONIC PRE-PRESS SERVICES. The Company has installed computerized EPP
operations, which include imaging, layout and platemaking, enabling the Company
to service customers from inception of an advertising concept through layout
design to the final press run. In connection with these systems, the Company
provides computerized advertising software and hardware, training and service to
its customers. Electronic imaging hubs are being developed to service the
Company's regional and national customer base. These hubs will provide
first-line and overflow imaging manufacturing support for regional and national
sales efforts. EPP services provide customers the flexibility of changing their
print advertisements through on-line connections from their offices. This
increased flexibility reduces costs and gives customers improved control over
their print advertisements and are intended to broaden the Company's customer
base by expanding the Company's advertising support services. See "Recent
Developments" for information regarding the LTC Acquisition.
PRINTING AND PRESS SERVICES. There are three printing processes which may
be used to produce advertising circulars and newspaper supplements: offset
lithography (heatset and cold), rotogravure and flexography. The Company offers
its customers both heatset and cold web offset lithography press capabilities.
The Company currently maintains 71 heatset and 51 cold web offset presses and
significant folding and in-line production capabilities.
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<PAGE>
In the heatset web offset process, the printed web goes through an oven
which dries the solvents off the ink, thereby sealing the ink to the paper. In
the cold web offset process, the ink is absorbed into the paper. Because heatset
web offset presses can print on high quality paper, the heatset web offset
process produces a sharper image and more attractive product than cold web
offset presses, but at a higher cost. The Company's heatset web offset presses
are among the most advanced available within its markets. The Company believes
it is the only commercial printer providing cold web offset printing nationwide.
By specializing in both heatset and cold web offset printing, the Company is
able to provide a variety of formats and designs appropriate for the varied
needs of its advertising and newspaper customers.
In addition to printing capacity, certain equipment parameters are critical
to competition in the advertising circular market, including cut-off length,
folding capabilities and in-line finishing. Cut-off length is one of the
determinants of the size of the printed paper. Treasure Chest was the first
major advertising circular printer to offer customers 21-inch cut-offs, rather
than the traditional 22 3/4-inch cut-offs, thereby saving approximately 8% of
the paper required for a job while retaining the same image area. Folding
capabilities for advertising circulars must include a wide variety of page
sizes, page counts, and special folded effects. A folder designed to produce
publications is not suitable to meet the varied folding requirements of
advertising circulars. Finally, many advertising circulars require gluing or
stitching of the product, adding cards, trimming and numbering. These production
activities must often be done in-line with the press to meet the expedited
delivery schedules required by many customers. Printing plants equipped to
accommodate these processes off-line are often not able to meet such schedules.
The Company believes that its mix and configuration of presses and press
services allows for the most efficient tailoring of printing services to
customers' product needs.
RAW MATERIALS
In fiscal 1995, the Company spent approximately $485.8 million on raw
materials. The Company's materials management program capitalizes on the
Company's purchasing power in order to minimize materials cost while optimizing
inventory management and achieving uniform quality standards. The primary raw
materials required in the Company's printing operation are paper and ink. The
Company believes that there are adequate sources of supply for its primary raw
materials and that its relationships with its suppliers yield improved quality,
pricing and overall service to its customers. However, there can be no assurance
that the Company's sources of supply for its paper will be adequate or, in the
event that such sources are not adequate, that alternative sources can be
developed in a timely manner.
During fiscal 1995, the printing industry experienced substantial increases
in the cost of paper. The Company's results of operations depend to a large
extent on the cost of paper and the ability of the Company to pass along to its
customers any increases in these costs. See "Risk Factors--Raw
Materials--Paper". In recent years, the Company has substantially reduced the
number of its suppliers of paper and has formed stronger commercial
relationships with such suppliers, resulting in its ability to negotiate
favorable price discounts and achieve more assured sourcing of high quality
paper that meets the Company's specifications.
In connection with its acquisition by Big Flower, Treasure Chest entered
into a long-term ink supply agreement with a single supplier pursuant to which
it is obligated to purchase from such supplier a substantial portion of its
annual requirements for ink.
COMPETITION
Although commercial printing in the United States remains highly fragmented,
recent technological developments and over-capacity in the printing industry
have increased industry consolidation and competitive pressures. The Company
believes the major competitive elements in the printing business, as well as the
Company's principal methods of competition, are pricing, quality, timeliness of
delivery and customer service. Pricing is dependent in large part upon the
prices of paper and ink, which are the
29
<PAGE>
major components of the Company's product. Pricing is also influenced by
shipping costs, operating efficiencies and the Company's ability to control
costs. See "--Raw Materials".
The advertising circular industry is highly fragmented, and the Company
competes with numerous regional and local printers for the printing of
advertising circulars. The Company also competes for national accounts with
several large printers, some of which have greater resources than the Company.
See "--Market Background". In addition, the Company's products compete with
television, radio and other forms of print media. The Company believes, however,
that advertising circulars are a preferred advertising medium for general
merchandisers to advertise numerous products to a targeted audience in a
cost-effective manner.
The Company has one major competitor in the printing of Sunday comics in the
United States, although numerous newspapers print their own Sunday comics. The
Company's newspaper TV listing guides, Sunday magazine and newspaper supplement
operations also face strong competition both from other printers and newspapers.
PROPERTIES
Big Flower leases its executive offices in New York, New York. Treasure
Chest leases its executive offices in Baltimore, Maryland and owns its general
offices located in Glendora, California.
The Company owns five and leases 12 printing plants, with lease terms
expiring from September 30, 1996 to February 3, 2006, as set forth below:
<TABLE>
<CAPTION>
PRINTING PLANTS SQUARE FOOTAGE LEASE TERM EXPIRATION
- ------------------------------------------------- ----------------- ------------------------
<S> <C> <C>
Atlanta, GA*+.................................... 100,057 --
Charlotte, NC.................................... 105,400 December 31, 2002
Columbus, OH..................................... 141,185 December 31, 2004
City of Industry, CA............................. 103,000 September 30, 1996
Dallas, TX+...................................... 90,000 September 30, 1997
East Longmeadow, MA.............................. 159,241 February 3, 2006
Elk Grove Village, IL............................ 80,665 June 30, 1997
Lenexa, KS*...................................... 90,000 --
Manassas, VA..................................... 108,120 February 28, 1997
North Kansas City, MO............................ 64,867 August 31, 1999
Pomona, CA....................................... 144,542 June 30, 1997
Portland, OR..................................... 112,800 November 30, 2002
Sacramento, CA*.................................. 57,483 --
Saugerties, NY*.................................. 209,000 --
Salt Lake City, UT............................... 55,000 October 31, 1997
San Antonio, TX*................................. 67,900 --
Tampa, FL........................................ 72,418 October 31, 1996
</TABLE>
- --------------
* Owned.
+ Comprised of two adjacent facilities.
The Company believes its facilities are adequate for its present operations.
The Company's properties are covered by all-risk and liability insurance which
the Company believes is customary for the industry.
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<PAGE>
The Company has 17 sales offices in the cities listed below, including five
sales offices located in printing plants. All of the offices listed below are
leased, with lease terms expiring from October 31, 1995 to December 31, 2002,
with the exception of the office at Lenexa, Kansas which is owned.
Annapolis, MD
Atlanta, GA
Boston, MA
Charlotte, NC
Chicago, IL
Dallas, TX
Dayton, OH
Detroit, MI
Glendora, CA
Pittsburgh, PA
Portland, OR
Sacramento, CA
Salt Lake City, UT
Seattle, WA
Tampa, FL
Walnut Creek, CA
Wilmington, DE
EMPLOYEES
As of September 30, 1995, the Company had approximately 4,100 employees,
none of whom are covered by collective bargaining agreements. The Company
believes its relations with employees are good.
ENVIRONMENTAL ISSUES
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances (together,
"Environmental Laws").
The Company uses certain substances and generates certain wastes that are
regulated or may be deemed hazardous under applicable Environmental Laws. From
time to time, operations of the Company have resulted or may result in certain
noncompliance with applicable requirements under the Environmental Laws.
However, the Company believes that any such noncompliance under current
Environmental Laws would not have a material adverse effect on the Company's
results of operations and financial condition.
Treasure Chest is a potentially responsible party ("PRP") for the cleanup of
contamination resulting from disposals of hazardous wastes at three sites
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA" or "Superfund"), and one additional
site pursuant to certain analogous state Environmental Laws, to which sites
Treasure Chest, among others, sent wastes in the past. Courts have interpreted
CERCLA to impose strict, joint and several liability upon all persons liable for
response costs at a cleanup site if the harm at the site is indivisible. This
generally means that each responsible party could be held liable for the entire
costs of the necessary response actions at a Superfund site. As a practical
matter, however, at sites where there are multiple PRPs for a cleanup, the costs
of cleanup typically are allocated, according to a volumetric or other standard,
among the parties. CERCLA also provides that responsible parties generally may
seek contribution for the costs of cleaning up a site from other responsible
parties. Thus, if one party is required to clean up an entire site, that party
can seek reimbursement or recovery of such costs from other responsible parties.
Treasure Chest believes that, with respect to one site, its liability will not
be material, and that, with respect to the other three sites, it is, or may be,
responsible for a very minor portion, if any, of the total cleanup costs at each
such site. As a result, based on a review of the data available to the Company
regarding each such site, including the number and viability of other PRPs, the
minor volumes of waste which Treasure Chest is alleged to have contributed, the
range of likely cleanup costs, and a comparison of Treasure Chest's alleged
liability at each such site to settlements previously reached by Treasure Chest
in similar cases, the Company believes that such matters will not result in
liabilities or expenditures that will have a material adverse effect on Treasure
Chest's consolidated financial position or results of operations. Nonetheless,
because neither the final total cleanup costs at each of the remaining sites
have been ascertained nor Treasure Chest's final proportionate share
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<PAGE>
determined, there can be no assurance that such matters, or any similar
liabilities that arise in the future, will not ultimately have such an effect.
TRADE NAMES AND TRADEMARKS
The Company owns certain trade names and trademarks used in its business.
The loss of any such trade name or trademark would not have a material adverse
effect on the Company.
LEGAL PROCEEDINGS
Certain claims, suits and complaints which arise in the ordinary course of
business have been filed or are pending against the Company. The Company
believes that all such matters either are adequately reserved for, are covered
by insurance, or would not have a material adverse effect on the financial
condition or results of operations of the Company, taken as a whole, if
adversely determined against the Company.
32
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Big Flower and the executive
officers of Treasure Chest as of November 1, 1995 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ----------- -----------------------------------------------------
<S> <C> <C>
Theodore Ammon....................................... 46 Chairman of the Board and Chief Executive Officer of
Big Flower, and Chairman of the Board of Treasure
Chest
Donald E. Roland..................................... 52 Director of Big Flower, and President and Chief
Executive Officer of Treasure Chest
Sanford G. Scheller.................................. 64 Vice Chairman of the Board of Big Flower
Leon D. Black........................................ 43 Director of Big Flower
Edward M. Yorke...................................... 36 Director of Big Flower
Peter G. Diamandis................................... 63 Director of Big Flower
Joan Daniels Manley.................................. 63 Director of Big Flower
David E. Glick....................................... 49 Senior Vice President and General Manager of Treasure
Chest
Andrew P. Kaplan..................................... 41 Senior Vice President and Chief Financial Officer of
Treasure Chest
Wayne S. Lynn........................................ 45 Senior Vice President and General Manager of Treasure
Chest
Herbert W. Moloney III............................... 44 Senior Vice President, Marketing and Sales of
Treasure Chest
Thomas R. Zimmer..................................... 46 Senior Vice President and General Manager of Treasure
Chest
</TABLE>
The Certificate divides the Board of Directors into three classes, with
regular three year staggered terms and initial terms of one, two and three years
for each of Class I, Class II and Class III directors, respectively.
Accordingly, Messrs. Scheller and Yorke will hold office until the annual
meeting of stockholders to be held in 1996, Mr. Diamandis and Ms. Manley will
hold office until the 1997 annual meeting and Messrs. Ammon, Black and Roland
will hold office until the 1998 annual meeting.
Theodore Ammon has been the Chairman of the Board and Chief Executive
Officer of Big Flower since inception. Mr. Ammon has also been the Chairman of
the Board of Treasure Chest since 1993. Mr. Ammon was a General Partner of
Kohlberg Kravis Roberts & Co. (a New York and San Francisco-based investment
firm) from 1990 to 1992, and an executive of such firm prior to 1990. Mr. Ammon
is also a member of the Board of Directors of Host Marriott Corporation,
Foodbrands America, Inc., Culligan Water Technologies, Inc. and Samsonite
Corporation. In addition, Mr. Ammon serves on the Board of Directors of the New
York YMCA and on the Board of Trustees of Bucknell University.
Donald E. Roland has been a Director of Big Flower since June 1995 and has
been the Chief Executive Officer of Treasure Chest since June 1995, President of
Treasure Chest since March 1995 and Chief Operating Officer of Treasure Chest
since 1994. Mr. Roland served as the Executive Vice President of Treasure Chest
from 1993 to 1994 and Senior Vice President, Operations, of Treasure Chest from
1984 to 1993. From 1983 to 1984, Mr. Roland served as Group Vice President of
Treasure Chest's Mid-American Operations. Prior to joining Treasure Chest in
1983, Mr. Roland held numerous positions at Times Mirror, Inc., most recently as
a Vice President of Operations.
Sanford G. Scheller has been Vice Chairman of Big Flower since June 1995 and
has been a Director of Big Flower since 1993. Mr. Scheller was the Chief
Executive Officer of Treasure Chest from 1986 to June 1995 and was the President
of Treasure Chest from 1986 to March 1995. From 1985 to 1986,
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<PAGE>
Mr. Scheller was a Vice President and General Manager of Champion International.
From 1979 to 1985, Mr. Scheller served as a Vice President and General Manager
at St. Regis Paper Company, in the bag packaging/consumer products division.
Leon D. Black has been a Director of Big Flower since 1993. Mr. Black is one
of the founding principals of Apollo Advisors, L.P. which, together with its
affiliates, serves as managing general partner of Apollo Investment Fund, L.P.,
AIF II, L.P. and Apollo Investment Fund III, L.P., private securities investment
funds, and of Lion Advisors, L.P. which acts as financial advisor to and
representative for certain institutional investors with respect to securities
investments. Prior to 1990, Mr. Black was a managing director and senior
executive of Drexel Burnham Lambert Incorporated. Mr. Black is a director of
Converse, Inc., Culligan Water Technologies, Inc., Interco, Incorporated,
Gillett Holdings, Inc., New York Law Publishing Company, Samsonite Corporation
and Telemundo Group, Inc.
Edward M. Yorke has been a Director of Big Flower since 1993. Mr. Yorke has
been an officer since 1992 of Apollo Capital Management, Inc. and Lion Capital
Management, Inc. which respectively act as general partners of Apollo Advisors,
L.P. and Lion Advisors, L.P. Mr. Yorke also is a limited partner of Apollo
Advisors, L.P., which, together with its affiliates, acts as managing general
partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund
III, L.P., private securities investment funds, and a limited partner of Lion
Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. From
1990 to 1992, Mr. Yorke was a vice president in the high yield capital markets
group of BT Securities Corp. Prior to 1989, Mr. Yorke was a member of the
mergers and acquisitions group of Drexel Burnham Lambert Incorporated. Mr. Yorke
is a director of Aris Industries, Inc., Salant Corporation, Telemundo Group,
Inc. and Webcraft Technologies, Inc.
Peter G. Diamandis has been a Director of Big Flower since September 1994.
Mr. Diamandis has been Vice Chairman of Donnelley Marketing, Inc. since 1991 and
has been the Chairman of TVSM, Inc. since 1991. From 1988 to 1991, Mr. Diamandis
served as President and Chief Executive Officer of Hachette Publications, which
purchased Diamandis Communications Inc. in 1988. From 1987 to 1988, Mr.
Diamandis served as Chairman, President and Chief Executive Officer of Diamandis
Communications Inc., a publisher of special interest magazines. From 1983 to
1987, Mr. Diamandis was president of CBS Magazines ("CBS"). In 1982, Mr.
Diamandis joined CBS as Vice President, Group Publisher, WOMEN'S DAY, and served
as President of CBS Magazine from September 1983 to 1987. Mr. Diamandis serves
on the Board of Trustees of Bucknell University and the Board of Directors of
the Publishers Information Bureau.
Joan Daniels Manley has been a Director of Big Flower since September 1994.
Ms. Manley retired from Time Incorporated in 1984, where she had held numerous
positions since 1960. At the time of her retirement, Ms. Manley was Group Vice
President and a director of Time Incorporated. Ms. Manley serves on the Board of
Directors of Aon Corporation, Sara Lee Corporation, Scholastic, Inc. and Viking
Office Products, Inc. and is a Trustee of the Keystone Center.
David E. Glick has been Senior Vice President and General Manager of
Treasure Chest's Central Group since the Spring of 1994. From 1993 to 1994, Mr.
Glick served as Senior Vice President, Operations of Treasure Chest. From 1988
to 1993, Mr. Glick served as Treasure Chest's Vice President of Operations,
Northern Group. From 1986 to 1988, Mr. Glick served as Vice President and
General Manager of W.A. Krueger Company, and from 1983 to 1986 as Division
Manager of Treasure Chest. From 1976 to 1983, Mr. Glick held numerous positions
with W.A. Krueger Company, and prior to that with Hallmark Cards, Inc.
Andrew P. Kaplan has been the Senior Vice President and Chief Financial
Officer of Treasure Chest since September 1995. Prior to joining Treasure Chest,
Mr. Kaplan held numerous positions at Time Warner Inc. including Chief Financial
Officer of Time Life Inc. from 1989 to 1995, Chief Operating Officer of Time
Life Europe in London from 1985 to 1989, and Director of European Operations at
Time Inc. in Amsterdam from 1983 to 1985. Prior to joining Time Warner, Mr.
Kaplan held various positions with Kraft General Foods and Ernst & Young LLP.
34
<PAGE>
Wayne S. Lynn has been Senior Vice President and General Manager of Treasure
Chest's Eastern Group since the Spring of 1994. From 1992 to 1994, Mr. Lynn
served as Vice President and General Manager of Quebecor Printing's Tenn essee
facility. From 1984 to 1992, Mr. Lynn held the position of Division Manager of
Treasure Chest's Pomona facility. Prior to 1984, Mr. Lynn held various positions
at Dittler Brothers, Prem Corporation and W.R. Bean.
Herbert W. Moloney III has been Senior Vice President, Marketing and Sales
of Treasure Chest since September 1994. From 1973 to 1994, Mr. Moloney held
numerous positions with Knight Ridder, Inc., including Senior Vice President of
Advertising for The Philadelphia Inquirer/Daily News, Sales Manager for WPRI-TV
in Providence, Rhode Island and Retail Advertising Manager for The Miami Herald.
Thomas R. Zimmer has been Senior Vice President and General Manager of
Treasure Chest's Western Group since the Spring of 1994. Mr. Zimmer served as
Vice President, Sales Administration of Treasure Chest from 1986 to 1994. Prior
to that, Mr. Zimmer served as Treasure Chest's Director, Pricing and Estimating
(1983 to 1986); Manager, Operational Accounting (1980 to 1983); Corporate Cost
Accounting Manager (1980); and held various positions in operations (1970 -
1980).
The Compensation Committee of the Board of Directors will establish
remuneration levels for officers of the Company, review significant employee
benefit programs and establish and administer executive compensation programs,
including bonus plans, stock option and other equity-based programs, deferred
compensation plans and any other cash or stock incentive programs. The
Compensation Committee is comprised of Sanford G. Scheller (the Chair of such
Committee), Leon D. Black and Peter G. Diamandis.
The Audit Committee of the Board of Directors will recommend to the Board of
Directors the independent public accountants to be selected to audit the
Company's annual financial statements and approve any special assignments given
to such accountants. The Audit Committee will also review the planned scope of
the annual audit and the independent accountants' letter of comments and
management's responses thereto, any major accounting changes made or
contemplated and the effectiveness and efficiency of the Company's internal
accounting staff. The Audit Committee is comprised of Joan Daniels Manley (the
Chair of such committee) and Peter G. Diamandis, and Edward Yorke (as an ex
officio, non-voting member).
DIRECTOR COMPENSATION
No executive officer of Big Flower has received any additional compensation
for serving as a member of the Board of Big Flower or any of its committees. All
non-employee directors of Big Flower are paid an annual fee of $25,000.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid for the fiscal years
ended June 30, 1993, June 30, 1994 and June 30, 1995 to Donald E. Roland, who
became Chief Executive Officer of Treasure Chest on June 13, 1995, Sanford G.
Scheller, who served as Chief Executive Officer of Treasure Chest until his
retirement on June 13, 1995, and each of the four other most highly paid
executive officers of Treasure Chest who were serving as executive officers as
of June 30, 1995 (the "Named Executive Officers").
35
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------- ---------------------
FISCAL OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1)(2) COMPENSATION(3) OPTIONS/SARS(#) COMPENSATION(4)
- ------------------------------------- ------ --------- ----------- --------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Theodore Ammon....................... 1995 $ 643,750 $392,600 -- -- $2,310
Chairman of the Board of Treasure 1994 529,615 447,200 -- -- --
Chest 1993 -- -- -- -- --
Donald E. Roland(5).................. 1995 321,513 163,080 -- -- 943
Chief Executive Officer and 1994 289,380 185,760 -- 52,003 876
President of Treasure Chest 1993 247,710 92,400 -- -- 3,538
Sanford G. Scheller(5)............... 1995 435,000 241,600 $130,649(6) -- 2,310
Former Chief Executive Officer and 1994 423,310 275,200 -- 100,646 794
President of 1993 394,444 176,880 -- -- 3,538
Treasure Chest
David E. Glick....................... 1995 208,445 107,670 321,776 -- 3,346
Senior Vice President 1994 192,585 127,280 -- 24,882 1,056
and General Manager of Treasure 1993 164,780 47,145 -- -- 3,435
Chest
Wayne S. Lynn........................ 1995 204,263 97,310 24,548(8) 15,550 --
Senior Vice President and General 1994 54,977 31,820 21,385(9) -- --
Manager of Treasure Chest 1993 -- -- -- -- --
Thomas R. Zimmer..................... 1995 198,333 115,070 -- 4,976 2,971
Senior Vice President and General 1994 151,140 80,550 -- 16,920 2,530
Manager of Treasure Chest 1993 133,157 44,640 -- -- 2,302
</TABLE>
- ------------------
(1) Amounts shown include cash compensation earned by the Named Executive
Officers. No non-cash compensation was paid as salary or as a bonus during
fiscal 1993, 1994 or 1995.
