<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_______________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
_______________________
(MARK ONE)
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended ___________________
OR
/ x / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from July 1, 1995 to December 31, 1995
Commission file number 1-14084
_______________________
BIG FLOWER PRESS HOLDINGS, INC.
Formerly known as BFP Holdings Corp.
(Exact name of registrant as specified in its charter)
Delaware 13-376-8322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
3 East 54th Street
New York, New York 10022 (212) 521-1600
(Address of principal executive offices) (Registrant's
telephone number)
_______________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $0.01 par value New York Stock Exchange
Series A Junior Preferred Stock New York Stock Exchange
_______________________
Securities registered pursuant to Section 12(g) of the Act: None
_______________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates on May
31, 1996 was $73,258,335. For purposes of the foregoing calculation only, all
directors and executive officers of the registrant have been deemed affiliates.
As of May 31, 1996, there were 14,715,745 shares of the registrant's Common
Stock, par value $0.01 per share, and 1,738,692 shares of the registrant's Class
B Common Stock, par value $0.01 per share, outstanding.
Documents Incorporated By Reference: None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
THIS TRANSITION REPORT ON FORM 10-K (THE "REPORT") CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933.
DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN ITEMS 1,
3, AND 7 HEREOF, AS WELL AS WITHIN THIS REPORT GENERALLY. IN ADDITION, WHEN
USED IN THIS REPORT, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS
IN THE FUTURE COULD DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-
LOOKING STATEMENTS AS A RESULT OF [FLUCTUATIONS IN THE COST OF PAPER AND OTHER
RAW MATERIALS USED BY THE COMPANY, CHANGES IN THE ADVERTISING AND PRINTING
MARKETS, THE FINANCIAL CONDITIONS OF THE COMPANY'S CUSTOMERS, THE GENERAL
CONDITION OF THE UNITED STATES ECONOMY,] AND THE MATTERS SET FORTH IN THE REPORT
GENERALLY. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE
MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
GENERAL
Big Flower Press Holdings, Inc. ("Big Flower," and together with its
subsidiaries, 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 publishes 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-press and conventional graphics services. Webcraft is a
specialty printer of personalized direct mail and other products, and the
Company believes Webcraft is the largest in-line commercial printer in the
United States. Although each of the Company's operating units provides a
variety of services to its customers, the majority of each operating unit's
business is comprised of providing advertising related services.
Treasure Chest, established in 1967, was one of the first commercial
printers in the United States specializing in advertising circulars. 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.
1
<PAGE>
In November 1995, the Company acquired Laser Tech, a leading provider of
electronic pre-press services to advertising agencies, retailers, magazine
publishers, and consumer products companies. Laser Tech provides a full range
of electronic pre-press 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 personalized direct mail,
fragrance samplers, promotional stamps and scratch-off lottery tickets.
Webcraft's non-specialty products include enhanced envelopes and government
forms.
The Company executed an agreement in principle on June 17, 1996 to
acquire Scanforms Inc. ("Scanforms"), a full-service direct mail advertising
company based in Bristol, Pennsylvania with revenues of $27 million for the
12 months ended March 31, 1996. The agreement provides that Scanforms will be
acquired in a stock-for-stock exchange which values Scanforms at $5.75 a
share; provided, however, that Big Flower will not issue more than 0.4259 of
a share or less than 0.3966 of a share of Big Flower Common Stock for each
share of Scanforms' common stock. Total consideration for Scanforms will be
about $26.5 million, including consideration paid for employee options, and
the assumption of about $5.1 million of debt. The acquisition, subject to
certain conditions including preparation of definitive documentation and
approval by Scanforms' shareholders, is expected to close by August 31, 1996.
However, no assurances can be given that the acquisition of Scanforms will be
consummated. The Company has been granted a voting proxy on, and an option to
purchase, approximately 43% of Scanforms' outstanding shares by Scanforms'
two principal shareholders, including Chairman Robert A. Samans. Approval of
the stockholders of the Company is not required.
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. Unless otherwise indicated, the references herein to years are to
calendar years.
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.
MARKET BACKGROUND
MARKET DATA USED THROUGHOUT THIS REPORT WAS OBTAINED FROM INDUSTRY
PUBLICATIONS AND INTERNAL COMPANY ESTIMATES. WHILE THE COMPANY BELIEVES SUCH
INFORMATION IS RELIABLE, THE ACCURACY OF SUCH INFORMATION HAS NOT BEEN
INDEPENDENTLY VERIFIED AND CANNOT BE GUARANTEED.
TREASURE CHEST. The Company believes the U.S. market for advertising
circulars exceeds $4.2 billion and has grown at a faster rate in recent years
than overall newspaper advertising expenditures as well as overall advertising
expenditures. The Company 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 Treasure Chest'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 1994 Gallup Poll indicated that 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 Treasure Chest and four other companies account
for approximately 50% of the advertising circular market in the United
States, with more than 140 regional and local printers accounting for the
balance.
2
<PAGE>
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.
LASER TECH. The Company believes that the pre-press market exceeds $5.3
billion, with compound annual growth rates approaching 5% over the past three
years. The Company believes tht Laser Tech's market is highly fragmented.
Laser Tech offers a wide range of electronic pre-press services including
those servicing the customer needs of data warehousing and search and
retrieval.
WEBCRAFT. The Company believes that the U.S. markets for all of
Webcraft's products exceeds $35.0 billion annually, with approximately 200
companies competing in such markets. The compound annual growth rate of
direct mail advertising expenditures was 5.2% for the period 1988-1993 and is
expected to be 7.7% for the period 1993-1998. This compares to a compound
annual growth rate for overall advertising spending of 3.1% for the period
1988-1993 according to the 1994/95 DIRECT MARKETING ASSOCIATION STATISTICAL
FACT BOOK. The Company believes more customers will use personalized direct
mail techniques as mailing list databases grow in both volume of information
stored and sophistication.
The lottery industry has grown substantially in recent years as states
pursue non-tax methods for generating revenues. The Company believes that
the market for the lottery industry is approximatley $150 million to $200
million annually, with approximately six major printers competing in such
market. There are currently 37 states plus the District of Columbia selling
lottery tickets in the United States. In addition, four other states are
considering instituting instant lottery games. Outside the United States,
approximately 120 political entities operate lotteries.
PRODUCTS AND SERVICES
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 retailer or manufacturer.
The primary users of advertising circulars are general merchandisers, specialty
retailers, grocery stores, home improvement centers and drug stores.
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.
Treasure Chest'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
3
<PAGE>
diverse needs of its retailing customer base. Treasure Chest produces
advertising circulars for many leading U.S. retailers such as American Drug
Stores, Circuit City, Home Depot, J.C. Penney, Kmart, Lowes, Montgomery Ward,
Safeway, Sears, Walgreens and Wal-Mart. The Company believes Treasure Chest
is the largest producer of advertising circulars in the United States.
NEWSPAPER TV LISTING GUIDES, SUNDAY COMICS, OTHER NEWSPAPER PRODUCTS AND
OTHER PUBLICATIONS. Treasure Chest publishes 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.
Treasure Chest is the largest printer of newspaper TV listing guides in
the United States. Some of Treasure Chest's significant customers include
the San Francisco Examiner, The Baltimore Sun, The Boston Globe, The Los
Angeles Times, The Newark Star-Ledger, Newsday, The New York Times and The
Philadelphia Inquirer.
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 December 31, 1995, the Company printed Sunday
comics for approximately 280 newspapers, including the Atlanta Journal, Miami
Herald, the San Francisco Examiner, The Baltimore Sun, The Denver Post, The Los
Angeles Times, The Newark Star-Ledger and The Philadelphia Inquirer.
Treasure Chest also publishes general publications for various federal and
state governmental agencies, religious organizations and other associations.
ELECTRONIC PRE-PRESS SERVICES. Treasure Chest and Laser Tech provide the
Company's customers with computerized Electronic Pre-Press ("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. EPP involves the electronic capture of
black and white or full color pictures, image retouching, combined with text
and graphics into a page layout suitable for print production. 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. Through
electronic connections, EPP services provide customers the flexibility of
changing their print advertisements from their offices. This increased
flexibility reduces costs and gives customers improved control
4
<PAGE>
over their print advertisements and is intended to broaden the Company's
customer base by expanding the Company's advertising support services.
Laser Tech is leveraging these EPP services into the emerging technology
markets of electronic distribution of information via the World Wide Web, CD
ROM and other electronic delivery methods. Laser Tech's traditional customer
base is actively seeking to exploit these emerging media distribution
channels. The Company believes that these new distribution methods, combined
with an increasing need for digital archiving and retrieval of digital
images, present significant growth opportunities for Laser Tech. Laser Tech
maintains multiple facilities in major markets across the country as well as
"outsourced services" sites on customers' premises and at various Treasure
Chest printing sites.
In conjunction with Treasure Chest, Laser Tech is focusing on providing
services to the principal customer base of Treasure Chest, including EPP
services, image storage and retrieval services, and customized application
software for increased production efficiency for both print and new media
distribution channels. Laser Tech has recently developed MAXCESS -TM- (Media
Access) application software which is designed to give advertising agencies,
publishers, and corporations on-line remote access to their digitally archived
picture files which can then be reformatted for [ALTERNATIVE] electronic
distribution and/or resale to third parties.
DIRECT MAIL. The majority of Webcraft's direct mail revenues are derived
from the in-line production of personalized mailings which are produced by ink-
jet, laser and electropress systems, integrated with an advanced data processing
capability. Personalized direct mail enables consumer goods and other marketers
to communicate with their customers on an individual-by-individual basis rather
than relying on the broad non-personalized mailings which typically generate
lower response rates.
The primary users of Webcraft's personalized direct mail products are
consumer products and financial services companies and non-profit institutions.
Major customers include RJ Reynolds Tobacco Co., Chrysler Corp., Publishers
Clearing House, Reader's Digest Association, Inc. and Discover Credit Corp.
LOTTERY. Webcraft manufactures scratch-off lottery tickets for six
states (Illinois, Iowa, Kansas, Michigan, New Jersey and Ohio), as well as
for national lotteries in Ireland, Israel, Sri Lanka and for charitable
lotteries in the United Kingdom and South Africa.
FRAGRANCE SAMPLERS. Fragrance samplers are product samples, typically of
perfume, which are distributed to potential purchasers of the fragrance through
magazine inserts or as billing statements stuffers for major department stores.
Webcraft is a leading producer of highly specialized fragrance samplers because
of its ability to produce an accurate rendition of the perfume being marketed
and its technological expertise in the microencapsulation of the fragrance.
Webcraft's customers in fragrance samplers include Calvin Klein Cosmetics, Inc.,
Unilever United States, Inc. and Estee Lauder, Inc.
5
<PAGE>
COMMERCIAL GAMES. Commercial games are typically used to increase traffic
to retail establishments by offering customers an opportunity to win various
prizes. Because of the security experience Webcraft has gained in printing
scratch-off lottery tickets for many years, the Company believes it is well
suited to provide these services to commercial games sponsors. There are no
significant recurring customers in this area of Webcraft's business since
commercial games are used in specific advertising campaigns.
STAMPS. Webcraft's stamp products include booklets and sheets of gummed,
round-hole perforated stamps. Webcraft produces stamps using special in-line
grinders that create the same quality of perforation found in U.S. postage
stamps. Management believes that certain technologies Webcraft employs in
producing stamps, such as the ability to generate letters with attached stamp
sheets, give Webcraft a special advantage. Significant customers include
Publishers Clearing House, Reader's Digest Association, Inc., The American Lung
Association and National Wildlife Federation.
OTHER PRODUCTS AND SERVICES. A significant portion of Webcraft's
non-specialty printing involves the production of enhanced envelopes, which
are essentially simple printed products involving the formation of an
envelope such as catalog order forms, film mailers and airline ticket
jackets. In addition, Webcraft prints forms for the U.S. Government Printing
Office, including forms for the Internal Revenue Service, Social Security
Administration, and the United States Postal Service ("USPS"). Webcraft also
produces chemicals, adhesives, coatings, washes and solutions. Approximately
half of these products are sold to industry customers and the remainder are
used internally.
PRODUCTION
TREASURE CHEST. There are three printing processes which may be used to
produce advertising circulars and newspaper supplements: offset lithography
(heatset and cold), rotogravure and flexography. Treasure Chest offers its
customers both heatset and cold web offset lithography press capabilities.
Treasure Chest currently maintains 87 heatset and 51 cold web offset presses
and significant folding and in-line production capabilities.
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 believes Treasure
Chest's heatset web offset presses are among the most advanced available
within its markets. By specializing in both heatset and cold web offset
printing, Treasure Chest 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
6
<PAGE>
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.
LASER TECH. There are three basic printing processes used in the
production of advertising materials representing the core markets of Laser
Tech: offset lithography, flexography, and rotogravure. Each of these
production methods requires significantly different production requirements
in the image capture, design and layout, and film or plate imaging process.
In each instance, Laser Tech must anticipate the effect that each of the
three processes has on the accuracy of color reproduction, and adjust its
electronic color image files in such a way that aberrations in each printing
process, reproduce the original color image. Laser Tech possesses a wide
array of software and hardware designed to efficiently achieve this purpose
and while these technologies are not proprietary, Laser Tech has amassed
significant organizational expertise in the execution of these processes.
WEBCRAFT. Some of the equipment and processes used for producing
Webcraft's direct mail products have been developed by Webcraft's engineers
and chemists over a period of 25 years and are proprietary to Webcraft. The
Company believes that Webcraft is the printing industry leader in in-line
finishing. In-line finishing, developed by Webcraft engineers in 1970, is a
continuous finishing process (which may involve up to three webs of printed
paper), where cutting, folding, personalizing and collecting several
multi-color pieces into an envelope occurs in one continuous process.
Depending on the quantity of the print job, the finished pieces (having
already been sorted by zip code) are then placed in mail bags based on their
zip codes and picked up by the USPS.
The lottery tickets produced by Webcraft are printed in up to seven colors
with a high gloss coat on the front and two colors on the back. Tickets are
coded with game play data that is randomized from carefully planned winning
schedules using sophisticated computer algorithms, imaged on the ticket by a
computerized ink-jet printer and concealed by a scratch-off coating. The
mathematical algorithms are developed by Webcraft computer experts and the
encoding of tickets is performed by Webcraft's computer controlled process at
Webcraft's high security lottery operations located in North Brunswick, New
Jersey and Ypsilanti, Michigan.
SALES AND DISTRIBUTION
At May 31, 1996, the Company maintained 30 sales locations throughout the
United States, including six sales offices located in printing plants, and
had 108 sales professionals who collectively had an average of approximately
13 years of experience in the printing, imaging and advertising industry.
TREASURE CHEST. Treasure Chest's sales force is organized into three
regional geographic groups in the eastern, central and western United States.
Treasure Chest'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 Treasure Chest's sales professionals. Many of Treasure Chest's
customers rely on Treasure Chest's sales professionals to aid in the planning
or design of their advertising campaigns. Treasure Chest's top ten
customers, which accounted for
7
<PAGE>
38.5% of the Company's sales in 1995, were American Drug Stores, Builder's
Square, Home Depot, J.C. Penney, Kmart, Lowes, Montgomery Ward, Sears and
Walgreens, for advertising circulars, and Western Colorprint, through which
Treasure Chest markets its Sunday comics to its newspaper customers.
Treasure Chest's two largest customers, Western Colorprint and Home Depot,
accounted for approximately 5.7% and 4.8% of the Company's sales,
respectively, in 1995. As of December 31, 1995, the average length of
Treasure Chest's relationship with its top ten customers was approximately 14
years. Consistent with industry practice, Treasure Chest generally does not
have contracts with its customers requiring them to use its products or
services. The Company does not believe that the loss of any single customer
of Treasure Chest would have a material adverse effect on the Company's
financial condition.
The following table presents the sales by type of customer as a percentage
of total Treasure Chest sales:
<TABLE>
<CAPTION>
Percentage of
Treasure Chest
Customer Type Sales in 1995
- ------------- ------------
<S> <C>
General merchandisers . . . . . . . . . . . . . . . . 26.5%
Specialty retail and furniture. . . . . . . . . . . . 17.1
Grocery stores. . . . . . . . . . . . . . . . . . . . 13.4
Drug stores . . . . . . . . . . . . . . . . . . . . . 12.9
Home improvement centers. . . . . . . . . . . . . . . 11.8
Non-retail. . . . . . . . . . . . . . . . . . . . . . 3.5
------
Total advertising circulars. . . . . . . . . . . 85.2
Sunday comics . . . . . . . . . . . . . . . . . . . . 5.8
Newspaper TV listing guides . . . . . . . . . . . . . 5.1
Other newspaper products and other publications . . . 3.9
------
Total. . . . . . . . . . . . . . . . . . . . . . 100.0%
------
------
</TABLE>
Treasure Chest's products are delivered at the direction of its customers
to specified distribution locations, including newspapers, direct mailers and
retail stores. The Company believes that the size of Treasure Chest's printing
plants as well as their close proximity to major population centers provide
Treasure Chest with a significant cost advantage in distribution. Treasure
Chest simultaneously publishes major national advertising circulars and other
products in multiple locations, thereby accelerating turnaround and reducing
shipping costs to the customers' locations.
LASER TECH. Laser Tech's sales are custom manufactured items sold directly
to the end users. Laser Tech's principal customer groups include magazine,
retail catalog and advertising circular publishers, consumer product packaging
manufacturers, advertising agencies, and consumer goods manufacturers and
retailers. Laser Tech's largest customers include RJ Reynolds Tobacco Company,
DDB Needham Worldwide, Tyson Foods, Zales Corporation, Marvel Comics and Office
Depot.
8
<PAGE>
WEBCRAFT. While the majority of Webcraft's sales are made directly to
end users, Webcraft also sells through advertising agencies, brokers and
other agents. Webcraft's principal customer groups include consumer goods
manufacturers, mail order and catalog publishers, fragrance marketers,
financial institutions, non-profit organizations, and lottery and other
government agencies. Webcraft's ten largest customers (including Publishers
Clearing House, RJ Reynolds Tobacco Co., U.S. Sales, the U.S. Government and
Calvin Klein) accounted for approximately 33% of its sales in 1995. On
average these customers had over an eight year relationship with Webcraft.
Lottery tickets are produced for state lottery agencies under contracts
which range from six months to several years. Of Webcraft's six state
lottery contracts, three expire in 1996 and the remainder expire in 1998.
Lottery contracts are awarded to printers through a competitive bidding
process. In certain cases, the financial health of the printer could also be
a factor. Lottery printing contracts have specific performance schedules and
requirements. Failure to meet these requirements can lead to monetary damages
for the printer as well as possible contract termination.
Webcraft has a contract with the USPS to supply Express Mail labels through
1997. The USPS contract provides for a pass through of paper cost changes over
the length of the contract through a formula provided in the contract.
The balance of Webcraft's sales are typically covered by purchase orders
from the client and signed sales confirmations from Webcraft. These documents
detail the terms and conditions of sale. Prices typically vary from project to
project because each job is unique with its own variables, including run
quantity, dimensions of the printed piece, personalization, special materials
such as scratch off, die cuts and a number of other criteria.
RAW MATERIALS
In 1995, Big Flower spent approximately $552.8 million on raw materials.
The primary raw materials required in the Company's printing operation are
paper, ink and adhesives. 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.
9
<PAGE>
During 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. 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.
Webcraft also has an ink supply agreement with a supplier pursuant to
which Webcraft is obligated until August 1998 to purchase from such supplier
not less than 80% of Webcraft's annual requirements for ink for heatset,
flexographic, ultra-violet and ink jet inks at all plants operated by
Webcraft.
The Company internally produces most of the adhesives needed for its
printing operations, but believes that there are other ready sources for these
products.
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."
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 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 believes that its 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. 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
10
<PAGE>
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 EPP services market, Laser Tech's major competitors are Applied
Graphic Technologies, Inc., Wace USA and Schawk Graphics. Like commercial
printing, the pre-press industry is highly fragmented and undergoing a period of
consolidation. Pre-press 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. With its wide
range of services, strategic locations and emphasis on emerging digital data
handling systems, the Company believes the breadth and scope of Laser Tech's
services are a key competitive advantage.
Images are increasingly reused by advertisers across a wider range of
media, both broadcast and print, to avoid re-creation costs. Laser Tech can
capture, store, and then, reformat advertising images for multiple print
applications, World Wide Web and other new media applications, and broadcast
distribution.
Webcraft competes with a number of different firms in each of its principal
lines of business. The primary competitive factors in this 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 markets, price is often the dominant factor. Management believes that
Webcraft's main competitive strengths are its internally developed, proprietary
know-how, its ability to provide a wide range of specialty products in high
volume at competitive prices and its established customer relationships.
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. In the lottery
market, Webcraft believes that its reputation for reliability and efficiency
is a significant factor in its competitive position. 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. 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. In the commercial games market, Webcraft believes that it is
able to compete in part because of its experience in the lottery market.