(2) During fiscal 1993, 1994 and 1995 officers of Treasure Chest participated
in the Treasure Chest Advertising Company, Inc. Executive Incentive Plan
(the "Bonus Plan"). Under the Bonus Plan, achievement of certain percentages
of budgeted operating profits entitled the officer to a pre-established
bonus amount.
(3) Except as set forth below, the amount of perquisites and other personal
benefits paid in any fiscal year to a Named Executive Officer did not exceed
the lesser of $50,000 or 10% of such individual's total reported annual
salary and bonus for such fiscal year.
(4) Amounts shown for fiscal 1995 reflect 401(k) matching contributions made by
Treasure Chest to the officers' individual accounts under the Treasure Chest
Advertising Company, Inc. Savings Plus Plan.
(5) Mr. Scheller retired as Chief Executive Officer of Treasure Chest,
effective June 13, 1995, and as President of Treasure Chest, effective March
1995. Mr. Roland is currently the Chief Executive Officer and President of
Treasure Chest.
(6) $120,449 in relocation cost reimbursements (including tax gross up) and
$10,200 in auto allowance.
(7) $312,056 in relocation cost reimbursements (including tax gross up) and
$9,720 in auto allowance.
(8) $14,828 in relocation cost reimbursements (including tax gross up) and
$9,720 in auto allowance.
(9) $18,955 in relocation cost reimbursements (including tax gross up) and
$2,430 in auto allowance.
36
<PAGE>
The following table sets forth option grants to purchase Common Stock made
to the Named Executive Officers during the fiscal year ended June 30, 1995 under
the Big Flower Press Holdings, Inc. Restated 1993 Stock Award and Incentive Plan
(the "1993 Stock Plan"). The terms of the 1993 Stock Plan are described in
"Incentive and Bonus Plans".
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS/SARS PRICE APPRECIATION FOR
NUMBER OF SECURITIES GRANTED TO EXERCISE OR OPTION TERM(2)
UNDERLYING OPTIONS/ EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME SARS GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------- --------------------- ------------ ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Theodore Ammon.......................... 0 0 -- -- -- --
Donald E. Roland........................ 0 0 -- -- -- --
Sanford G. Scheller..................... 0 0 -- -- -- --
David E. Glick.......................... 0 0 -- -- -- --
Wayne S. Lynn........................... 15,550 11.0 3.73 01/10/05 36,477/92,439
Thomas R. Zimmer........................ 4,976 3.5 3.73 01/10/05 11,673/29,581
</TABLE>
- ------------------
(1) The options vest at the rate of 20% on each anniversary of the date of
grant. Shares of Common Stock issuable upon exercise of the options are
subject to certain restrictions on transfer.
(2) The potential gains shown are net of the exercise price of the options, do
not include the effect of any taxes associated with exercise and are based
on a value of $11.23 per share of Common Stock on the date of grant. The
amounts are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance, and may not necessarily be
realized. Actual gains, if any, upon exercise of the options will depend on
the future performance of the Common Stock, continued employment of the
optionee with the Company and other factors.
The following table sets forth the number and value of options to purchase
Common Stock held by the Named Executive Officers as of June 30, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY-END OPTIONS/SARS AT FY-END
(#) ($)
SHARES ---------------------- ----------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE
- -------------------------------------------------- ------------ ------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
Theodore Ammon.................................... -- -- 0/0 0/0
Donald E Roland(2)................................ -- -- 10,401/41,602 92,569/370,258
Sanford G. Scheller(2)............................ -- -- 33,549/67,097 298,586/597,163
David E. Glick(2)................................. -- -- 4,977/19,906 44,295/177,163
Wayne S. Lynn..................................... -- -- 0/15,550 0/116,625
Thomas R. Zimmer(2)............................... -- -- 3,384/18,512 30,118/157,790
</TABLE>
- ------------------
(1) Shares of Common Stock purchasable upon the exercise of options listed as
"exercisable" are subject to restrictions on transfer for a period of five
years from the initial date of grant in November 1993.
(2) Value of all options for Messrs. Roland, Scheller and Glick, and value of
16,920 options for Mr. Zimmer, does not include $.89 per option share paid
by such individuals to purchase such options.
37
<PAGE>
INCENTIVE AND BONUS PLANS
1993 STOCK PLAN. Following consummation of the Offerings, the 1993 Stock
Plan will be administered by the Compensation Committee of the Board of
Directors (the "Committee"). All officers (including officers who are also
directors), employees, consultants and advisors of the Company are eligible for
discretionary awards under the 1993 Stock Plan. The 1993 Stock Plan provides for
stock-based incentive awards, including incentive stock options, non-qualified
stock options, restricted stock, performance shares, stock appreciation rights
and deferred stock. The 1993 Stock Plan permits the Committee to select eligible
persons to receive awards and to determine certain terms and conditions of such
awards, including the vesting schedule and exercise price of each award, and
whether such award will accelerate upon the occurrence of a change in control of
the Company. Under the Stock Plan, options to purchase Common Stock may be
granted with an exercise price that is less than the then current market value
of the Common Stock. Under the 1993 Stock Plan, stock options, restricted stock,
performance shares and stock appreciation rights covering no more than 80% of
the shares reserved for issuance under the Stock Plan may be granted to any
participant in any one year.
Under the 1993 Stock Plan, 1,779,534 shares of Common Stock are currently
authorized for issuance and 1,484,114 of such shares relate to outstanding
awards. The Board has adopted, and the stockholders have approved, subject to
consummation of the Offerings, an amendment increasing the number of shares of
Common Stock authorized for issuance under the 1993 Stock Plan to 3,484,114. In
connection with the Offerings, subject to approval by the Committee it is
expected that Mr. Ammon will be granted options to purchase 300,000 shares of
Common Stock at the price of the Offerings.
The 1993 Stock Plan may be amended, suspended or terminated at any time.
However, the maximum number of shares that may be sold or issued under the 1993
Stock Plan may not be increased, nor may the class of persons eligible to
participate in the 1993 Stock Plan be altered, without the approval of the
Company's stockholders; provided, however, that adjustments to the number of
shares subject to the 1993 Stock Plan and to individual awards thereunder and/or
to the exercise price of awards previously granted are permitted without
stockholder approval upon the occurrence of certain events affecting the capital
structure of the Company. With respect to any other amendments to the 1993 Stock
Plan, the Committee may, in its discretion, determine that such amendment will
become effective only upon approval by the stockholders of the Company, if the
Committee determines that such stockholder approval may be advisable, such as
for the purpose of obtaining or retaining any statutory or regulatory benefits
under federal or state securities, tax or other laws or the purpose of
satisfying applicable stock exchange listing requirements.
EXECUTIVE INCENTIVE PLAN. The Board of Directors of Treasure Chest has
adopted and approved the Treasure Chest Advertising Company, Inc. Executive
Incentive Plan (the "EIP") covering the executive officers of the Company and
its subsidiaries. The EIP will initially be administered by the Board of
Directors of Treasure Chest (the "Administrator"). Each year the Administrator
will select the executive officers of the Company who will be eligible to
receive awards under the EIP. Upon achievement by the Company of certain
targeted operating results or other performance goals, such as operating income,
pre-tax income or net income, the Company will pay performance bonuses, the
aggregate amounts of which will be determined annually. Annual target bonuses
for the Named Executive Officers range from approximately 30% to 50% of base
salary.
38
<PAGE>
PENSION PLANS
The following table sets forth annual amounts payable upon retirement under
Treasure Chest's qualified defined benefit pension plan and a supplemental
executive retirement plan, together referred to as the "Pension Plans":
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
- -------------------------------------------------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000.......................................... $7,500 $15,000 $22,500 $30,000 $37,500 $45,000
175,000.......................................... 8,750 17,500 26,250 35,000 43,750 52,500
200,000.......................................... 10,000 20,000 30,000 40,000 50,000 60,000
225,000.......................................... 11,250 22,500 33,750 45,000 56,250 67,500
250,000.......................................... 12,500 25,000 37,500 50,000 62,500 75,000
275,000.......................................... 13,750 27,500 41,250 55,000 68,750 82,500
300,000.......................................... 15,000 30,000 45,000 60,000 75,000 90,000
500,000.......................................... 25,000 50,000 75,000 100,000 125,000 150,000
600,000.......................................... 30,000 60,000 90,000 120,000 150,000 180,000
700,000.......................................... 35,000 70,000 105,000 140,000 175,000 210,000
800,000.......................................... 40,000 80,000 120,000 160,000 200,000 240,000
900,000.......................................... 45,000 90,000 135,000 180,000 225,000 270,000
</TABLE>
The compensation covered by the Pension Plans includes the executive's
entire annual base salary, except that Mr. Scheller's compensation was only
covered up to $150,000. Messrs. Ammon, Roland, Glick, Lynn and Zimmer currently
have 2, 12, 12, 10 and 25 years of service, respectively. Mr. Scheller had 9
years of service at the time of his retirement in June 1995. Benefits under the
Pension Plans are computed by multiplying the participant's average salary for
the last five years prior to retirement by a percentage equal to one percent for
each year of service up to a maximum of 30 years. Benefits under the Pension
Plans are not subject to a deduction for Social Security or other offset
amounts.
EMPLOYMENT, CONSULTING AND SEVERANCE AGREEMENTS
T. AMMON EMPLOYMENT AGREEMENT. Prior to consummation of the Offerings, it
is expected that the Company will enter into an employment agreement (the
"Employment Agreement") with Mr. Ammon pursuant to which Mr. Ammon will serve as
Chairman, President and Chief Executive Officer of the Company, Chairman of
Treasure Chest and a Director of the Company and each of its subsidiaries. The
initial term of the Employment Agreement is three years, subject to automatic
one-year extensions unless either the Company or Mr. Ammon provides specified
notice to the contrary. Mr. Ammon would be required to devote to the Company the
time necessary for the effective conduct of his duties under the Employment
Agreement and would be permitted to engage in outside business interests that do
not conflict with such duties or otherwise compete with the Company. In
consideration for his services Mr. Ammon will receive an initial base salary
equal to $750,000 per year, an annual bonus targeted at not less than 50% of
base salary (assuming bonus targets under the EIP are met), a grant of options
to purchase 300,000 shares of Common Stock with an exercise price equal to the
price of the Offerings vesting ratably over a three-year period, an annual
payment of $108,000 with respect to life insurance premiums and certain fringe
benefits. Mr. Ammon would also receive a supplemental retirement benefit,
subject to certain vesting and benefit accrual requirements and to offset by
amounts payable under the Pension Plans, of up to 50% of his final average
compensation (including salary and EIP bonus) commencing at age 60 upon
termination of his employment other than for "cause" (as defined in the
Employment Agreement). Mr. Ammon will have the right to terminate the Employment
Agreement in the event of the material breach thereof by the Company or for
other "good reason" (as defined in the Employment Agreement). In such event, or
if the Company terminates Mr. Ammon's employment without cause, Mr. Ammon will
generally be entitled to receive the salary and bonus otherwise payable to him
over the remaining term of the Employment Agreement, or for a period of six
months, if greater, all
39
<PAGE>
outstanding stock incentive awards would immediately vest, Mr. Ammon would
receive additional service credit for purposes of the supplemental retirement
benefit and the life insurance and certain fringe benefits would continue during
the severance period. Upon the termination of his employment following a "change
in control" of the Company (as defined in the Employment Agreement), Mr. Ammon
would (i) be entitled to receive a lump sum amount equal to three times his base
salary and bonus, (ii) become vested in any outstanding restricted stock awards,
(iii) have the right to receive a cash payment equal to the spread on all
outstanding stock options, (iv) receive a lump sum payment with respect to
foregone fringe benefits, (v) receive additional service credit for purposes of
the supplemental retirement benefit and (vi) be entitled to a payment sufficient
to offset the effects of any excise tax imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code").
SCHELLER CONSULTING AGREEMENT. In 1993, Mr. Scheller entered into a
consulting agreement with Treasure Chest pursuant to which he will be paid
consulting fees equal to $6,417 per month for a period of 15 years commencing on
his termination of employment with Treasure Chest, which occurred in June 1995.
The consulting agreement provides that Mr. Scheller will make himself available
two days per month to consult with the Company regarding the printing business.
In addition, pursuant to the consulting agreement, Mr. Scheller will (i) be paid
a retirement benefit of $6,084 per month for a period of 15 years commencing on
his termination of employment with Treasure Chest, (ii) be reimbursed for all
costs under a medical plan covering both himself and his spouse from the date of
termination until he attains the age of 65, (iii) be reimbursed for a Medicare
supplement after the age of 65 and (iv) receive certain other perquisites. In
addition, pursuant to Treasure Chest's Severance Benefit Plan, based upon his
retirement in June 1995, Mr. Scheller received a lump sum severance payment
equal to his then annual base salary of $435,000. The Company has also agreed
that Mr. Scheller's unvested options to purchase Common Stock will continue to
vest following termination of Mr. Scheller's employment.
SEVERANCE AGREEMENTS. The Company and Treasure Chest have agreed to enter
into severance agreements with each of Messrs. Roland, Glick, Kaplan, Lynn,
Zimmer and Moloney (the "Executive Severance Agreements"). The Executive
Severance Agreements would provide that if a covered executive's employment is
terminated by the Company without "cause" or by the executive for "good reason"
within one year following a "change in control" of the Company (each as defined
in the Executive Severance Agreements), the executive would receive severance in
an amount equal to three times base salary plus bonus. In addition, (i) all
outstanding stock incentive awards would immediately vest and become
exercisable, (ii) the executive would receive a pro rata bonus payout under the
EIP, and (iii) the executive would be entitled to two years of continued welfare
benefits. The total amount of benefits payable to each executive would be
limited, if necessary, to provide that the Company would suffer no loss of a
deduction pursuant to Section 280G of the Code.
In addition, Mr. Roland is currently covered under Treasure Chest's
Severance Benefit Plan (the "Severance Benefit Plan"), which provides that if
his employment is terminated (other than by reason of death, "disability,"
"retirement," termination for "cause" or termination other than for "good
reason" (each as defined in the Severance Benefit Plan)) within three years
following a "change in control" (as defined), he would be entitled to receive
monthly severance benefits for a period of four years. The total amount of such
severance benefits would be equal to two and one-half times Mr. Roland's base
salary at the time of such termination which, at his current base salary, would
be approximately $1,062,500. The acquisition of Treasure Chest constituted a
change in control for purposes of the Severance Benefit Plan. It is expected
that Mr. Roland's Executive Severance Agreement would supersede his entitlement
to benefits under the Severance Benefit Plan in the event of a change in control
of the Company at any time following consummation of the Offerings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation committee for the fiscal year ended June 30, 1995
consisted of Sanford G. Scheller, Theodore Ammon and Leon D. Black. Mr. Scheller
served as chairman of the compensation committee. There were no compensation
committee interlocks.
40
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 10, 1995, certain officers, members of management and key
employees of Treasure Chest purchased an aggregate of 169,684 shares of Common
Stock (which shares are subject to certain "call" provisions) and were granted
options to purchase 98,416 shares of Common Stock pursuant to the 1993 Stock
Plan. Treasure Chest loaned an aggregate of $212,000 to such investors for such
purchases, including $66,000 to Herbert W. Moloney III, Senior Vice President,
Marketing and Sales of Treasure Chest. The loans to the above management
investors are evidenced by promissory notes bearing interest at the rate of 8%
per annum. The promissory notes are secured by the shares of Common Stock
purchased by the investors, and the notes become due upon the earlier to occur
of the date the "call" provision of the shares is exercised and seven years from
the date of the notes. Under the indentures governing the 10 3/4% Notes, the
Company is generally permitted to make payments of up to $2,000,000 per year to
purchase Common Stock pursuant to the "call" provisions.
In connection with the resignation of Robert Turner, the former Vice
President, Human Resources of Treasure Chest, in March 1995, Treasure Chest
accelerated the payment of $150,000 in severance benefits payable to him under
the Benefit Plan.
In connection with the acquisition of Treasure Chest in August 1993, Apollo
and an affiliate of BTIP purchased, and Apollo and BTIP currently own, all of
the outstanding 11% Debentures which will be purchased by the Company upon
consummation of the Offerings. See, "Use of Proceeds".
41
<PAGE>
OWNERSHIP OF COMMON STOCK AND SELLING STOCKHOLDERS
Big Flower owns 100% of the outstanding common stock of BFP, and BFP owns
100% of the outstanding common stock of Treasure Chest. The following table sets
forth certain information, both before and after giving effect to the Offerings,
concerning the fully diluted ownership of Big Flower's capital stock by (i) each
person who is known to Big Flower to own beneficially more than 5% of the fully
diluted outstanding shares of Big Flower's equity securities, (ii) each director
of Big Flower, (iii) all officers and directors of Big Flower and officers of
Treasure Chest as a group as of November 1, 1995 and (iv) the Selling
Stockholders. The Institutional Investors are selling 1,224,688 shares of Common
Stock in the Offerings. The following table assumes that the Underwriters'
over-allotment option to purchase additional shares of Common Stock from Apollo
and BTIP is not exercised.
The Institutional Investors and the number of shares of Common Stock that
are being sold in the Offerings are as follows: Continental Casualty Company
(107,168 shares), Dean Witter High Yield Fund (261,488 shares), Dean Witter High
Income Advantage Trust (60,800 shares), Dean Witter High Income Advantage Trust
II (76,800 shares), Dean Witter High Income Advantage Trust III (30,400 shares),
Dean Witter Diversified Income Trust (60,800 shares), Dean Witter Variable
Investment Series-High Yield (60,800 shares), The Equitable Life Insurance
Society of the United States (76,544 shares), Fidelity Variable Insurance
Product Fund-High Income Portfolio (321,488 shares), Northeast Investors Trust
(91,856 shares) and Transamerica Life Insurance & Annuity Company (76,544
shares). All shares held by the Institutional Investors are being sold in the
Offerings. Certain other stockholders have registration rights with respect to
the Offerings. See "Shares Eligible for Future Sale--Registration Rights". The
following table does not include any shares of Common Stock which may be issued
in the LTC Acquisition. See "Recent Developments".
All shares shown in the following table are shares of Common Stock, except
for shares of Class B Stock owned by BTIP. All percentages are based on the
outstanding shares of Common Stock and Class B Stock and include vested stock
options exercisable within 60 days to acquire 248,569 shares of Common Stock.
42
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
BEFORE OFFERINGS AFTER OFFERINGS
---------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF
SHARES
OFFERED FOR
BENEFICIAL OWNER NUMBER(A) PERCENTAGE SALE NUMBER(A) PERCENTAGE
- -------------------------------------------------- ----------- --------------- ----------- ----------- -----------
Theodore Ammon (b)
Big Flower Press Holdings, Inc.
3 East 54th Street
New York, NY 10022.............................. 2,144,944 19.6% 0 2,144,944 13.1%
Apollo Big Flower Partners, L.P.
c/o Apollo Advisors, L.P.
2 Manhattanville Road
Purchase, NY 10577.............................. 4,470,922 41.0% 0 4,470,922 27.2%
Leon D. Black (c)................................. 0 -- -- -- --
Edward M. Yorke (c)............................... 0 -- -- -- --
BT Investment Partners, Inc.
130 Liberty Street
New York, NY 10006.............................. 1,738,692 15.9% 0 1,738,692 10.6%
Peter G. Diamandis (d)
Donnelley Marketing Inc.
70 Seaview Avenue
Stamford, CT 06902.............................. 13,400 * 0 13,400 *
Joan Daniels Manley (e)
P.O. Box 1353
Dillon, CO 80435................................ 13,400 * 0 13,400 *
Sanford G. Scheller (f)
Treasure Chest Advertising Company, Inc.
13000 Sawgrass Village; Suite 28
Ponte Vedra Beach, FL 32082..................... 240,624 2.2% 0 240,624 1.5%
Donald E. Roland (g)
Treasure Chest Advertising Company, Inc.
511 West Citrus Edge
Glendora, CA 91740.............................. 110,461 1.0% 0 110,461 *
All directors and officers as a group (11 persons)
(c)(h).......................................... 2,681,037 24.6% 0 2,681,037 16.3%
Institutional Investors........................... 1,224,688 11.2% 1,224,688 0 *
</TABLE>
- ----------------
* Less than 1% of the outstanding shares.
(a) This column includes shares which directors and executive officers have the
right to acquire within 60 days. In addition, other employees of Treasure
Chest hold vested options to purchase 109,932 shares of Common Stock and
unvested options to purchase 194,510 shares of Common Stock, subject to
vesting over the next five years.
(b) Includes 6,000 shares held by Mr. Ammon as general partner of a partnership
in which certain family members are the limited partners and have 99% of the
economic interests. Additionally, Mr. Ammon holds unvested options to
purchase 300,000 shares of Common Stock, subject to vesting over a three
year period following the Offerings.
(c) Does not include shares owned by Apollo. Mr. Black and Mr. Yorke are
officers of Apollo Capital Management, Inc., the general partner of Apollo
Advisors, L.P., the managing partner of AIF II, L.P., the general partner of
Apollo. Messrs. Black and Yorke expressly disclaim beneficial ownership with
respect to such shares. The address of Messrs. Black and Yorke is c/o Apollo
Management, L.P., 1301 Avenue of the Americas, New York, New York 10019. See
"Description of Stockholders Agreement".
(d) Includes options to purchase 13,400 shares of Common Stock which are
presently exercisable.
(e) Includes options to purchase 13,400 shares of Common Stock which are
presently exercisable.
(f) Includes options to purchase 67,098 shares of Common Stock which are
presently exercisable or will become exercisable within 60 days.
Additionally, Mr. Scheller holds unvested options to purchase 33,548 shares
of Common Stock, subject to vesting over the next year.
(g) Includes options to purchase 20,802 shares of Common Stock, which are
presently exercisable or will become exercisable within 60 days.
Additionally, Mr. Roland holds unvested options to purchase 31,201 shares of
Common Stock, subject to vesting over the next three years.
(h) Includes options to purchase 138,637 shares of Common Stock which are
presently exercisable or will become exercisable within 60 days.
Additionally, directors and officers as a group hold unvested options to
purchase 418,690 shares of Common Stock, subject to vesting over the next
five years.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common
Stock. Sales of substantial amounts of Common Stock in the public market could
adversely affect market prices of the Common Stock following the Offerings.
Upon completion of the Offerings, Big Flower will have 16,421,756 shares of
Common Stock outstanding, including 1,738,692 shares of Common Stock which are
issuable in certain circumstances upon conversion of non-voting Class B Stock
owned by BTIP and 248,569 shares of Common Stock issuable upon exercise of
options which are presently exercisable or will become exercisable in January
1996, but not including any shares of Common Stock issuable in the LTC
Acquisition (See "Recent Developments"). The 6,724,688 shares to be sold in the
Offerings (7,733,391 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Act unless held by "affiliates" of Big Flower, as that
term is defined under the Act. The 6,615,866 shares of Common Stock owned by
Theodore Ammon and Apollo, the 1,738,692 shares issuable in certain
circumstances upon conversion of the non-voting Class B Stock owned by BTIP, and
the 171,596 shares owned by one other stockholder prior to consummation of the
Offerings are "restricted securities" for purposes of the Act. Big Flower, Mr.
Ammon, Apollo and BTIP have agreed (subject to certain exceptions) not to offer,
sell or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of the
Representatives. Subject to such agreements, the shares owned by Mr. Ammon,
Apollo and BTIP and 171,596 shares of Common Stock owned by one other
stockholder will be available for sale into the open market pursuant to Rule 144
under the Act (including the volume limitations in that rule) upon consummation
of the Offerings. Certain other officers, members of management and key
employees own 957,866 shares of Common Stock (including 205,195 shares
underlying options which are presently exercisable) which may be transferrable,
subject to certain restrictions, under Rule 144 or pursuant to certain
registration rights (See "--Registration Rights"). Additionally, certain other
officers, members of management and key employees own 213,048 shares of Common
Stock (including 43,374 shares underlying options which are presently
exercisable or will become exercisable in January 1996) which may be sold
pursuant to the requirements of Rule 144 beginning in January 1997. If the LTC
Acquisition is consummated and shares of Common Stock are issued at $16 per
share, the seller of Laser Tech will own approximately 281,250 shares of Common
Stock, which may be sold pursuant to the requirements of Rule 144 upon
expiration of a two-year holding period or pursuant to certain "piggyback"
registration rights (See "--Registration Rights").
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (securities acquired from Big Flower in a
non-public transaction) for at least two but less than three years, and any
affiliate of Big Flower who has owned such shares for at least two years or who
owns shares not constituting "restricted securities", is entitled to sell such
shares provided that within any three-month period the number of shares sold
does not exceed the greater of (i) 1% of the then outstanding shares of the
Common Stock or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission (the "Commission")
under Rule 144. Sales under Rule 144 are also subject to certain requirements
regarding the manner of sale, notice and availability of current public
information about Big Flower. A stockholder (or stockholders whose shares are
aggregated) who is not deemed to have been an affiliate of Big Flower at any
time during the 90 days immediately prior to a proposed transaction and who has
beneficially owned shares constituting "restricted securities" for at least
three years is entitled to sell such shares under Rule 144(k) without regard to
the volume limitations described above.
REGISTRATION RIGHTS
Under certain registration rights agreements and subject to certain
limitations, if at any time Big Flower proposes to file a registration statement
under the Act with respect to an offering by Big Flower for
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its own account or for the account of any of its respective securityholders of
any class of debt or equity security (other than (a) a registration statement on
Form S-4 or S-8 (or any substitute form that may be adopted by the Commission),
or (b) a registration statement filed in connection with an exchange offer or
offering of securities solely to the Company's existing securityholders), then
(i) Theodore Ammon, Apollo, BTIP and one other stockholder with respect to
8,526,154 shares of Common Stock and (ii) after August 12, 1996, certain
officers, members of management and key employees with respect to 752,671 shares
of Common Stock owned collectively by them, can cause the Company to register
such number of shares of Common Stock as such holder may request.
Under certain registration rights agreements and subject to certain
limitations, at any time and from time to time on or after the consummation of
the Offerings, Theodore Ammon, Apollo and BTIP may make written requests for
registration by the Company of the Common Stock under the Act (a "Demand
Registration") with respect to 8,354,558 shares of Common Stock owned
collectively by them. BTIP may not be the first party to request a Demand
Registration at any time prior to January 1, 2000. Certain officers, members of
management and key employees have rights, subject to certain limitations, to
register shares in a Demand Registration.
If the LTC Acquisition is consummated, the seller of Laser Tech will have
registration rights with respect to the shares of Common Stock issuable in the
LTC Acquisition. See "Recent Developments". Subject to certain limitations, at
any time after 180 days after the consummation of the LTC Acquisition, if Big
Flower proposes to file a registration statement under the Act with respect to
an offering by Big Flower (other than (a) a registration statement on Form S-4
or S-8 (or any substitute form that may be adopted by the Commission), or (b) a
registration statement filed in connection with an exchange offer or offering of
securities solely to the Company's existing securityholders) for its own account
or for the account of Theodore Ammon (but not if such registration is pursuant
to a demand registration by any other stockholder of the Company and Mr. Ammon
does not request inclusion in such registration of shares of Common Stock owned
by him), then the holder of such shares of Common Stock can cause the Company to
register the number of shares of Common Stock as such holder may request.
RECAPITALIZATION
Big Flower presently has four classes of Common Stock, par value of $.01 per
share: Common Stock, of which 1,158,270 shares are outstanding; Class B Stock,
of which 3,104,807 shares are outstanding; Class C Common Stock ("Class C
Stock"), of which 461,168 shares are outstanding and 280,877 shares are reserved
for issuance upon exercise of outstanding options (both vested and unvested);
and Class D Common Stock ("Class D Stock"), of which 612,344 shares are
outstanding. Simultaneously with, and conditional upon, consummation of the
Offerings, the outstanding shares of Class B Stock, Class C Stock and Class D
Stock (except for 1,738,692 shares of Class B Stock owned by BTIP) will be
converted into shares of Common Stock on a share-for-share basis (with any
fractional shares to be rounded up to one full share). Immediately prior to the
consummation of the Offerings, Big Flower (a) will pay a stock dividend of one
share of Common Stock for each outstanding share of its (i) Common Stock, (ii)
Class B Stock owned by Apollo, (iii) Class C Stock and (iv) Class D Stock and
(b) will pay a stock dividend of one share of Class B Stock for each outstanding
share of Class B Stock owned by BTIP, due to certain restrictions in banking
laws and regulations, and Big Flower's Restated Certificate of Incorporation
will be amended to provide that Big Flower's authorized capital stock consists
of 50,000,000 shares of Common Stock, 2,500,000 shares of Class B Stock and
10,000,000 shares of Preferred Stock. The Common Stock, Class B Stock and
Preferred Stock will have the terms described under "Description of Capital
Stock" below. In addition, the outstanding options to purchase Class C Stock
will become options to purchase Common Stock at the rate of two shares of Common
Stock for each share presently underlying such options, and any fractional
shares remaining thereafter will be rounded up to one full share. All
information in this Prospectus has been adjusted to reflect the above-described
transactions. In addition to such transactions, BFP will be merged with and into
Big Flower.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
At the consummation of the Offerings, the capital stock of Big Flower will
consist of 50,000,000 authorized shares of Common Stock, of which 14,434,495
shares will be issued and outstanding, 1,738,692 shares will be reserved for
issuance upon conversion of shares of Class B Stock and 861,769 shares will be
reserved for issuance upon exercise of options (both vested and unvested) to
purchase shares of Common Stock; 2,500,000 authorized shares of Class B Stock,
of which 1,738,692 shares will be issued and outstanding; and 10,000,000
authorized shares of preferred stock, of which no shares will be issued and
outstanding. In connection with the Offerings, 250,000 shares of Preferred Stock
will be designated Series A Junior Preferred Stock ("Series A Preferred Stock"),
and reserved for issuance pursuant to the Company's Rights Plan (as defined
below). The outstanding share amounts do not reflect any shares of Common Stock
which may be issued in the LTC Acquisition.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board may from time to time determine. The shares of Common Stock
are neither redeemable nor convertible, and the holders thereof have no
preemptive or subscription rights to purchase any securities of Big Flower. Upon
liquidation, dissolution or winding up of Big Flower, the holders of Common
Stock are entitled to receive, pro rata with the holder of the Class B Stock,
the assets of Big Flower which are legally available for distribution, after
payment of all debts, other liabilities and any liquidation preference of
outstanding preferred stock. Each outstanding share of Common Stock is entitled
to one vote on all matters submitted to a vote of stockholders. There is no
cumulative voting.
CLASS B STOCK
BTIP is the only holder of the Class B Stock, which is not entitled to vote
except as required by law. BTIP, an affiliate of a bank holding company, is
subject to certain banking laws and regulations ("Banking Laws") which limit its
ability to hold voting capital stock. Except with respect to the potential
issuance of stock dividends as described below, the Company does not intend to
issue any additional shares of Class B Stock. The Class B Stock has rights
identical to the Common Stock with respect to dividends and distributions,
provided that if dividends are declared which are payable in Common Stock, Big
Flower will make available to each holder of Class B Stock, at such holder's
request, dividends consisting of Class B Stock. The Class B Stock is convertible
into Common Stock on a share-for-share basis in certain circumstances, subject
to Banking Laws.
PREFERRED STOCK
The Board is authorized to issue preferred stock in classes or series and to
fix the designations, preferences, qualifications, limitations, or restrictions
of any class or series with respect to the rate and nature of dividends, the
price and terms and conditions on which shares may be redeemed, the amount
payable in the event of voluntary or involuntary liquidation, the terms and
conditions for conversion or exchange into any other class or series of the
stock, voting rights and other terms. In connection with the Offerings, 250,000
shares of Series A Preferred Stock will be reserved for issuance pursuant to the
Company's Rights Plan.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION AND BYLAWS
Upon consummation of the Offerings, the Certificate and Bylaws will contain
certain provisions that may be deemed to have an anti-takeover effect and may
delay, deter or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
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Pursuant to the Certificate, the Board is divided into three classes serving
staggered three-year terms. See "Management." Directors can be removed from
office only for cause and only by the affirmative vote of the holders of 85% of
the Common Stock. Vacancies and newly created directorships on the Board may be
filled only by the remaining directors or by the affirmative vote of the holders
of 85% of the Common Stock.
The Certificate also provides that any action required or permitted to be
taken by the holders of Common Stock may be effected only at an annual or
special meeting of such holders, and prohibits stockholder action by written
consent in lieu of a meeting. The Company's Bylaws provide that special meetings
of holders of Common Stock may be called only by the Chairman or the President
of the Company and must be called by Chairman, President or the Secretary of the
Company at the request in writing of a majority of the Board. Holders of Common
Stock are not permitted to call a special meeting or to require that the Board
call a special meeting of stockholders.
The Bylaws establish an advance notice procedure for the nomination, other
than by or at the direction of the Board, of candidates for election as
directors as well as for other stockholder proposals to be considered at annual
meetings of stockholders. In general, notice of intent to nominate a director or
raise business at such meetings must be received by the Company not less than 60
nor more than 90 days prior to the date of the annual meeting, and must contain
certain specified information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal.
The Certificate also provides that certain provisions of the Certificate and
the Bylaws may only be amended by the affirmative vote of the holders of 85% of
the Common Stock, unless such amendment is approved by a majority of the
Continuing Directors. The term Continuing Directors means any person serving as
a member of the Board immediately prior to the consummation of the Offerings,
and any person who subsequently becomes a member of the Board if such person was
elected by, or such person's nomination for election was recommended or approved
by, a majority of the Continuing Directors then in office.
The foregoing summary is qualified in its entirety by the provisions of the
Certificate and Bylaws, copies of which have been filed as exhibits to the
registration statement on Form S-1 (the "Registration Statement", which term
includes all amendments thereto) of which this Prospectus is a part.
RIGHTS PLAN
The Board has declared a dividend distribution of one right (a "Right") for
each outstanding share of Common Stock payable to stockholders of record at the
close of business on the business day immediately following the date of
consummation of the Offerings (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company a unit consisting of
one-one-hundredth of a share of Series A Preferred Stock at an exercise price of
$55 per unit. The terms of the Rights are set forth in a Rights Agreement
between the Company and a Rights Agent (the "Rights Agreement"), a copy of which
is included as an exhibit to the Registration Statement of which this Prospectus
is a part. The following summary outlines certain provisions of the Rights
Agreement and is qualified by reference to the full text of the form of Rights
Agreement.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate rights certificates (the
"Rights Certificates") will be distributed. The Rights will separate from the
Common Stock, separate Rights Certificates will be issued and a distribution
date (the "Distribution Date") will occur upon the earlier to occur of (i) ten
days following the date of a public announcement that there is an Acquiring
Person (as defined below) (such date, the "Stock Acquisition Date"), or (ii) ten
days following commencement of a tender or exchange offer that would result in
the Offeror beneficially owning 15% or more of the Common Stock.
The term "Acquiring Person" means, any person who, together with affiliates
and associates either (a) after the Record Date acquires beneficial ownership of
shares of Common Stock representing 15% or
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more of the Common Stock or (b) is the beneficial owner of 30% or more of the
Common Stock and the Class B Stock. However, shares of Common Stock and options
to purchase Common Stock issued or granted by the Company to a director, officer
or employee pursuant to, or upon exercise of options or rights granted pursuant
to, any benefit plan of the Company shall not be deemed to be beneficially owned
by such person for purposes of determining such person's percentage beneficial
ownership of Common Stock.
In the event that a person becomes an Acquiring Person (except pursuant to
an offer for all outstanding shares of Common Stock which the independent
directors determine to be fair to and otherwise in the best interests of the
Company and its stockholders), each holder of a Right will thereafter have the
right to receive, upon exercise, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a calculated value
equal to two times the exercise price of the Right. Notwithstanding the
foregoing, following the occurrence of such event, all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by an Acquiring Person and certain related persons and
transferees will be null and void. However, Rights are not exercisable following
the occurrence of such event until such time as the Rights are no longer
redeemable as set forth below.
The Rights are not exercisable until the Distribution Date and will expire
on the tenth anniversary of their issuance, unless redeemed earlier by the
Board.
At any time prior to the tenth day following the Stock Acquisition Date, the
Company may redeem the Rights, in whole, but not in part, at a price of $.01 per
Right, upon approval of a majority of Continuing Directors.
In general, the Rights Agreement may be amended upon approval of a majority
of Continuing Directors (i) prior to the Distribution Date in any manner, and
(ii) on or after the Distribution Date in certain respects including (a) to
shorten or lengthen any time period and (b) in a manner not adverse to the
interests of Rights holders. However, amendments extending the redemption period
must be made while the Rights are still redeemable.
The Rights have certain anti-takeover effects and will cause substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by the Continuing Directors. The Rights should not interfere with any
merger or other business combination approved by a majority of the Continuing
Directors since the Continuing Directors may redeem the Rights as provided
above.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Following the consummation of the Offerings, Big Flower will be subject to
the "business combination" statute of the Delaware General Corporation Law
(Section 203). In general, such statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless (i) such transaction
is approved by the board of directors prior to the date the interested
stockholder obtains such status, (ii) upon consummation of such transaction, the
"interested stockholder" beneficially owned at least 85% of the voting stock of
the corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans in
which employee particpants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (iii) the "business combination" is approved by the board of directors
and authorized at an annual or special meeting of stockholders by the
affirmative note of at least 66 2/3% of the outstanding voting stock which is
not owned by the "interested stockholder". A "business combination" includes
mergers, asset sales and other transactions resulting in financial benefit to
the "interested stockholder". An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
beneficially 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other
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takeover or change in control attempts with respect to Big Flower and,
accordingly, may discourage attempts to acquire Big Flower.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under Big Flower's Restated Certificate of Incorporation, upon consummation
of the Offerings there will be 32,965,044 shares of Common Stock authorized but
unissued (and not reserved for issuance upon conversion of the Class B Stock or
exercise of options), and 10,000,000 shares of preferred stock authorized but
unissued, for future issuance without additional stockholder approval. These
additional shares may be utilized for a variety of corporate purposes, including
future offerings to raise additional capital or to facilitate corporate
acquisitions.
The issuance of preferred stock could have the effect of delaying or
preventing a change in control of Big Flower. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock.
One of the effects of the existence of unissued and unreserved Common Stock
or preferred stock may be to enable the Board to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of Big Flower by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of management.
Such additional shares also could be used to dilute the stock ownership of
persons seeking to obtain control of the Company.
Big Flower does not currently have any plans to issue additional shares of
Common Stock or preferred stock other than shares of Common Stock which may be
issued upon the exercise of options which have been granted or which may be
granted in the future to directors, officers and employees of the Company. In
connection with the Offerings, 250,000 shares of Series A Preferred Stock will
be reserved for issuance pursuant to the Company's Rights Plan. See "--Rights
Plan."
LIMITATION OF DIRECTORS LIABILITY
The Restated Certificate of Incorporation contains a provision that limits
the liability of Big Flower's directors for monetary damages for breach of
fiduciary duty as a director to the fullest extent permitted by the Delaware
General Corporation Law. Such limitation does not, however, affect the liability
of a director (i) for any breach of the director's duty of loyalty to Big Flower
or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) in respect
of certain unlawful dividend payments or stock redemptions or purchases and (iv)
for any transaction from which the director derives an improper personal
benefit. The effect of this provision is to eliminate the rights of Big Flower
and its stockholders (through stockholders' derivative suits on behalf of Big
Flower) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of Big Flower or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the directors and officers of Big Flower have indemnification and
directors' and officers' liability insurance protection.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock is The Bank of New
York.
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UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement, Big
Flower and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom Goldman,
Sachs & Co. and BT Securities Corporation are acting as Representatives, has
severally agreed to purchase from Big Flower and the Selling Stockholders the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
U.S. UNDERWRITERS STOCK
- --------------------------------------------------------------------------------- -----------
<S> <C>
Goldman, Sachs & Co. ............................................................ 2,310,500
BT Securities Corporation........................................................ 1,155,250
CS First Boston Corporation...................................................... 213,000
Dean Witter Reynolds Inc. ....................................................... 213,000
Deutsche Morgan Grenfell / C.J. Lawrence Inc. ................................... 213,000
A.G. Edwards & Sons, Inc. ....................................................... 213,000
Lehman Brothers Inc. ............................................................ 213,000
Scott & Stringfellow, Inc. ...................................................... 159,000
Stephens Inc. ................................................................... 159,000
Stifel, Nicolaus & Company, Incorporated......................................... 159,000
Sutro & Co. Incorporated......................................................... 159,000
Wasserstein Perella Securities, Inc. ............................................ 213,000
-----------
Total...................................................................... 5,379,750
-----------
-----------
</TABLE>
Under the terms and conditions of the U.S. Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered in the
U.S. Offering, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $0.58 per share. The U.S. Underwriters may allow, and
such dealers may reallow, a discount not in excess of $0.10 per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Representatives.
Big Flower and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the International Offering (the "International Underwriters") providing for the
concurrent offer and sale of 1,344,938 shares of Common Stock in an
international offering outside the United States. The initial offering price and
underwriting discounts and commissions per share for the two offerings are
identical. The closing of the U.S. Offering is a condition to the closing of the
International Offering, and vice versa. The representatives of the International
Underwriters are Goldman Sachs International and Bankers Trust International
PLC. The U.S. Underwriters and the International Underwriters are collectively
referred to in this Prospectus as the "Underwriters".
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement between Syndicates") relating to the Offerings, each
of the U.S. Underwriters has agreed that, as a part of the distribution of the
shares offered hereby, and subject to certain exceptions, it will offer, sell or
deliver shares of Common Stock, directly or indirectly, only in the United
States of America (including the States and the District of Columbia), its
territories, its possessions and other areas subject to its jurisdiction (the
"United States") and to U.S. persons, which term shall mean (a) individuals
resident in the United States and (b) corporations, partnerships or other
entities organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase is
located in the United States. Each of the International Underwriters has agreed
pursuant to
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<PAGE>
the Agreement between Syndicates, that duri ng the distribution of the shares
offered in the International Offering and subject to certain exceptions, it will
not offer, sell or deliver shares of Common Stock, directly or indirectly, (a)
in the United States or to any U.S. persons or (b) to any person whom it
believes intends to reoffer, resell or deliver the shares in the United States
or to any U.S. persons, and will cause any dealer to whom it may sell such
shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement between Syndicates, sales may be made between the
U.S. Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
Apollo and BTIP have granted the U.S. Underwriters an option exercisable for
30 days after the date of this Prospectus to purchase, at the initial public
offering price, less the underwriting discount, as set forth on the cover page
of this prospectus, up to 806,962 additional shares of Common Stock solely to
cover over-allotments, if any. If the U.S. Underwriters exercise their
over-allotment option, the U.S. Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 5,379,750 shares of Common Stock offered in the U.S.
Offering. Apollo and BTIP have granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to
201,741 additional shares of Common Stock, solely to cover over-allotments, if
any, at the initial public offering price less the underwriting discount, as set
forth on the cover page of this Prospectus.