Webcraft's primary competitor in this market is Dittler Brothers, Inc. In the
stamps market, Webcraft believes that certain of its technologies, such as
the ability to generate letters with attached stamp sheets, are significant
factors in maintaining its competitive position. In the stamp market
Webcraft's major competitors are Fleming-Potter Co., Dittler Brothers, Inc.
and Cyril-Scott Company.
11
<PAGE>
In the non-specialty market, the products produced do not have the same
complexity as products produced in Webcraft's specialty printing segment.
Because of this lack of complexity, there are a number of printers capable of
competing with Webcraft in this area. Major competitors in the non-specialty
market include Cyril-Scott Company and Double Envelope Corp. (Convertagraphics).
Increases in printing press capacity in this segment have led to over-capacity
in recent years, with resulting pricing pressures on printers. Webcraft's
management has responded to these pressures by seeking to lower its cost
structure for producing non-specialty products. In the government forms market,
because of the relative simplicity of the products there are a number of
competing printers. There are no clear industry leaders in this market. In
this market, Webcraft believes its other business lines provide it with the
flexibility to bid selectively for these contracts.
EMPLOYEES
As of May 31, 1996, the Company had approximately 5,682 employees, of
which approximately 450 were represented by labor unions. Most of Webcraft's
hourly employees at its North Brunswick and Newark, New Jersey facilities are
represented by the United Paper Workers International Union, AFL-CIO.
Webcraft entered into a new three-year contract with this union on February
1, 1995. Under this agreement, represented employees will receive hourly base
rate increases of 4% and 3% in 1996 and 1997, respectively. Webcraft's
employees at its Ypsilanti facility are represented by the Graphic
Communications Union. Webcraft has a collective bargaining agreement with
this union through June 1998. 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 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.
12
<PAGE>
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 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 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 Environmental
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
13
<PAGE>
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 liabilities that arise in the future, will not ultimately have such
an effect. In addition, in 1990, the United States Environmental Protection
Agency ("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 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.
TRADE NAMES, TRADEMARKS AND PATENTS
The Company owns certain trade names, trademarks and patents used in its
business. The loss of any such trade name, trademark or patent would not have a
material adverse effect on the Company.
ITEM 2. PROPERTIES
Big Flower leases its executive offices in New York, New York. Treasure
Chest leases its executive offices located in Baltimore, Maryland, Webcraft
leases its executive offices located in Horsham, Pennsylvania, and Laser Tech
leases its executive offices located in Irving, Texas.
14
<PAGE>
As of May 31, 1996, the Company owned eight and leased 16 printing plants,
with lease terms expiring from June 30, 1996 to February 3, 2006, as set forth
below:
<TABLE>
<CAPTION>
PRINTING PLANTS SQUARE FOOTAGE LEASE TERM EXPIRATION
- --------------- -------------- ---------------------
<S> <C> <C>
Atlanta, GA(1),(2) 100,057 ---
Chalfont, PA(1) 320,000 ---
Charlotte, NC 105,400 December 31, 2002
City of Industry, CA 103,000 September 30, 1996
Columbus, OH 141,185 December 31, 2004
Dallas, TX(2) 90,000 September 30, 1997
East Longmeadow, MA 159,241 February 3, 2006
Elk Grove Village, IL 80,665 June 30, 1997
Irving, TX 62,687 September 30, 1999
Lenexa, KS(1) 90,000 ---
Manassas, VA 108,120 February 28, 1997
Newark, NJ(1) 23,000 ---
Newark, NJ 22,692 June 30, 1996
North Brunswick, NJ(1) 296,000 ---
North Kansas City, MO 64,867 August 31, 1999
Pomona, CA 144,542 June 30, 1997
Portland, OR 112,800 October 31, 2002
Sacramento, CA(1) 57,483 ---
Salisbury, MD 66,000 July 7, 1999
Saugerties, NY(1) 209,000 ---
Salt Lake City, UT 55,000 October 31, 1997
San Antonio, TX(1) 67,900 ---
Tampa, FL 72,418 October 31, 1996
Ypsilanti, MI 40,000 December 31, 1997
</TABLE>
____________________
(1) Owned
(2) 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.
As of May 31, 1996, the Company had 30 sales offices in the cities listed
below, including six sales offices located in printing plants. All of the
offices listed below are leased, with lease terms expiring from September 17,
1996 to December 31, 2002, with the exception of the office at Lenexa, Kansas
which is owned.
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Atlanta, GA(2) Greensboro, NC Rosemont, IL
Charlotte, NC Irving, TX Sacramento, CA
Chicago, IL Lenexa, KS Salt Lake City, UT
Cincinnati, OH Los Angeles, CA San Francisco, CA
Dallas, TX Minnetonka, MN Seattle, WA
Dayton, OH Norwell, MA Sewickley, PA
Del Ray Beach, FL New York, NY Tampa, FL
Detroit, MI Oakbrook, IL Washington, DC
East Longmeadow, MA Portland, OR Wilmington, DE
Glendora, CA Reynoldsburg, OH
</TABLE>
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On September 12, 1995, the holder of 1,072,472 shares of Class A Common
Stock (representing 92.6% of the outstanding shares of Class A Common Stock),
approved by written consent an amendment to Big Flower's Restated Certificate of
Incorporation, which changed the name of Big Flower from BFP Holdings Corp. to
Big Flower Press Holdings, Inc., redesignated Big Flower's Class A Common Stock
to Common Stock (the "Common Stock"), increased the authorized number of shares
of capital stock, and restated certain conversion provisions with respect to Big
Flower's Class B Common Stock, Class C Common Stock and Class D Common Stock.
On November 10, 1995, by written consent, the majority holder of Big
Flower's Common Stock (representing 92.6% of the outstanding shares of Common
Stock) approved Amendment No. 1 to Big Flower's Restated 1993 Stock Award and
Incentive Plan, as adopted by the Board of Directors of Big Flower, which
increased the number of shares authorized for issuance under such plan.
On November 28, 1995, by written consent, the majority holder of Big
Flower's Common Stock (representing 92.6% of the outstanding shares of Common
Stock) approved amendments to Big Flower's Restated Certificate of Incorporation
to implement a classified Board of Directors and set forth other provisions
governing the management of the business and the conduct of the affairs of Big
Flower.
On November 28, 1995, by written consent, the majority holder of Big
Flower's Common Stock (representing 92.6% of the outstanding shares of Common
Stock) and
16
<PAGE>
all the holders of all of the outstanding shares of Big Flower's Class B Common
Stock approved amendments to Big Flower's Restated Certificate of Incorporation
to increase the number of authorized shares of Class B Common Stock.
In addition, on November 28, 1995, by written consent, the holder of a
majority of the outstanding shares of Common Stock of Big Flower
(representing 92.6% of the voting class of common stock of Big Flower), and
the holders of all of the outstanding shares of Big Flower's Class B Common
Stock and Class D Common Stock, approved amendments to Big Flower's Restated
Certificate of Incorporation to increase the authorized shares of capital
stock of Big Flower, authorize the issuance of preferred stock, par value
$.01 per share (the "Preferred Stock"), and amend the terms of Big Flower's
capital stock.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the New York Stock Exchange, Inc. under the
symbol "BGF". Each share of Common Stock is traded together with a right
entitling the holder to purchase one one-hundredth of a share of Series A Junior
Preferred Stock. There is no established public trading market for the Class B
Common Stock.
The Common Stock first traded on the New York Stock Exchange on November
22, 1995. Prior to November 22, 1995, there was no established trading market
for the Common Stock. Set forth below are the high and low sales prices for the
Common Stock for the period indicated.
PERIOD HIGH LOW
- -------------------------------------- ------- ---
November 22, 1995 to December 31, 1995 $15-3/4 $15
- --------------------------------------
As of May 31, 1996, there were approximately 113 security holders of record.
Big Flower has never 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.
On November 28, 1995 Big Flower entered into a $350 million revolving
credit facility (the "Credit Agreement"), which was amended and restated on
March 19, 1996 (the "Restated Credit Agreement") to add a $75 million term loan.
The Restated Credit Agreement restricts the ability of Treasure Chest to pay
dividends to the Company and the Company's ability to pay dividends to its
stockholders but allows cash dividends to the Company for operating expenses in
the ordinary course of business up to an amount which starts at $5.0 million for
calendar 1996 and increases 10% each year. Additionally, dividends are
permitted (a) to enable the Company to pay interest on its 10 3/4% Senior
Subordinated Notes due 2003 (the "10 3/4% Notes") (or refinancings thereof), to
pay dividends on certain issuances of preferred stock and to undertake certain
debt buybacks and (b) up to 25% of cumulative consolidated net income from March
19, 1996.
In addition, the indenture governing the 10 3/4% Notes imposes certain
restrictions on Big Flower's ability to pay dividends on its Common Stock.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of predecessor
Treasure Chest 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 selected financial
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
financial data of Big Flower as of and for the 323 day period ended June 30,
1994, the fiscal year ended June 30, 1995 and the six months ended December 31,
1995 were derived from the audited consolidated financial statements of Big
Flower. The selected financial data of Big Flower for the six months ended
December 31, 1994 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 period. 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. The selected
historical financial data should also be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
19
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor Treasure Chest Big Flower
-------------------------------------- ------------------------------------
42 Days 6 Months 6 Months
Ended 323 Days Year Ended Ended
Year Ended June 30, August Ended Ended December December
---------------------------- 11, June 30, June 30, 31, 31,
1991 1992 1993 1993 1994 1995 1994 1995
-------- ------- ------- ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $529,605 $536,113 $555,013 $59,584 $565,046 $896,595 $456,527 $532,352
Gross profit 46,009 62,621 63,328 4,892 71,971 118,867 58,368 72,509
Selling, general and administrative expense 34,380 39,146 40,892 4,227 48,777 70,587 33,194 34,920
Interest expense (a) 12,145 9,249 6,792 578 19,350 37,049 19,840 20,578
Income (loss) before income taxes (4,551) 7,696 10,204 (228) (2,678) 2,793 3,635 10,385
Income before extraordinary item (4,211) 4,196 4,685 (139) (4,442) (3,046) 1,043 5,056
Extraordinary item, Net -- -- -- -- -- -- -- (19,248)
Net income (loss) (4,211) 4,196 4,685 (139) (4,442) (3,046) 1,043 (14,192)
Average Shares Outstanding (b)
9,668 10,832 10,873 12,293
Other Data:
EBITDA (b) 22,978 37,115 34,560(e) 1,901 50,312 89,756 46,128 55,403
Capital expenditures (c) 12,211 7,354 6,967 1,280 5,537 7,142 3,725 16,657
Cash flows provided by (used in) operating
activities (d) 23,844 19,017 21,823 (6,363) 28,285 44,916 12,869 26,286
Cash flows provided by (used in) investing
activities (d) (19,538) (2,183) 10,708 (1,280) (269,629) (5,837) (3,289) (19,188)
Cash flows provided by (used in) financing
activities (d) (10,448) (16,336) (31,543) 6,209 243,194 (40,097) (9,621) (3,895)
BALANCE SHEET DATA (AT PERIOD END):
Working Capital ($2,988) $4,567 ($3,597) -- $24,574 $32,112 $37,895 $26,223
Net property, plant and equipment 96,533 84,238 62,850 -- 144,737 129,181 137,862 137,838
Total assets 207,244 185,710 160,356 -- 505,127 486,502 494,393 554,088
Long-term debt, net of current portion 80,923 73,183 34,485 -- 328,788 297,976 323,155 270,442
Redeemable preferred stock of a subsidiary -- -- -- -- 16,913 19,357 18,079 --
Common stockholders' equity 24,456 27,595 32,663 -- 15,773 11,483 16,816 77,931
______________________
</TABLE>
20
<PAGE>
(a) Interest expense excludes amortization of deferred financing fees of
Predecessor Treasure Chest 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 Big Flower of $1.9
million, $3.4 million, $1.7 million and $1.6 million for the 323-day period
ended June 30, 1994, the fiscal year ended June 30, 1995, the six months
ended December 31, 1994 and the six months ended December 31, 1995,
respectively.
(b) "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.
(c) 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, $4.9 million and $2.2 million for fiscal
1991, fiscal 1992, fiscal 1993, the 42 days ended August 11, 1993, the 323
days ended June 30, 1994, fiscal 1995, the six months ended December 31,
1994 and the six months ended December 31, 1995, respectively.
(d) Cash flows from operating, investing and financing activities are
significantly affected by the acquisitions of Treasure Chest and the
acquisitions of KTB and Retail Graphics. See the consolidated statements
of cash flows of Treasure Chest and Big Flower and the notes thereto
included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(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 and the fiscal year ended June
30, 1995, and the six months ended December 31, 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.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The discussion below relates to the consolidated financial condition and
results of operations of Big Flower for the six months ended December 31, 1995,
the fiscal year ended June 30, 1995 and the fiscal year ended June 30, 1994 (the
combined operations of Predecessor Treasure Chest for the 42 days ended August
11, 1993 and Big Flower and its subsidiaries (including Treasure Chest) for the
323 days ended June 30, 1994), and of Predecessor Treasure Chest for the fiscal
year ended June 30, 1993.
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 and the six months ended December 31, 1994 and 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.
22
<PAGE>
PRO FORMA OPERATING DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1993 YEAR ENDED JUNE 30, 1994
-----------------------------------------------------------------------
Predecessor
Treasure Big
Acquisition Chest Flower Acquisition Year 6 Months 6 Months
of Treasure Big 42 Days 323 Days of Treasure Big Ended Ended Ended
Predecessor Chest Flower Ended Ended Chest Flower June 30, December 31, December 31,
Treasure Pro Forma Pro August 11, June 30, Pro Forma Pro 1995 1994 1995
Chest Adjustments Forma 1993 1994 Adjustments Forma Big Flower Big Flower Big Flower
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $555,013 $ --- $555,013 $59,584 $565,046 $ --- $624,630 $896,595 $456,527 $532,352
Costs of production 491,685 (1,322) 490,363 54,692 493,075 (310) 547,457 777,728 398,159 459,843
---------------------------------------------------------------------------------------------------------
Gross profit 63,328 1,322 64,650 4,892 71,971 310 77,173 118,867 58,368 72,509
Selling, general and
administrative expenses 40,892 14,333 55,225 4,227 48,777 1,467 54,471 70,587 33,194 34,920
Interest expense 9,227 13,478 22,705 704 21,286 1,956 23,946 40,486 19,840 20,578
Interest income (1,153) 1,009 (144) (22) (53) 20 (55) (279) (43) (442)
Other expense (income), net 4,158 (702) 3,456 211 2,726 (3,658) (721) 2,836 576 6,000
Preferred dividends of a
subsidiary --- 2,151 2,151 --- 1,913 238 2,151 2,444 1,166 1,068
---------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes 10,204 (28,947) (18,743) (228) (2,678) 287 (2,619) 2,793 3,635 10,385
Provision (benefit) for
income taxes 5,519 (9,878) (4,359) (89) 1,764 308 1,983 5,839 2,592 5,329
---------------------------------------------------------------------------------------------------------
Income before
extraordinary item $4,685 ($19,069) ($14,384) ($139) ($4,442) ($21) ($4,602) ($3,046) $1,043 $5,056
Extraordinary item, Net --- --- --- --- --- --- --- --- --- 19,248
Net income (loss) $4,685 ($19,069) ($14,384) ($139) ($4,442) ($21) ($4,602) ($3,046) $1,043 ($14,192)
--------- -------- -------- ------- -------- ------- -------- ------- -------- --------
--------- -------- -------- ------- -------- ------- -------- ------- -------- --------
Gross profit margin 11.6% 12.4% 13.3% 12.8% 13.6%
</TABLE>
23
<PAGE>
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 Big Flower 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 due 2005 of Big Flower (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 Big Flower 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 the addition of
dividends on BFP's Series A Preferred Stock (the "BFP Preferred Stock").
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 typically is able to pass increases in the cost of paper to its
customers, while declines in paper costs result in lower prices to customers.
As a result of volatile changes in paper costs, there is significant volatility
in the Company's net sales, but when properly managed, not in volume or profits.
Capacity in the paper industry has generally remained fixed over recent
years. Prior to mid-1994, paper supply exceeded demand, creating a significant
downward pressure on paper prices. In mid-1994, higher demand surpassed the
fixed capacity in all paper grades industry-wide. This created a global
tightening of paper supply which resulted in higher paper prices. However, in
early 1996, reduced demand has made certain grades of paper more readily
available, which has resulted in paper price decreases with respect to such
grades. The Company has developed strong relationships with its paper
suppliers, which include many of the leading paper companies in North America.
Through these relationships, if the market begins to tighten again, the Company
anticipates that its paper requirements will continue to be met. As paper
becomes more readily available, the Company anticipates that its relationships
and purchasing leverage will ensure its material costs will remain highly
competitive.
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 of $18,405,000 related to customer backlog which arose as a
result of such acquisitions had estimated lives of 1 to 2 years. Such
intangible assets were fully amortized in April 1996. Amortization of
customer backlog on a historical basis was $4,955,000, $1,583,000,
$6,703,000, and $9,679,000 for the six months ended December 31, 1994 and
1995, the 323 days ended June 30, 1994 and the year ended June 30, 1995,
respectively.
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,
24
<PAGE>
together with its capital investment program, has led to efficiency improvements
in each year since fiscal 1989.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 1995 WITH THE SIX MONTHS ENDED
DECEMBER 31, 1994
Net sales increased to $532.4 million for the six months ended December 31,
1995 from $456.5 million for the six months ended December 31, 1994, an increase
of $75.9 million or 16.6%. Volume (as measured by standard hours of press
activity) increased 0.8%. Paper costs, which significantly affect net sales,
were 51.9% of net sales for the six months ended December 31, 1995 compared to
45.3% of net sales for the six months ended December 31, 1994.
Gross profit for the six months ended December 31, 1995 increased to $72.5
million compared to $58.4 million for the six months ended December 31, 1994, an
increase of $14.1 million or 24.2%. Despite higher paper costs, gross profit as
a percent of net sales increased to 13.6% for the six months ended December 31,
1995 from 12.8% for the six months ended December 31, 1994. Per unit variable
costs (excluding paper and ink costs) were lower for the six months ended
December 31, 1995 compared to the prior comparable period. These reduced per
unit variable costs were the result of higher volume, efficiency improvements
and cost controls. The increase in gross profit for the six months ended
December 31, 1995 was also favorably impacted by the addition of Laser Tech in
late November and improved operating performance at the facilities acquired in
April 1994. The integration of these facilities was substantially completed in
the six months ended June 30, 1995 and, therefore, increases in gross profit for
the six months ended June 30, 1996 are not expected to continue at the rate
experienced in the six months ended December 31, 1995. Depreciation was 2.0%
of the cost of production for the six months ended December 31, 1995 compared to
2.4% for the six months ended December 31, 1994.
Selling, general and administrative expense increased to $34.9 million in
the six months ended December 31, 1995 from $33.2 million for the six months
ended December 31, 1994, an increase of $1.7 million or 5.2%. Amortization of
intangibles included in selling, general and administrative expense for the six
months ended December 31, 1995 was $8.1 million compared to $11.1 million for
the six months ended December 31, 1994. Amortization of certain intangible
assets associated with the acquisitions of Treasure Chest, KTB and Retail
Graphics was $3.4 million lower in the six months ended December 31, 1995
compared to the prior comparable period as several of these assets became fully
amortized. Offsetting the lower amortization of intangible assets in the six
months ended December 31, 1995 was an increase in the provision for doubtful
accounts of $1.6 million reflecting the higher volume and current conditions in
certain sectors of the retail market and $2.7 million due to higher personnel
and related costs and the addition of Laser Tech operations since late November
1995. Selling, general and administrative expense as a percentage of sales was
6.6% for the six months ended December 31, 1995 compared to 7.3% for the six
months ended December 31, 1994.
Net interest expense for the six months ended December 31, 1995 was $20.1
million compared to $19.8 million for the six months ended December 31, 1994.
Amortization of
25
<PAGE>
deferred financing costs were $1.6 million for the six months ended December 31,
1995 and $1.7 million for the six months ended December 31, 1994. Interest
expense for the six months ended December 31, 1995 included $12.9 million in net
interest on the 10 3/4% Notes and the Company's 13 1/2% Senior Discount Notes
due 2004 (the "13 1/2% Notes"), and $6.0 million in net interest on other debt,
primarily the Credit Agreement entered into by Treasure Chest in April 1994 (the
"1994 Credit Agreement").
Other expense, net, for the six months ended December 31, 1995 was $6.0
million compared to $0.6 million for the six months ended December 31, 1994.
The other expense, net, for the six months ended December 31, 1995 included $1.6
million for the consolidation of two operating locations, and $3.7 million to
complete the relocation of Treasure Chest's corporate office to Baltimore,
Maryland from Glendora, California.
Income before income taxes and extraordinary item was $10.4 million for the
six months ended December 31, 1995 compared to income before income taxes of
$3.6 million for the prior comparable period due to the factors mentioned above.
The extraordinary item, net of tax, of $19.2 million was due to early
extinguishment of debt as discussed in the Liquidity and Capital Resources
section below.
The effective income tax rate for the six months ended December 31, 1995
and 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.
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. For the comparable pro forma period in 1994,
advertising circulars were 86.0%, Sunday comics 7.1%, newspaper TV listing
guides 3.4% and other newspaper products and other publications 3.5% 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%
26
<PAGE>
of the cost 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
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 1994 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
Preferred Stock and state income taxes.
Net income for the six months ended December 31, 1995 and December 31,
1994 on a pro forma basis reflecting the impact of Big Flower's initial
public offering (the "Offering") on November 28, 1995 of shares of Common
Stock and related transactions would have been $8.7 million, or $0.53 cents
per share, and $5.9 million, or $0.36 cents per share, respectively.
Excluding the effects of the second quarter charges for the consolidation of
two operating locations and to complete the relocation of Treasure Chest's
corporate office, net income for the six months ended December 31, 1995 would
have been $11.9 million, or $.72 cents per share.
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
of the increase was attributable to two months sales of KTB and Retail Graphics.
For the twelve months ended June 30, 1994, advertising
27
<PAGE>
circulars were 86.0%, Sunday comics 7.1%, newspaper TV listing guides 3.4% and
other newspaper products and other publications 3.5% of net sales. For the
comparable prior pro forma period, advertising circulars were 85.9%, Sunday
comics 7.5%, newspaper TV listing guides 3.1% and other newspaper products and
other publications 3.5% of net sales. 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.
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
$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.
28
<PAGE>
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.
Since the acquisition of Treasure Chest, Big Flower's principal use of cash
has been debt service and capital expenditures. Capital expenditures for the
six months ended December 31, 1995 totaled $16.7 million. Big Flower's working
capital at December 31, 1995 was $26.2 million, compared with $32.1 million at
June 30, 1995, a decrease of $5.9 million. The ratio of current assets to
current liabilities as of December 31, 1995 was 1.15 to 1 and as of June 30,
1995 was 1.25 to 1.
Net cash provided by operating activities for the six months ended December
31, 1995 was $26.3 million, an increase of $13.4 million from the prior
comparable period. This increase was primarily due to higher net income before
extraordinary items and an increase in cash provided by changes in working
capital components. Accounts receivable were up from the June 30, 1995 level
due to higher sales volume and the timing of cash collections. Offsetting the
accounts receivable increase was a volume related increase in accounts payable
and an increase in cash overdrafts included in financing activities. Net cash
used in investing activities was financed through increased borrowings on the
Company's revolving credit facility and through the increase in cash overdrafts
discussed above. The net cash used in financing activities includes the impact
of the Offering and other related transactions.
The Offering consisted of 6,724,688 shares of Common Stock, of which
5,500,000 shares were sold by Big Flower and 1,224,688 shares were sold by
selling stockholders. The net proceeds of the Offering to Big Flower of $80.3
million were used to redeem on a pro rata basis at a premium, a portion of the
13 1/2% Notes, and a portion of the 10 3/4% Notes. The remainder of the net
proceeds, together with borrowings under the Credit Agreement, were used to
purchase at a premium the remaining balance of the 13 1/2% Notes, purchase all
of Big Flower's 11% Debentures at 100% of principal amount, repay all amounts
owed under the 1994 Credit Agreement, purchase all outstanding shares of the BFP
Preferred Stock and terminate Big Flower's interest rate swap agreements. The
termination of the swap agreements and the repayment of the 13 1/2% Notes, the
10 3/4% Notes and the Credit Agreement generated an extraordinary loss, net of
tax of $19.2 million, for the premiums and the deferred financing costs
associated with the amounts repaid. In connection with the Offering, Big Flower
Press, Inc. was merged with and into the Company.
29
<PAGE>
On November 27, 1995, Big Flower acquired Laser Tech. The purchase price
was comprised of (i) $3.0 million paid on the closing date of such transaction,
(ii) a $13.6 million note which matured in January 1996 and (iii) a $4.5 million
note which converted into 281,250 shares of Common Stock in January 1996. In
addition, in conjunction with the acquisition the Company paid $8.3 million to
repay certain indebtedness and other obligations of Laser Tech.
Simultaneously with the Offering, the outstanding shares of Class B Common
Stock, Class C Common Stock and Class D Common Stock (except for certain shares
of Class B Common Stock owned by BT Investment Partners, Inc. ("BTIP")), were
converted into shares of Common Stock on a share-for-share basis (with any
fractional shares rounded up to one full share). Immediately prior to the
consummation of the Offering, Big Flower paid a stock dividend of one share of
Common Stock for each outstanding share of its Common Stock, Class B Common
Stock owned by Apollo Big Flower Partners, L.P., Class C Common Stock and Class
D Common Stock and a stock dividend of one share of Class B Common Stock for
each outstanding share of Class B Common Stock owned by BTIP due to certain
restrictions in the banking laws and regulations. In addition, the outstanding
options to purchase shares of Class C Common Stock became options to purchase
shares of Common Stock at the rate of two shares of Common Stock for each share
of Class C Common Stock underlying such options; and fractional shares remaining
were rounded up to one full share. In addition, the put rights of the holders
of Class C Common Stock expired for their vested shares.
The revolving facility of the Restated Credit Agreement will be reduced
by $33.3 million on the last day of 1998, 1999 and 2000 and will mature on
the last business day of 2001. Principal payments on the term loan of $0.75
million are due on the last business day of 1996 through 2001 and will mature
on the last day of 2002. Interest on revolving loans will be payable at
Treasure Chest's option (a) at a base rate plus a margin which ranges from
0.00% to 1.25% or (b) at a Eurodollar rate plus a margin which ranges from
0.50% to 2.25%. Interest on the term loan will be payable at Treasure
Chest's option (a) at a base rate plus a margin of 1.50% or (b) at a
Eurodollar rate plus a margin of 2.50%. The Restated Credit Agreement also
contains certain standard covenant requirements and certain dividend
restrictions.
On March 19, 1996, Big Flower consummated the acquisition of Webcraft,
pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated
February 1, 1996, by and among Big Flower, Webcraft and WTI Acquisition Corp, a
wholly owned subsidiary of Big Flower ("Merger Sub"), whereby Merger Sub was
merged with and into Webcraft,with Webcraft as the surviving corporation (the
"Merger"). Pursuant to the terms of the Merger Agreement, the equity holders of
Webcraft received approximately $111 million in cash, of which (i) approximately
$4.0 million represented a portion of the proceeds received by Webcraft in
connection with the settlement of a certain patent litigation and (ii) $4.8
million was deposited in escrow to fund any claims for indemnification by the
Company.
Big Flower obtained the funds necessary to finance the Merger from (i)
borrowings under the Restated Credit Agreement, (ii) a securitized financing
based upon the accounts receivable of Treasure Chest, Laser Tech, and Webcraft
and certain of their respective subsidiaries, whereby certificates secured by
such receivables were purchased by Bankers Trust Company and Credit Suisse (the
"A/R Securitization"), and (iii) cash on hand at Webcraft.
30
<PAGE>
The Company believes that internally generated funds from operations and
from the Restated Credit Agreement will be sufficient to meet its operating
requirements for at least the next twelve months.
Capital expenditures of $16.6 million and $3.7 million for the six months
ended December 31, 1995 and 1994, respectively, were financed by cash from
operations and by borrowings under the Restated Credit Agreement. In addition,
the Company has entered into operating leases with equivalent equipment purchase
value of $2.2 million and $4.9 million for the six months ended December 31,
1995 and 1994, respectively.
The Company anticipates total acquisitions of capital equipment, whether
funded by capital expenditures or operating leases, with an equivalent value of
approximately $45 million in the twelve month period ended December 31, 1996.
SEASONALITY
Treasure Chest'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,
Treasure Chest'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 December 31, 1995 were 21.3%, 24.0%, 24.9%
and 29.8% of total net sales for the quarters ended March 31, June 30, September
30 and December 31, respectively. Based on its historical experience, the
Company expects its operating results to be highest in the quarter ended
December 31 and weakest in the quarter ended March 31.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Consolidated Financial Statements and
Schedules on page F-1 for Big Flower's consolidated financial statements and
notes thereto and supplementary schedules. All other schedules have been
omitted as not required or not applicable or because the information required to
be presented is included in the consolidated financial statements and related
notes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Big Flower as of May 31, 1996 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Theodore Ammon. . . . . 46 Chairman of the Board and Chief
Executive Officer
Donald E. Roland. . . . 53 Director
Sanford G. Scheller . . 64 Vice Chairman of the Board
Leon D. Black . . . . . 43 Director
Edward M. Yorke . . . . 36 Director
Peter G. Diamandis. . . 63 Director
Joan Daniels Manley . . 62 Director
Edward T. Reilly. . . . 49 President and Chief Operating Officer
Mark A. Angelson. . . . 45 Executive Vice President and General
Counsel and Secretary of the Board
</TABLE>
Theodore Ammon has been the Chairman of the Board and Chief Executive
Officer of Big Flower since its 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 Press, most recently as
Vice President, 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, 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
32
<PAGE>
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, Gillette 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 and Telemundo Group, 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 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.
Edward T. Reilly has been President and Chief Operating Officer of Big
Flower since March 1996. Prior to joining Big Flower, Mr. Reilly held a variety
of executive positions with McGraw-Hill, Inc. in their Broadcast and Publication
groups from 1968 to 1996, and served as President of McGraw-Hill Broadcasting
from 1987 to 1996. Mr. Reilly has been active in television industry affairs,
having served as the Chairman of the Television Bureau of Advertising and as a
member of the Board of Directors of the National Association of Broadcasters.
33
<PAGE>
Mark A. Angelson has been Executive Vice President and General Counsel and
Secretary of the Board of Big Flower since March 1996. Prior to joining Big
Flower, Mr. Angelson was a partner of the law firm Sidley & Austin from 1982 to
1996. Mr. Angelson was Co-Chair of Sidley's international operations, founder
of the firm's English law practice and manager of the firm's offices in
Singapore, New York and London. Mr. Angelson is admitted to practice law in the
State of New York and admitted to practice law in England and Wales.
The directors are divided into three classes, designated Class I, Class
II and Class III. Each class consists of one third of the total number of
directors constituting the entire Board of Directors. Currently, the Class I
directors are Messrs. Scheller, Black and Yorke; the Class II directors are
Ms. Manley and Mr. Diamandis; and the Class III directors are Messrs. Ammon
and Roland. The term of the initial Class I directors shall terminate on the
date of the Company's 1996 annual meeting of stockholders; the term of the
initial Class II directors shall terminate on the date of the 1997 annual
meeting of stockholders; and the term of the initial Class III directors
shall terminate on the date of the 1998 annual meeting of stockholders. At
each annual meeting of stockholders beginning in 1996, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a three-year term. If the number of directors is changed, any increase
or decrease shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A Class I,
II or III director shall hold office until the annual meeting for the year in
which such director's term expires and until such director's successor shall
be elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any director elected to
fill a vacancy shall hold office for a term that shall coincide with the term
of the class to which such director shall have been elected.
DIRECTOR COMPENSATION
Directors of Big Flower who are also executive officers of Big Flower or
its subsidiaries do not receive any additional compensation for service as a
member of the Board of Big Flower or any of its committees. All other directors
of Big Flower are paid an annual fee of $25,000.
LATE FILINGS
On one occasion, BTIP failed to file on a timely basis a statement of a
change in beneficial ownership as required by Form 3 pursuant to Section
16(a) of the Securities Exchange Act of 1934. Immediately following BTIP's
oversight, it corrected this matter.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid for the transition
period from July 1, 1995 to December 31, 1995 ("TP95") and for the fiscal years
ended June 30, 1993, June 30, 1994 and June 30, 1995, to Theodore Ammon, the
Chief Executive Officer of Big Flower, Donald E. Roland, the Chief Executive
Officer of Treasure Chest, and each of the four other most highly paid executive
officers of Treasure Chest who were serving as executive officers as of the end
of TP95 (the "Named Executive Officers"). With the March 1996 acquisition of
34
<PAGE>
Webcraft and the recent hiring of Messrs. Reilly and Angelson as executive
officers of Big Flower, the executive officers of Big Flower are Messrs. Ammon,
Reilly, Angelson and Scheller.
35
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------ ------------
AWARDS
------
SECURITIES
UNDERLYING ALL OTHER
FISCAL OTHER ANNUAL OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($) (#) ($)(2)
- --------------------------- ----- --------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Theodore Ammon TP95 344,750 - - 300,000 -
Chief Executive Officer 1995 643,750 392,600 - - 2,310
of Big Flower and 1994 529,615 447,200 - - -
Chairman of the Board of 1993 - - - - -
Treasure Chest
Donald E. Roland TP95 224,267 - 112,315(3) - 1,713
Chief Executive Officer and 1995 321,513 163,080 - - 943
President of Treasure Chest 1994 289,380 185,760 - 26,001 876
1993 247,710 92,400 - - 5,566
Herbert W. Moloney III TP95 113,667 - - - 1,815
Senior Vice President 1995 177,551 111,740 8,661(4) - 1,723
Marketing and Sales of 1994 - - - - -
Treasure Chest 1993 - - - - -
David E. Glick TP95 112,500 - - - -
Senior Vice President and General 1995 211,769 107,670 318,461(5) - 3,346
Manager of Treasure Chest 1994 191,734 127,280 - 12,441 1,771
1993 164,780 47,145 - - 5,464
Wayne S. Lynn TP95 112,500 - - - 3,079
Senior Vice President and General 1995 204,263 97,310 24,548(6) 7,775 -
Manager of Treasure Chest 1994 54,977 31,820 21,385(7) - -
1993 - - - - -
Thomas R. Zimmer TP95 112,500 - - - 727
Senior Vice President and General 1995 198,333 115,070 - 2,488 2,971
Manager of Treasure Chest 1994 151,140 80,550 - 8,460 2,530
1993 133,157 44,640 - - 2,302
_______________
</TABLE>
(1) Annual bonuses under Treasure Chest's Executive Incentive Plan are
scheduled to be determined and paid with respect to the plan year ending
June 30, 1996 in September 1996.
(2) Amounts shown for TP95 reflect 401(k) matching contributions made by
Treasure Chest to the officers' individual accounts under the Treasure
Chest Advertising Company, Inc. Savings Plus Plan.
(3) $108,315 in relocation cost reimbursements (including tax gross up) and
$4,000 in auto allowance.
(4) $8,661 in auto allowance.
(5) $308,741 in relocation cost reimbursements (including tax gross up) and
$9,720 in auto allowance.
(6) $14,828 in relocation cost reimbursements (including tax gross up) and
$9,720 in auto allowance.
(7) $18,955 in relocation cost reimbursements (including tax gross up) and
$2,430 in auto allowance.
36
<PAGE>
The following table sets forth option grants to purchase Common Stock
made to the Named Executive Officers during TP95 under the Big Flower Press
Holdings Inc. Restated 1993 Stock Award and Incentive Plan (the "1993 Stock
Plan"). The Company did not grant any SARs during TP95.
OPTION/SAR GRANTS IN TP95
INDIVIDUAL GRANTS
----------------------------------------
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM (2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED(#)(1) TP95 ($/SHARE) DATE 5%($) 10%($)
- ---- ------------- ---- -------- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Theodore Ammon 300,000 100% 16.00 11/21/05 3,018,694 7,649,963
Donald E. Roland 0 0 -- -- -- --
Herbert W. Moloney III 0 0 -- -- -- --
David E. Glick 0 0 -- -- -- --
Wayne S. Lynn 0 0 -- -- -- --
Thomas R. Zimmer 0 0 -- -- -- --
</TABLE>
(1) Mr. Ammon's options vest at the rate of 33 1/3% on each anniversary of the
date of grant. The exercise price of $16.00 was the closing price of Big
Flower's common stock on the date of the grant.
(2) The potential gains shown are net of the exercise price of the options and
do not include the effect of any taxes associated with exercise. The
amounts are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance, and may not necessarily be
realized. Actual gains, if any, upon exercise of the options will depend
on the future performance of the Common Stock, continued employment of the
optionee with the Company and other factors.
37
<PAGE>
The following table sets forth the number and value of options to purchase
Common Stock held by the Named Executive Officers as of the end of TP95.
AGGREGATED OPTION/SAR EXERCISES IN TP95
AND TRANSITION PERIOD-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT END OF TP95 (#) AT END OF TP95 ($)
SHARES ----------------- ------------------
ACQUIRED ON VALUE EXERCISABE/ EXERCISABLE/
EXERCISE (#) REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE(2)
------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Theodore Ammon -- -- 0/300,000 0/0
Donald E. Roland (2) -- -- 20,801/31,202 255,436/383,161
Herbert W. Moloney III -- -- 3,110/12,440 36,605/146,419
David E. Glick (2) -- -- 9,953/14,929 122,223/183,328
Wayne S. Lynn -- -- 3,110/12,440 36,605/146,419
Thomas R. Zimmer (2) -- -- 7,763/14,133 94,822/171,523
</TABLE>
(1) Except with respect to Mr. Ammon, shares of Common Stock purchasable upon
the exercise of options listed as "exercisable" are subject to certain
restrictions on transfer until November 1, 1996.
(2) Value of all options for Messrs. Roland and Glick and 16,920 options for
Mr. Zimmer does not include $.89 per option share paid by such individuals
to purchase such options.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The following table sets forth annual amounts payable upon retirement under
Treasure Chest's supplemental executive retirement plan (the "SERP").
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
RENUMERATION 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 80,000 120,000 160,000 700,000 240,000
900,000 45,000 90,000 135,000 180,000 225,000 270,000
</TABLE>
38
<PAGE>
The compensation covered by the SERP includes the executive's entire annual
base salary. Messrs. Ammon, Roland, Moloney, Glick, Lynn and Zimmer currently
have 2, 12, 1, 12, 11 and 26 years of service, respectively. Benefits under the
SERP 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 SERP are not
subject to a deduction for Social Security or other offset amounts.
EMPLOYMENT AND SEVERANCE AGREEMENTS
AMMON EMPLOYMENT AGREEMENT. The Company and Treasure Chest entered into an
employment agreement (the "Ammon Agreement") with Mr. Ammon, effective November
20, 1995, pursuant to which Mr. Ammon serves as Chairman 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 Ammon Agreement is three
years, subject to automatic one-year extensions commencing on the second
anniversary of the Ammon Agreement, unless either the Company or Mr. Ammon
provides specified notice to the contrary. Mr. Ammon is required to devote to
the Company the time necessary for the effective conduct of his duties under the
Ammon Agreement and is permitted to engage in outside business interests that do
not conflict with such duties or otherwise compete with the Company. Mr. Ammon
is entitled to receive an initial base salary equal to $750,000 per year and an
annual bonus targeted at not less than 50% of base salary (assuming bonus
targets under Treasure Chest's Executive Incentive Plan (the "EIP") are met),
and an annual payment of $108,000 with respect to life insurance premiums; and
certain fringe benefits, including participation in the SERP. Mr. Ammon has
been granted an option to purchase 300,000 shares of Common Stock (a) with a
ten-year term, (b) at an exercise price equal to $16.00 per share and (c)
vesting ratably over a three-year period. Mr. Ammon is also entitled to receive
a supplemental retirement benefit, subject to certain vesting and benefit
accrual requirements and to offset by amounts payable under the SERP, 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 Ammon Agreement). Mr. Ammon will have the right to terminate
the Ammon Agreement in the event of the material breach thereof by the Company
or for other "good reason" (as defined in the Ammon 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 Ammon Agreement, or for a period of six
months, if greater, all 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
Ammon 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
39
<PAGE>
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").