Big Flower, Theodore Ammon, Apollo and BTIP have agreed not to offer, sell,
contract to sell, or otherwise dispose of any Common Stock or other securities
of Big Flower that are substantially similar to the Common Stock (or any
securities convertible into or exchangeable for, or any options or other rights
to acquire, any Common Stock or other securities of Big Flower that are
substantially similar to the Common Stock) for a period of 180 days after the
date of this Prospectus without the prior written consent of the
Representatives.
BT Securities Corporation and its affiliates have provided and may continue
to provide investment and commercial banking services to the Company. BTIP, an
affiliate of BT Securities Corporation, owns common equity of the Company and
will sell a portion thereof in the Offerings if the over-allotment option is
exercised. BTIP also owns a portion of the 11% Debentures. See "Ownership of
Common Stock and Selling Stockholders" and "Use of Proceeds". BT Commercial
Corporation, an affiliate of BT Securities Corporation, is a lender and the
agent under the Former Credit Agreement and will receive its pro rata share of
repayments of the Former Credit Agreement. BTCo, an affiliate of BT Securities
Corporation, has issued a commitment letter related to the New Credit Agreement
in which BTCo will act as Administrative Agent and a lender. BT Securities
Corporation will receive a financial advisory fee in connection with such
commitment. See "Bank Refinancing".
Under Schedule E to the By-Laws of the National Association of Securities
Dealers, Inc. (the "NASD"), a conflict of interest is presumed to exist if an
affiliate of a member owns in the aggregate more than 10% of the common equity
of the Company. As a result of BTIP's ownership of non-voting common equity of
the Company, this offering is being conducted in accordance with Schedule E,
which provides that, among other things, when an NASD member participates in the
underwriting of the equity securities of a company in which an affiliate of a
member owns more than 10% of the common equity, the initial public offering
price can be no higher than that recommended by a "qualified independent
underwriter" meeting certain standards. In accordance with this requirement,
Goldman, Sachs & Co. has served in such role and has recommended a price in
compliance with the requirements of Schedule E. In connection with the offering,
Goldman, Sachs & Co. in its role as qualified independent underwriter has
performed due diligence investigations and reviewed and participated in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. In addition, the Underwriters may not confirm sales to
any discretionary account without the prior specific written approval of the
customer.
51
<PAGE>
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price was negotiated among Big Flower, the
Selling Stockholders and the Representatives. Among the factors to be considered
in determining the initial public offering price of the Common Stock, in
addition to prevailing market conditions, are the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
This Prospectus may be used by Underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
Big Flower and the Selling Stockholders have agreed to indemnify the
Underwriters and Goldman, Sachs & Co. as qualified independent underwriter
against certain liabilities, including liabilities under the Act.
AVAILABLE INFORMATION
Big Flower has filed the Registration Statement with the Commission under
the Act. This Prospectus, which is part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
Big Flower is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Commission. Reports and other information filed by
Big Flower with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, as well as the regional offices of the
Commission at 7 World Trade Center, 13th Floor, New York, New York 10007 and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Big Flower intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
LEGAL MATTERS
The validity of the shares of Common Stock being sold in the Offerings will
be passed upon for Big Flower by Skadden, Arps, Slate, Meagher & Flom, Los
Angeles, California. Certain legal matters will be passed upon for the
Underwriters by Davis Polk & Wardwell, New York, New York. Certain legal matters
will be passed upon for Apollo and BTIP by Paul, Hastings, Janofsky & Walker,
New York, New York and for the remaining Selling Stockholders by their
respective counsel.
52
<PAGE>
EXPERTS
The consolidated financial statements of Big Flower and Treasure Chest as of
June 30, 1995 and 1994 and for each of the periods in the three years ended June
30, 1995 included in this Prospectus and the related financial statement
schedules included elsewhere in the Registration Statement of which this
Prospectus is a part have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, appearing herein and elsewhere in the
Registration Statement, and are included in reliance upon the reports of such
firm given up on their authority as experts in accounting and auditing.
The audited financial statements of Laser Tech Color, Inc. as of December
31, 1993 and 1994, and for each of the three years in the period ended December
31, 1994, included in this prospectus and elsewhere in the registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
53
<PAGE>
INDEX TO PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Unaudited Pro Forma Consolidated Balance Sheet--September 30, 1995......................................... P-3
Unaudited Pro Forma Consolidated Statement of Operations--
Year Ended June 30, 1995................................................................................. P-4
Unaudited Pro Forma Consolidated Statement of Operations--
Three Months Ended September 30, 1995.................................................................... P-5
Notes to Unaudited Pro Forma Consolidated Financial Statements............................................. P-6
</TABLE>
P-1
<PAGE>
PRO FORMA FINANCIAL DATA
The following pro forma financial data (the "Pro Forma Financial Data") have
been derived by the application of pro forma adjustments to the historical
financial statements included elsewhere in this Prospectus. Certain
reclassifications have been made to Laser Tech Color, Inc.'s historical
financial statements to conform with Big Flowers' classifications. Laser Tech
Color, Inc. ("Laser Tech") uses a fiscal year end which differs from the
Company's, accordingly, its historical results for the year ended June 30, 1995
have been derived by adding the results of the six-month period ended June 30,
1995 and subtracting the results of the six-month period ended June 30, 1994
from the December 31, 1994 historical statement of operations. The pro forma
statement of operations data for the periods presented give effect to the pro
forma adjustments to reflect the Offerings, the New Credit Agreement, the
transactions referred to under "Use of Proceeds" and the acquisition of Laser
Tech as if they had occurred on July 1, 1994. The pro forma balance sheet data
give effect to the transactions as if they had occurred on September 30, 1995.
The pro forma adjustments are described in the accompanying notes. The Pro Forma
Financial Data should not be considered indicative of actual results that would
have been achieved had the transactions been consummated on the dates or for the
periods indicated and do not purport to indicate financial position or results
of operations as of any future date or for any future period. The Pro Forma
Financial Data should be read in conjunction with the historical financial
statements and the notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The pro forma adjustments were applied to the respective historical
financial statements to reflect the Offerings, the New Credit Agreement and the
transactions referred to under "Use of Proceeds" and to account for the
acquisition of Laser Tech as a purchase. Under purchase accounting, the purchase
cost will be allocated to acquired assets and liabilities based on their
relative fair values as of the closing date, based on valuations and other
studies which are not yet complete. Accordingly, the excess of the purchase cost
over the book value of the net assets acquired has not been allocated to
individual assets and liabilities. The Company does not expect that the effects
of the final allocation will differ materially from those set forth herein.
P-2
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BIG OFFERING ACQUISITION
FLOWER PRO FORMA BIG FLOWER LASER TECH PRO FORMA BIG FLOWER
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
--------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.. $ 1,638 $ 1,638 $ 6 $ 518(o) $ 2,162
Accounts receivable, net... 121,140 121,140 6,712 127,852
Inventories................ 55,681 55,681 500 56,181
Prepaid expenses........... 4,278 4,278 33 4,311
Deferred income taxes...... 12,506 12,506 12,506
--------- ------------ ----------- ----------- ------------ -----------
Total current assets..... 195,243 195,243 7,251 518 203,012
Property, plant and
equipment, net........... 136,110 136,110 3,332 139,442
Other assets, net.......... 24,160 $ (10,079)(a) 20,499 3,371 (3,068)(o) 20,802
4,500(b)
1,918(l)
Intangibles, net........... 170,965 170,965 23,256(m) 194,471
250(m)
--------- ------------ ----------- ----------- ------------ -----------
TOTAL........................ $ 526,478 $ (3,661) $ 522,817 $ 13,954 $ 20,956 $ 557,727
--------- ------------ ----------- ----------- ------------ -----------
--------- ------------ ----------- ----------- ------------ -----------
LIABILITIES AND STOCKHOLDER'S
EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt........... $ 50,888 $ (50,477)(c) $ 30,411 $ 703 $ (116)(p) $ 30,998
30,000(e)
Short-term debt............ 2,600 (2,600)(p)
Accounts payable........... 79,784 79,784 880 80,664
Compensation and benefits
payable.................. 17,103 17,103 345 17,448
Other current
liabilities.............. 26,868 (8,531)(d) 18,337 766 19,103
--------- ------------ ----------- ----------- ------------ -----------
Total current
liabilities............ 174,643 (29,008) 145,635 5,294 (2,716) 148,213
New Credit Agreement....... 152,370(e) 152,370 26,826(n) 179,196
Long-term debt, net of
current portion.......... 288,482 (162,758)(c) 125,724 3,365 (3,014)(p) 126,075
Deferred income taxes...... 16,286 (4,032)(d) 12,254 655 12,909
Other long-term
liabilities.............. 10,262 10,262 10,262
--------- ------------ ----------- ----------- ------------ -----------
Total liabilities........ 489,673 (43,428) 446,245 9,314 21,096 476,655
--------- ------------ ----------- ----------- ------------ -----------
REDEEMABLE PREFERRED STOCK OF
A SUBSIDIARY............... 19,974 (19,974)(f)
--------- ------------ ----------- ----------- ------------ -----------
COMMON STOCK SUBJECT TO
REDEMPTION................. 2,898 (1,283)(g) 1,615 1,615
--------- ------------ ----------- ----------- ------------ -----------
STOCKHOLDERS' EQUITY:
Common stock............... 49 105(g) 154 5 (5)(q) 157
3(n)
Additional paid-in
capital.................. 20,238 79,907(g) 100,145 695 (695)(q) 104,642
4,497(q)
Accumulated deficit........ (5,109) (18,843)(d) (23,952) 7,640 (7,640)(q) (23,952)
Treasury stock............. (3,700) 3,700(q)
Subscription notes
receivable............... (145)(g) (145) (145)
Unearned compensation...... (1,245) (1,245) (1,245)
--------- ------------ ----------- ----------- ------------ -----------
Total stockholders'
equity................. 13,933 61,024 74,957 4,640 (140) 79,457
--------- ------------ ----------- ----------- ------------ -----------
TOTAL...................... $ 526,478 $ (3,661) $ 522,817 $ 13,954 $ 20,956 $ 557,727
--------- ------------ ----------- ----------- ------------ -----------
--------- ------------ ----------- ----------- ------------ -----------
</TABLE>
See the accompanying notes to the unaudited pro forma consolidated financial
statements.
P-3
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OFFERING ACQUISITION
BIG FLOWER PRO FORMA BIG FLOWER PRO LASER TECH PRO FORMA BIG FLOWER PRO
HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS FORMA
------------ ------------ -------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $ 896,595 $ 896,595 $ 21,681 $ 918,276
Costs of production............... 777,728 777,728 12,202 789,930
------------ -------------- ----------- ------------ --------------
Gross profit.................. 118,867 118,867 9,479 128,346
Selling, general and
administrative expense.......... 70,587 70,587 6,135 $ 517(r) 77,239
Interest expense.................. 40,486 $ (12,776)(h) 27,710 447 1,644(s) 29,801
Interest income................... (279) (279) (141) 141(t) (279)
Other expense, net................ 2,836 2,836 (5) 2,831
Preferred dividends of a
subsidiary...................... 2,444 (2,444)(i)
------------ ------------ -------------- ----------- ------------ --------------
Income before income taxes.... 2,793 15,220 18,013 3,043 (2,302) 18,754
Provision for income taxes........ 5,839 5,110 10,949 1,097 (614)(u) 11,432
------------ ------------ -------------- ----------- ------------ --------------
Net income (loss)................. $ (3,046) $ 10,110 $ 7,064 $ 1,946 $ (1,688) $ 7,322
------------ ------------ -------------- ----------- ------------ --------------
------------ ------------ -------------- ----------- ------------ --------------
Net income (loss) per
common and common
equivalent share................ $ (0.56) $ 0.43 $ 0.44
Weighted average shares
outstanding..................... 5,415,979 16,331,958(k) 16,613,208(v)
</TABLE>
See the accompanying notes to the unaudited pro forma consolidated financial
statements.
P-4
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OFFERING ACQUISITION
BIG FLOWER PRO FORMA BIG FLOWER PRO LASER TECH PRO FORMA BIG FLOWER PRO
HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS FORMA
------------ ------------ -------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $ 242,066 $ 242,066 $ 6,338 $ 248,404
Costs of production............... 209,963 209,963 3,554 213,517
------------ ------------ -------------- ----------- ------ --------------
Gross profit.................. 32,103 32,103 2,784 34,887
Selling, general and
administrative expense.......... 15,823 15,823 1,692 $ 173(r) 17,688
Interest expense.................. 10,324 $ (2,652)(h) 7,672 169 374(s) 8,215
Interest income................... (32) (32) (28) 28(t) (32)
Other expense, net................ 192 192 192
Preferred dividends of a
subsidiary...................... 617 (617)(i)
------------ ------------ -------------- ----------- ------ --------------
Income before income taxes.... 5,179 3,269 8,448 951 (575) 8,824
Provision for income taxes........ 2,800 1,061(j) 3,861 370 (154)(u) 4,077
------------ ------------ -------------- ----------- ------ --------------
Net income........................ $ 2,379 $ 2,208 $ 4,587 $ 581 $ (421) $ 4,747
------------ ------------ -------------- ----------- ------ --------------
------------ ------------ -------------- ----------- ------ --------------
Net income per common and common
equivalent share................ $ 0.43 $ 0.28 $ 0.28
Weighted average shares
outstanding..................... 5,541,625 16,583,250(k) 16,864,500(v)
</TABLE>
See the accompanying notes to the unaudited pro forma consolidated financial
statements.
P-5
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) Reflects the elimination of deferred financing costs related to the debt
to be redeemed or repaid.
(b) Reflects estimated deferred financing costs related to the New Credit
Agreement.
(c) Reflects the elimination of the debt to be redeemed or repaid from the
proceeds of the Offerings and the New Credit Agreement as follows (in
thousands):
<TABLE>
<S> <C>
Current portion of long-term debt................................ $ 50,477
---------
---------
Long-term debt, net of current portion:
Term loan...................................................... $ 38,000
10 3/4% Notes and BFP Notes.................................... 62,446
11% Debentures................................................. 18,916
13 1/2% Senior Discount Notes.................................. 43,396
---------
$ 162,758
---------
---------
</TABLE>
(d) Reflects premiums paid to retire existing indebtedness, elimination of
related deferred financing costs, and one-third of the amount paid to terminate
the interest rate swap, net of income taxes at a 40% effective income tax rate,
as follows (in thousands):
<TABLE>
<S> <C>
Total premiums.................................................... $ 20,368
One-third of swap termination fee................................. 959
Deferred financing costs.......................................... 10,079
---------
31,406
Income tax benefit................................................ 12,563
---------
$ 18,843
---------
---------
</TABLE>
(e) Reflects the estimated proceeds from the New Credit Agreement.
(f) Reflects the elimination of the BFP preferred stock which will be
repaid from the proceeds of the Offerings and the New Credit Agreement.
(g) Reflects the net proceeds from the Offerings ($ 80,610) less the premium
paid to retire the BFP preferred stock ($2,026) and the reclassification of
common stock subject to redemption.
(h) Reflects adjustments to interest expense as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
1995 1995
----------- ---------------------
<S> <C> <C>
Interest expense on the New Credit Agreement........ 11,614 3,664
Interest expense on debt to be redeemed or repaid... (24,390) (6,316)
----------- -------
$ (12,776) $ (2,652)
----------- -------
----------- -------
</TABLE>
(i) Reflects the elimination of dividends on the BFP preferred stock.
P-6
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(j) Reflects a provision for income taxes at a 40% effective income tax
rate on the pro forma adjustments to interest expense.
(k) Reflects a 2-for-1 stock split and the issuance of 5,500,000 shares as a
result of the Offerings.
(l) Reflects two-thirds of the swap termination fee which will be deferred
and amortized over the remaining life of the swap.
(m) The acquisition of Laser Tech will be accounted for as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16. The
purchase cost will be allocated to acquired assets and liabilities based on
their relative fair values as of the closing date, based on valuations and other
studies which are not yet complete. Accordingly, the excess of the purchase cost
over the book value of the net assets acquired has not yet been allocated to
individual assets and liabilities. However, the Company believes that a portion
of the purchase price will be allocated to property, plant and equipment and
identifiable intangibles.
The purchase cost and preliminary allocation of the excess of cost over the
book value of the net assets acquired is as follows (in thousands):
<TABLE>
<S> <C>
Purchase cost:
Purchase of equity.............................................. $ 24,996
Fees............................................................ 600
---------
Total purchase cost......................................... 25,596
---------
Pro forma book value of net asset acquired:
Book value per historical financial statements.................. 4,640
Related party notes forgiven or distributed to shareholders..... (2,550)
---------
2,090
---------
Excess of purchase cost over net assets acquired.................. 23,506
Allocated to
Noncompete agreement............................................ 250
---------
Remaining excess purchase cost over net assets acquired........... $ 23,256
---------
---------
</TABLE>
(n) Reflects financing for the acquisition of Laser Tech and repayment of
Laser Tech's existing debt of $5,730 as follows (in thousands):
<TABLE>
<S> <C>
Additional borrowings under the New Credit Agreement.............. $ 26,826
Common Stock issued (281,250 shares).............................. 4,500
---------
$ 31,326
---------
---------
</TABLE>
(o) Reflects the elimination of related party receivables which will be
forgiven or distributed to shareholders and the collection of the remaining
related party receivables ($518) prior to the acquisition.
(p) Represents the Laser Tech debt which will be repaid after the
acquisition.
(q) Reflects the elimination of Laser Tech's historical equity.
P-7
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(r) Reflects the amortization of the excess purchase cost over historical
value of the net assets acquired, the amortization of the noncompete agreement,
and the elimination of related party expenses not expected to recur after the
acquisition as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
JUNE 30, SEPTEMBER 30,
1995 1995
------------- -----------------
<S> <C> <C>
Elimination of related party expenses........................... $ (308) $ (34)
Amortization of the excess of purchase price over value......... 775 194
Amortization of noncompete agreement over five years............ 50 13
------ -----
$ 517 $ 173
------ -----
</TABLE>
The excess purchase cost over the book value of net assets acquired has not
been allocated to individual assets or liabilities acquired. However, the
Company believes that a portion will be allocated to tangible property and
specific identified intangibles and the remainder, representing goodwill, will
be amortized over 40 years. Accordingly, a composite life of 30 years has been
used.
(s) Reflects adjustments to interest expense as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
JUNE 30, SEPTEMBER 30,
1995 1995
----------- ---------------
<S> <C> <C>
Interest on borrowings under the New Credit Agreement............. $ 1,935 $ 511
Elimination of interest expense on Laser Tech's debt to be repaid
after the acquisition........................................... (291) (137)
----------- ------
$ 1,644 $ 374
----------- ------
----------- ------
</TABLE>
(t) Reflects the elimination of interest income relating to amounts due
from related parties which will be forgiven or distributed to shareholders prior
to the acquisition.
(u) Reflects a provision for income taxes at a 40% effective tax rate on the
pro forma adjustments (excluding amortization of goodwill).
(v) Reflects the issuance of 281,250 shares as a result of the acquisition
of Laser Tech.
P-8
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
BIG FLOWER PRESS HOLDINGS, INC. AND TREASURE CHEST ADVERTISING COMPANY, INC.
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Stockholders' Equity.......................................................... F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
LASER TECH COLOR, INC.
Report of Independent Public Accountants................................................................. F-24
Balance Sheets........................................................................................... F-25
Statements of Income..................................................................................... F-26
Statements of Shareholders' Equity....................................................................... F-27
Statements of Cash Flows................................................................................. F-28
Notes to Financial Statements............................................................................ F-29
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.:
We have audited the accompanying consolidated balance sheets of Big Flower
Press Holdings, Inc. and subsidiaries ("Big Flower") as of June 30, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year ended June 30, 1995 and the 323 days ended
June 30, 1994 (collectively, "Successor Period") and the consolidated statements
of operations, stockholders' equity, and cash flows of Treasure Chest
Advertising Company, Inc. and subsidiaries ("Treasure Chest", together with Big
Flower, the "Companies") for the 42 days ended August 11, 1993 and the year
ended June 30, 1993 (collectively, "Predecessor Period"). These financial
statements are the responsibility of the Companies' managements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Big Flower at June 30, 1995 and
1994, and the results of its operations and its cash flows for the year ended
June 30, 1995 and the 323 days ended June 30, 1994, and the results of Treasure
Chest's operations and its cash flows for the 42 days ended August 11, 1993 and
the year ended June 30, 1993 in conformity with generally accepted accounting
principles.
As more fully described in Note 1 to the consolidated financial statements,
Big Flower acquired Treasure Chest as of August 12, 1993 in a business
combination accounted for as a purchase. As a result of the acquisition, the
consolidated financial statements for the Successor Period are presented on a
different basis of accounting than that of the Predecessor Period, and therefore
are not directly comparable.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 15, 1995
F-2
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, UNAUDITED PRO FORMA
---------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1995
---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 2,413 $ 1,395 $ 1,638
Accounts receivable, net of allowance for doubtful
accounts of $5,266, $5,308 and $6,565.............. 103,260 97,146 121,140
Inventories.......................................... 24,704 45,757 55,681
Prepaid expenses..................................... 6,780 4,152 4,278
Deferred income taxes................................ 4,487 12,506 12,506
---------- ---------- --------------
Total current assets........................... 141,644 160,956 195,243
Property, plant and equipment, net of accumulated
depreciation of $12,157, $31,845 and $37,055......... 144,737 129,181 136,110
Other assets, net of accumulated amortization of
$1,965, $5,431 and $6,287............................ 24,359 21,100 24,160
Intangibles, net of accumulated amortization of
$15,375, $36,179 and $26,427......................... 194,387 175,265 170,965
---------- ---------- --------------
Total.................................................. $ 505,127 $ 486,502 $ 526,478
---------- ---------- --------------
---------- ---------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.................... $ 3,982 $ 8,671 $ 50,888
Accounts payable..................................... 73,651 68,504 79,784
Compensation and benefits payable.................... 17,009 20,135 17,103
Other current liabilities............................ 22,428 31,534 26,868
---------- ---------- --------------
Total current liabilities...................... 117,070 128,844 174,643
Revolving credit facility.............................. 41,024 10,247
Long-term debt, net of current portion................. 287,764 287,729 288,482
Deferred income taxes.................................. 15,035 16,286 16,286
Other long-term liabilities............................ 9,900 9,774 10,262
---------- ---------- --------------
Total liabilities.............................. 470,793 452,880 489,673
---------- ---------- --------------
Commitments and contingent liabilities (note 13)
Redeemable preferred stock of a subsidiary............. 16,913 19,357 19,974
---------- ---------- --------------
Common stock subject to redemption..................... 1,648 2,782 2,898 $ 1,615
---------- ---------- -------------- --------------
Stockholders' Equity:
Common stock......................................... 49 49 49 99
Additional paid-in capital........................... 20,166 20,238 20,238 21,616
Accumulated deficit.................................. (4,442) (7,488) (5,109) (5,109)
Subscription notes receivable........................ (145)
Unearned compensation................................ (1,316) (1,245) (1,245)
---------- ---------- -------------- --------------
Total stockholders' equity..................... 15,773 11,483 13,933 $ 15,216
---------- ---------- -------------- --------------
Total.................................................. $ 505,127 $ 486,502 $ 526,478
---------- ---------- --------------
---------- ---------- --------------
</TABLE>
See the accompanying notes to consolidated financial statements.
F-3
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------------------------------------
PREDECESSOR UNAUDITED
------------------------ ------------------------------
42 DAYS 323 DAYS THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1993 1993 1994 1995 1994 1995
----------- ----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 555,013 $ 59,584 $ 565,046 $ 896,595 $ 210,458 $ 242,066
Costs of production................. 491,685 54,692 493,075 777,728 184,292 209,963
----------- ----------- ----------- ----------- -------------- --------------
Gross profit.................. 63,328 4,892 71,971 118,867 26,166 32,103
Selling, general and administrative
expense........................... 40,892 4,227 48,777 70,587 15,981 15,823
Interest expense.................... 9,227 704 21,286 40,486 9,790 10,324
Interest income..................... (1,153) (22) (53) (279) (21) (32)
Equity in loss of unconsolidated
companies......................... 1,231
Other expense, net.................. 2,927 211 2,726 2,836 311 192
Preferred dividends of a
subsidiary........................ 1,913 2,444 589 617
----------- ----------- ----------- ----------- -------------- --------------
Income (loss) before income taxes... 10,204 (228) (2,678) 2,793 (484) 5,179
Provision (benefit) for income
taxes............................. 5,519 (89) 1,764 5,839 600 2,800
----------- ----------- ----------- ----------- -------------- --------------
Net income (loss)................... $ 4,685 $ (139) $ (4,442) $ (3,046) $ (1,084) $ 2,379
----------- ----------- ----------- ----------- -------------- --------------
----------- ----------- ----------- ----------- -------------- --------------
Net income (loss) per common and
common equivalent share
--Historical.................. $ (.92) $ (.56) $ (.20) $ .43
----------- ----------- -------------- --------------
----------- ----------- -------------- --------------
--Pro Forma................... $ (.46) $ (.28) $ (.10) $ .21
----------- ----------- -------------- --------------
----------- ----------- -------------- --------------
</TABLE>
See the accompanying notes to consolidated financial statements.
F-4
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTE
SHARES COMMON RETAINED RECEIVABLE
TREASURE CHEST ADVERTISING COMPANY, INC. OUTSTANDING STOCK EARNINGS FROM ESOT TOTAL
- -------------------------------------------------- ----------- ------ -------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1992............................. 18,998,323 $190 $ 29,271 $(1,866) $27,595
Net income...................................... 4,685 4,685
Interest on note and other receivables from
ESOT.......................................... (170) (170)
Contribution to ESOT used to repay interest on
note and other receivables.................... 537 537
Other........................................... 3,624 16 16
----------- ------ -------- --------- -------
Balance, June 30, 1993............................ 19,001,947 190 33,972 (1,499) 32,663
Net loss........................................ (139) (139)
Interest on note and other transactions with
ESOT.......................................... (159) (159)
----------- ------ -------- --------- -------
Balance, August 11, 1993.......................... 19,001,947 $190 $ 33,833 $(1,658) $32,365
----------- ------ -------- --------- -------
----------- ------ -------- --------- -------
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
SHARES COMMON PAID-IN ACCUMULATED UNEARNED
BIG FLOWER PRESS HOLDINGS, INC. OUTSTANDING STOCK CAPITAL DEFICIT COMPENSATION TOTAL
- -------------------------------------------------- ----------- ------ ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 12, 1993.......................... 3,975,000 $40 $15,460 $15,500
Stock split..................................... 288,076 3 (3)
Issuance of common stock........................ 612,344 6 4,709 4,715
Net loss........................................ $(4,442) (4,442)
----------- ------ ---------- ----------- ------------ -------
Balance June 30, 1994............................. 4,875,420 49 20,166 (4,442) 15,773
Net loss........................................ (3,046) (3,046)
Unearned compensation............................. 1,412 (1,412)
Amortization of unearned compensation............. 96 96
Reclassification of common stock subject to
redemption...................................... (1,340) (1,340)
----------- ------ ---------- ----------- ------------ -------
Balance, June 30, 1995............................ 4,875,420 $49 $20,238 $(7,488) $(1,316) $11,483
Net income (unaudited)............................ 2,379 2,379
Amortization of unearned compensation
(unaudited)..................................... 71 71
----------- ------ ---------- ----------- ------------ -------
Balance, September 30, 1995 (unaudited)........... 4,875,420 $49 $20,238 $(5,109) $(1,245) $13,933
----------- ------ ---------- ----------- ------------ -------
----------- ------ ---------- ----------- ------------ -------
</TABLE>
See the accompanying notes to consolidated financial statements.
F-5
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR
----------------------------------------------------------------------------
PREDECESOR UNAUDITED
------------------------------- ---------------------------------------
YEAR ENDED 42 DAYS ENDED 323 DAYS ENDED YEAR ENDED THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1993 AUGUST 11, 1993 JUNE 30, 1994 JUNE 30, 1995 SEPTEMBER 30, 1994 SEPTEMBER 30, 1995
------------- --------------- -------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income
(loss)......... $ 4,685 $ (139) $ (4,442) $ (3,046) $ (1,084) $ 2,379
Adjustments to
reconcile net
income (loss)
to net cash
provided by
(used in)
operating
activities:
Provision for
doubtful
accounts....... 4,382 115 (60) 1,711 129 898
Deferred income
taxes.......... 225 (283) 217 (5,360)
Depreciation and
amortization... 12,707 1,275 27,778 42,095 10,678 9,259
Amortization of
deferred
financing
costs.......... 2,435 126 1,936 3,437 850 856
Preferred
dividends of a
subsidiary..... 1,913 2,444 589 617
Equity in loss of
unconsolidated
companies...... 1,231
(Gain) loss on
disposition of
property, plant
and
equipment...... 870 (551) 397 17 10
Changes in
operating
assets and
liabilities:
Accounts
receivable... (244) 3,618 (17,841) 4,403 4,405 (22,364)
Inventories.... (956) (1,771) (573) (22,863) (5,137) (7,902)
Prepaid
expenses..... (891) (407) (848) 2,628 (1,536) (69)
Deferred
financing
costs........ (21,787) (302)
Accrued
interest on
notes
receivable
from related
parties and
ESOT......... (554) (159) (225)
Other assets... (497) 36 581 96 637 (80)
Accounts
payable,
compensation
and benefits
payable and
other
liabili-
ties......... (1,570) (8,774) 18,025 11,206 (14,540) (20,389)
Deferred
interest..... 2,375 7,768 1,817 2,101
------------- ------- -------------- -------- -------- --------
Net cash
provided by
(used in)
operating
activities... 21,823 (6,363) 6,498 44,614 (3,175) (34,684)
------------- ------- -------------- -------- -------- --------
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Capital
expenditures... (6,967) (1,280) (5,537) (7,142) (1,613) (11,851)
Proceeds from
sale of
property, plant
and
equipment...... 17,675 1,107 1,305 419 44
Collection of
related-party
notes.......... 14,324
Purchase of other
tangible
assets......... (64,021)
Non-compete
agreements..... (38,335)
Acquisition of
Treasure
Chest.......... (109,340)
Acquisitions of
Retail Graphics
and KTB........ (71,297)
Collection of
ESOT note...... 1,658
Net decrease in
other
related-party
receivables.... 1,812
------------- ------- -------------- -------- -------- --------
Net cash
provided by
(used in)
investing
activities... 10,708 (1,280) (269,629) (5,837) (1,194) (11,807)
------------- ------- -------------- -------- -------- --------
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Principal
payments on
long-term
debt........... (51,258) (565) (57,496) (3,114) (130) (2,658)
Proceeds from
issuance of
long-term
debt........... 25,000 287,485
Net borrowings
(repayments)
under old line
of credit...... (18,461) 6,774 (19,353)
Net borrowings
(repayments)
under new line
of credit...... 41,024 (30,777) (644) 31,667
Increase
(decrease) in
cash
overdraft...... 13,772 (8,542) (5,698) 5,358 17,609
Proceeds from
issuance of
common stock... 21,964 566 116
Issuance of
promissory
notes.......... 2,000
Repayment of
promissory
notes.......... (2,000)
Payments for
repurchase of
common stock... (596) (101) (772) (250)
------------- ------- -------------- -------- -------- --------
Net cash
provided by
(used in)
financing
activities... (31,543) 6,209 264,981 (39,795) 4,334 46,734
------------- ------- -------------- -------- -------- --------
NET INCREASE
(DECREASE) IN
CASH AND CASH
EQUIVALENTS...... 988 (1,434) 1,850 (1,018) (35) 243
CASH AND CASH
EQUIVALENTS,
BEGINNING OF
PERIOD........... 1,009 1,997 563 2,413 2,413 1,395
------------- ------- -------------- -------- -------- --------
CASH AND CASH
EQUIVALENTS, END
OF PERIOD........ $ 1,997 $ 563 $ 2,413 $ 1,395 $ 2,378 $ 1,638
------------- ------- -------------- -------- -------- --------
------------- ------- -------------- -------- -------- --------
</TABLE>
See the accompanying notes to consolidated financial statements
F-6
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITIONS
Big Flower Press Holdings, Inc. (the "Company" or "Big Flower"), its wholly
owned subsidiary, Big Flower Press, Inc. ("BFP"), and its wholly owned
subsidiary, TCA Merger Corp. ("Merger Corp".), were organized to effect the
acquisition of Treasure Chest Advertising Company, Inc. ("Treasure Chest") (the
"Acquisition"). On August 12, 1993, the Company acquired Treasure Chest. The
Acquisition was effected pursuant to 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 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 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 with the founders and
former principal owners of Treasure Chest. Prior to the 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
Acquisition and the financing related to the Acquisition.
BFP obtained funds necessary to effect the Acquisition and related
transactions, to retire existing indebtedness and to pay the fees and expenses
of the 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, (ii) the proceeds of a $150.0 million senior
subordinated note offering by BFP, (iii) issuance by BFP of $15.0 million of
preferred stock to the ESOT and (iv) the contribution of $32.5 million in cash
by Big Flower in exchange for all of the shares of common stock of BFP.
The acquisition of Treasure Chest 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 Acquisition, based on 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. Big Flower
subsequently assigned its rights to the Agreements to Treasure Chest. Following
the consummation of the acquisitions of KTB and Retail Graphics, 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 $32,390,000; (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 $4,800,000.
Treasure Chest obtained the funds necessary to effect the acquisitions of
KTB and Retail Graphics, to enter into certain non-compete and other agreements,
to retire certain existing indebtedness of Retail Graphics, KTB and their
affiliates and to pay the fees and expenses of the acquisitions of KTB and
Retail Graphics 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
F-7
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACQUISITIONS (CONTINUED)
its senior subordinated 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 aggregate principal amount of Big
Flower's senior discount notes and 612,344 shares of Class D common stock of Big
Flower.
The acquisitions of KTB and Retail Graphics 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 of KTB and Retail Graphics, based on
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.
The following supplemental pro forma information has been prepared as though
the Acquisition and the acquisitions of KTB and Retail Graphics had occurred at
July 1, 1992 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------
1993 1994
----------- -----------
<S> <C> <C>
Net sales........................................................... $ 722,694 $ 806,870
Net loss............................................................ $ (22,503) $ (9,055)
Net loss per common and common equivalent share..................... $ (4.45) $ (1.70)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS. The unaudited interim
consolidated financial statements of Big Flower for the three months ended
September 30, 1995 and 1994 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. The results of operations and cash flows
for the interim periods presented are not necessarily indicative of results for
the full year.
LINE OF BUSINESS. Treasure Chest, Retail Graphics and KTB print advertising
circulars for mass merchandisers and specialty retailers, Sunday comics and
other newspaper products and publications.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
Investments in 50%-owned affiliates are accounted for using the equity
method. In accordance with the equity method, investments are carried at the
cost of acquisition, plus or minus equity in undistributed earnings or losses
since acquisition, subject to realization.
REVENUE RECOGNITION. Revenue is recognized on a units-of-work-performed
method. Accordingly, revenue and the related unbilled accounts receivable are
recognized for partially completed orders in process and orders completed but
not yet delivered to customers.
CASH MANAGEMENT. Bank lockbox services are used to accumulate accounts
receivable remittances. Such remittances are transmitted daily by wire to the
lender to reduce the revolving credit facility.
F-8
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A zero balance disbursements account is also used, to which funds are wired
daily from the lender to cover checks presented for payment that day.
Under the cash management system, outstanding checks can create negative
book cash balances. Negative book cash balances of $11,563,000 and $5,865,000 at
June 30, 1994 and 1995, respectively, have been reported as accounts payable.
Cash equivalents include all investments with initial maturities of 90 days
or less.
INVENTORIES. Inventories are priced at the lower of cost or market. Cost
has been determined on the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment and leasehold
improvements are stated at cost. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the assets or
the remaining terms of the leases, whichever are shorter. Major replacements,
additions and renewals are capitalized. Repairs and maintenance are charged to
expense as incurred.
Depreciation is recorded on temporarily idle machinery and equipment. There
was approximately $474,000, $41,000, $220,000 and $89,000 in other expense
related to idle equipment depreciation for the year ended June 30, 1993, the 42
days ended August 11, 1993, the 323 days ended June 30, 1994 and the year ended
June 30, 1995, respectively.
Interest costs related to in-house capital projects are capitalized. There
were no interest costs capitalized for the 42 days ended August 11, 1993.
Interest costs of approximately $150,000, $260,000 and $295,000 have been
capitalized during the year ended June 30, 1993, the 323 days ended June 30,
1994 and the year ended June 30, 1995, respectively.
INTANGIBLE ASSETS. The Company reviews the recoverability of intangible
assets to determine if there has been any impairment. This assessment is
performed based on the estimated undiscounted future cash flows from operating
activities compared with the carrying value of intangible assets. If the future
cash flows (undiscounted and without interest charges) are less than the
carrying value, a writedown would be recorded to reduce the related asset to its
estimated fair value.
INCOME TAXES. Treasure Chest adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes", effective July 1,
1993. The cumulative effect of adopting SFAS No. 109 on Treasure Chest's
consolidated financial statements was not significant. Under SFAS No. 109,
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 operating loss and
tax credit carryforwards. A valuation allowance is provided when it is more
likely than not that some portion or all of the deferred income tax assets will
not be realized. Prior to the adoption of SFAS No. 109, Treasure Chest provided
for income taxes under Accounting Principles Board Opinion No. 11. For financial
reporting purposes, income tax credits are recorded as direct reductions of the
income tax provision using the flow-through method of accounting.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT 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 initial filing of the registration
F-9
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statement have been calculated using the treasury stock method based on an
assumed offering price of $18 per share and have been treated as outstanding for
all periods presented.
STATEMENTS OF CASH FLOWS. Supplemental disclosures of cash flow information
are as follows (in thousands):
<TABLE>
<CAPTION>
42 DAYS 323 DAYS
YEAR ENDED ENDED ENDED YEAR ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30,
1993 1993 1994 1995
----------- ------------- ------------------- ------------
<S> <C> <C> <C> <C>
Cash paid for income taxes and interest was as
follows:
Interest, net of amounts capitalized............. $ 6,982 $ 843 $ 11,268 $ 26,426
Income taxes, net of refunds..................... $ 5,144 -- $ 1,634 $ 8,019
</TABLE>
On August 12, 1993 the Company purchased all of the capital stock of
Treasure Chest. In conjunction with the Acquisition, liabilities were assumed as
follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired................................... $ 253,031
Cash paid for common stock...................................... (105,000)
Issuance of preferred stock..................................... (15,000)
Other acquisition costs......................................... (4,340)
---------
Liabilities assumed............................................. $ 128,691
---------
---------
</TABLE>
On April 27, 1994 the Company purchased all of the capital stock of KTB and
Retail Graphics. In conjunction with the acquisitions of KTB and Retail
Graphics, liabilities were assumed as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 139,733
Cash paid for common stock....................................... (73,719)
Other acquisition costs.......................................... (2,619)
---------
Liabilities assumed.............................................. $ 63,395
---------
---------
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS--
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The
carrying amounts approximate fair value because of the short maturities of these
instruments.
REVOLVING CREDIT FACILITY AND TERM LOAN. The carrying amounts approximate
fair value because their interest rates are based on variable reference rates.
LONG-TERM DEBT (EXCLUDING REVOLVING CREDIT FACILITY AND TERM LOAN). The
fair value of the 10 3/4% Notes and BFP Notes at June 30, 1994 and 1995
approximates $181,450,000 and $190,000,000, respectively. The fair value of the
13 1/2% senior discount notes at June 30, 1994 and 1995 approximates $42,099,000
and $51,284,000, respectively.
F-10
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
It was not practicable to estimate the fair value of the 11% debentures as
there were no quoted market prices for the same or similar issues. Management
believes the fair value of the debentures would not differ significantly from
the carrying amount at June 30, 1994 and 1995, respectively.
INTEREST RATE SWAP AND CAP AGREEMENTS. The cost to terminate these
agreements at June 30, 1994 and 1995 is approximately $5,554,000 and $4,165,000,
respectively.
CONCENTRATION OF CREDIT RISK. Financial instruments which subject the
Company to credit risk consist primarily of accounts receivable. Concentration
of credit risk with respect to accounts receivable is generally diversified due
to the large number of entities comprising the Company's customer base and their
geographic dispersion. The Company performs ongoing credit evaluations of its
customers and maintains an allowance for potential credit losses.
RECLASSIFICATIONS. Certain amounts for prior years have been reclassified
to conform to the current year presentation.
3. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
----------- ---------
<S> <C> <C>
Trade--billed........................................................ $ 95,290 $ 92,176
Trade--unbilled...................................................... 7,758 8,897
Other receivables.................................................... 5,478 1,381
----------- ---------
108,526 102,454
Less allowance for doubtful accounts................................. (5,266) (5,308)
----------- ---------
$ 103,260 $ 97,146
----------- ---------
----------- ---------
</TABLE>
4. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, JUNE 30, SEPTEMBER 30,
1994 1995 1995
--------- --------- --------------
<S> <C> <C> <C>
Paper............................................. $ 19,106 $ 42,226 $ 52,236
Ink............................................... 1,747 1,700 1,565
Other............................................. 3,851 1,831 1,880
--------- --------- --------------
$ 24,704 $ 45,757 $ 55,681
--------- --------- --------------
--------- --------- --------------
</TABLE>
5. INVESTMENTS IN AFFILIATED COMPANIES
Treasure Chest, through its wholly owned consolidated subsidiary, TC
Equipment Holding, Inc., held a 50% interest in EGS Americas, Inc. ("EGS"). EGS
purchased used printing equipment, refurbished such equipment and sold it to
third-party buyers. EGS was accounted for under the equity method. Treasure
Chest's equity share in the cumulative losses of EGS exceeded its investment
balance. As a result, Treasure Chest reduced its investment balance to zero in
the year ended June 30, 1992. Treasure Chest had also made cash advances to EGS,
which were evidenced by notes receivable
F-11
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
(due on demand and bearing interest at prime plus 1.75%). During the year ended
June 30, 1993, the Company provided a reserve for the remaining notes receivable
balance of $1,231,000. On January 14, 1994, Treasure Chest sold its 50% interest
in EGS to the management group of EGS for $244,000. TCEH merged with Treasure
Chest on June 30, 1994.
6. PROPERTY, PLANT AND EQUIPMENT
The cost of fixed assets and the related useful lives used for financial
reporting purposes are as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE JUNE 30, JUNE 30,
(IN YEARS) 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Land....................................................................... $ 3,620 $ 3,560
Machinery and equipment.................................................... 5 to 12 117,855 121,103
Buildings and leasehold improvements....................................... 3 to 30 29,535 28,780
Furniture and fixtures..................................................... 5 to 10 3,258 4,753
Vehicles................................................................... 3 to 4 465 451
Construction in progress and deposits on equipment
purchases................................................................ 1,459 1,785
----------- -----------
156,192 160,432
Less accumulated depreciation and amortization............................. (12,000) (31,716)
----------- -----------
144,192 128,716
Temporarily idle machinery and equipment, net of accumulated depreciation
of $157 and $129......................................................... 3 to 12 545 465
----------- -----------
$ 144,737 $ 129,181
----------- -----------
----------- -----------
</TABLE>
7. INTANGIBLES
Intangibles are summarized below and are amortized using the straight-line
method over the following periods (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
YEARS 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Customer backlog........................................................... 1 to 2 $ 18,405 $ 17,102
Ink contracts.............................................................. 7.5 7,799 7,799
Non-compete agreements..................................................... 5 38,335 38,335
Goodwill................................................................... 40 145,223 148,208
----------- -----------
209,762 211,444
Less accumulated amortization.............................................. (15,375) (36,179)
----------- -----------
$ 194,387 $ 175,265
----------- -----------
----------- -----------
</TABLE>
F-12
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
On April 8, 1992, Treasure Chest entered into a revolving credit facility
with a lender, which provided for maximum borrowings of $75,000,000. The amounts
that could be advanced under the revolving credit facility were based upon the
availability of eligible accounts receivable and inventory collateral amounts.