REILLY EMPLOYMENT AGREEMENT. The Company and Treasure Chest have entered
into an employment agreement with Mr. Reilly, effective March 29, 1996 (the
"Reilly Agreement") pursuant to which Mr. Reilly will serve as President and
Chief Operating Officer of the Company and as Vice Chairman of the Board of
Directors of Treasure Chest. The initial term of the Reilly Agreement is three
years, subject to automatic one-year extensions commencing on the second
anniversary of the Reilly Agreement, unless either the Company or Mr. Reilly
provides specified notice to the contrary. Mr. Reilly is required to devote to
the Company all of his working time, attention and efforts. Mr. Reilly is
entitled to receive an initial base salary of $500,000 per year; an annual bonus
targeted at not less than 50% of base salary (assuming bonus targets under the
EIP are met), with a guaranteed annual bonus of $250,000 payable with respect to
the fiscal year of the Company ending December 31, 1996; a signing bonus of
$37,000 to compensate Mr. Reilly with respect to the value of stock options
granted by his previous employer and forfeited in connection with his
termination of employment therewith; and certain fringe benefits, including
participation in the SERP. Mr. Reilly has been granted an option to purchase
200,000 shares of Common Stock (a) with a ten-year term, (b) at an exercise
price of $12.75 per share, and (c) vesting in installments of 20% each on
December 31, 1996, 1997, 1998, and 1999 and the remaining 20% on the fourth
anniversary of the Reilly Agreement, provided, that all such options will
immediately vest upon the occurrence of a "change in control" of the Company (as
defined in the Reilly Agreement). Mr. Reilly will have the right to terminate
the Reilly Agreement in the event of the material breach thereof by the Company
or for other "good reason" (as defined in the Reilly Agreement). In such event,
or if the Company terminates Mr. Reilly's employment without "cause" (as defined
in the Reilly Agreement), (i) Mr. Reilly will be entitled to receive a lump sum
amount equal to the sum of (A) two times the sum of (x) his then base salary
plus (y) the highest annual performance bonus Mr. Reilly received in the three
years preceding such termination of employment, plus (B) the present value of
all fringe benefits payable under the remaining term of the Reilly Agreement,
(ii) all outstanding equity incentive awards (including stock options) will
immediately vest and remain exercisable for a period of one year following the
date of such termination (or, if earlier, until the end of the option term), and
(iii) Mr. Reilly would be entitled to receive a payment sufficient to offset the
effects of any excise tax imposed under Section 4999 of the Code. During the
term of the Reilly Agreement (and, in the event Mr. Reilly terminates his
employment other than for good reason or the Company terminates Mr. Reilly's
employment for cause, for a period of one year beyond the expiration of the
employment term), Mr. Reilly will be subject to certain non-competition and non-
solicitation requirements.
ANGELSON EMPLOYMENT AGREEMENT. The Company and Treasure Chest have entered
into an employment agreement with Mr. Angelson, effective March 21, 1996 (the
"Angelson Agreement") pursuant to which Mr. Angelson will serve as Executive
Vice President, General Counsel and Secretary of the Board of Directors of the
Company and as General Counsel and a member of the Board of Directors of
Treasure Chest. The initial term of the Angelson Agreement is three years,
subject to automatic one-year
40
<PAGE>
extensions commencing on the second anniversary of the Angelson Agreement,
unless either the Company or Mr. Angelson provides specified notice to the
contrary. Mr. Angelson is required to devote to the Company and its
affiliates, all of his working time, attention and efforts. In consideration
for his services Mr. Angelson is entitled to receive an initial base salary
of $450,000 per year; an annual bonus targeted at not less than 50% of base
salary (assuming bonus targets under the EIP are met), with a guaranteed
annual bonus of $225,000 payable with respect to the fiscal year of the
Company ending December 31, 1996; annual premium payments during the term of
employment with respect to a $2 million split-dollar life insurance policy or
policies to be acquired and owned by Mr. Angelson; and certain fringe
benefits, including participation in the SERP and payment of certain expenses
in connection with Mr. Angelson's relocation from London to New York. Mr.
Angelson has been granted an option to purchase 150,000 shares of Common
Stock (a) with a ten-year term, (b) at an exercise price of $12.625 per
share, and (c) vesting in installments of 10% on December 31, 1996, 15% on
the first anniversary of the Angelson Agreement and 25% on each of the next
three anniversaries of the Angelson Agreement, provided, that all such
options will immediately vest upon the occurrence of a "change in control" of
the Company (as defined in the Angelson Agreement). Mr. Angelson will have
the right to terminate the Angelson Agreement in the event of the material
breach thereof by the Company or for other "good reason" (as defined in the
Angelson Agreement). In such event, or if the Company terminates Mr.
Angelson's employment without "cause" (as defined in the Angelson Agreement),
(i) Mr. Angelson will be entitled to receive a lump sum amount equal to the
sum of (A) two times the sum of (x) his then base salary plus (y) the highest
annual performance bonus Mr. Angelson received in the three years preceding
such termination of employment, plus (B) the present value of all insurance
premium payments and other fringe benefits payable under the remaining term
of the Angelson Agreement, (ii) all outstanding equity incentive awards
(including stock options) will immediately vest and remain exercisable for a
period of one year following the date of such termination (or, if earlier,
until the end of the option term), and (iii) Mr. Angelson would be entitled
to receive a payment sufficient to offset the effects of any excise tax
imposed under Section 4999 of the Code. During the term of the Angelson
Agreement (and, in the event Mr. Angelson terminates his employment other
than for good reason or the Company terminates Mr. Angelson's employment for
cause, for a period of one year beyond the expiration of the employment
term), Mr. Angelson will be subject to certain non-competition and
non-solicitation requirements.
SEVERANCE AGREEMENTS. The Company and Treasure Chest have entered into
severance agreements with each of Messrs. Roland, Glick, Kaplan, Lynn, Zimmer
and Moloney (the "Executive Severance Agreements"). The Executive Severance
Agreements 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
41
<PAGE>
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 $1,093,000. The acquisition of Treasure Chest by Big Flower in
1993 constituted a change in control for purposes of the Severance Benefit Plan.
Mr. Roland's Executive Severance Agreement is not currently in effect, but will
become effective and supersede his entitlement to benefits under the Severance
Benefit Plan in the event of a subsequent change in control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee during TP 95 prior to November 20,
1995 consisted of Sanford G. Scheller, Theodore Ammon and Leon D. Black, and
following such date consisted of Mr. Scheller, Mr. Black and Mr. Peter G.
Diamandis. Mr. Scheller serves as Chairman of the Compensation Committee.
There were no interlocks involving members of the Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information 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, as indicated on the
Schedule 13G's, as amended, that have been filed with Securities and Exchange
Commission, (ii) each director of Big Flower, (iii) all executive officers
and directors of Big Flower as a group as of May 31, 1996. 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 as of May 31, 1996 and include vested stock
options exercisable within 60 days to acquire 114,700 shares of Common Stock.
42
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
BENEFICIAL OWNER NUMBER(a) PERCENTAGE
- ---------------- -------- -----------
<S> <C> <C>
Theodore Ammon (b)
c/o Big Flower Press Holdings, Inc.
3 East 54th Street
New York, NY 10022 . . . . . . . . . . . . . . 2,145,144 13.1%
Apollo Big Flower Partners, L.P.
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577 . . . . . . . . . . . 4,470,992 27.2%
BT Capital Partners Inc.
280 Park Avenue
New York, New York. . . . . . . . . . . . . . . 1,738,692 10.6%
Denver Investment Advisors LLC
1225 17th Street, 26th Floor
Denver, Colorado 80202 . . . . . . . . . . . . 1,001,500 6.1%
Leon D. Black (c) . . . . . . . . . . . . . . . . -- --
Edward M. Yorke (c) . . . . . . . . . . . . . . . -- --
Peter G. Diamandis (d)
Donnelley Marketing Inc.
70 Seaview Avenue
Stamford, CT 06902 . . . . . . . . . . . . . . 13,400 *
Joan Daniels Manley (e)
P.O. Box 1353
Dillon, CO 80435 . . . . . . . . . . . . . . . 13,400 *
Sanford G. Scheller (f)
c/o Treasure Chest Advertising Company, Inc.
13000 Sawgrass Village, Suite 28
Ponte Vedra Beach, FL 32082. . . . . . . . . . 240,624 1.5%
Donald E. Roland (g)
c/o Treasure Chest Advertising Company, Inc.
250 West Pratt Street
Baltimore, MD 21201. . . . . . . . . . . . . . 110,461 *
All directors and executive officers as a group
(9 persons) (c)(h). . . . . . . . . . . . . . . 2,523,029 15.3%
* Less than 1%
</TABLE>
(footnotes on next page)
43
<PAGE>
(footnotes continued from the prior page)
(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 ratably over
the three-year period following the Offering.
(c) Does not include shares owned by Apollo Big Flower Partners, L.P.
("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.
(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. 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. Additionally, Mr. Roland holds unvested options to
purchase 31,202 shares of Common Stock, subject to vesting over the next
three years.
(h) Includes options to purchase 114,700 shares of Common Stock which are
presently exercisable. Additionally, directors and officers as a group
hold unvested options to purchase 364,750 shares of Common Stock, subject
to vesting over the next year to three years.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 10, 1995 certain officers, members of management and key
employees of Treasure Chest purchased an aggregate of 84,842 shares of Common
Stock (which shares are subject to certain "call" provisions) and were granted
options to purchase 49,208 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, 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.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS - Reference is made to Section "1" of the Index
to Consolidated Financial Statements and Schedules on page F-1.
(a)(2) FINANCIAL STATEMENT SCHEDULES - Reference is made to Section "1" of
the Index to Consolidated Financial Statements and Schedules on page
F-1. All other schedules have been omitted as not required or not
applicable or because the information required to be presented is
included in the financial statements and related notes.
(a)(3) EXHIBITS - The following exhibits are filed as a part of this report
or incorporated by reference and will be furnished to any security
holder upon request for such exhibit and payment of any reasonable
expenses incurred by the Company. Send any such request to the
Company at 3 East 54th Street, New York, New York 10022; Attention:
Secretary.
45
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
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 the 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.(10)
2.9 Agreement and Plan of Merger dated February 1, 1996, among Big Flower
Press Holdings, Inc., WTI Acquisition Corp., and Webcraft
Technologies, Inc.(10)
3.1 Restated Certificate of Incorporation of Big Flower Press Holdings,
Inc. filed on December 19, 1995.(10)
3.2 Certificate of Designation Preferences and Rights of Series A Junior
Preferred Stock of Big Press Holdings, Inc.(10)
3.3 Amended and Restated Bylaws of Big Flower Press Holdings, Inc.(10)
4.1 Rights Agreement dated November 28, 1995, between Big Flower Press
Holdings, Inc. and the Bank of New York, as rights agent.(10)
46
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.1 Restated Credit Agreement, dated March 19, 1996, among Treasure Chest
Advertising Company, Inc., the financial institutions named therein,
Credit Suisse, as Documentation Agent, and Bankers Trust Company, as
Administrative Agent. (13)
10.2 Indenture, dated as of August 1, 1993, by and between Big Flower
Press, Inc. and Shawmut Bank Connecticut, National Association (the
"August Indenture").(7)
10.3 First Supplemental Indenture, dated as of July 19, 1994, to the August
Indenture.(8)
10.4 Second Supplemental Indenture, dated as of November 28, 1995, to the
August Indenture.
10.5 Indenture, dated as of April 15, 1994, between Big Flower Press, Inc.
and Shawmut Bank Connecticut, National Association, as Trustee (the
"April Indenture").(5)
10.6 First Supplemental Indenture, dated as of November 28, 1995, to the
April Indenture.
10.7 Certificate Purchase Agreement (Series 1996-1), dated as of March 19,
1996, by BFP Receivables Corporation, Big Flower Press Holdings, Inc.,
the Purchasers described therein, Credit Suisse, as Co-Agent, and
Bankers Trust Company, as Agent. (13)
10.8 Non-Competition Agreement, dated November 27, 1995, between Big Flower
Press Holdings, Inc. and Brian Mason.(10)
10.9 Non-Competition Agreement, dated as of April 27, 1994, by and among
BFP Holdings Corp., Treasure Chest Advertising Company, Inc. and Lee
A. Thompson.(5)
10.10 Non-Competition Agreement, dated as of April 27, 1994, by and among
BFP Holdings Corp., Treasure Chest Advertising Company, Inc. and John
G. Brown.(5)
10.11 Non-Competition Agreement, dated as of April 27, 1994, by and among
BFP Holdings Corp., Treasure Chest Advertising Company, Inc. and
Thomas G. Hansen.(5)
47
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.12 Non-Competition Agreement dated as of April 27, 1994, by and among BFP
Holdings Corp., Treasure Chest Advertising Company, Inc. and Gary W.
Pestello.(5)
10.13 Non-Competition Agreement, dated as of August 5, 1993, by and among
Big Flower Press, Inc., Robert E. Milhous and Paul B. Milhous,
together with assignment to Treasure Chest Advertising Company, Inc.
10.14 Employment Agreement, effective March 21, 1996, by and between Mark A.
Angelson, Big Flower Press Holdings, Inc., and Treasure Chest
Advertising Company, Inc.(13)
10.15 Employment Agreement, effective March 29, 1996, by and between Edward
T. Reilly, Big Flower Press Holdings, Inc. and Treasure Chest
Advertising Company, Inc.(13)
10.16 Employment Agreement, dated November 27, 1995, by and between Laser
Tech Color, Inc., and Damien Gough.
10.17 Employment Agreement, dated November 20, 1995, among Big Flower Press
Holdings, Inc., Treasure Chest Advertising Company., Inc. and Theodore
Ammon.(10)
10.18 Employment Agreement, dated April 27, 1994, between Treasure Chest
Advertising Company, Inc. and Thomas Clemente.(5)
10.19 Employment Agreement, dated April 27, 1994, between Treasure Chest
Advertising Company, Inc. and Joseph Clemente.(5)
10.20 Employment Agreement, dated April 27, 1994, between Treasure Chest
Advertising Company, Inc. and Kevin Clemente.(5)
10.21 Agreement for Consulting Services and a Non-Qualified Retirement
Benefit, dated as of April 6, 1993, between Treasure Chest Advertising
Company, Inc. and Sanford G. Scheller.(6)
10.22 Treasure Chest Advertising Company, Inc. Executive Incentive Plan.(10)
10.23 Big Flower Press Holdings, Inc. Restated 1993 Stock Award and
Incentive Plan.(12)
10.24 Amendment No. 1 to Big Flower Press Holdings, Inc. Restated 1993 Stock
Award and Incentive Plan.(10)
48
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.25 Form of Non-Qualified Employment Benefits Agreement.(1)
10.26 Form of Treasure Chest Advertising Company, Inc.'s Nonqualified
Retirement Plan, effective January 1, 1994.(5)
10.27 Form of Treasure Chest Advertising Company, Inc.'s Supplemental
Executive Retirement Plan, effective January 1, 1994.(5)
10.28 Form of Treasure Chest Advertising Company, Inc.'s Deferred
Compensation Plan, effective February 1, 1994.(5)
10.29 Treasure Chest Advertising Company, Inc. Severance Benefit Plan,
effective as of June 1, 1989.(1)
10.30 Severance Benefit Agreement, dated as of June 29, 1989, between
Treasure Chest Advertising Company, Inc. and Donald E. Roland.(1)
10.31 Form of Executive Change of Control Severance Agreement.(11)
10.32 Registration Rights Agreement, dated as of August 12, 1993, by and
among BFP Holdings Corp., each of the purchasers listed on Schedule 1
thereto, Theodore Ammon, Berenson Minella & Company, L.P. and each
other purchasers who executed the agreement.(5)
10.33 Amendment to Registration Rights Agreement, dated as of April 27,
1994, by and among BFP Holdings Corp., each of the purchasers listed
on Schedule 1 thereto, Theodore Ammon, Berenson Minella & Company,
L.P. and each other purchasers who executed the agreement.(5)
10.34 Form of Management Subscription Agreement, dated as of November 1,
1993, by and among Big Flower Press Holdings, Inc., Theodore Ammon and
each purchaser who executed the agreement.(5)
10.35 Form of Award Agreement, dated as of November 1, 1993, by and between
Big Flower Press Holdings, Inc. and each purchaser who executed the
agreement.(5)
10.36 Form of Securities Pledge Agreement, dated as of November 1, 1993, by
and between Treasure Chest and each purchaser who executed the
agreement.(5)
10.37 Form of Secured Promissory Note, dated January 10, 1995, payable to
Treasure Chest Advertising Company, Inc.(9)
49
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.38 Secured Promissory Note, dated January 10, 1995, payable to Treasure
Chest Advertising Company, Inc. by Herbert W. Moloney III in the
amount of $66,000.(9)
10.39 Boca Raton Letter Agreement, dated, May 10, 1993, by and among Robert
E. Milhous, Paul B. Milhous, Big Flower Press, Inc. and Treasure Chest
Advertising Company, Inc.(1)
10.40 Ink Supply Requirements Agreement, dated as of July 31, 1993, between
Treasure Chest Advertising Company, Inc. and Marpax, Inc. (the "Ink
Supply Agreement").(6)
10.41 Amendment to Ink Supply Agreement.(8)
10.42 Master Lease Agreement, dated December 21, 1993, between KTB
Associates, Inc. and Chase Equipment Leasing, Inc.(5)
10.43 Master Lease Agreement No. Atel/Trea3, dated as of August 31, 1993,
between ATEL Financial Corporation and Treasure Chest Advertising
Company, Inc.(5)
10.44 Master Lease, dated as of July 7, 1993, between General Electric
Capital Corporation and Treasure Chest Advertising Company, Inc.(5)
10.45 Master Lease, dated as of December 28, 1992, between ITT Capital
Finance division of ITT Commercial Finance Corp. and Treasure Chest
Advertising Company, Inc.(9)
10.46 Master Equipment Lease Agreement, dated as of July 28, 1992, between
AT&T Commercial Finance Corporation and Treasure Chest Advertising
Company, Inc.(5)
10.47 Master Lease Agreement, dated May 16, 1991, between KTB Associates,
Inc. and Chase Lincoln Lease/Way, Inc.(5)
10.48 Master Lease Agreement, dated June 22, 1990, between KTB Associates,
Inc. and Chase Lincoln Lease/Way Inc.(5)
50
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.49 Master Lease, dated as of June 21, 1991 (and as amended through
08/31/93), between The CIT Group/Equipment Financing, Inc. and
Treasure Chest Advertising Company, Inc.(5)
21.1 Subsidiaries of Big Flower Press Holdings, Inc.
23.1 Consent of Deloitte & Touche LLP
____________
(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, Inc., Amendment No. 2
to the Form S-1, filed on July 19, 1993 (File #33-63392).
(7) Incorporated by reference to Big Flower Press, Inc., Form 10-Q, for
the quarterly period ended September 30, 1993 (File # 33-63392).
(8) Incorporated by reference to BFP Holdings, Corp., Amendment No. 2 to
Form S-1, filed on August 2, 1994 (File # 33-79406).
(9) Incorporated by reference to Big Flower Press Holdings, Inc. Form S-1,
filed on September 19, 1995 (File # 33-97082).
(10) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-
Q, for the quarterly period ended December 31, 1995 (File # 1-14084).
51
<PAGE>
(11) Incorporated by reference to Big Flower Press Holdings, Inc.,
Amendment No. 2 to the Form S-1, filed on November 14, 1995 (File #33-
97082).
(12) Incorporated by reference to Big Flower Press Holdings, Inc., Form 10-
K, for the fiscal year ended June 30, 1995 (File #33-79406).
(13) Incorporated by reference to Big Flower Press Holdings, Inc., Form 10-
Q, filed on May 15, 1996 (Accession # 0000912057-96-009947).
(b) Form of Reports on Form 8-K.
A Current Report on Form 8-K was filed (i) on November 28, 1995
concerning the merger of Big Flower Press, Inc., a subsidiary of Big
Flower Press Holdings, Inc., with and into Big Flower Press Holdings,
Inc., and (ii) on December 11, 1995 concerning the acquisition of
Laser Tech Color, Inc. by Big Flower Press Holdings, Inc.
(c) The exhibits required by Item 601 of Regulation S-K filed as part of
this report or incorporated herein by reference are listed in Item
14(a)(3) above, and the exhibits filed herewith are listed on the
Index to Exhibits which accompanies this report.
(d) See Item 14(a)(2) of this report.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BIG FLOWER PRESS HOLDINGS, INC.
BY: /s/ Theodore Ammon
--------------------------
Theodore Ammon
Chairman of the Board
DATE June 18, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Theodore Ammon June 18, 1996
- --------------------------------- -----------------
Theodore Ammon Date
Chairman of the Board,
Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer
/s/ Sanford G. Scheller June 18, 1996
- --------------------------------- -----------------
Sanford G. Scheller Date
Vice Chairman
/s/ Leon D. Black June 18, 1996
- --------------------------------- -----------------
Leon D. Black Date
Director
/s/ Peter G. Diamandis June 18, 1996
- --------------------------------- -----------------
Peter G. Diamandis Date
Director
53
<PAGE>
/s/ Joan Daniels Manley June 18, 1996
- --------------------------------- -----------------
Joan Daniels Manley Date
Director
/s/ Donald E. Roland June 18, 1996
- --------------------------------- -----------------
Donald E. Roland Date
Director
/s/ Edward M. Yorke June 18, 1996
- --------------------------------- -----------------
Edward M. Yorke Date
Director
54
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
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 the 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.(10)
2.9 Agreement and Plan of Merger dated February 1,
1996, among Big Flower Press Holdings, Inc., WTI
Acquisition Corp., and Webcraft Technologies,
Inc.(10)
3.1 Restated Certificate of Incorporation of Big
Flower Press Holdings, Inc. filed on December 19,
1995.(10)
3.2 Certificate of Designation Preferences and Rights
of Series A Junior Preferred Stock of Big Press
Holdings, Inc.(10)
3.3 Amended and Restated Bylaws of Big Flower Press
Holdings, Inc.(10)
4.1 Rights Agreement dated November 28, 1995, between
Big Flower Press Holdings, Inc. and the Bank of
New York, as rights agent.(10)
55
<PAGE>
Exhibit No. Description Page No.
- ----------- ----------- --------
10.1 Restated Credit Agreement, dated March 19, 1996,
among Treasure Chest Advertising Company, Inc.,
the financial institutions named therein, Credit
Suisse, as Documentation Agent, and Bankers Trust
Company, as Administrative Agent. (13)
10.2 Indenture, dated as of August 1, 1993, by and
between Big Flower Press, Inc. and Shawmut Bank
Connecticut, National Association (the "August
Indenture").(7)
10.3 First Supplemental Indenture, dated as of July 19,
1994, to the August Indenture.(8)
10.4 Second Supplemental Indenture, dated as of
November 28, 1995, to the August Indenture.
10.5 Indenture, dated as of April 15, 1994, between Big
Flower Press, Inc. and Shawmut Bank Connecticut,
National Association, as Trustee (the "April
Indenture").(5)
10.6 First Supplemental Indenture, dated as of November
28, 1995, to the April Indenture.
10.7 Certificate Purchase Agreement (Series 1996-1),
dated as of March 19, 1996, by BFP Receivables
Corporation, Big Flower Press Holdings, Inc., the
Purchasers described therein, Credit Suisse, as
Co-Agent, and Bankers Trust Company, as Agent.
(13)
10.9 Non-Competition Agreement, dated as of April 27,
1994, by and among BFP Holdings Corp., Treasure
Chest Advertising Company, Inc. and Lee A.
Thompson.(5)
10.10 Non-Competition Agreement, dated as of April 27,
1994, by and among BFP Holdings Corp., Treasure
Chest Advertising Company, Inc. and John G.
Brown.(5)
10.11 Non-Competition Agreement, dated as of April 27,
1994, by and among BFP Holdings Corp., Treasure
Chest Advertising Company, Inc. and Thomas G.
Hansen.(5)
10.12 Non-Competition Agreement dated as of April 27,
1994, by and among BFP Holdings Corp., Treasure
Chest Advertising Company, Inc. and Gary W.
Pestello.(5)
10.13 Non-Competition Agreement, dated as of August 5,
1993, by and among Big Flower Press, Inc., Robert
E. Milhous and Paul B. Milhous, together with
assignment to Treasure Chest Advertising Company,
Inc.(1)
10.14 Employment Agreement, effective March 21, 1996, by
and between Mark A. Angelson, Big Flower Press
Holdings, Inc., and Treasure Chest Advertising
Company, Inc.(13)
10.15 Employment Agreement, effective March 29, 1996, by
and between Edward T. Reilly, Big Flower Press Holdings, Inc.
and Treasure Chest Advertising Company, Inc.(13)
10.16 Employment Agreement, dated November 27, 1995, by
and between Laser Tech Color, Inc., and Damien
Gough.
56
<PAGE>
Exhibit No. Description Page No.
- ----------- ----------- --------
10.17 Employment Agreement, dated November 20, 1995,
among Big Flower Press Holdings, Inc., Treasure
Chest Advertising Company., Inc. and Theodore
Ammon.(10)
10.18 Employment Agreement, dated April 27, 1994,
between Treasure Chest Advertising Company, Inc.
and Thomas Clemente.(5)
10.19 Employment Agreement, dated April 27, 1994,
between Treasure Chest Advertising Company, Inc.
and Joseph Clemente.(5)
10.20 Employment Agreement, dated April 27, 1994,
between Treasure Chest Advertising Company, Inc.
and Kevin Clemente.(5)
10.21 Agreement for Consulting Services and a Non-
Qualified Retirement Benefit, dated as of April 6,
1993, between Treasure Chest Advertising Company,
Inc. and Sanford G. Scheller.(6)
10.22 Treasure Chest Advertising Company, Inc. Executive
Incentive Plan.(10)
10.23 Big Flower Press Holdings, Inc. Restated 1993
Stock Award and Incentive Plan.(12)
10.24 Amendment No. 1 to Big Flower Press Holdings, Inc.
Restated 1993 Stock Award and Incentive Plan.(10)
10.25 Form of Non-Qualified Employment Benefits
Agreement.(1)
10.26 Form of Treasure Chest Advertising Company, Inc.'s
Nonqualified Retirement Plan, effective January 1,
1994.(5)
10.27 Form of Treasure Chest Advertising Company, Inc.'s
Supplemental Executive Retirement Plan, effective
January 1, 1994.(5)
10.28 Form of Treasure Chest Advertising Company, Inc.'s
Deferred Compensation Plan, effective February 1,
1994.(5)
10.29 Treasure Chest Advertising Company, Inc. Severance
Benefit Plan, effective as of June 1, 1989.(1)
10.30 Severance Benefit Agreement, dated as of June 29,
1989, between Treasure Chest Advertising Company,
Inc. and Donald E. Roland.(1)
10.31 Form of Executive Change of Control Severance
Agreement.(11)
10.32 Registration Rights Agreement, dated as of August
12, 1993, by and among BFP Holdings Corp., each of
the purchasers listed on Schedule 1 thereto,
Theodore Ammon, Berenson Minella & Company, L.P.
and each other purchasers who executed the
agreement.(5)
57
<PAGE>
Exhibit No. Description Page No.
- ----------- ----------- --------
10.33 Amendment to Registration Rights Agreement, dated
as of April 27, 1994, by and among BFP Holdings
Corp., each of the purchasers listed on Schedule 1
thereto, Theodore Ammon, Berenson Minella &
Company, L.P. and each other purchasers who
executed the agreement.(5)
10.34 Form of Management Subscription Agreement, dated
as of November 1, 1993, by and among Big Flower
Press Holdings, Inc., Theodore Ammon and each
purchaser who executed the agreement.(5)
10.35 Form of Award Agreement, dated as of November 1,
1993, by and between Big Flower Press Holdings,
Inc. and each purchaser who executed the
agreement.(5)
10.36 Form of Securities Pledge Agreement, dated as of
November 1, 1993, by and between Treasure Chest
and each purchaser who executed the agreement.(5)
10.37 Form of Secured Promissory Note, dated January 10,
1995, payable to Treasure Chest Advertising
Company, Inc.(9)
10.38 Secured Promissory Note, dated January 10, 1995,
payable to Treasure Chest Advertising Company,
Inc. by Herbert W. Moloney III in the amount of
$66,000.(9)
10.39 Boca Raton Letter Agreement, dated, May 10, 1993,
by and among Robert E. Milhous, Paul B. Milhous,
Big Flower Press, Inc. and Treasure Chest
Advertising Company, Inc.(1)
10.40 Ink Supply Requirements Agreement, dated as of
July 31, 1993, between Treasure Chest Advertising
Company, Inc. and Marpax, Inc. (the "Ink Supply
Agreement").(6)
10.41 Amendment to Ink Supply Agreement.(8)
10.42 Master Lease Agreement, dated December 21, 1993,
between KTB Associates, Inc. and Chase Equipment
Leasing, Inc.(5)
10.43 Master Lease Agreement No. Atel/Trea3, dated as of
August 31, 1993, between ATEL Financial
Corporation and Treasure Chest Advertising
Company, Inc.(5)
10.44 Master Lease, dated as of July 7, 1993, between
General Electric Capital Corporation and Treasure
Chest Advertising Company, Inc.(5)
10.45 Master Lease, dated as of December 28, 1992,
between ITT Capital Finance division of ITT
Commercial Finance Corp. and Treasure Chest
Advertising Company, Inc.(9)
58
<PAGE>
Exhibit No. Description Page No.
- ----------- ----------- --------
10.46 Master Equipment Lease Agreement, dated as of July
28, 1992, between AT&T Commercial Finance
Corporation and Treasure Chest Advertising
Company, Inc.(5)
10.47 Master Lease Agreement, dated May 16, 1991,
between KTB Associates, Inc. and Chase Lincoln
Lease/Way, Inc.(5)
10.48 Master Lease Agreement, dated June 22, 1990,
between KTB Associates, Inc. and Chase Lincoln
Lease/Way Inc.(5)
10.49 Master Lease, dated as of June 21, 1991 (and as
amended through 08/31/93), between The CIT
Group/Equipment Financing, Inc. and Treasure Chest
Advertising Company, Inc.(5)
21.1 Subsidiaries of Big Flower Press Holdings, Inc.
23.1 Consent of Deloitte & Touche LLP
____________
(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, Inc., Amendment No. 2 to
the Form S-1, filed on July 19, 1993 (File #33-63392).
(7) Incorporated by reference to Big Flower Press, Inc., Form 10-Q, for the
quarterly period ended September 30, 1993 (File # 33-63392).
(8) Incorporated by reference to BFP Holdings, Corp., Amendment No. 2 to Form
S-1, filed on August 2, 1994 (File # 33-79406).
(9) Incorporated by reference to Big Flower Press Holdings, Inc. Form S-1,
filed on September 19, 1995 (File # 33-97082).
59
<PAGE>
(10) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-Q,
for the quarterly period ended December 31, 1995 (File # 1-14084).
(11) Incorporated by reference to Big Flower Press Holdings, Inc., Amendment
No. 2 to the Form S-1, filed on November 14, 1995 (File #33-97082).
(12) Incorporated by reference to Big Flower Press Holdings, Inc., Form 10-K,
for the fiscal year ended June 30, 1995 (File #33-79406).
(13) Incorporated by reference to Big Flower Press Holdings, Inc., Form 10-Q,
filed on May 15, 1996 (Accession # 0000912057-96-009947).
(b) Form of Reports on Form 8-K.
A Current Report on Form 8-K was filed (i) on November 28, 1995
concerning the merger of Big Flower Press, Inc., a subsidiary of Big
Flower Press Holdings, Inc., with and into Big Flower Press Holdings,
Inc., and (ii) on December 11, 1995 concerning the acquisition of Laser
Tech Color, Inc. by Big Flower Press Holdings, Inc.
(c) The exhibits required by Item 601 of Regulation S-K filed as part of this
report or incorporated herein by reference are listed in Item 14(a)(3)
above, and the exhibits filed herewith are listed on the Index to
Exhibits which accompanies this report.
(d) See Item 14(a)(2) of this report.
60
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
AND TREASURE CHEST ADVERTISING COMPANY, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULES
1. Financial Statements:
F-2 Independent Auditors' Reports.
F-3 Consolidated Balance Sheets - December 31, 1995 and June 30, 1995 and
1994.
F-5 Consolidated Statements of Operations for the Six Months Ended December
31, 1995, the Year Ended June 30, 1995, the 323 Days Ended June 30, 1994,
the 42 Days Ended August 11, 1993, and the Year Ended June 30, 1993.
F-6 Consolidated Statements of Stockholders' Equity for the Six Months Ended
December 31, 1995, the Year Ended June 30, 1995, for the 323 Days Ended
June 30, 1994, for the 42 Days Ended August 11, 1993, and for the Year
Ended June 30, 1993.
F-8 Consolidated Statements of Cash Flows for the Six Months Ended December
31, 1995, the Year Ended June 30, 1995, the 323 Days Ended June 30, 1994,
the 42 Days Ended August 11, 1993 and the Year Ended June 30, 1993.
F-11 Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
F-31 Independent Auditors Report on Financial Statements Schedules.
F-32 I. Condensed Financial information of Big Flower for the Six Months
Ended December 31, 1995, the Year Ended June 30, 1995 and the 323
Days Ended June 30, 1994.
F-36 II. Valuation and Qualifying Accounts and Reserves for the Year Ended
June 30, 1993, for the 42 Days Ended August 11, 1993 and for the
323 Days Ended June 30, 1994, the Year Ended June 30, 1995 and the
Six Months Ended December 31, 1995.
61
<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 December 31, 1995 and
June 30, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the six months ended December 31, 1995,
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 December 31, 1995 and
June 30, 1995 and 1994, and the results of its operations and its cash flows for
the six months ended December 31, 1995, 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.
Los Angeles, California
May 3, 1996
F-1
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
-----------------------------
1994 1995 1995
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,413 $ 1,395 $ 4,598
Accounts receivable, net of allowance for doubtful
accounts of $5,266, $5,308 and $7,340 103,260 97,146 131,411
Inventories 24,704 45,757 41,797
Prepaid expenses 6,780 4,152 5,194
Deferred income taxes and income tax receivable 4,487 12,506 22,623
-------- -------- --------
Total current assets 141,644 160,956 205,623
PROPERTY, PLANT AND EQUIPMENT, Net of
accumulated depreciation of $12,157, $31,845 and
$41,018 144,737 129,181 137,838
OTHER ASSETS, Net of accumulated amortization
of $1,965, $5,431 and $2,905 24,359 21,100 22,147
INTANGIBLES, Net of accumulated amortization
of $15,375, $36,179 and $29,978 194,387 175,265 188,480
-------- -------- --------
TOTAL $505,127 $486,502 $554,088
-------- -------- --------
-------- -------- --------
</TABLE>
See the accompanying notes to consolidated financial statements.
(Continued)
F-2
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1995 1995
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable $ 18,119
Current portion of long-term debt $ 3,982 $ 8,671 3,335
Accounts payable 73,651 68,504 105,915
Compensation and benefits payable 17,009 20,135 18,344
Other current liabilities 22,428 31,534 33,687
---------- ---------- ----------
Total current liabilities 117,070 128,844 179,400
Revolving credit facility 41,024 10,247 144,500
Long-term debt, net of current portion 287,764 287,729 125,942
Deferred income taxes 15,035 16,286 14,934
Other long-term liabilities 9,900 9,774 10,370
---------- ---------- ----------
Total liabilities 470,793 452,880 475,146
---------- ---------- ----------
COMMITMENTS AND CONTINGENT
LIABILITIES
REDEEMABLE PREFERRED STOCK OF
A SUBSIDIARY 16,913 19,357
---------- ----------
COMMON STOCK SUBJECT TO REDEMPTION 1,648 2,782 1,011
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 49 49 157
Additional paid-in capital 20,166 20,238 100,892
Accumulated deficit (4,442) (7,488) (21,680)
Subscription notes receivable (263)
Unearned compensation (1,316) (1,175)
---------- ---------- ----------
Total stockholders' equity 15,773 11,483 77,931
---------- ---------- ----------
TOTAL $ 505,127 $ 486,502 $ 554,088
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See the accompanying notes to consolidated financial statements.
(Concluded)
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>
- ------------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR SUCCESSOR
---------------------------- ---------------------------------------------
YEAR 42 DAYS 323 DAYS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30, DECEMBER 31,
1993 1993 1994 1995 1995
<S> <C> <C> <C> <C> <C>
Net sales $555,013 $ 59,584 $ 565,046 $ 896,595 $ 532,352
Costs of production 491,685 54,692 493,075 777,728 459,843
-------- --------- ---------- ----------- -----------
Gross profit 63,328 4,892 71,971 118,867 72,509
Selling, general and administrative
expense 40,892 4,227 48,777 70,587 34,920
Interest expense 9,227 704 21,286 40,486 20,578
Interest income (1,153) (22) (53) (279) (442)
Equity in loss of unconsolidated
companies 1,231
Other expense, net 2,927 211 2,726 2,836 6,000
Preferred dividends of a subsidiary 1,913 2,444 1,068
-------- --------- ---------- ----------- -----------
Income (loss) before income taxes 10,204 (228) (2,678) 2,793 10,385
Provision (benefit) for income taxes 5,519 (89) 1,764 5,839 5,329
-------- --------- ---------- ----------- -----------
Income (loss) before extraordinary
item 4,685 (139) (4,442) (3,046) 5,056
Extraordinary item, net of income
taxes (19,248)
-------- --------- ---------- ----------- -----------
Net income (loss) $ 4,685 $ (139) $ (4,442) $ (3,046) (14,192)
-------- --------- ---------- ----------- -----------
-------- --------- ---------- ----------- -----------
Premium on redemption of
preferred stock of a subsidiary (1,682)
-----------
Net loss available to common
stockholders $ (15,874)
-----------
-----------
Income (loss) per common and
common equivalent share:
Income (loss) before extraordinary
item $ (0.46) $ (0.28) $ 0.28
---------- ----------- -----------
---------- ----------- -----------
Extraordinary item, net $ (1.57)
-----------
Net loss $ (0.46) $ (0.28) $ (1.29)
---------- ----------- -----------
---------- ----------- -----------
Weighted average shares
outstanding 9,668,111 10,831,957 12,293,097
---------- ----------- -----------
---------- ----------- -----------
</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
TREASURE CHEST SHARES COMMON RETAINED RECEIVABLE
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>
See the accompanying notes to consolidated financial statements.
F-5
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SUB-
ADDITIONAL ACCUM- CRIPTION UNEARNED
BIG FLOWER PRESS SHARES COMMON PAID-IN ULATED NOTES COMPEN-
HOLDINGS, INC. OUTSTANDING STOCK CAPITAL DEFICIT RECEIVABLE SATION TOTAL
<S> <C> <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
Stock split 4,875,420 49 (49)
Net proceeds from issuance
of common stock 5,500,000 55 80,355 80,410
Net loss (14,192) (14,192)
Premium on redemption of
preferred stock of a
subsidiary (1,682) (1,682)
Amortization of unearned
compensation 141 141
Reclassification of common
stock subject to redemption 433,761 4 2,030 $(263) 1,771
----------- ----- --------- -------- ----- -------- --------
BALANCE,
DECEMBER 31, 1995 15,684,601 $ 157 $ 100,892 $(21,680) $(263) $ (1,175) $ 77,931
----------- ----- --------- -------- ----- -------- --------
----------- ----- --------- -------- ----- -------- --------
</TABLE>
See the accompanying notes to consolidated financial statements.
F-6
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR SUCCESSOR
---------------------------- ---------------------------------------------
YEAR 42 DAYS 323 DAYS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30, DECEMBER 31,
1993 1993 1994 1995 1995
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 4,685 $ (139) $ (4,442) $ (3,046) $ (14,192)
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 2,548
Deferred income taxes 225 (283) 217 (5,360) 102
Depreciation and amortization 12,707 1,275 27,778 42,095 18,351
Deferred interest 2,375 7,768 3,603
Amortization of deferred financing
costs 2,435 126 1,936 3,437 1,594
Preferred dividends of a subsidiary 1,913 2,444 1,068
Equity in loss of unconsolidated
companies 1,231
(Gain) loss on disposition of property,
plant and equipment 870 (551) 397 219
Extraordinary item 19,248
Changes in operating assets and
liabilities:
Accounts receivable (244) 3,618 (17,841) 4,403 (26,850)
Inventories (956) (1,771) (573) (22,863) 6,465
Prepaid expenses (891) (407) (848) 2,628 (846)
Accrued interest on notes receivable
from related parties and ESOT (554) (159) (225)
Other assets (497) 36 581 96 536
Accounts payable, compensation and
benefits payable and other liabilities (1,570) (8,774) 18,025 11,206 14,440
------- ------- -------- -------- ---------
Net cash provided by (used in)
operating activities 21,823 (6,363) 28,285 44,916 26,286
------- ------- -------- -------- ---------
------- ------- -------- -------- ---------
</TABLE>
See the accompanying notes to consolidated financial statements.
(Continued)
F-7
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR SUCCESSOR
---------------------------- ---------------------------------------------
YEAR 42 DAYS 323 DAYS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30, DECEMBER 31,
1993 1993 1994 1995 1995
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures $ (6,967) $ (1,280) $ (5,537) $ (7,142) $ (16,657)
Proceeds from sale of property, plant
and equipment 17,675 1,107 1,305 53
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)
Acquisition of Retail Graphics and KTB (71,297)
Acquisition of Laser Tech (2,584)
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) (19,188)
------- ------- --------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments for long-term debt (51,258) (565) (57,496) (3,114) (199,360)
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) (10,247)
Net borrowings (repayments) under
new line of credit 41,024 (30,777) 144,500
Increase (decrease) in cash overdraft 13,772 (8,542) (5,698) 10,215
Deferred financing costs (21,787) (302) (7,306)
Proceeds from issuance of common
stock 21,964 566 80,410
</TABLE>
See the accompanying notes to consolidated financial statements.