Advances bore interest at the lender's prime rate plus 1.75%.
Treasure Chest amended its agreement with its senior noteholders on April 8,
1992. Under the restructuring of the senior notes, the outstanding loans were
secured by certain of Treasure Chest's machinery and equipment and interest
accrued at rates ranging from 10% to 10.5%. In addition to semi-annual
installments varying from $1,000,000 to $9,500,000 through June 1995, Treasure
Chest was required to make principal prepayments at the end of each fiscal year
equal to 50% of its excess cash flow (as defined).
On February 11, 1993, Treasure Chest entered into a loan agreement with a
lender for $25,000,000. The interest rate on this loan was a bank rate plus
2.25%. The loan agreement also provided for an additional borrowing of up to an
aggregate total of $26,000,000 for the redemption of certain outstanding capital
stock. The proceeds of this loan were used to repay the senior notes.
In connection with the Acquisition, effective August 12, 1993, all of
Treasure Chests' debt then outstanding was repaid and Treasure Chest entered
into a new credit agreement (the "Credit Agreement").
The Credit Agreement provided that Treasure Chest could borrow revolving
loans from time to time in an aggregate amount not to exceed the lesser of (a)
$75,000,000 and (b) an amount equal to the sum of (i) $20,000,000 plus (ii) the
amount of a variable borrowing base calculated from time to time as provided in
the Credit Agreement based on the value of Treasure Chest's accounts receivable
and inventory at the time of such calculation, as defined. Outstanding loans
under the Credit Agreement accrued interest at a floating rate per annum equal
to, at the option of Treasure Chest, either the lender's prime rate plus 1.5% or
3% above an adjusted LIBOR rate.
In conjunction with the acquisitions of KTB and Retail Graphics, the Credit
Agreement was amended (the "Amended Credit Agreement"). The Amended Credit
Agreement consists of a $50.0 million term loan and a $100.0 million revolving
credit facility. On September 30, 1998, the term loan will be converted to a
revolving loan and the revolving loan commitment will be increased from $100.0
million to $125.0 million. All revolving loans will mature on August 5, 1999.
The Amended Credit Agreement provides that Treasure Chest may borrow up to $50.0
million on the term loan and may borrow on revolving loans from time to time in
an aggregate amount not to exceed the lesser of (a) the revolving facility
commitment then in effect and (b) a variable borrowing base calculated from time
to time as provided in the Amended Credit Agreement based on, among other
things, the value of Treasure Chest's accounts receivable and inventory at the
time of such calculation. Outstanding loans under the Amended Credit Agreement
accrue interest at a floating rate per annum equal to, at the option of Treasure
Chest, either the lender's prime rate plus 1.5% or 3% above an adjusted LIBOR
rate. At June 30, 1994, the interest rate on the term loan was 7.31%, and the
interest rates on revolving loans ranged from 7.31% to 8.75%. At June 30, 1995,
the interest rates on the term loan and revolving loan ranged from 8.3% to
10.3%. Treasure Chest is required to make scheduled principal payments and apply
a certain percentage of excess cash flow toward repayment of the term loan at
the end of each fiscal year.
The Amended Credit Agreement contains covenants that, among other things,
limit Treasure Chest's ability to sell assets, incur additional indebtedness,
pay dividends, make capital expenditures, enter into guaranties, make
investments, prepay indebtedness and enter into other transactions not in
F-13
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
the ordinary course of business. Treasure Chest's obligations under the Amended
Credit Agreement are secured by a security interest in substantially all of the
assets of Treasure Chest. Treasure Chest's obligations under the Amended Credit
Agreement are structurally senior to the 10 3/4% Notes and BFP Notes discussed
below.
In connection with the Acquisition, BFP issued $150,000,000 of 10 3/4%
senior subordinated notes due in 2003 (the "10 3/4% Notes"). Interest on the
10 3/4% Notes is payable semiannually on February 1 and August 1. In connection
with the acquisitions of KTB and Retail Graphics, BFP issued $40,000,000 of
10 3/4% senior subordinated notes due in 2003 (the "BFP Notes") at a discount of
$2,800,000. The effective interest rate on the BFP Notes is 11.74%. The BFP
Notes have terms substantially similar to the 10 3/4% Notes. The 10 3/4% Notes
and BFP Notes are general unsecured obligations of BFP.
The 10 3/4% Notes and BFP Notes are subject to certain covenants, including
limitations on restricted payments, additional indebtedness, dividends and
payments, liens, asset sales, transactions with affiliates, mergers and
consolidations, and the creation of senior subordinated debt.
In connection with the Acquisition, on August 12, 1993, Big Flower issued
$15,000,000 principal amount of 11% debentures due on August 2, 2005, the
proceeds of which were contributed to BFP. Interest on the debentures is payable
semi-annually on each February 1 and August 1. As permitted by the governing
indenture, interest payments may be made, in kind, through the issuance of
additional securities on each payment date or cash subject to certain conditions
and requirements. Accordingly, the interest accrued thereon at June 30, 1995 and
1994 has been included in long-term debt.
In connection with the acquisitions of KTB and Retail Graphics, Big Flower
issued $76,543,000 principal amount of 13 1/2% senior discount notes due 2004,
at a substantial discount, the proceeds of which were contributed to BFP. The
effective interest rate on the senior discount notes is 14.58%. Interest on the
senior discount notes is payable semi-annually on each April 15 and October 15,
commencing on October 15, 1999.
A summary of long-term debt (excluding the revolving credit facility) is as
follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
----------- -----------
<S> <C> <C>
10 3/4% Notes and BFP Notes............................................................. $ 187,214 $ 187,387
Term loan............................................................................... 50,000 47,500
11% Debentures.......................................................................... 16,515 18,403
13 1/2% Senior discount notes........................................................... 36,145 41,852
Other notes............................................................................. 1,872 1,258
----------- -----------
291,746 296,400
Less--current portion................................................................... (3,982) (8,671)
----------- -----------
$ 287,764 $ 287,729
----------- -----------
----------- -----------
</TABLE>
F-14
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
Future minimum payments on long-term debt (excluding the revolving credit
facility) are as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................. $ 8,671
1997............................................................. 9,644
1998............................................................. 9,348
1999............................................................. 1,082
2000............................................................. 20,001
Thereafter....................................................... 247,654
---------
Total............................................................ 296,400
---------
---------
</TABLE>
Effective February 1, 1994, the Company entered into a three-year interest
rate swap agreement with Citicorp USA, Inc. which converted the $150,000,000
10 3/4% Notes to LIBOR-based floating rate debt for the term of the swap
agreement. Under the terms of the agreement, the Company will receive a fixed
rate of 4.44% on a notional amount of $150,000,000 and make floating rate
payments based on LIBOR at six-month intervals through January 31, 1997. The
swap agreement contains a provision which will cap the floating rate payments
made by the Company at 6.15% for 50% of the notional amount for the second year
of the agreement and for 100% of the notional amount for the third year of the
agreement. In June 1994, the Company entered into an agreement with Citibank,
N.A. which extended the 6.15% interest rate cap on the floating rate payments
made by the Company to 100% of the notional amount effective August 1, 1994. The
Company is exposed to credit risk in the event of nonperformance by the
counterparties. However, the Company does not anticipate nonperformance by the
counterparties.
Interest rate swap and cap agreements are accounted for as hedges if they
are matched with an underlying debt obligation. The differences to be paid or
received on the swap and cap agreements are included in interest expense as they
accrue. Gains and losses on interest rate swaps which do not meet the criteria
for accrual accounting are recognized as other income or expense. Gains and
losses on termination of interest rate swaps which are matched with underlying
debt are deferred and recognized over the remaining life of the swap or debt,
whichever is shorter. Gains and losses on interest rate swaps for which the
underlying instrument matures or is extinguished are recognized as a component
of the carrying cost of the extinguished instrument.
9. REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY
In connection with the Acquisition in August 1993, BFP issued 150,000 shares
of preferred stock which is mandatorily redeemable in August 2005 at its
liquidation preference of $100 per share, plus cumulative but unpaid dividends.
The preferred stock may be redeemed at the Company's option subsequent to August
1997 at specified prices, plus cumulative but unpaid dividends. Dividends are
payable in cash or in additional shares of preferred stock at an annual rate of
13 5/8% (except for dividends paid in cash prior to August 1998 which will
accrue at an annual rate of 13 1/8%). After August 1998, all dividends will be
payable in cash. The redeemable preferred stock is subject to certain covenants
including limitations on restricted payments.
F-15
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LEASES
Facilities and certain equipment are leased under lease agreements that
expire at various dates through 2006. Rental expense under operating leases for
the year ended June 30, 1993, the 42 days ended August 11, 1993, the 323 days
ended June 30, 1994 and the year ended June 30, 1995 was $16,943,000,
$2,267,000, $16,905,000 and $27,931,000, respectively. Minimum annual rentals
under all noncancelable operating leases (net of subleases), are as follows (in
thousands).
<TABLE>
<S> <C>
1996............................................................. $ 25,586
1997............................................................. 23,651
1998............................................................. 18,241
1999............................................................. 14,430
2000............................................................. 9,545
Thereafter....................................................... 16,582
---------
$ 108,035
---------
---------
</TABLE>
Commitments under the lease agreements also extend in most instances to
property taxes, insurance and maintenance and certain leases contain escalation
clauses and extension options.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following
components (in thousands):
<TABLE>
<CAPTION>
42 DAYS 323 DAYS YEAR
YEAR ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30,
1993 1993 1994 1995
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Current:
Federal.......................................................... $ 4,526 $ 96 $ 356 $ 7,804
State............................................................ 768 98 1,191 3,395
----------- ----- ----------- ---------
5,294 194 1,547 11,199
----------- ----- ----------- ---------
Deferred:
Federal.......................................................... 225 (263) (302) (3,708)
State............................................................ (20) 519 (1,652)
----------- ----- ----------- ---------
225 (283) 217 (5,360)
----------- ----- ----------- ---------
Total provision (benefit) for income taxes......................... $ 5,519 $ (89) $ 1,764 $ 5,839
----------- ----- ----------- ---------
----------- ----- ----------- ---------
</TABLE>
F-16
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES--(CONTINUED)
The following is a reconciliation, stated as a percentage of pretax income
(loss), of the U.S. statutory federal income tax rate to the effective tax rate:
<TABLE>
<CAPTION>
42 DAYS 323 DAYS YEAR
YEAR ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30,
1993 1993 1994 1995
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Income taxes computed at federal statutory rate............ 34.0% (35.0)% (35.0 )% 35.0 %
Amortization of goodwill................................... 34.7 73.7
Preferred dividends of a subsidiary........................ 29.6 37.3
State income taxes, net of federal income tax benefit...... 5.0 (4.0 ) 31.6 49.0
Reinstatement of deferred taxes due to utilization of
investment tax credit carryforward....................... 13.9
Original issue discount.................................... 13.8
Other...................................................... 1.2 5.0 .3
--- ----- ----- -----
54.1% (39.0 )% 65.9% 209.1 %
--- ----- ----- -----
--- ----- ----- -----
</TABLE>
At June 30, 1995, alternative minimum tax credit carryforwards were
approximately $2,462,000, state investment tax credit carryforwards were
approximately $1,536,000 (which expire at June 30, 2001) and state net operating
loss carryforwards were approximately $14,258,000 (which expire at various dates
through 2009).
The tax effects of significant items comprising the Company's deferred
income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
---------- ----------
<S> <C> <C>
Tax credit carryforward.............................................. $ 5,652 $ 3,460
Net operating loss carryforward...................................... -- 1,045
Bad debt reserve..................................................... 1,567 2,434
Nonqualified plan.................................................... 2,200 2,285
Workers' compensation................................................ 2,150 2,776
Health insurance..................................................... 1,297 1,392
Original issue discount.............................................. -- 2,415
Other deductible differences......................................... 12,069 9,207
---------- ----------
24,935 25,014
---------- ----------
Depreciation......................................................... (21,113) (24,217)
Intangible assets.................................................... (6,163) (1,700)
Other taxable differences............................................ (8,207) (1,832)
---------- ----------
(35,483) (27,749)
---------- ----------
Valuation allowance.................................................. -- (1,045)
---------- ----------
Net deferred income tax liability.................................... $ (10,548) $ (3,780)
---------- ----------
---------- ----------
</TABLE>
F-17
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. OTHER LONG-TERM LIABILITIES
Other long-term liabilities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1994 1995
----------- -----------
<S> <C> <C>
Present value of obligations to provide supplemental executive retirement plan benefits..... $ 4,775 $ 5,309
Present value of amounts due on a settlement of litigation.................................. 758 723
Deferred incentive plan payable............................................................. 469 177
Deferred leaseback credits, rent credits and gain on sale-leaseback transactions, being
amortized into income over the terms of the leases, net of accumulated amortization of
$660 and $1,228, respectively............................................................. 2,613 2,045
Deferred compensation plan payable.......................................................... 94 829
Present value of estimated loss on vacated rental property, net of current portion.......... 523 273
Other....................................................................................... 668 418
----------- -----------
$ 9,900 $ 9,774
----------- -----------
----------- -----------
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
The Company has letters of credit of $3,668,000 outstanding at June 30,
1995.
Certain key employees are covered under severance plan agreements requiring
varying payouts upon termination under certain circumstances.
Certain claims, suits and complaints that arise in the ordinary course of
business have been filed or are pending against the Company. Management believes
that all such matters are either adequately reserved for or would not have a
material effect on the accompanying financial statements if disposed of
unfavorably.
14. EMPLOYEE STOCK OWNERSHIP TRUST
Treasure Chest had an employee stock ownership plan for the benefit of
employees. Under the terms of the plan, contributions were made to an employee
stock ownership trust ("ESOT") at the discretion of Treasure Chest's Board of
Directors. The ESOT agreement required the trust assets to be invested primarily
in common stock of Treasure Chest.
At June 30, 1993, the ESOT owned 4,557,501 shares of Treasure Chest common
stock or approximately 24% of Treasure Chest's issued and outstanding shares of
common stock.
In connection with the Acquisition, the ESOT note was repaid and all shares
of Treasure Chest common stock owned by the ESOT were purchased by BFP.
During the year ended June 30, 1993, the 42 days ended August 11, 1993 and
the 323 days ended June 30, 1994 , Treasure Chest contributed $651,000, $61,000
and $3,597,000, respectively, to the ESOT.
Interest income related to the above ESOT note receivable was $170,000 for
the year ended June 30, 1993 and $20,000 for the 42 days ended August 11, 1993.
F-18
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EXECUTIVE SUPPLEMENTAL RETIREMENT AND INCENTIVE PLANS
Treasure Chest had four executive supplemental retirement plans. Plans A and
B covered certain key management employees, and plans C and D covered certain
sales, management and technical employees. In connection with the termination of
plans C and D, approximately $2,300,000 was distributed to eligible plan
participants in July 1993.
Plans A and B provided for annual payments to each participant, upon
qualified retirement, ranging from $13,000 to $50,000 for life (15 years
certain). The benefits under each plan were to commence upon retirement from
Treasure Chest at age 65 after completion of ten years of service or at certain
other times as defined in the plans.
The liabilities under these plans were accrued over the participants'
remaining periods of employment so that, on the date of their retirement, the
then-present value of the annual future payments would have been accrued.
Retirement plan expenses of approximately $752,000, $167,000 and $565,000 were
accrued for the year ended June 30, 1993, the 42 days ended August 11, 1993 and
the 323 days ended June 30, 1994, respectively. Included in such expenses were
interest costs of approximately $240,000, $30,000 and $103,000 for year ended
June 30, 1993, the 42 days ended August 11, 1993 and the 323 days ended June 30,
1994, respectively.
In connection with these retirement plans, Treasure Chest purchased
transferable life insurance policies on each individual participant. Treasure
Chest was the beneficiary of these policies and charged the insurance premiums,
net of any increase in cash surrender value, to expense annually. There was no
net insurance premium charge for the 42 days ended August 11, 1993 or the 323
days ended June 30, 1994. The net insurance premium charge was $129,000 for the
year ended June 30, 1993.
Effective January 1, 1994, plans A and B were terminated and replaced with
new plans.
A new Retirement Income Plan, effective January 1, 1994, covers
substantially all employees. Contributions, made at the discretion of Treasure
Chest's Board of Directors on an annual basis, are credited to participants'
accounts based on weighting factors attributable to the participant's age and
compensation and vest at 20% per year over five years. Retirement plan expense
for the six-month period ending June 30, 1994 and for the year ended June 30,
1995 was $475,000 and $1,138,000, respectively.
Treasure Chest also established a Supplemental Executive Retirement Plan,
effective January 1, 1994, to provide benefits to certain management and highly
compensated employees. Amounts under this unfunded defined benefit plan vest at
10% per year beginning with the participants' sixth year of service. Benefits
are payable after the participants reach age 65. Participants may elect early
retirement benefits beginning at age 62 or after attaining 15 years of service
and 55 years of age.
The liability under this plan is accrued over the participant's remaining
periods of employment so that, on the date of their retirement, the then-present
value of the annual future payments will have been accrued. Retirement plan
expense was approximately $257,000 and $578,000 for the six months ended June
30, 1994 and the year ended June 30, 1995, which included interest costs of
approximately $158,000 and $352,000, respectively.
Included in other long-term liabilities in the accompanying balance sheet as
of June 30, 1994 and 1995, is $4,775,000 and $5,309,000, respectively,
representing the projected actuarial present value of the unfunded benefit
obligation related to this plan. As of June 30, 1994 and 1995, a discount rate
of 7.0% was used in determining this benefit obligation.
In connection with this retirement plan, Treasure Chest purchased
transferable life insurance policies on each individual participant. Treasure
Chest is the beneficiary of these policies and is charging the
F-19
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. EXECUTIVE SUPPLEMENTAL RETIREMENT AND INCENTIVE PLANS (CONTINUED)
insurance premiums, net of any increase in cash surrender value, to expense
annually. There was no net insurance premium charge for the six months ended
June 30, 1994. The net insurance charge was $50,000 for the year ended June 30,
1995.
In addition, Treasure Chest established a Deferred Compensation Plan,
effective February 1, 1994, in which certain management, highly compensated
employees and directors may defer up to 100% of their total compensation through
the date of their retirement. Included in long-term liabilities in the
accompanying balance sheet as of June 30, 1994 and 1995 is $94,000 and $829, 000
respectively, representing deferred compensation.
INCENTIVE PLANS. Treasure Chest has two incentive plans, a sales incentive
plan and an executive incentive plan. The sales incentive is paid to sales
representatives and managers and is determined based on a formula related to
operating results. The executive incentive plan covers key management employees
and is also based on a formula related to operating results. The amount charged
to expense under these plans was $2,888,000, $275,000, $3,739,000 and $4,894,000
for the year ended June 30, 1993, the 42 days ended August 11, 1993, the 323
days ended June 30, 1994 and the year ended June 30, 1995, respectively.
401(K) PLAN. Treasure Chest has established a 401(k) plan for eligible
employees. Treasure Chest recorded $779,000, $102,000, $758,000 and $1,208,000
in matching contributions for the year ended June 30, 1993, the 42 days ended
August 11, 1993, the 323 days ended June 30, 1994 and the year ended June 30,
1995, respectively.
16. RELATED-PARTY TRANSACTIONS
RELATED-PARTY LEASES. Treasure Chest leased its corporate headquarters and
six printing plants from an entity controlled by Treasure Chest's two major
individual stockholders prior to the Acquisition. Total payments under these
leases were $2,365,000 and $320,000 for the year ended June 30, 1993 and for the
42 days ended August 11, 1993, respectively.
Prior to the Acquisition, Treasure Chest leased press equipment located in
six printing plants from a partnership whose partners included certain Treasure
Chest management personnel. Total rent expense under these leases was $1,601,000
and $182,000 for the year ended June 30, 1993 and the 42 days ended August 11,
1993, respectively.
In connection with the Acquisition, notes (bearing interest at prime plus
1.50% to 1.75%) and accrued interest receivable from affiliates of $14,324,000
were collected.
F-20
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. OTHER EXPENSE, NET
Other expense, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED 42 DAYS ENDED
JUNE 30, AUGUST 11, 323 DAYS ENDED YEAR ENDED
1993 1993 JUNE 30, 1994 JUNE 30, 1995
----------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Idle plant carrying cost............................... $ 748 $ 13 $ 106
Idle equipment depreciation............................ 474 41 220 $ 89
(Gain) loss on disposition of property, plant and
equipment............................................ 870 (551) 397
Contribution to ESOT................................... 651 61 3,597
Office relocation...................................... 1,690
Other items, net....................................... 184 96 (646) 660
----------- ----- ------- -------
$ 2,927 $ 211 $ 2,726 $ 2,836
----------- ----- ------- -------
----------- ----- ------- -------
</TABLE>
18. STOCKHOLDERS' EQUITY
At June 30, 1994, Big Flower had 5,746,089 authorized shares of $.01 par
value Class A common stock, 3,104,807 authorized shares of $.01 par value Class
B common stock, 871,468 shares of $.01 par value Class C common stock and
612,344 authorized shares of $.01 par value Class D common stock. During the
year ended June 30, 1995, the number of authorized shares of Class A common
stock and Class C common stock was increased to 5,765,188 and 889,767,
respectively.
In connection with the Acquisition, on August 12, 1993, Big Flower received
$15,500,000 from the issuance and sale of 1,080,000 and 2,895,000 shares of
Class A common stock and Class B common stock at $5.00 and $3.49 per share,
respectively.
The preference and relative rights of Class A common stock, Class B common
stock, Class C common stock and Class D common stock are identical in all
respects. Holders of Class A common stock have one vote per share and holders of
Class B common stock, Class C common stock and Class D common stock have no
voting rights. Under certain conditions each Class B, Class C and Class D common
share may be converted, at the option of the holders, into one share of Class A
common stock. The Class A common stock has no conversion rights.