(Continued)
F-8
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
TREASURE CHEST ADVERTISING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR SUCCESSOR
---------------------------- ---------------------------------------------
YEAR 42 DAYS 323 DAYS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30, DECEMBER 31,
1993 1993 1994 1995 1995
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES (Cont'd):
Issuance of promissory notes $ 2,000
Repayment of promissory notes (2,000)
Payments for repurchase of
common stock $ (596) (101) $ (772)
Purchase of redeemable preferred
stock of a subsidiary $(22,107)
-------- ------ -------- -------- --------
Net cash provided by (used in)
financing activities (31,543) $6,209 243,194 (40,097) (3,895)
-------- ------ -------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 988 (1,434) 1,850 (1,018) 3,203
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,009 1,997 563 2,413 1,395
-------- ------ -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,997 $ 563 $ 2,413 $ 1,395 $ 4,598
-------- ------ -------- -------- --------
-------- ------ -------- -------- --------
</TABLE>
See the accompanying notes to consolidated financial statements.
(Concluded)
F-9
<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").
On August 12, 1993, the Company acquired Treasure Chest (the
"Acquisition"). 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
credit agreement entered into by Treasure Chest and a group of banks,
(ii) the proceeds of a $150.0 million offering by BFP of senior
subordinated notes due 2003 (the "10-3/4% Notes"), (iii) issuance by BFP
of $15.0 million of preferred stock to the ESOT (the "BFP Preferred
Stock") 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. Big Flower
obtained the cash contributions to BFP through a placement of Big
Flower's common stock and 11% debentures (the "11% Debentures").
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, Inc.
of New York, 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; and (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 acquisition 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 its
senior
F-10
<PAGE>
subordinated notes due 2003 (the "BFP Notes"); and (iii) a contribution of
capital by Big Flower of a portion of the proceeds of an offering by Big
Flower of 76,543 units consisting of an aggregate of $76,543,000 aggregate
principal amount of Big Flower's senior discount notes (the "13-1/2%
Notes") and 612,344 shares of Class D common stock of Big Flower.
The acquisitions of Treasure Chest, 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 the acquired companies' assets and liabilities based on their
relative fair values as of the closing dates of the acquisitions, 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 unaudited pro forma information has been
prepared as though the acquisitions of Treasure Chest, 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 $ (2.23) $ (0.85)
</TABLE>
On November 27, 1995, BFP acquired Laser Tech Color, Inc. (Laser Tech).
The purchase price was comprised of (i) $3.0 million paid on the closing
date of such transactions, (ii) a $13.6 million note which matured in
January 1996 and (iii) and a $4.5 million note which converted into 281,250
shares of Common Stock in January 1996. In addition, in conjunction with
the acquisition the Company paid $8.3 million to repay certain indebtedness
and other obligations of Laser Tech.
The acquisition of Laser Tech has been accounted for as a purchase,
applying the provisions of Accounting Principles Board Opinion No. 16. The
total purchase cost has been allocated to Laser Tech's assets and
liabilities based on their relative fair value as of November 27, 1995,
based on preliminary valuations and other studies. Those valuations and
studies are not yet complete. The excess of the purchase cost over the
fair value of the net assets acquired, representing goodwill, will be
amortized over 40 years. The pro forma effect of the acquisition on the
Company's consolidated financial statements was not material.
On March 19, 1996, Big Flower acquired Webcraft Technologies, Inc.
("Webcraft"), a privately-owned company focused on the marketing and
production of direct mail products and commercial and lottery games, for
approximately $111.0 million of which (i) approximately $4.0 million
represented a portion of the proceeds received by Webcraft in connection
with the settlement of a certain patent litigation and (ii) $4.8 million
was deposited in escrow to fund any claims for indemnification of the
Company.
The acquisition of Webcraft and the refinancing of Webcraft's existing debt
were financed with (i) an amendment and restatement of the New Credit
Agreement including the existing revolver of $350.0 million and a term loan
facility of an additional $75.0 million, (ii) proceeds from an accounts
receivable securitization facility and (iii) cash on hand at Webcraft.
2. RECAPITALIZATION AND OFFERING
On November 28, 1995, Big Flower consummated an initial public offering
(the "Offering") of 6,724,688 shares of its common stock, of which
5,500,000 shares were sold by Big Flower and 1,224,688 shares were sold by
selling stockholders. The net proceeds of the Offering to Big Flower of
$80.3 million were used to redeem on a pro rata basis at a premium, a
portion of the 13-1/2% Notes, and a portion of the
F-11
<PAGE>
10-3/4% Notes and the BFP Notes. The remainder of the net proceeds,
together with borrowings under the New Credit Agreement as defined in
Note 9, were used to purchase at a premium the remaining balance of the
13-1/2% Notes, purchase all of Big Flower's 11% Debentures at 100% of
principal amount, repay all amounts owed under Treasure Chest's amended
credit agreement, purchase all outstanding shares of the BFP Preferred
Stock and terminate the Company's interest rate swap agreements (see
Note 9). The termination of the swap agreements and the repayment of
the 13-1/2% Notes, the 10-3/4% Notes, the BFP Notes and the amended
credit agreement generated an extraordinary loss of $19,248,000 (net of
income tax benefit of $11,304,000), for the premiums and the deferred
financing costs associated with the amounts repaid. In connection with
the Offering, BFP was merged with and into the Company and the Company
assumed the 10-3/4% and BFP Notes.
Simultaneously with the consummation of the Offering, 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) were converted to
shares of common stock on a share-for-share basis. In addition, the
Company declared 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 became 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. In addition, the put rights
of the holders of vested Class C common stock expired.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LINE OF BUSINESS - Treasure Chest prints advertising circulars for mass
merchandisers and specialty retailers, Sunday comics and other newspaper
products and publications throughout the United States. Laser Tech is a
pre-press company which provides electronic and conventional graphics
services.
CHANGE IN FISCAL YEAR - Effective July 1, 1995, the Company changed its
fiscal year-end from June 30 to December 31. The Company retained its June
30 year-end for income tax reporting purposes. Summarized unaudited
financial information for the six months ended December 31, 1994 is as
follows:
Net sales $456,527,000
Gross profit $ 58,368,000
Income before income taxes $ 3,635,000
Provision for income taxes $ 2,592,000
Net income $ 1,043,000
Net income per common and common equivalent share $ 0.10
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.
F-12
<PAGE>
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. 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, $5,865,000
and $16,080,000 at June 30, 1994 and 1995 and December 31, 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, $89,000, and $96,000
in other expense, net 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, the year ended June 30, 1995 and the six months ended
December 31, 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
and the six months ended December 31, 1995. 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 permanent impairment. This
assessment is performed based on the estimated future cash flows 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. Prior to 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. 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.
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 Offering have
been calculated using the treasury stock
F-13
<PAGE>
method and have been treated as outstanding for all periods prior to the
Offering. Per share information for all periods has been retroactively
adjusted to reflect the 2 for 1 stock split immediately prior to the
Offering. Supplemental income per share before extraordinary item for the
six months ended December 31, 1995 reflecting the impact of the Offering
and related transactions was $0.53.
STATEMENTS OF CASH FLOWS - Supplemental disclosures of cash flow
information are as follows (in thousands):
<TABLE>
<CAPTION>
SIX
YEAR 42 DAYS 323 DAYS YEAR MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30, DECEMBER 31,
1993 1993 1994 1995 1995
<S> <C> <C> <C> <C> <C>
Cash paid for income taxes
and interest was a follows:
Interest, net of amounts
capitalized $6,982 $843 $11,268 $26,426 $23,143
Income taxes, net of refunds $5,144 - $ 1,634 $ 8,019 $ 6,589
</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):
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
-----------
-----------
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):
Fair value of assets acquired $ 139,733
Cash paid for common stock (73,719)
Other acquisition costs (2,619)
-----------
Liabilities assumed $ 63,395
-----------
-----------
On November 27, 1995, the Company purchased all of the capital stock of
Laser Tech. In conjunction with the acquisition of Laser Tech, liabilities
were assumed as follows (in thousands):
Fair value of assets acquired $ 34,684
Cash paid for common stock (3,000)
Notes payable issued (18,119)
-----------
Liabilities assumed $ 13,565
-----------
-----------
F-14
<PAGE>
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 and December 31, 1995 approximates $181,450,000, $190,000,000 and
$134,300,000, respectively. The fair value of the 13-1/2% Notes at
June 30, 1994 and 1995 approximates $42,099,000 and $51,284,000,
respectively.
It is 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 was 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.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
ACCOUNTING PRONOUNCEMENTS - In 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation", which will be effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on
the fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company will continue to apply APB Opinion No. 25 to its
stock-based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share.
RECLASSIFICATIONS - Certain amounts for prior periods have been
reclassified to conform to the current period presentation.
F-15
<PAGE>
4. ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------------ DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Trade - billed $ 95,290 $ 92,176 $ 129,998
Trade - unbilled 7,758 8,897 6,524
Other receivables 5,478 1,381 2,229
-------- -------- ---------
108,526 102,454 138,751
Allowance for doubtful accounts (5,266) (5,308) (7,340)
-------- -------- ---------
$103,260 $ 97,146 $ 131,411
-------- -------- ---------
-------- -------- ---------
</TABLE>
5. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------------ DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Paper $19,106 $42,226 $37,878
Ink 1,747 1,700 1,468
Other 3,851 1,831 2,451
-------- -------- ---------
$24,704 $45,757 $41,797
-------- -------- ---------
-------- -------- ---------
</TABLE>
6. INVESTMENTS IN AFFILIATED COMPANIES
Treasure Chest, through its wholly owned consolidated subsidiary, TC
Equipment Holding, Inc. (TCEH), 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 (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.
F-16
<PAGE>
7. 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,
------------------------- DECEMBER 31,
(in Years) 1994 1995 1995
<S> <C> <C> <C> <C>
Land $ 3,620 $ 3,560 $ 3,560
Machinery and equipment 5 to 12 117,855 121,103 125,882
Buildings and leasehold improvements 3 to 30 29,535 28,780 29,101
Furniture and fixtures 5 to 10 3,258 4,753 6,024
Vehicles 3 to 4 465 451 451
Construction in progress and deposits
on equipment purchases 1,459 1,785 12,519
-------- -------- --------
156,192 160,432 177,537
Accumulated depreciation and
amortization (12,000) (31,716) (40,793)
-------- -------- --------
144,192 128,716 136,744
Temporarily idle machinery and
equipment, net of accumulated
depreciation of $157, $129 and $225 3 to 12 545 465 1,094
-------- -------- --------
$144,737 $129,181 $137,838
-------- -------- --------
-------- -------- --------
</TABLE>
8. INTANGIBLES
Intangibles are summarized below and are amortized using the straight-
line method over the following periods (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------------- DECEMBER 31,
YEARS 1994 1995 1995
<S> <C> <C> <C> <C>
Customer backlog 1 to 2 $ 18,405 $ 17,102 $ 3,050
Ink contracts 7.5 7,799 7,799 7,799
Non-compete agreements 5 38,335 38,335 38,585
Goodwill 40 145,223 148,208 169,024
-------- -------- --------
209,762 211,444 218,458
Accumulated amortization (15,375) (36,179) (29,978)
-------- -------- --------
$194,387 $175,265 $188,480
-------- -------- --------
-------- -------- --------
</TABLE>
9. 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%.
F-17
<PAGE>
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 semiannual 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 additional borrowings
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 of Treasure Chest, effective August 12,
1993, all of Treasure Chest's 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.
In conjunction with the acquisitions of KTB and Retail Graphics, the Credit
Agreement was amended (the Amended Credit Agreement). The Amended Credit
Agreement consisted of a $50.0 million term loan and a $100.0 million
revolving credit facility. The Amended Credit Agreement provided that
Treasure Chest could borrow up to $50.0 million on the term loan and could
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 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. 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 the revolving loan
ranged from 8.3% to 10.3%. Treasure Chest was 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.
On November 28, 1995, Treasure Chest entered into a six-year $350.0 million
revolving credit facility (the New Credit Agreement), with reductions of
$33.3 million after each of three, four and five years into the term of the
New Credit Agreement. All amounts outstanding under the Amended Credit
Agreement were repaid. Interest on borrowings under the New Credit
Agreement are 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 also
restricts the ability of Treasure Chest to pay dividends to the Company and
the Company's ability to pay dividends to its stockholders but allows cash
dividends to the Company for operating expenses in the ordinary course of
business up to an amount which starts at $5.0 million for the calendar year
1996 and increases 10% each year. Additionally, dividends are permitted
(a) to enable the Company to pay interest on the 10-3/4% Notes and the BFP
Notes (or refinancing thereof), to pay dividends on certain issuances of
preferred stock and to
F-18
<PAGE>
undertake certain debt buybacks and (b) up to 25% of the consolidated net
income for the prior year. At December 31, 1995, the interest rates on
borrowings on the New Credit Agreement ranged from 7.56% to 9.13%.
In connection with the acquisition of Treasure Chest, BFP issued
$150,000,000 of 10-3/4% Notes. Interest on the 10-3/4% Notes is payable
semiannually on February 1 and August 1. In connection with the
acquisition of KTB and Retail Graphics, BFP issued $40,000,000 of the
BFP Notes at a discount of $2,800,000. The effective interest rate on
the BFP Notes was 11.74%.
In connection with the Offering (see Note 2) BFP was merged into the
Company and the Company assumed the 10-3/4% and BFP Notes. 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 of Treasure Chest, 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 was payable semiannually on each February 1 and August 1.
As permitted by the governing indenture, interest payments could 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, 1994 and 1995 has been included in
long-term debt.
In connection with the acquisition 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 was 14.58%.
Interest on the senior discount notes was payable semiannually on each
April 15 and October 15, commencing on October 15, 1999.
In connection with the Offering (see Note 2) the 11% Debentures, the 13-
1/2% Notes and a portion of the 10-3/4% Notes and the BFP
Notes were repaid.
A summary of long-term debt (excluding the revolving credit facility) is as
follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------------ DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
10-3/4% Notes and BFP Notes $187,214 $187,387 $125,022
Term loan 50,000 47,500
11% Debentures 16,515 18,403
13-1/2% Notes 36,145 41,852
Other notes 1,872 1,258 4,255
-------- -------- --------
291,746 296,400 129,277
Current portion (3,982) (8,671) (3,335)
-------- -------- --------
$287,764 $287,729 $125,942
-------- -------- --------
-------- -------- --------
</TABLE>
F-19
<PAGE>
Future minimum payments on long-term debt (excluding the revolving credit
facility) are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 3,335
1997 643
1998 273
1999 1
2000 1
Thereafter 125,024
--------
Total $129,277
--------
--------
</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
received a fixed rate of 4.44% on a notional amount of $150,000,000 and
made floating rate payments based on LIBOR at six-month intervals through
January 31, 1997. The swap agreement contained a provision which capped
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. In connection
with the Offering (see Note 2), the swap agreements were terminated.
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.
10. REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY
In connection with the Acquisition in August 1993, BFP issued 150,000
shares of mandatorily redeemable preferred stock. Dividends were payable
in additional shares of preferred stock at an annual rate of 13-5/8%. All
outstanding shares of the preferred stock were repurchased in connection
with the Offering (see Note 2).
F-20
<PAGE>
11. 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, the year ended June 30, 1995, and the six
months ended December 31, 1995 was $16,943,000, $2,267,000, $16,905,000,
$27,931,000, and $15,262,000, respectively. Minimum annual rentals under
all noncancelable operating leases (net of subleases) are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 28,156
1997 24,382
1998 19,158
1999 15,419
2000 9,249
Thereafter 12,917
--------
$109,281
--------
--------
</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.
12. INCOME TAXES
The provision (benefit) for income taxes consists of the following
components (in thousands):
<TABLE>
<CAPTION>
YEAR 42 DAYS 323 DAYS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30, DECEMBER 31,
1993 1993 1994 1995 1995
<S> <C> <C> <C> <C> <C>
Current:
Federal $4,526 $ 96 $ 356 $7,804 $3,869
State 768 98 1,191 3,395 1,358
------ ----- ------ ------ ------
5,294 194 1,547 11,199 5,227
------ ----- ------ ------ ------
Deferred:
Federal 225 (263) (302) (3,708) 181
State (20) 519 (1,652) (79)
------ ----- ------ ------ ------
225 (283) 217 (5,360) 102
------ ----- ------ ------ ------
Total provision (benefit) for
income taxes $5,519 $ (89) $1,764 $5,839 $5,329
------ ----- ------ ------ ------
------ ----- ------ ------ ------
</TABLE>
F-21
<PAGE>
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>
YEAR 42 DAYS 323 DAYS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30, DECEMBER 31,
1993 1993 1994 1995 1995
<S> <C> <C> <C> <C> <C>
Income taxes computed at 34.0 % (35.0) % (35.0) % 35.0 % 35.0 %
federal statutory rate
Amortization of goodwill 34.7 73.7 6.7
Preferred dividends of a
subsidiary 29.6 37.3 4.1
State income taxes, net of
federal income tax benefits 5.0 (4.0) 31.6 49.0 2.6
Reinstatement of deferred
taxes due to utilization
of investment tax credit
carryforward 13.9
Original issue discount 13.8 1.6
Other 1.2 5.0 0.3 1.3
----- ----- ----- ----- -----
54.1 % (39.0) % 65.9 % 209.1 % 51.3 %
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</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,
------------------------ DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Tax credit carryforward $ 5,652 $ 3,460 $ 3,630
Net operating loss carryforward 1,045 1,124
Bad debt reserve 1,567 2,434 3,032
Nonqualified plan 2,200 2,285 2,210
Workers' compensation 2,150 2,776 2,295
Health insurance 1,297 1,392 990
Original issue discount 2,415
Other deductible differences 12,069 9,207 8,505
Relocation accrual 1,629
------- ------- -------
24,935 25,014 23,415
------- ------- -------
Depreciation (21,113) (24,217) (23,404)
Intangible assets (6,163) (1,700) (248)
Other taxable differences (8,207) (1,832) (1,657)
------- ------- -------
(35,483) (27,749) (25,309)
------- ------- -------
Valuation allowance (1,045) (1,124)
------- ------- -------
Net deferred income tax liability $(10,548) $ (3,780) $ (3,108)
------- ------- -------
------- ------- -------
</TABLE>
F-22
<PAGE>
13. OTHER LONG-TERM LIABILITIES
Other long-term liabilities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------
1994 1995 1995
<S> <C> <C> <C>
Present value of obligations to provide supplemental
executive retirement plan benefits $ 4,775 $ 5,309 $ 5,874
Present value of amounts due on a settlement of
litigation 758 723 705
Deferred incentive plan payable 469 177 177
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, $1,228, and $1,512, respectively 2,613 2,045 1,761
Deferred compensation plan payable 94 829 1,325
Present value of estimated loss on vacated rental
property, net of current portion 523 273 163
Other 668 418 365
------- ------- -------
$ 9,900 $ 9,774 $10,370
------- ------- -------
------- ------- -------
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company has letters of credit of $3,933,000 outstanding at December 31,
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.
15. 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.
F-23
<PAGE>
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.
16. 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 participant's
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 expense 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 the 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 is the beneficiary of these policies and is charging 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 ended June 30,
1994, the year ended June 30, 1995 and the six months ended December 31,
1995 was $475,000, $1,138,000, and $600,000, 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 participants' 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, $578,000, and $600,000
for the six months ended June 30, 1994, the year ended June 30, 1995 and
the six months ended December 31, 1995, which included interest costs of
approximately $158,000, $352,000, and $199,000, respectively.
F-24
<PAGE>
Included in other long-term liabilities in the accompanying balance sheet
as of June 30, 1994 and 1995 and December 31, 1995 are $4,775,000,
$5,309,000, and $5,874,000, respectively, representing the projected
actuarial present value of the unfunded benefit obligation related to this
plan. As of June 30, 1994 and 1995 and December 31, 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
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 and the six months ended December 31, 1995. 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 and
December 31, 1995 is $94,000, $829,000, and $1,325,000, 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, $4,894,000 and $2,138,000 for the year ended June 30, 1993, the
42 days ended August 11, 1993, the 323 days ended June 30, 1994, the year
ended June 30, 1995 and the six months ended December 31, 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,
$1,288,000 and $783,000 in matching contributions for the year ended
June 30, 1993, the 42 days ended August 11, 1993, the 323 days ended
June 30, 1994, the year ended June 30, 1995 and the six months ended
December 31, 1995 respectively.
17. 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-25
<PAGE>
18. OTHER EXPENSE, NET
<TABLE>
<CAPTION>
Other expense, net consisted of the following (in thousands):
YEAR 42 DAYS 323 DAYS YEAR SIX MONTHS
ENDED ENDED ENDED ENDED ENDED
JUNE 30, AUGUST 11, JUNE 30, JUNE 30, DECEMBER 31,
1993 1993 1994 1995 1995
<S> <C> <C> <C> <C> <C>
Idle plant carrying cost $ 748 $ 13 $ 106
Idle equipment depreciation 474 41 220 $ 89 $ 96
(Gain) loss on disposition of
property, plant and equipment 870 (551) 397 219
Contribution to ESOT 651 61 3,597
Plant closure 1,600
Office relocation 1,690 3,700
Other items, net 184 96 (646) 660 385
------ ---- ------ ------ ------
$2,927 $211 $2,726 $2,836 $6,000
------ ---- ------ ------ ------
------ ---- ------ ------ ------
</TABLE>
19. 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 were identical in all
respects. Holders of Class A common stock had one vote per share, and
holders of Class B common stock, Class C common stock and Class D common
stock had no voting rights. Under certain conditions each Class B, Class C
and Class D common share could be converted, at the option of the holders,
into one share of Class A common stock. The Class A common stock had 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 seven 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 the related common stock.
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.
F-26
<PAGE>
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. 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.
In connection with the Offering, the Class A common stock was
redesignated as common stock; the Class B, Class C and Class D common
stock were converted into common stock (except for 869,346 shares of
Class B common stock); and the Company declared a 2 for 1 stock split
effected in the form of a dividend (see Note 2).
At December 31, 1995, Big Flower had 50,000,000 authorized shares of common
stock and 2,500,000 authorized shares of Class B common stock of which
14,434,495 and 1,738,692 shares were outstanding, respectively.
The board of directors declared a dividend distribution of one right (a
Right) for each outstanding share of common stock immediately following the
Offering. Each Right entitles the holder to purchase from the Company a
unit consisting of one-one-hundredth of a share of Series A Junior
Preferred Stock at an exercise price of $55 per unit.
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) acquires beneficial ownership of shares of common
stock representing 15% or 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 are not 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.
F-27
<PAGE>
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 of directors.
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.
20. 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 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 an 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 an 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 repurchased 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. In connection with the Offering (see Note 2) the
outstanding shares of Class C common stock were converted to common
stock on a share for share basis. In addition, the Company declared 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 became options to purchase shares of
common stock at a rate of two shares of common stock for each share of
Class C common stock underlying such options. In addition, the put rights
of the holders of vested Class C common stock expired. At December 31, 1995,
3,484,114 shares of common stock are authorized for issuance under the 1993
Stock Plan and 1,784,099 of such shares related to outstanding awards.
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, the
year ended June 30, 1995 and the six months ended December 31, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------- SIX MONTHS ENDED
1994 1995 DECEMBER 31, 1995
-----------------------------------------------
GRANT GRANT GRANT
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period 236,249 $ 4.66 280,877 $4.66-$7.46
Granted 232,000 $5.00 70,380 $ 7.46 300,000 $16.00
Stock split 16,814 280,877
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-$7.46 861,754 $2.33-$16.00
Exercisable at end
of period 63,764 $4.66 248,568 $ 2.33
</TABLE>
F-28
<PAGE>
21. QUARTERLY FINANCIAL INFORMATION - UNAUDITED
Summarized quarterly financial information is as follows (in thousands
except for per share data):
<TABLE>
<CAPTION>
FIRST (*) SECOND THIRD FOURTH
323 DAYS ENDED JUNE 30, 1994 QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Net sales $78,202 $162,506 $128,719 $195,619
Gross profit 8,430 21,191 14,895 27,455
Income (loss) before income taxes (4,581) 2,412 (3,272) 2,763
Net income (loss) (3,160) 1,131 (2,924) 511
Net income (loss) per common
and common equivalent share (0.36) 0.12 (0.30) 0.05
(*) Represents 50 days ended September 30, 1993.
FIRST SECOND THIRD FOURTH
YEAR ENDED JUNE 30, 1995 QUARTER QUARTER QUARTER QUARTER
Net sales $210,458 $246,069 $206,696 $233,372
Gross profit 26,166 32,202 27,994 32,505
Income (loss) before income taxes (484) 4,119 (1,443) 601
Net income (loss) (1,084) 2,127 (1,771) (2,318)
Net income (loss) per common
and common equivalent share (0.10) 0.20 (0.16) (0.22)
FIRST SECOND
SIX MONTHS ENDED DECEMBER 31, 1995 QUARTER QUARTER
Net sales $242,066 $290,286
Gross profit 32,103 40,406
Income before income taxes 5,179 5,206
Income before extraordinary item 2,379 2,677
Extraordinary item (19,248)
Net income (loss) 2,379 (16,571)
Net income per common and common equivalent share:
Income before extraordinary item 0.21 0.07
Extraordinary item, net (1.43)
Net income (loss) 0.21 (1.36)
</TABLE>
* * * * * *
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Big Flower Press Holdings, Inc.
Treasure Chest Advertising Company, Inc.:
We have audited the consolidated financial statements of Big Flower Press
Holdings, Inc. and subsidiaries as of December 31, 1995 and June 30, 1995 and
1994 and for the six months ended December 31, 1995, the year ended June 30,
1995, and the 323 days ended June 30, 1994, and the consolidated financial
statements of Treasure Chest Advertising Company, Inc. and subsidiaries for the
42 days ended August 11, 1993 and the year ended June 30, 1993, and have issued
our report thereon dated May 3, 1996; such report is included elsewhere in this
Form 10-K. Our audits also included the financial statement schedules listed in
item 14. These financial statement schedules are the responsibility of the
Companies' managements. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Los Angeles, California
May 3, 1996
F-30
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
323 DAYS SIX MONTHS
ENDED YEAR ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Selling, general and administrative expense $ (602) $ (938)
Interest expense, net $(2,485) (7,957) (10,335)
Preferred dividends of a subsidiary (1,068)
------- ------- --------
Loss before income taxes (2,485) (8,559) (12,341)
Benefit for income taxes 845 2,891 3,943
------- ------- --------
(1,640) (5,668) (8,398)
Equity in income (loss) of subsidiary (2,802) 2,622 13,454
------- ------- --------
Income (loss) before extraordinary item (4,442) (3,046) 5,056
Extraordinary item, net of income taxes (19,248)
------- ------- --------
Net loss (4,442) (3,046) (14,192)
Accumulated deficit at beginning of period - (4,442) (7,488)
------- ------- --------
Accumulated deficit at end of period $(4,442) $(7,488) $(21,680)
------- ------- --------
------- ------- --------
See notes to condensed financial information.
</TABLE>
F-31
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
323 DAYS SIX MONTHS
ENDED YEAR ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Cash flows provided by/(used in) operating
activities -
Net loss $(4,442) $(3,046) $(14,192)
Adjustments to reconcile net loss to net cash provided
by/(used in) operating activities:
Noncash interest expense 2,375 7,595 3,603
Preferred dividends of a subsidiary 1,068
Equity in loss (income) of subsidiary 2,802 (2,622) (13,454)
Extraordinary item 19,248
Amortization 46 307 827
Deferred income taxes (550) (2,269) (678)
Accounts receivable/payable - affiliate (38) 352 (2,063)
Other, net (172) (293) (1,028)
------- ------- --------
Net cash flows provided by/(used in)
operating activities 21 24 (6,669)
------- ------- --------
Cash flows provided by/(used in) investing activities -
Investment in subsidiaries (69,993) (3,000)
Distributions from subsidiary 101,595
------- --------
Net cash provided by/(used in) investing
activities: (69,993) 98,595
------- --------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of debt 50,285
Repayment of debt (146,721)
Proceeds from issuance of common stock 22,715 733 80,250
Payments for repurchase of common stock (101) (772)
Purchase of redeemable preferred stock (22,107)
Issuance of promissory notes 2,000
Repayment of promissory notes (2,000)
Deferred financing costs (2,736) (102) (2,220)
------- ------- --------
Net cash flows provided by/(used in)
financing activities 70,163 (141) (90,798)
------- ------- --------
Net change in cash and cash equivalents 191 (117) 1,128
Cash and cash equivalents at beginning of period 191 74
------- ------- --------
Cash and cash equivalents at end of period $ 191 $ 74 $ 1,202
------- ------- --------
------- ------- --------
</TABLE>
See notes to condensed financial information.
F-32
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30,
---------------------- DECEMBER 31,
ASSETS 1994 1995 1995
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 191 $ 74 $ 1,202
Other receivables 400
Prepaid expenses 2
Accounts receivable - affiliate 38 3,730
------- ------- --------
Total current assets 231 474 4,932
Investment in and advances to subsidiary 67,191 69,813 218,178
Deferred income taxes 550 2,819 357
Other assets 2,860 2,611 7,289
------- ------- --------
$70,832 $75,717 $230,756
------- ------- --------
------- ------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 18,119
Accounts payable - affiliate $ 218
Other current liabilities 61 7,915
------- --------
Total current liabilities 279 26,034
Long-term debt $52,660 60,255 125,022
Common stock subject to redemption 2,399 3,700 1,506
Stockholders' Equity:
Common stock 49 49 157
Additional paid-in capital 20,166 20,238 100,892
Accumulated deficit (4,442) (7,488) (21,680)
Unearned compensation (1,316) (1,175)
------- ------- --------
Total stockholders' equity 15,773 11,483 78,194
------- ------- --------
$70,832 $75,717 $230,756
------- ------- --------
------- ------- --------
</TABLE>
See notes to condensed financial information.
F-33
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
1. LONG-TERM DEBT
See Note 9 to the consolidated financial statements for details of long-
term debt.
2. INVESTMENT IN SUBSIDIARY
The Company accounts for its investment in subsidiary using the equity
method.
* * * * * *
F-34
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEAR ENDED JUNE 30, 1993, THE 42 DAYS ENDED AUGUST 11, 1993,
THE 323 DAYS ENDED JUNE 30, 1994, YEAR ENDED JUNE 30, 1995,
AND SIX MONTHS ENDED DECEMBER 31, 1995 (In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C>
Year ended June 30, 1993:
Allowance for loss on accounts receivable $2,390 $4,382 $(1,628)(a) $5,144
Other reserves 967 1,565 (99)(b) 2,433
42 days ended August 11, 1993:
Allowance for loss on accounts receivable $5,144 $ 115 $ (1)(a) $5,258
Other reserves 2,433 95 - (b) 2,528
2,528
323 days ended June 30, 1994:
Allowance for loss on accounts receivable $5,258 $1,051(c) $(1,043)(a) $5,266
Other reserves 2,528 595(d) (715)(b) 2,408
Year ended June 30, 1995:
Allowance for loss on accounts receivable $5,266 $1,711 $(1,669)(a) $5,308
Other reserves 2,408 684 (278)(b) 2,814
Six Months Ended December 31, 1995:
Allowance for loss or accounts receivable $5,308 $2,812(e) $ (780)(a) $7,340
Other reserves 2,814 335 (165) 2,984
</TABLE>
(a) Represents write-offs of uncollectible amounts, net of recoveries on
accounts previously written off.
(b) Primarily represents payments.
(c) Includes $1,111 for KTB and Retail Graphics as of acquisition date.
(d) Includes $50 for KTB and Retail Graphics as of acquisition date.
(e) Includes $264 for Laser Tech as of acquisition date.
(9571)
F-35
<PAGE>
EXHIBIT 10.4
BIG FLOWER PRESS HOLDINGS, INC.
and
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION,
as TRUSTEE
- -------------------------------------------------------------------------------
Second Supplemental Indenture
Dated as of November 28, 1995
To Indenture of Big Flower Press, Inc.
Dated as of August 1, 1993
- -------------------------------------------------------------------------------
10 3/4% Senior Subordinated Notes Due 2003
<PAGE>
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of November 28, 1995, between
BIG FLOWER PRESS HOLDINGS, INC., a Delaware corporation, ("Holdings"), and
SHAWMUT BLANK CONNECTICUT, NATIONAL ASSOCIATION, as trustee (the "Trustee"),
under the Indenture referred to hereinafter.
W I T N E S S E T H:
WHEREAS, Big Flower Press Inc. (the "Company") and the Trustee executed
and delivered an Indenture dated as of August 1, 1993, as amended, (the
"Indenture"), providing for the issuance of $150,000,000 principal amount
of 10 3/4% Senior Subordinated Notes Due 2003 of the Company (the "Securities");
WHEREAS, Holdings has merged with the Company, with Holdings being the
surviving corporation
WHEREAS, the Trustee is empowered to execute this Second Supplemental
Indenture without the consent of the holders of the Securities pursuant to
Section 9.1(f) of the Indenture; and
WHEREAS, the execution and delivery of this Second Supplemental Indenture
by Holdings has been authorized by a Board Resolution and all acts, conditions
and requirements necessary to make this Second Supplemental Indenture a
valid and binding agreement in accordance with its terms and for the purposes
herein set forth have
2
<PAGE>
been done and taken, and the execution and delivery of this Second Supplemental
Indenture has been in all respects duly authorized;
NOW THEREFORE, in connection of the premises, Holdings covenants and
agrees as follows:
ARTICLE I
ASSUMPTION OF RIGHTS AND OBLIGATIONS
Holdings hereby agrees to assume all the obligations of the Company under
the Securities and the Indenture, and shall succeed to, and be substituted
for, and may exercise every might and power of the Company under the Indenture.
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.1 For all purposes of this Second Supplemental Indenture,
except as otherwise defined or unless the context otherwise requires,
capitalized terms "used in this Second Supplemental Indenture and defined in
the Indenture have the meaning specified in the Indenture.
Section 2.2 Except as specifically amended and Supplemented by this
Second Supplemental Indenture, the Indenture shall remain in full force and
affect and is hereby ratified and confirmed.
3
<PAGE>
Section 2.3 The laws of the State of New York shall govern this Second
Supplemental Indenture without regard to principles of conflicts of law.
Section 2.4 All agreements of Holdings in this Second Supplemental
Indenture shall bind its successor. All agreements of the Trustee in the
Second Supplemental Indenture shall bind its succeseor.
Section 2.5 The Trustee accepts the modification of the Indenture as
hereby effected but only upon the terms and conditions set forth in the
Indenture as amended and supplemented by this Second Supplemental Indenture.
Section 2.6 The parties may sign any number of counterparts of the
Second Supplemental Indenture. Each such counterpart shall be an original,
but all of them together represent the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed as of the date first written above.
BIG FLOWER PRESS HOLDINGS, INC.
By: /s/ Theodore Ammon
------------------------------------
Name: Theodore Ammon
Title: Chairman
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, as trustee
By: /s/ Kathy A. Larimore
------------------------------------
Name: Kathy A. Larimore
Title: Assistant Vice President
5
<PAGE>
EXHIBIT 10.6
BIG FLOWER PRESS HOLDINGS, INC.
and
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION,
as TRUSTEE
- -------------------------------------------------------------------------------
First Supplemental Indenture
Dated as of November 28, 1995
To Indenture of Big Flower Press, Inc.
Dated as of April 15, 1994
- -------------------------------------------------------------------------------
10 3/4% Senior Subordinated Notes Due 2003
<PAGE>
THIS FIRST SUPPLEMENTAL INDENTURE, dated as of November 28, 1995, between
BIG FLOWER PRESS HOLDINGS, INC., a Delaware corporation, ("Holdings"), and
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, as trustee (the "Trustee"),
under the Indenture referred to hereinafter.
W I T N E S S E T H:
WHEREAS, Big Flower Press, Inc. (the "Company") and the Trustee executed
and delivered an Indenture dated as of April 15, 1994 (the "Indenture"),
providing for the issuance of $40,000,000 principal amount of 10 3/4% Senior
Subordinated Notes Due 2003 of the Company (the "Securities");
WHEREAS, Holdings has merged with the Company, with Holdings being the
surviving corporation
WHEREAS, the Trustee is empowered to execute this First Supplemental
Indenture without the consent of the holders of the Securities pursuant to
Section 9.1(f) of the Indenture; and
WHEREAS, the execution and delivery of this First Supplemental
Indenture by Holdings has been authorized by a Board Resolution and all acts,
conditions and requirements necessary to make this First Supplemental
Indenture a valid and binding agreement in accordance
2
<PAGE>
with its terms and for the purposes herein set forth have been done and taken,
and the execution and delivery of this First Supplemental Indenture has been
in all respects duly authorized;
NOW THEREFORE, in connection of the premises, Holdings covenants and
agrees as follows:
ARTICLE I
ASSUMPTION OF RIGHTS AND OBLIGATIONS
Holdings hereby agrees to assume all the obligations of the Company under
the Securities and the Indenture, and shall succeed to, and be substituted
for, and may exercise every right and power of the Company under the
Indenture.
ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.1 For all purposes of this First Supplemental Indenture,
except as otherwise defined or unless the context otherwise requires,
capitalized terms used in this First Supplemental Indenture and defined in
the Indenture have the meaning specified in the Indenture.
Section 2.2 Except as specifically amended and supplemented by this
First Supplemental Indenture, the
3
<PAGE>
Indenture shall remain in full force and effect and is hereby ratified and
confirmed.
Section 2.3 The laws of the State of New York shall govern this First
Supplemental Indenture without regard to principles of conflicts of law.
Section 2.4 All agreements of Holdings in this First Supplemental
Indenture shall bind its successor. All agreements of the Trustee in the
First Supplemental Indenture shall bind its successor.
Section 2.5 The Trustee accepts the modification of the Indenture as
hereby effected but only upon the terms and conditions set forth in the
Indenture as amended and supplemented by this First Supplemental Indenture.
Section 2.6 The parties may sign any number of counterparts of the
First Supplemental Indenture. Each such counterpart shall be an original,
but all of them together represent the same agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the date first written
above.
BIG FLOWER PRESS HOLDINGS, INC.
By: /s/ Theodore Ammon
------------------------------------
Name: Theodore Ammon
Title: Chairman
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, as trustee
By: /s/ Kathy A. Larimore
------------------------------------
Name: Kathy A. Larimore
Title: Assistant Vice President
5
<PAGE>
EXHIBIT 10.13
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement") is entered into this
5th day of August, 1993, by and among ROBERT E. MILHOUS ("REM"), PAUL B.
MILHOUS ("PBM") and TCA HOLDINGS CORP., a Delaware corporation ("Newco").
WHEREAS, the parties hereto, together with the Robert E. Milhous Trust
("REM Trust"), the Paul Ballard Milhous Trust ("PBM Trust"), Treasure Chest
Advertising Company, Inc., a Delaware corporation (the "Company"), and TCA
Merger Corp., a Delaware corporation and a wholly-owned subsidiary of Newco
("Merger Sub"), have entered into that certain Agreement and Plan of Merger,
dated May 10, 1993 (the "Merger Agreement"); capitalized terms used herein
and not otherwise defined herein shall have the meaning ascribed to them in
the Merger Agreement;
WHEREAS, pursuant to the Merger Agreement, the shares of stock of the
Company held by REM, PBM, REM Trust and PBM Trust will be converted into cash
in the merger of the Company and Merger Sub;
WHEREAS, REM is the Chairman of the Board of the Company and is
responsible for the operations of the Company, and PBM is the Vice Chairman
of the Board of the Company;
WHEREAS, the execution and delivery of this Agreement is required
pursuant to the terms of the Merger Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and in connection with
-1-
<PAGE>
the execution and delivery of the Merger Agreement, the parties hereto agree
as follows:
1. In order to induce Newco to purchase the ESOT Shares and to induce
Newco and Merger Sub to consummate the Merger, and in consideration of
$24,000,000 to be paid at the closing to REM and $6,000,000 to be paid at the
Closing to PBM, REM and PBM agree to the restrictions set forth in this
Agreement. REM and PBM each agrees that for a period of five (5) years
immediately following the Closing Date (the "Term"), he will not, without the
prior written consent of the Board of Directors of the Company, directly or
indirectly (through an Affiliate or Associate of either REM or PBM (each, a
"Milhous Affiliate") or otherwise) or by action in concert with others,
engage in, or have any interest in any person, firm corporation or business
(as an officer, director, employee, agent, security holder, creditor,
consultant or otherwise) that engages in, any business activity anywhere in
the United States, Canada or Mexico which business activity is the same as,
similar to or competitive with the Business Activity (as hereinafter
defined); provided however, that each of REM and PBM may own publicly traded
stock constituting not more than five percent (5%) of the outstanding capital
stock of any company if, and as long as, neither of them (nor any Milhous
Affiliate) is an officer, director, employee or agent of, or consultant or
advisor to, or has any other
-2-
<PAGE>
relationship, agreement or arrangement with, such company. For the purposes
of this Agreement, "Business Activity" means the design, printing,
production, preparation, selling and delivery of advertising circulars,
coupon books, newspaper supplements, copies, other products printed for
newspapers, comic books, television guides, free standing inserts and (to the
extent capable of being printed on the kind of presses owned and operated by
the Company at the Closing Date) government printing, directories, catalogs
and other printing.