During the 323 days ended June 30, 1994, Big Flower's Board of Directors
approved Management Stock Subscription Agreements (the "Subscription
Agreements") whereby certain officers, management personnel and key employees
purchased 400,000 shares of Big Flower Class C common stock at a price of $5.00
per share. In conjunction with the terms of the Subscription Agreements, Big
Flower received $829,000 of 8% promissory notes due 7 years from the date of
issuance or upon the earlier termination of the employee's employment with the
Company which are secured by the stock issued. The promissory notes are included
in the accompanying balance sheet as a reduction of common stock subject to
redemption.
On April 27, 1994, Big Flower declared a 1.072472-for-one split of all
outstanding shares of Class A common stock, Class B common stock and Class C
common stock.
During the 323 days ended June 30, 1994, the Company repurchased 21,664
shares of Class C common stock.
In connection with the acquisition of KTB and Retail Graphics, the Company
issued 67,030 shares of Big Flower Class C common stock to the former
shareholders of KTB for $500,000.
F-21
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. STOCKHOLDERS' EQUITY (CONTINUED)
Also in connection with the acquisition of KTB and Retail Graphics, Big
Flower received $4,715,000 from the issuance and sale of 612,344 shares of Class
D common stock at $7.70 per share.
During the year ended June 30, 1995, the Company issued 98,242 additional
shares of Class C common stock to certain officers, management personnel and key
employees at a price of $7.46 per share and repurchased 111,429 shares of Class
C common stock. In connection with the issuance, the Company received $287,000
in 8% promissory notes with the terms described above.
19. COMMON STOCK SUBJECT TO REDEMPTION AND STOCK AWARD AND
INCENTIVE PLAN
Big Flower's Board of Directors approved the Big Flower Press Holdings, Inc.
1993 Stock Award and Incentive Plan (the "1993 Stock Plan") whereby options to
purchase up to 232,000 shares of Class C common stock were authorized. Options
under the 1993 Stock Plan expire in ten years, and become exercisable over five
years, at the rate of 20% per year. Shares of Class C Common Stock vest over
five years at the rate of 20% per year. The Class C common stock shares and
options are restricted as to their transfer for periods up to five years. Big
Flower also has the option ("Call Option") to repurchase Class C common stock
and exercisable Class C common stock options held by any management investor
terminated for any reason other than death, permanent disability, or retirement.
If a management investor, while in the employ of Big Flower dies or becomes
permanently disabled, the management investor or his permitted transferees have
the option ("Put Option") to require Big Flower to repurchase all or a portion
of their Class C common stock or options. The purchase price for each vested
share of Class C common stock or vested option repurchase pursuant to the
exercise of a Call or Put Option will be equal to fair value and fair value less
the option exercise price per share, respectively. The purchase price for each
unvested share of Class C common stock will be the lesser of fair market value
and cost. The 1993 Stock Plan was amended during the year ended June 30, 1995 to
increase the total number of shares available for issuance under the 1993 Stock
Plan to 889,767.
The excess of the market value of Class C common shares and options over the
related cost and exercise price at the time of issuance is recorded as unearned
compensation in a separate component of stockholders' equity and is amortized to
expense over the vesting period.
Changes for the 1993 Stock Plan for the 323 days ended June 30, 1994 and the
year ended June 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
-------------------- --------------------------
GRANT GRANT
SHARES PRICE SHARES PRICE
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period.............................. -- 236,249 $4.66
Granted......................................................... 232,000 $ 5.00 70,380 $7.46
Stock split..................................................... 16,814
Expired or canceled............................................. (12,565) $ 4.66 (25,752) $4.66 - $7.46
Outstanding at end of period.................................... 236,249 $ 4.66 280,877 $4.66 - $7.46
Exercisable at end of period.................................... -- 63,764 $4.66
</TABLE>
F-22
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. RECAPITALIZATION
Immediately prior to, or simultaneously with, the consummation of an initial
public offering of the Company's common stock, the outstanding shares of Class B
common stock, Class C common stock and Class D common stock (except for 869,346
shares of Class B common stock) will be converted into shares of common stock on
a share-for-share basis (with any fractional shares to be rounded up to one full
share), and the put option will terminate for vested shares of Class C common
stock. In addition, the Company will declare a 2-for-1 stock split, effected in
the form of a dividend, on its then outstanding shares, and the then outstanding
options to purchase shares of Class C common stock will become options to
purchase shares of common stock at the rate of two shares of common stock for
each share of Class C common stock underlying such options.
The pro forma balance sheet and earnings per share information give
retroactive effect to the recapitalization. Pro forma capital stock outstanding
at June 30, 1995 and September 30, 1995 consists of 8,934,495 shares of common
stock and 1,738,692 shares of Class B common stock. The pro forma weighted
average number of common and common equivalent shares for the 323 days ended
June 30, 1994, the year ended June 30, 1995, and the three months ended
September 30, 1994 and 1995 were 9,668,111, 10,831,957, 10,880,140 and
11,083,250, respectively.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Laser Tech Color, Inc.:
We have audited the accompanying balance sheets of Laser Tech Color, Inc. (a
Delaware corporation) as of December 31, 1993 and 1994, and the related
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Laser Tech Color, Inc. as of
December 31, 1993 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 25, 1995
F-24
<PAGE>
LASER TECH COLOR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1995
------------------------ -------------
ASSETS 1993 1994 (UNAUDITED)
----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................... $ 308,254 $ 41,690 $ 6,159
Accounts receivable, net of allowance for
doubtful accounts of $146,073 and $251,748 as
of December 31, 1993 and 1994, and $244,372 as
of September 30, 1995 (unaudited)............. 4,310,770 4,996,677 6,519,978
Other receivables............................... 320,623 127,188 191,983
Inventories..................................... 211,564 255,355 499,879
Prepaid expenses and other...................... 78,753 52,626 32,904
----------- ----------- -------------
Total current assets...................... 5,229,964 5,473,536 7,250,903
----------- ----------- -------------
PROPERTY AND EQUIPMENT:
Production equipment............................ 4,446,598 5,159,186 6,294,783
Office furniture and fixtures................... 379,602 424,519 464,088
Leasehold improvements.......................... 275,838 738,212 738,212
Vehicles........................................ 182,353 182,353 168,307
----------- ----------- -------------
5,284,391 6,504,270 7,665,390
Less--Accumulated depreciation and
amortization.................................. (2,415,541) (3,467,276) (4,333,794)
----------- ----------- -------------
Property and equipment, net............... 2,868,850 3,036,994 3,331,596
----------- ----------- -------------
DUE FROM AFFILIATES............................... 3,215,540 3,604,619 3,068,103
OTHER ASSETS...................................... 168,020 139,589 303,352
----------- ----------- -------------
Total assets.............................. $11,482,374 $12,254,738 $13,953,954
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 569,259 $ 685,238 $ 880,400
Notes payable to shareholder.................... 37,294 -- --
Short-term note payable......................... 2,515,000 2,240,000 2,600,000
Current maturities of long-term debt and capital
leases........................................ 742,555 674,602 702,604
Accrued liabilities............................. 511,084 729,505 1,111,171
----------- ----------- -------------
Total current liabilities................. 4,375,192 4,329,345 5,294,175
----------- ----------- -------------
LONG-TERM DEBT AND CAPITAL LEASES, less current
maturities...................................... 1,138,178 838,058 3,364,922
DEFERRED INCOME TAX LIABILITY..................... 655,178 655,178 655,178
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $.10; 150,000 shares
authorized, 50,000 shares issued.............. 5,000 5,000 5,000
Additional paid-in capital...................... 695,000 695,000 695,000
Retained earnings............................... 5,113,826 6,232,157 7,639,679
----------- ----------- -------------
5,813,826 6,932,157 8,339,679
Less--Treasury stock, 7,500 shares at cost at
December 31, 1993 and 1994, and 35,835 shares
at cost at September 30, 1995 (unaudited)..... (500,000) (500,000) (3,700,000)
----------- ----------- -------------
Total shareholders' equity................ 5,313,826 6,432,157 4,639,679
----------- ----------- -------------
Total liabilities and shareholders'
equity.................................. $11,482,374 $12,254,738 $13,953,954
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-25
<PAGE>
LASER TECH COLOR, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED NINE-MONTH PERIODS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------- ------------------------------
1992 1993 1994 1994 1995
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES.................................... $ 17,314,526 $ 15,604,506 $ 18,254,070 $ 12,758,639 $ 17,586,623
COST OF GOODS SOLD....................... 8,948,460 9,264,136 10,537,778 7,581,206 10,207,079
-------------- -------------- -------------- -------------- --------------
Gross margin........................... 8,366,066 6,340,370 7,716,292 5,177,433 7,379,544
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSE................................ 4,021,715 4,856,848 5,757,772 4,349,699 4,841,082
SPECIAL CHARGE........................... 461,399 -- -- -- --
-------------- -------------- -------------- -------------- --------------
Operating income....................... 3,882,952 1,483,522 1,958,520 827,734 2,538,462
-------------- -------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest expense....................... (249,426) (325,705) (413,874) (313,691) (412,014)
Other, net............................. 26,663 261,334 183,594 140,791 138,083
-------------- -------------- -------------- -------------- --------------
INCOME BEFORE PROVISION FOR INCOME
TAXES.................................. 3,660,189 1,419,151 1,728,240 654,834 2,264,531
-------------- -------------- -------------- -------------- --------------
PROVISION FOR INCOME TAXES............... 1,322,108 538,695 609,909 231,156 857,009
-------------- -------------- -------------- -------------- --------------
NET INCOME............................... $ 2,338,081 $ 880,456 $ 1,118,331 $ 423,678 $ 1,407,522
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
NET INCOME PER SHARE..................... $ 52.69 $ 20.72 $ 26.31 $ 9.97 $ 59.88
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING............................ 44,375 42,500 42,500 42,500 23,506
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
LASER TECH COLOR, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
--------- --------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1991............... 50,000 $ 5,000 $ 695,000 $ 1,895,289 $ -- $ 2,595,289
Purchase of treasury stock........... -- -- -- -- (500,000) (500,000)
Net income........................... -- -- -- 2,338,081 -- 2,338,081
--------- --------- ----------- ------------- -------------- --------------
BALANCE, December 31, 1992............... 50,000 5,000 695,000 4,233,370 (500,000) 4,433,370
Net income........................... -- -- -- 880,456 -- 880,456
--------- --------- ----------- ------------- -------------- --------------
BALANCE, December 31, 1993............... 50,000 5,000 695,000 5,113,826 (500,000) 5,313,826
Net income........................... -- -- -- 1,118,331 -- 1,118,331
--------- --------- ----------- ------------- -------------- --------------
BALANCE, December 31, 1994............... 50,000 5,000 695,000 6,232,157 (500,000) 6,432,157
Purchase of treasury stock
(unaudited)........................ -- -- -- -- (3,200,000) (3,200,000)
Net income (unaudited)............... -- -- -- 1,407,522 -- 1,407,522
--------- --------- ----------- ------------- -------------- --------------
BALANCE, September 30, 1995
(unaudited)............................ 50,000 $ 5,000 $ 695,000 $ 7,639,679 $ (3,700,000) $ 4,639,679
--------- --------- ----------- ------------- -------------- --------------
--------- --------- ----------- ------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
LASER TECH COLOR, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE-MONTH PERIODS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- -----------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 2,338,081 $ 880,456 $ 1,118,331 $ 423,678 $ 1,407,522
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities--
Depreciation and amortization........ 729,285 871,738 1,059,884 783,202 907,129
(Gain) loss on disposal of property
and equipment...................... -- 30,717 7,153 (2,737) (11,484)
Provision for deferred income
taxes.............................. 470,368 -- -- -- --
Interest due from affiliate.......... -- (150,000) (150,000) (112,500) --
Changes in assets and liabilities--
Accounts receivable................ 174,867 (1,272,227) (685,907) (129,072) (1,523,301)
Refundable federal income taxes.... 26,291 47,903 -- -- --
Other receivables.................. 120,508 (244,907) 193,435 179,311 (64,795)
Inventories........................ 68,957 (84,595) (43,791) (54,120) (244,524)
Prepaid expenses and other......... (22,997) 5,460 26,127 2,497 19,722
Accounts payable................... 32,400 5,821 115,979 112,589 195,162
Accrued liabilities................ 88,180 (65,564) 218,421 252,629 381,666
Payable to affiliate............... (286,807) (80,000) -- -- --
----------- ----------- ----------- ---------- -----------
Net cash provided by (used in)
operating activities........... 3,739,133 (55,198) 1,859,632 1,455,477 1,067,097
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in marketable
securities............................. (151,794) 151,794 -- -- --
Net purchases of property and
equipment.............................. (221,637) (679,517) (780,776) (669,308) (1,190,247)
Advances from (to) affiliate............. (3,065,540) -- (239,079) (147,662) 536,516
Increase in other assets................. (45,241) (102,272) (43,813) (18,694) (163,763)
----------- ----------- ----------- ---------- -----------
Net cash used in investing
activities..................... (3,484,212) (629,995) (1,063,668) (835,664) (817,494)
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable to
shareholder............................ -- -- (37,294) -- --
Net borrowings on notes payable and long-
term debt.............................. 685,744 1,151,263 -- -- 1,190,630
Payments on notes payable, long-term
debt, and capital leases............... (960,277) (516,430) (1,025,234) (800,914) (1,375,764)
Purchase of treasury stock............... -- -- -- -- (100,000)
----------- ----------- ----------- ---------- -----------
Net cash provided by (used in)
financing activities........... (274,533) 634,833 (1,062,528) (800,914) (285,134)
----------- ----------- ----------- ---------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS.............................. (19,612) (50,360) (266,564) (181,101) (35,531)
CASH AND CASH EQUIVALENTS, beginning of
period................................... 378,226 358,614 308,254 308,254 41,690
----------- ----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period... $ 358,614 $ 308,254 $ 41,690 $ 127,153 $ 6,159
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-28
<PAGE>
LASER TECH COLOR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993, AND 1994,
AND SEPTEMBER 30, 1994 AND 1995
(DATA FOR SEPTEMBER 30, 1994 AND 1995, IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS:
Laser Tech Color, Inc. (the "Company") was originally incorporated in
Oklahoma to operate as a color separation company. In December 1991, Laser Tech
Color, Inc. was reincorporated as a Delaware corporation. As a result of the
reincorporation, par value of common stock was reduced from $1 per share to $.10
per share.
The balance sheet as of September 30, 1995, and the related statements of
income, shareholders' equity, and cash flows for the nine months ended September
30, 1994 and 1995, have been prepared by the Company without audit. In the
opinion of management, all necessary adjustments (which include only normal
recurring adjustments) to present fairly the financial position, results of
operations, and cash flows of the Company for the interim periods have been
made. The operating results for the interim period are not necessarily
indicative of the results to be expected for a full year. Certain information
and footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been omitted
for the interim periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
All highly liquid investments with original maturities of three months or
less are considered to be cash equivalents.
INVENTORIES
Inventories consist primarily of raw materials used in the separation
process and work-in-process (materials, labor, and overhead) on unbilled jobs
for which substantive performance has not occurred. Inventories are valued
principally at the lower of first-in, first-out (FIFO) cost or market.
At December 31, 1993 and 1994, and September 30, 1995 (unaudited),
inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1993 1994 1995
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials..................................... $ 27,103 $ 53,082 $ 56,430
Work-in-process................................... 184,461 202,273 443,449
-------- -------- -------------
$211,564 $255,355 $499,879
-------- -------- -------------
-------- -------- -------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Significant improvements and
additions to existing property and equipment are capitalized, whereas
expenditures for maintenance and repairs which do
F-29
<PAGE>
LASER TECH COLOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994,
AND SEPTEMBER 30, 1994 AND 1995
(DATA FOR SEPTEMBER 30, 1994 AND 1995, IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
not extend the useful lives of the applicable assets are charged to expense as
incurred. Depreciation is provided on a straight-line basis over estimated
useful lives as follows:
<TABLE>
<CAPTION>
ASSET TYPE YEARS
- ------------------------------------------------------------------------------------------------ -----------
<S> <C>
Production equipment............................................................................ 2-10
Office furniture and fixtures................................................................... 3-10
Leasehold improvements.......................................................................... 7
Vehicles........................................................................................ 5
</TABLE>
INCOME TAXES
The Company provides for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 based on income reported for financial
reporting purposes.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED NINE-MONTH PERIODS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- --------------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash paid for interest............................... $ 249,426 $ 175,704 $ 394,661 $ 246,191 $ 259,125
Cash paid for income taxes........................... 721,775 545,161 453,198 93,000 867,908
Noncash investing and financing activities--
Purchase of treasury stock in exchange for a note
payable............................................ 500,000 -- -- -- 3,100,000
Capitalized lease transactions related to purchases
of equipment..................................... 487,652 639,261 382,161 382,161 --
Purchase of equipment using prior year's
deposits......................................... -- -- 72,244 -- --
</TABLE>
NET INCOME PER SHARE
Net income per share calculations are based on the weighted average number
of shares outstanding during the period.
SALES
Sales are primarily recorded as products are completed and services are
rendered. Revenues on certain longer term contracts meeting defined conditions
are recognized as the work is performed. No revenue is recognized until
substantive performance has occurred. Such revenues include costs incurred plus
a portion of estimated profits based on the relationship of costs incurred to
total estimated costs. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determinable.
F-30
<PAGE>
LASER TECH COLOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994,
AND SEPTEMBER 30, 1994 AND 1995
(DATA FOR SEPTEMBER 30, 1994 AND 1995, IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, repairs, and depreciation. Selling, general, and administrative costs
are charged to expense as incurred. Changes in job performance, job conditions,
and estimated profitability may result in revisions to costs and income, which
are recognized in the period in which the revisions are determined.
Included in accounts receivable at December 31, 1993 and 1994, and September
30, 1995, (unaudited) are:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1993 1994 1995
------------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Receivables for completed products or contracts.......... $ 4,104,328 $ 4,902,921 $ 6,269,958
Unbilled receivables for contracts in progress........... 206,442 93,756 250,020
------------- ------------- --------------
$ 4,310,770 $ 4,996,677 $ 6,519,978
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
Sales for the years ended December 31, 1992, 1993, and 1994, included sales
to customers which individually represented more than 10% of total sales. Sales
to these customers totaled $4,801,778, $3,720,982, $2,137,060, and $3,994,698
during 1992, 1993, 1994, and the nine-month period ended September 30, 1995
(unaudited).
INTEREST INCOME
Interest income of $9,306, $157,194, and $150,000 for the years ended
December 31, 1992, 1993, and 1994 and $112,500 and $94,483 for the nine-month
periods ended September 30, 1994 (unaudited) and 1995 (unaudited) is included in
other, net in the accompanying statements of income.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company's customer base consists of customers in a wide range of industries
including advertising agencies and trading card companies that are located
throughout the United States. During 1992, the Company's largest customer filed
for bankruptcy. Consequently, the Company wrote off the related account
receivable of $461,399. The Special Charge is included as a separate line item
in the statement of income.
F-31
<PAGE>
LASER TECH COLOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994,
AND SEPTEMBER 30, 1994 AND 1995
(DATA FOR SEPTEMBER 30, 1994 AND 1995, IS UNAUDITED)
3. SHORT-TERM NOTES PAYABLE:
At December 31, 1993 and 1994, and September 30, 1995 (unaudited),
short-term notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1993 1994 1995
------------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Note payable under a revolving line of
credit....................................... $ 2,515,000 $ 2,240,000 $ 2,600,000
Note payable to a shareholder; interest payable
monthly at 8% per annum...................... 37,294 -- --
------------- ------------- --------------
$ 2,552,294 $ 2,240,000 $ 2,600,000
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
Under the revolving line of credit (the "Line of Credit"), interest is
payable monthly at prime plus 1% (9.5% at December 31, 1994). The Line of Credit
was executed in conjunction with a $2,000,000 line of credit obtained by an
affiliate of the Company and guaranteed by the Company. The average balance of
the Line of Credit during fiscal 1994 was approximately $2,371,250, and interest
expense thereon was approximately $197,537, at a weighted average interest rate
of 8.33%. During fiscal 1993, the average balance, interest expense thereon, and
weighted average interest rate related to the Line of Credit were approximately
$1,878,000, $116,000, and 6%. The amount available under the Line of Credit was
$635,000 at December 31, 1994. The Line of Credit is guaranteed by an affiliate
of the Company and a shareholder of the Company. The Line of Credit is secured
by accounts receivable, inventory, and equipment.
Under the Line of Credit, the Company must maintain a fixed charge coverage
ratio of 1.75 to 1 and a current maturities ratio of 2 to 1 on a quarterly
basis. Additionally, the Company's quarterly nonsubordinated debt to worth ratio
may not exceed 3 to 1.
In April 1995, the Line of Credit was modified to extend the maturity to
April 1996. Borrowings available under the Line of Credit were increased from
$2,875,000 at December 31, 1994, to $3,000,000 at September 30, 1995. Interest
is payable quarterly at prime plus 1.75% (10.5% at September 30, 1995). The Line
of Credit obtained by an affiliate of the Company and guaranteed by the Company
was increased from $2 million to $5 million. The amount available under the Line
of Credit was $400,000 at September 30, 1995.
F-32
<PAGE>
LASER TECH COLOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994,
AND SEPTEMBER 30, 1994 AND 1995
(DATA FOR SEPTEMBER 30, 1994 AND 1995, IS UNAUDITED)
4. LONG-TERM DEBT AND CAPITAL LEASES:
Long-term debt and capital leases consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1993 1994 1995
------------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Note payable in equal monthly principal installments, plus
interest, to 1995 at 12.65%, secured by an automobile............ $ 14,302 $ 5,623 $ 22
Note payable in equal monthly principal installments, plus
interest, to 1997 at 9.5%, secured by an automobile.............. 60,787 46,238 --
Note payable in equal monthly principal installments, plus
interest, to 1996 at 9.5%, secured by equipment.................. 86,107 55,317 6,834
Note payable in equal monthly principal installments, plus
interest, to 1997 at 7.89%, secured by an automobile............. 37,828 29,659 23,100
Note payable in equal monthly principal installments, plus
interest, to 1996 at 14%, secured by equipment................... 6,525 3,764 1,422
Note payable in equal quarterly principal installments, plus
interest, to 1999 at 9.75%, secured by equipment................. -- -- 726,799
Notes payable to former shareholders............................... -- -- 2,372,000
Capital lease obligations (see Note 5)............................. 1,675,184 1,372,059 937,349
------------- ------------- --------------
1,880,733 1,512,660 4,067,526
Less--Current maturities........................................... (742,555) (674,602) (702,604)
------------- ------------- --------------
Long-term debt and capital leases.................................. $ 1,138,178 $ 838,058 $ 3,364,922
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
Long-term debt and capital lease maturities at December 31, 1994, are as
follows:
<TABLE>
<S> <C>
1995................................................................... $ 674,602
1996................................................................... 453,283
1997................................................................... 345,147
1998................................................................... 39,628
1999................................................................... --
----------
Total.................................................................. $1,512,660
----------
----------
</TABLE>
In March 1995, the Company purchased 28,335 shares of common stock for $3.2
million, of which $100,000 was paid in cash and the remaining $3.1 million was
financed through promissory notes to the shareholders. The notes bear interest
at prime plus 1%, are unsecured, and mature on March 31, 1999. The Company
elected to make principal payments on the notes in the amount of $728,000 during
the nine months ended September 30, 1995.
In March 1995, the Company borrowed approximately $830,000 to purchase
certain equipment. The loan requires the Company to make quarterly principal
payments of approximately $52,000. The loan bears interest at prime plus 1%.
F-33
<PAGE>
LASER TECH COLOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994,
AND SEPTEMBER 30, 1994 AND 1995
(DATA FOR SEPTEMBER 30, 1994 AND 1995, IS UNAUDITED)
5. LEASE OBLIGATIONS:
The Company has entered into various noncancelable operating lease
agreements for equipment and office space through 1999. Rent expense was
$310,485, $719,415, $866,954, and $688,572 in 1992, 1993, 1994, and for the
nine-month period ended September 30, 1995 (unaudited). Future minimum rentals
for these leases at December 31, 1994, are as follows:
<TABLE>
<S> <C>
1995..................................................................... $ 819,170
1996..................................................................... 775,860
1997..................................................................... 452,755
1998..................................................................... 411,001
1999..................................................................... 261,288
Thereafter............................................................... --
</TABLE>
The Company has also entered into various capital lease agreements for
certain equipment. Future minimum payments for these leases at December 31,
1994, are as follows:
<TABLE>
<S> <C>
1995................................................................... $ 706,196
1996................................................................... 504,251
1997................................................................... 337,679
1998................................................................... 40,488
1999 and thereafter.................................................... --
----------
Total minimum payments................................................. 1,588,614
Less--Interest......................................................... 216,555
----------
Present value of lease payments (including maturities of $586,376 in
1995)................................................................ $1,372,059
----------
----------
</TABLE>
Assets recorded under capital leases are included in property and equipment
and consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ SEPTEMBER 30,
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C>
Production equipment............................................. $ 3,079,678 $ 3,469,005 $ 3,469,005
Accumulated depreciation......................................... (1,457,651) (2,069,461) (2,519,570)
-------------- -------------- --------------
$ 1,622,027 $ 1,399,544 $ 949,435
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
6. RELATED-PARTY TRANSACTIONS:
Included in receivables at December 31, 1993 and 1994, and September 30,
1995 (unaudited) are approximately $73,000, $19,000, and $192,000 due from
companies owned by shareholders as a result of sales made during 1993, 1994, and
the nine-month period ended September 30, 1995 (unaudited), of approximately
$259,000, $47,000, and $180,000.
Included in due from affiliates are a $1,500,000 note receivable from a
company owned by the shareholders of the Company and $150,000 and $300,000 in
accrued interest income at December 31,
F-34
<PAGE>
LASER TECH COLOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994,
AND SEPTEMBER 30, 1994 AND 1995
(DATA FOR SEPTEMBER 30, 1994 AND 1995, IS UNAUDITED)
6. RELATED-PARTY TRANSACTIONS: (CONTINUED)
1993 and 1994. The $150,000 in interest income for 1993 and 1994 is included in
other, net in the accompanying statements of income. The note bears interest at
prime plus 4% and matures on October 12, 1996. Included in due from affiliates
is a $1,383,436 advance to the same company. Also included in due from
affiliates are $182,000 and $421,183 in noninterest-bearing cash advances due
from certain shareholders of the Company at December 31, 1993 and 1994.
During the nine-month period ended September 30, 1995, the Company received
$728,000 in partial payments on the note receivable from the Company's
affiliate.
For the years ended December 31, 1992, 1993, 1994, and the nine-month period
ended September 30, 1995 (unaudited), the Company paid $102,024, $222,372,
$222,072, and $47,500 to a shareholder of the Company in conjunction with
certain consulting services.
7. INCOME TAXES:
The deferred federal income tax provisions for 1993, 1994, and the
nine-month period ended September 30, 1995, were immaterial. The federal income
tax provisions are summarized as follows:
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIODS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1994 1995
------------- ----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision computed at statutory rate.......... $ 1,244,464 $ 482,511 $ 587,602 $ 222,644 $ 769,941
State taxes................................... 103,673 76,081 31,650 29,468 103,003
Other......................................... (26,029) (19,897) (9,343) (20,956) (15,935)
------------- ----------- ----------- ----------- -----------
Provision for income taxes.................... $ 1,322,108 $ 538,695 $ 609,909 $ 231,156 $ 857,009
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------
</TABLE>
The current and deferred portions of the income tax provisions are as
follows:
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIODS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1994 1995
------------- ----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current....................................... $ 851,740 $ 538,695 $ 609,909 $ 231,156 $ 857,009
Deferred...................................... 470,368 -- -- -- --
------------- ----------- ----------- ----------- -----------
$ 1,322,108 $ 538,695 $ 609,909 $ 231,156 $ 857,009
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------
</TABLE>
F-35
<PAGE>
LASER TECH COLOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994,
AND SEPTEMBER 30, 1994 AND 1995
(DATA FOR SEPTEMBER 30, 1994 AND 1995, IS UNAUDITED)
7. INCOME TAXES: (CONTINUED)
Temporary differences and carryforwards which have given rise to a
significant portion of net deferred income tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1993 1994 1995
------------ ------------ --------------
<S> <C> <C> <C>
(UNAUDITED)
--------------
<CAPTION>
<S> <C> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts.................................... $ 49,665 $ 85,594 $ 83,086
Accrued vacation expense........................................... 27,280 29,261 29,261
Other.............................................................. 43,279 29,687 29,687
------------ ------------ --------------
120,224 144,542 142,034
Less--Valuation allowance............................................ (120,224) (144,542) (142,034)
------------ ------------ --------------
Net deferred income tax asset........................................ -- -- --
Amount recoverable from affiliate not an asset for tax purposes...... (470,368) (470,368) (470,368)
Depreciation and capital lease payments.............................. (86,794) (125,392) (150,948)
Unbilled revenue..................................................... (45,849) (16,043) (28,952)
Other deferred tax liabilities....................................... (52,167) (43,375) (4,910)
------------ ------------ --------------
Net deferred income tax liability.................................... $ (655,178) $ (655,178) $ (655,178)
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
8. EMPLOYEE BENEFIT PLAN:
During 1993, the Company established a 401(k) plan (the "Plan") for eligible
employees, as defined. Under the Plan, eligible employees may contribute a
portion of their compensation to the Plan under Internal Revenue Code Section
401(k). The Company may make discretionary matching contributions to the Plan;
however, none were made during 1993, 1994, and the nine-month period ended
September 30, 1995.
9. SUBSEQUENT EVENT:
The shareholder of the Company is in the process of negotiating the sale of
the Company to a third party.
F-36
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 9
The Company................................... 12
Recent Developments........................... 12
Dilution...................................... 13
Dividend Policy............................... 14
Use of Proceeds............................... 14
Bank Refinancing.............................. 15
Capitalization................................ 16
Selected Financial Data....................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 19
Business...................................... 25
Management.................................... 33
Certain Relationships and Related
Transactions................................ 41
Ownership of Common Stock and Selling
Stockholders................................ 42
Shares Eligible for Future Sale............... 44
Recapitalization.............................. 45
Description of Capital Stock.................. 46
Underwriting.................................. 50
Available Information......................... 52
Legal Matters................................. 52
Experts....................................... 53
Index to Pro Forma Financial Data............. P-1
Index to Consolidated Financial Statements.... F-1
</TABLE>
UNTIL DECEMBER 16, 1995 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
6,724,688 SHARES
BIG FLOWER PRESS HOLDINGS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
[LOGO]
--------------------
GOLDMAN, SACHS & CO.
BT SECURITIES CORPORATION
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus Supplement or the Prospectus and, if given or made, such other
information and representations must not be relied upon as having been
authorized by Big Flower. Neither the delivery of this Prospectus Supplement or
the Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of Big
Flower since the date of the Prospectus Supplement or the Prospectus or that the
information contained in this Prospectus Supplement or the Prospectus is correct
as of any time subsequent to its date. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the registered securities to which they relate.
This Prospectus Supplement and the Prospectus do not constitute an offer to sell
or a solicitation of an offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful.
__________
TABLE OF CONTENTS
__________
PROSPECTUS SUPPLEMENT
PAGE
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
PROSPECTUS
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Recent Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Bank Refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Ownership of Common Stock and
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . . . . .44
Recapitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . .46
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Index to Pro Forma Financial Data. . . . . . . . . . . . . . . . . . . . . . P-1
Index to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
195,000 SHARES
BIG FLOWER PRESS HOLDINGS, INC.
COMMON STOCK
----------------
PROSPECTUS SUPPLEMENT
----------------
OCTOBER __, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION STATEMENT
ON
FORM S-3
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
This information was previously filed by Big Flower pursuant to its
Registration Statement on Form S-1 (File #33-97082).
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
This information was previously filed by Big Flower pursuant to its
Registration Statement on Form S-1 (File #33-97082).
ITEM 16. EXHIBITS.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of May 10, 1993, by and
among Robert E. Milhous, The Robert E. Milhous Trust, Paul B.
Milhous, The Paul Ballard Milhous Trust, Treasure Chest
Advertising Company, Inc., Big Flower Press, Inc. and TCA Merger
Corp.(1)
2.2 Amendment to Agreement and Plan of Merger, dated as of July 30,
1993, by and among Robert E. Milhous, The Robert E. Milhous
Trust, Paul B. Milhous, The Paul Ballard Milhous Trust, Treasure
Chest Advertising Company, Inc., Big Flower Press, Inc. and TCA
Merger Corp.(2)
2.3 Stock Purchase Agreement, dated as of January 14, 1994, by and
among BFP Holdings Corp., Lee A. Thompson and John G. Brown.(3)
2.4 Stock Purchase Agreement, dated as of January 14, 1994, by and
among BFP Holdings Corp., Gary W. Pestello and Thomas G.
Hansen.(3)
2.5 Asset Purchase Agreement, dated as of January 14, 1994, by and
between BFP Holdings Corp., and D. Enterprises, Inc.(3)
2.6 Assignment and Assumption Agreement, dated April 5, 1994, by and
between BFP Holdings Corp. and Treasure Chest Advertising
Company, Inc.(5)
2.7 Purchase and Sale Agreement, dated as of March 16, 1994, by and
among BFP Holdings Corp., KTB Associates, Inc., Tomsons
Properties, TKB Properties, Thomas Clemente, Brian Clemente and
Joseph Clemente.(4)
2.8 Stock Purchase Agreement, dated as of November 27, 1995, between
Big Flower Press, Inc. and Brian Mason.(6)
2.9 Agreement and Plan of Merger dated February 1, 1996, among Big
Flower Press Holdings, Inc., WTI Acquisition Corp., and Webcraft
Technologies, Inc.(6)
2.10 Purchase Agreement, dated as of October 1, 1996, among Treasure
Chest Advertising Company, Inc., Park Properties and the
shareholders of PrintCo, Inc. named therein.(8)
II-1
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.11 Agreement and Plan of Merger, dated as of July 31, 1996 by and
among the Registrant, Scanforms, Inc. and Scanforms Acquisition
Corp.(9)
2.12 Stock Purchase Agreement, dated as of October 1, 1996, among
Laser Tech Color, Inc. and the stockholders of Pacific Color
Connection, Inc. named therein.(8)
4.1 Restated Certificate of Incorporation of Big Flower Press
Holdings, Inc. filed on December 19, 1995.(6)
4.2 Certificate of Designation Preferences and Rights of Series A
Junior Preferred Stock of Big Press Holdings, Inc.(6)
4.3 Amended and Restated Bylaws of Big Flower Press Holdings, Inc.(6)
4.4 Rights Agreement dated November 28, 1995, between Big Flower
Press Holdings, Inc. and the Bank of New York, as rights
agent.(6)
4.5 Form of Common Stock Certificate.(7)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.(7)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Grant Thornton LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom (included in
their opinion filed as Exhibit 5)(7)
24.1 Power of Attorney (included on the signature page on page II-4
hereof).
____________
(footnotes)
(1) Incorporated by reference to TCA Holdings Corp., Form S-1, filed on May 26,
1993 (File # 33-63392).
(2) Incorporated by reference to Big Flower Press, Inc., Amendment No. 3 to the
Form S-1, filed on August 4, 1993 (File # 33-63392).
(3) Incorporated by reference to Big Flower Press, Inc., Form 8-K, dated as of
January 24, 1994 (File # 33-63392).
(4) Incorporated by reference to Big Flower Press, Inc., Form 8-K, dated as of
April 27, 1994 (File # 33-63392).
(5) Incorporated by reference to BFP Holdings Corp., Form S-1, filed on May 26,
1994 (File # 33-79406).
(6) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-Q, for
the quarterly period ended December 31, 1995 (File # 1-14084).
II-2
<PAGE>
(7) Previously filed.
(8) Incorporated by reference to Big Flower Press Holdings, Inc., Form 8-K,
filed October 11, 1996 (File #1-14084).
(9) Incorporated by reference to Annex I to the Proxy Statement/Prospectus
dated September 6, 1996, forming part of the Registration Statement on Form
S-4 (File No. 333-11225).
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this 18 day of
October 1996.
BIG FLOWER PRESS HOLDINGS, INC.
By:
/s/ R. Theodore Ammon
-----------------------
R. Theodore Ammon
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes R. Theodore Ammon and/or Mark A. Angelson with full
power of substitution, to file one or more amendments, including post-effective
amendments, to this registration statement, which amendments may make such
changes as R. Theodore Ammon and/or Mark A. Angelson deems appropriate, and each
person whose signature appears below, individually and in each capacity stated
below, hereby appoints R. Theodore Ammon and/or Mark A. Angelson acting
individually, with full power of substitution, as Attorney-in-Fact to execute
his name and on his behalf to file any such amendments to this registration
statement.
SIGNATURE TITLE DATE
/s/ R. Theodore Ammon Chairman of the Board October 18, 1996
_____________________________ (Principal Executive
R. Theodore Ammon Officer; Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Leon D. Black Director October 18, 1996
______________________________
Leon D. Black
/s/ Peter G. Diamandis
______________________________ Director October 18, 1996
Peter G. Diamandis
/s/ Joan D. Manley
______________________________ Director October 18, 1996
Joan D. Manley
/s/ Newton N. Minow
______________________________ Director October 18, 1996
Newton N. Minow
/s/ Edward T. Reilly
______________________________ Director October 18, 1996
Edward T. Reilly
/s/ Sanford G. Scheller
______________________________ Director October 18, 1996
Sanford G. Scheller
/s/ Edward M. Yorke
______________________________ Director October 18, 1996
Edward M. Yorke
II-4
<PAGE>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ------ ------------------- ------
2.1 Agreement and Plan of Merger, dated as of May 10, 1993, by
and among Robert E. Milhous, The Robert E. Milhous Trust,
Paul B. Milhous, The Paul Ballard Milhous Trust,
Treasure Chest Advertising Company, Inc., Big Flower Press,
Inc. and TCA Merger Corp.(1) 2.2 Amendment to Agreement and
Plan of Merger, dated as of July 30, 1993, by and among
Robert E. Milhous, The Robert E. Milhous Trust,
Paul B. Milhous, The Paul Ballard Milhous Trust, Treasure
Chest Advertising Company, Inc., Big Flower Press, Inc. and
TCA Merger Corp.(2)
2.3 Stock Purchase Agreement, dated as of January 14, 1994, by
and among BFP Holdings Corp., Lee A. Thompson and John G.
Brown.(3)
2.4 Stock Purchase Agreement, dated as of January 14, 1994, by
and among BFP Holdings Corp., Gary W. Pestello and Thomas G.
Hansen.(3)
2.5 Asset Purchase Agreement, dated as of January 14, 1994, by
and between BFP Holdings Corp., and D. Enterprises, Inc.(3)
2.6 Assignment and Assumption Agreement, dated April 5, 1994, by
and between BFP Holdings Corp. and Treasure Chest
Advertising Company, Inc.(5)
2.7 Purchase and Sale Agreement, dated as of March 16, 1994, by
and among BFP Holdings Corp., KTB Associates, Inc., Tomsons
Properties, TKB Properties, Thomas Clemente, Brian Clemente
and Joseph Clemente.(4)
2.8 Stock Purchase Agreement, dated as of November 27, 1995,
between Big Flower Press, Inc. and Brian Mason.(6)
2.9 Agreement and Plan of Merger dated February 1, 1996, among
Big Flower Press Holdings, Inc., WTI Acquisition Corp., and
Webcraft Technologies, Inc.(6)
2.10 Purchase Agreement, dated as of October 1, 1996, among
Treasure Chest Advertising Company, Inc., Park Properties
and the shareholders of PrintCo, Inc. named therein.(8)
2.11 Agreement and Plan of Merger, dated as of July 31, 1996 by
and among the Registrant, Scanforms, Inc. and Scanforms
Acquisition Corp.(9)
2.12 Stock Purchase Agreement, dated as of October 1, 1996, among
Laser Tech Color, Inc. and the stockholders of Pacific Color
Connection, Inc. named therein.(8)
4.1 Restated Certificate of Incorporation of Big Flower Press
Holdings, Inc. filed on December 19, 1995.(6)
4.2 Certificate of Designation Preferences and Rights of Series
A Junior Preferred Stock of Big Press Holdings, Inc.(6)
4.3 Amended and Restated Bylaws of Big Flower Press Holdings,
Inc.(6)
II-5
<PAGE>
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ------ ------------------- ------
4.4 Rights Agreement dated November 28, 1995, between Big Flower
Press Holdings, Inc. and the Bank of New York, as rights
agent.(6)
4.5 Form of Common Stock Certificate.(7)
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.(7)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Grant Thornton LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Skadden, Arps, Slate, Meagher & Flom (included in
their opinion filed as Exhibit 5)(7)
24.1 Power of Attorney (included on the signature page on page
II-4 hereof).
____________
(footnotes)
(1) Incorporated by reference to TCA Holdings Corp., Form S-1, filed on
May 26, 1993 (File # 33-63392).
(2) Incorporated by reference to Big Flower Press, Inc., Amendment No. 3
to the Form S-1, filed on August 4, 1993 (File # 33-63392).
(3) Incorporated by reference to Big Flower Press, Inc., Form 8-K, dated
as of January 24, 1994 (File # 33-63392).
(4) Incorporated by reference to Big Flower Press, Inc., Form 8-K, dated
as of April 27, 1994 (File # 33-63392).
(5) Incorporated by reference to BFP Holdings Corp., Form S-1, filed on
May 26, 1994 (File # 33-79406).
(6) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-
Q, for the quarterly period ended December 31, 1995 (File # 1-14084).
(7) Previously filed.
(8) Incorporated by reference to Big Flower Press Holdings, Inc., Form 8-
K, filed October 11, 1996 (File #1-14084).
(9) Incorporated by reference to Annex I to the Proxy Statement/Prospectus
dated September 6, 1996, forming part of the Registration Statement on
Form S-4 (File No. 333-11225).
II-6
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 on Form S-3 to Form S-1 to the Registration Statement of Big Flower
Press Holdings, Inc. of our reports dated May 3, 1996, appearing in the
Transition Report on Form 10-K of Big Flower Press Holdings, Inc. for the
transition period from July 1, 1995 to December 31, 1995, and to the
reference to us under the heading "Experts" in the Prospectus, which is part
of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Baltimore, Maryland
October 22, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Post-Effective Amendment No. 1 on Form S-3 to Form
S-1 No. 33-97082) and related Prospectus of Big Flower Press Holdings, Inc.
for the registration of 195,000 shares of its common stock and to the
incorporation by reference therein of our report dated February 23, 1996 with
respect to the consolidated financial statements of Webcraft Technologies,
Inc. at December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995 included in the Big Flower Press Holdings,
Inc. Current Report on Form 8-K dated March 14, 1996 filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Princeton, New Jersey
October 22, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated November 24, 1995 accompanying the
consolidated financial statements and consolidated financial statement
schedule of Scanforms, Inc. and Subsidiary appearing in the Annual Report on
Form 10-K of Scanforms, Inc. for the year ended October 1, 1995. We consent
to incorporation by reference of the aforementioned reports in Registration
Statement No. 33-32152 of Big Flower Press Holdings, Inc. on Form S-8, and in
a Registration Statement on Form S-8 to be filed on October 22, 1996, and the
Post-Effective Amendment No. 1 on Form S-3 to Form S-1 in Registration
Statement No. 33-97082, and to the use of our name as it appears under the
caption "Experts."
/s/ GRANT THORNTON LLP
- -------------------------------
Grant Thornton LLP
Philadelphia, Pennsylvania
October 22, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Post-Effective Amendment No. 1 on Form S-3 to Big Flower
Press Holdings, Inc.'s Form S-1 of our report dated February 23, 1996 (except
with respect to the matter discussed in Note 10, as to which the date is
June 6, 1996) included in Big Flower Press Holdings, Inc.'s S-4 (Registration
Statement No. 333-11225) and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
October 22, 1996