2. Each of the REM and PBM agrees to hold in strictest confidence, and
not disclose, divulge, communicate to, or use for the benefit of, any other
person, corporation or entity (including any Milhous Affiliate), or use to the
detriment of the Company, the Subsidiary or EGS Americas, Inc. ("EGS"), a
Delaware corporation of which the Subsidiary owns 50% of the capital stock,
or misuse in any way, any confidential information or trade secrets of the
Company, the Subsidiary or EGS including, without limitation, inventions,
processes, formulas, programs, technical data, marketing methods, new product
ideas or improvements, identities of vendors or suppliers, costs of
materials, prices at which the Company, the Subsidiary or EGS sells its
products, manufacturing and sales costs, compensation paid to employees of
the Company, the Subsidiary or EGS and other terms of employment, or any
secret or confidential information relating to the products, customers,
customers' information, sales or business of the Company, the Subsidiary or
EGS (collectively, "Confidential Information"). Each of REM and PBM
-3-
<PAGE>
acknowledges and agrees that any Confidential Information that he has
acquired was received in confidence and as a fiduciary of the Company, the
Subsidiary and EGS. REM and PBM represent and covenant, jointly and
severally, that they will cause each presently existing Milhous Affiliate to
comply with and be bound by the terms of this Section 2 to the same extent
that they must comply with and be bound by this Section 2.
3. Each of REM and PBM agrees that he will not, during the Term,
directly or indirectly (through a Milhous Affiliate or otherwise) or by
action in concert with others, induce or influence, or seek to induce or
influence, any person, other than any of those persons identified on
SCHEDULE 1 attached hereto, who is employed or engaged as of the Closing Date
or thereafter (as an officer, employee, sales representative, or, on a
full-time basis, as an agent or independent contractor) by the Company, the
Subsidiary or EGS to terminate his or her employment or engagement by the
Company, the Subsidiary or EGS.
4. Each of REM and PBM acknowledges that (i) the provisions of this
Agreement are reasonable and necessary to protect the legitimate interests of
Newco, (ii) any violation of this Agreement will result in irreparable injury
to Newco and damages at law will not be reasonable or adequate compensation
to Newco for a violation of this Agreement and (iii) Newco shall be entitled
to have the provisions of this Agreement specifically enforced by preliminary
and permanent injunctive relief without the necessity of proving actual
damages and without posting bond or other security. In the event that any of
the provisions of
-4-
<PAGE>
this Agreement should ever be deemed to exceed the time, geographic, product
or any other limitations prescribed by applicable law, than such provisions
shall be deemed reformed so that such provisions shall be valid, binding and
enforceable to the maximum extent permitted by applicable law.
5. Newco, REM and PBM agree and understand that the provision of this
Agreement shall be governed by and construed in accordance with the laws of
the State of New York, without giving affect to the principles of conflicts
of law thereof. REM and PBM (on behalf of themselves and the Milhous
Affiliates) and NEWCO each intend to and do hereby (a) confer jurisdiction to
enforce the provisions of this Agreement upon any state or Federal court
located in the City, County and State of New York, (b) consent to personal
jurisdiction in any such action, (c) consent to service of process by
certified mail in any such action, (d) waive any objection to venue in any
such action and (e) waive any claim that any such court is an inconvenient
forum.
6. This Agreement supersedes any and all prior agreements, either oral
or in writing, between the parties hereto with respect to the subject matter
hereof. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein
or in other written agreements executed and delivered by the parties in
connection with the Merger Agreement, and that no other agreement, statement
or promise not contained
-5-
<PAGE>
in this Agreement or such other written agreements shall be valid or binding
on any party.
7. Any release, discharge or modification of this Agreement, or waiver
of any provision hereof, will be effective only if it is in writing and
signed by the party to be charged.
8. The failure of any party to insist on strict compliance with any of
the terms, covenants, or conditions of this Agreement by any other party
shall not be deemed a waiver of, or estoppel with respect to, any subsequent
or other failure to comply.
IN WITNESS WHEREOF, each of REM, PBM and Newco has caused this Agreement
to be signed by its duly authorized representative as of the date first above
written.
/s/ Robert E. Milhous
---------------------------------------
ROBERT E. MILHOUS
/s/ Paul B. Milhous
---------------------------------------
PAUL B. MILHOUS
BIG FLOWER PRESS, INC., FORMERLY
TCA HOLDINGS CORP.
By /s/ Theodore Ammon
-------------------------------------
NAME: THEODORE AMMON
TITLE:
-6-
<PAGE>
SCHEDULE 1
to
Non-Competition Agreement
PERSONS WHO MAY BE INDUCED OR INFLUENCED
TO TERMINATE EMPLOYMENT OR ENGAGEMENT
Thomas V. Bressan
Jerome L. Peisach
C. Sijelmassi
E. Marrorian
<PAGE>
ALLOCATION OF CONSIDERATION
FOR NON-COMPETITION AGREEMENT
Reference is made to that certain Agreement and Plan of Merger, dated as
of May 10, 1993, as amended (the "Agreement"), 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. (formerly TCA Holdings Corp.) and TCA Merger Corp.
Pursuant to Section 3.01 of the Agreement, the undersigned have agreed
that the consideration for the Non-Competition Agreement (as defined in the
Agreement) shall be allocated as follows:
(a) $24,000,000 to Robert E. Milhous; and
(b) $ 6,000,000 to Paul B. Milhous.
IN WITNESS WHEREOF, the undersigned have executed this Allocation of
Consideration for Non-Competition Agreement as of August 12, 1993.
/s/ Robert E. Milhous
---------------------------------------
ROBERT E. MILHOUS
/s/ Paul B. Milhous
---------------------------------------
PAUL B. MILHOUS
APPROVED:
BIG FLOWER PRESS, INC.
(formerly TCA Holding Corp.)
By /s/
-------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated November 27, 1995 by and between Laser Tech
Color, Inc., a Delaware corporation (the "Company"), and Damien Gough
(the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive and the Company deem it to be in their respective
best interests to enter into an agreement providing for the Company's
employment of Executive pursuant to the terms herein stated;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, it is hereby agreed as follows:
1. EFFECTIVE DATE. This Agreement shall be effective on the day of the
Closing of the acquisition by Big Flower Press, Inc., or its assigns, of the
Company, which day shall be referred to herein as the "Effective Date."
2. DUTIES. The Company hereby agrees to employ Executive as President
with responsibility in the areas of all manufacturing, sales, marketing and
administration of the Company for the "Term of Employment" (as herein defined
below). In this capacity, Executive shall perform such duties consistent
with the duties of a senior executive of the Company as the Company's Board
of Directors or Chief Executive Officer shall from time to time determine.
Executive shall devote substantially all of his working time and attention
to such duties, except for sick leave and vacations as more particularly
provided herein. During the Term of Employment, Executive may also be
required to perform services for one or more affiliates of the Company.
Executive in these capacities agrees to use his best efforts during the
Term of Employment to protect, encourage and promote the interests of
the Company and its affiliates. Executive shall report to the Chief
Executive Officer of the Company or to such other Company executive as
the Board of Directors of the Company may direct.
<PAGE>
3. COMPENSATION.
(a) During the Term of Employment, the Company agrees to pay to
Executive salary at the rate of $190,000 per annum, payable in semi-monthly
installments or otherwise in accordance with the normal payroll procedures
of the Company. Such annual salary shall be subject to periodic review
by the Board of Directors and may be adjusted upward by the Board of
Directors, or an appropriate committee thereof, from time to time. (The
Executive's annual salary, including any periodic adjustments made from
time to time, shall be referred to hereinafter as "Base Salary.")
(b) Executive shall be entitled to receive a bonus through the end
of the 1995 calendar year in accordance with the Company's existing bonus
plan and Executive's current bonus under such plan.
(c) During the period from January 1, 1996 through June 30, 1996
(the "Period"), Executive shall be entitled to a bonus, if the Company's
revenue for the Period is at least $14,500,000 or if the Company's EBIT
(earnings before interest and taxes) for the Period is at least $1,015,000,
as follows: If the Company's EBIT Margin (EBIT for the Period divided by the
Company's net revenue for the Period) is at least 7% or if EBIT for the
Period is at least $1,015,000, then Executive's Bonus shall be 10 1/2% of his
Base Salary for such Period. If the Company's EBIT Margin is greater
than 7% or the Company's EBIT for the Period is greater than $1,015,000,
then Executive shall be entitled to an additional bonus of 1 1/2% of his Base
Salary for such Period for each additional 1% EBIT Margin above 7% or for
each additional $145,000 in EBIT whichever is greater. The Executive shall be
entitled to receive bonuses in the aggregate for the Period not to exceed 25%
of his Base Salary for such year. All such calculations of EBIT and
revenue shall be as determined by the Company's independent auditors.
(d) For the term of this Agreement subsequent to the Period,
Executive shall be entitled to receive bonuses as determined by the Board of
Directors of the Company, from time to time, and such bonuses shall include
a target bonus that will have a minimum threshold level at least equal to
the level for the president level
2
<PAGE>
employees of Treasure Chest Advertising Company, Inc. from time to time.
4. BENEFITS. During the Term of Employment:
(a) Executive shall be eligible to participate in health
insurance programs available to senior executive employees of the Company
from time to time.
(b) Executive shall be eligible to participate in life and long-term
disability insurance programs, pension and retirement programs, incentive
compensation programs, and other fringe benefit programs, if any, available
to vice president level employees of the Treasure Chest Advertising Company,
Inc., from time to time.
(c) Executive shall be allowed vacations and leaves of absence with
pay on the same basis as other senior executive employees of the Company.
(d) The Company will reimburse Executive for reasonable business
expenses incurred in performing Executive's duties and promoting the business
of the Company, including, but not limited to, reasonable entertainment
expenses, automobile expenses, and travel and lodging expenses, following
presentation of documentation in accordance with the Company's business
expense policies.
5. TERM: TERMINATION OF EMPLOYMENT. As used herein, the phrase
"Term of Employment" shall mean the period commencing on the Effective Date
and ending on the third anniversary of the Effective Date. Notwithstanding
the foregoing, the Term of Employment shall expire on the first to occur
of the following:
(a) TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary in this Agreement, whether express or implied, the Company may at
any time terminate Executive's employment for any reason other than Cause
(as defined below) by giving Executive at least 30 days' prior written notice
of the effective date of termination. In the event of such termination,
Executive shall be entitled to receive his Base Salary and target bonus
(at the rates in effect immediately prior to such notice) through the last
day of the Term (as defined
3
<PAGE>
in Section 6 hereof). In addition, Executive shall be entitled to receive
payment of all accrued but unpaid bonuses in respect of fiscal years ended
prior to the effective date of termination, such payment to be made
within 20 days following the effective date of termination. The
Executive shall continue to be bound by the provisions of Section 6 hereof
at all times which he receives payments hereunder. Notwithstanding the
foregoing, at any time after a termination pursuant to this paragraph, the
Company may, at its sole option, notify Executive that Executive is no longer
bound by the non-competition provisions of Section 6(b) hereof and at such
time Executive shall no longer be entitled to receive payments in accordance
with this paragraph.
(b) TERMINATION FOR CAUSE. The Company shall have the right to
terminate Executive's employment at any time for Cause by giving Executive
written notice of the effective date of termination (which effective date
may be the date of such notice). For purposes of this Agreement, Cause
shall mean:
(i) fraud, misappropriation, embezzlement, or other act of
material misconduct (including, without limitation, a violation of
Section 6 hereof) against Big Flower Press Holdings, Inc., the ultimate
parent of the Company, or any of its subsidiaries, including, without
limitation, the Company, Big Flower Press, Inc., Treasure Chest
Advertising Company, Inc., Treasure Chest Advertising Holding Company
of Texas, Inc. (f/k/a Retail Graphics Holding Company, Inc.), Treasure
Chest Advertising Company of Texas, Inc. (f/k/a Retail Graphics Printing
Company, Inc.), and Treasure Chest Advertising Company of New York, Inc.
(f/k/a KTB Associates, Inc.) and their respective affiliates
(collectively, the "Company Group");
(ii) substantial and willful failure to render services in
accordance with the terms of this Agreement, as determined by the Board
of Directors of the Company, provided that (A) a demand for performance
of services had been delivered to the Executive by the Board of Directors
of the Company at least 15 days prior to termination identifying the
manner in which such Board of Directors believes that the Executive has
failed to perform and (B) the
4
<PAGE>
Executive thereafter has failed to remedy such failure to perform;
(iii) substantial and willful violation of any rules or
regulations of any governmental or regulatory body material to the
business of any member of the Company Group; or
(iv) conviction of or plea of guilty or nolo contendere
to a felony.
If the Company terminates Executive's employment for any of the reasons set
forth in this Section 5(b), the Company shall have no further obligation
hereunder from and after the effective date of termination (other than to
make payment of any accrued but unpaid Base Salary to the effective date
of termination and accrued but unpaid bonuses in respect of a fiscal year
ending prior to the effective date of termination) and shall have all other
rights and remedies available under this or any other agreement and at law
or in equity.
(c) TERMINATION ON ACCOUNT OF DEATH. In the event of Executive's
death while in the employ of the Company, the Company shall pay to the
Executive's "Designated Beneficiaries" (as herein defined below) (1) 100%
of Executive's monthly Base Salary as in effect immediately prior to
Executive's death for a period of 30 days following Executive's death or,
if shorter, until the end of the Term of Employment (determined without
regard to the Executive's death), and (2) payment of all accrued but
unpaid bonuses in respect of fiscal years of the Company ended prior to
the date of death, such payment to be made within 20 days of the date of
death.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive shall have the
right to terminate Executive's employment at any time for any reason. In the
event that Executive's employment with the Company is voluntarily terminated
by Executive, then except as provided in Section 6 hereof or in the next
succeeding sentence, neither Executive nor the Company shall have any further
obligations hereunder from and after the effective date of such termination,
and both shall have all other rights and remedies available under this or any
other agreement and at law or in equity; provided, however, the provisions of
Section 6(b) shall be applicable for a period of
5
<PAGE>
one year from the date of termination and Executive shall be entitled to
receive his Base Salary during such time period. In addition, Executive
shall have the right to receive payment of any accrued but unpaid Base Salary
to the effective date of termination and accrued but unpaid bonuses in respect
of a fiscal year ending prior to the effective date of termination, such
payment to be made within 20 days following the effective date of
termination. Notwithstanding the foregoing, at any time after a termination
pursuant to this paragraph, the Company may, at its sole option, notify
Executive that Executive is no longer bound by the non-competition provisions
of Section 6(b) hereof and at such time Executive shall no longer be entitled
to receive payments in accordance with this paragraph.
(e) TERMINATION ON ACCOUNT OF DISABILITY. If, as a result of
Executive's incapacity due to physical or mental illness (as determined in
good faith by a physician acceptable to the Company), Executive shall have
been absent from the full-time performance of his duties with the Company for
90 days during any twelve (12) month period or if a physician acceptable to the
Company advises the Company that it is likely that Executive will be unable to
return to the full-time performance of his duties for 90 days during the
succeeding twelve (12) month period, his employment may be terminated for
"Disability" on 20 days' prior written notice by the Company to the Executive.
During any period that Executive fails to perform his full-time duties
with the Company as a result of incapacity due to physical or mental illness,
he shall continue to receive his Base Salary at the rate in effect at the
commencement of any such period, together with all compensation payable to
him under the Company's disability plan or program or other similar plan
during such period, until this Agreement is terminated pursuant to this
Section 5(e). Thereafter, or in the event that Executive's employment
shall be terminated by reason of his death, his benefits shall be determined
under the Company's retirement, insurance, and other compensation and
benefit plans and programs then in effect, in accordance with the terms
of such programs. Notwithstanding the foregoing, the Company shall pay
to the Executive or Executive's "Designated Beneficiaries" (as defined below)
(1) 100% of Executive's monthly Base Salary as in effect
6
<PAGE>
immediately prior to Executive's termination on account of disability for a
period of 90 days following such termination or, if shorter, until the end
of the Term of Employment determined without regard to the Executive's
termination on account of disability), and (2) payment of all accrued
but unpaid bonuses in respect of fiscal years of the Company ended prior
to the date of such termination, such payment to be made within 20 days
of the date of such termination.
6. CONFIDENTIAL INFORMATION AND NON-COMPETITION.
(a) During the Term of Employment and thereafter, Executive shall
not, except as may be required to perform his duties hereunder or as required
by applicable law, disclose to others or use, whether directly or indirectly,
any Confidential Information regarding any member of the Company Group.
"Confidential Information" shall mean information about any member of
the Company Group, and their respective business, operations, clients and
customers, that is not available to the general public and that was learned
by Executive in the course of his employment by any member of the Company
Group during the Term of Employment or prior to the Effective Date, including
(without limitation) any data, formulae, information, proprietary knowledge,
trade secrets and client and customer lists and all papers, resumes, records
and the documents containing such Confidential Information. Executive
acknowledges that such Confidential Information is specialized, unique in
nature and of great value to the Company, and that such information gives
the Company a competitive advantage. Upon the termination of his employment
with the Company or any of its affiliates for any reason whatsoever, Executive
shall promptly deliver to the Company all documents (and all copies thereof)
containing any Confidential Information.
(b) In consideration of the premises contained herein, the Executive
agrees that for the period commencing with the Effective Date and expiring at
the later of (1) the third anniversary of the Effective Date and (2) the first
anniversary of the first date on which the Executive is no longer employed by
the Company or any of its affiliates (the "Term") he will not, without the
prior written consent of the Board of Directors of the Company, (i) directly
or indirectly (through an
7
<PAGE>
affiliate or associate of the Executive (each, an "Affiliate"), or otherwise)
or by action in concert with others, own, manage, operate, join, control,
finance or participate in the ownership, management, operation, control or
financing of, or be connected as a principal, agent, representative,
consultant, investor, owner, partner, manager, joint venturer or otherwise
with, or permit his name to be used by or in connection with, any business,
enterprise or other entity engaged anywhere in the United States, Canada or
Mexico in, or in competition with, (A) any business or operations of the
Company or any member of the Company Group, (B) electronic pre-press services,
including, but not limited to, image capture, image retouching, page
composition proofing or any manufacturing process designed to prepare images
for printing, or (C) the business of retail inserts, advertising circulars
or newspaper printing; provided, however, that nothing contained in this
clause (i) shall prohibit Executive from having passive investments of less
than 5% of the outstanding equity securities in any entity listed for trading
on a national stock exchange or quoted on any automated quotation system;
provided, further, however, that nothing contained in clause (i)(A) above
shall prohibit Executive from (a) engaging in, or in competition with, a
business or operation of the Company Group which represents less than 5%
of the Company Group's consolidated net revenue during the twelve month
period ending on the Company Group's most recently completed fiscal
quarter prior to Executive engaging in such business (the "Period") (other
than those businesses and operations set forth in clauses (i)(B) and
(i)(C) above), or (b) engaging in, or in competition with, a business or
operation of the Company which represents less than 15% of the Company's
net revenue during the Period (other than those businesses and operations
set forth in clauses (i)(B) and (i)(C) above), if, in each case, Executive
has not had active personal involvement in such business or operation at
any time during the Period or the period of time from the last day of the
Period to the date immediately preceding Executive engaging in such business
or operation; (ii) directly or indirectly (through an Affiliate or otherwise)
hire or seek to otherwise employ in any capacity, as employee, consultant,
agent or otherwise any current or future employee of any member of the
Company Group; (iii) directly or indirectly (through an Affiliate or
otherwise) acquire, manage, operate, join, control, finance, or participate
in the acquisition,
8
<PAGE>
management, operation, control or financing of, or be connected as a principal,
agent, representative, consultant, investor, owner, partner, manager, joint
venturer or otherwise with, any Person with whom any member of the Company
Group at any time during the Term contemplated a similar relationship. In
addition, Executive will not, without the prior written consent of the Board of
Directors of Laser Tech, directly or indirectly (through an Affiliate or
otherwise), enter into any contract, agreement or arrangement, whether
oral or written, with Laser Tech.
(c) The Executive acknowledges that (i) the provisions of this
Section 6 are reasonable and necessary to protect the legitimate interests
of the Company, (ii) any violation of this Section 6 will result in irreparable
injury to the Company, and damages at law will not be reasonable or adequate
compensation to the Company for a violation of this Section 6 and (iii) the
Company shall be entitled to have the provisions of this Section 6
specifically enforced by preliminary and permanent injunctive relief
without the necessity of proving actual damages and without posting bond or
other security. In the event that any of the provisions of this Section 6
should ever be deemed to exceed the time, geographic, product or any other
limitations prescribed by applicable law, then such provisions shall be
deemed reformed so that such provisions shall be valid, binding and
enforceable to the maximum extent permitted by applicable law. The
Executive and the Company each intend to and do hereby confer exclusive
jurisdiction to enforce the provisions of this Section 6 upon the state and
federal courts located in the city, county and state of Delaware and the
Executive and the Company each intend to and do hereby (a) consent to
personal jurisdiction in such jurisdiction, (b) consent to service of process
by certified mail in such jurisdiction, (c) waive any objection to venue in
such jurisdiction and (d) waive any claim that any such court is an
inconvenient forum.
7. DESIGNATED BENEFICIARY. In the event of the death of Executive
while in the employ of the Company, or at any time thereafter during which
amounts remain payable to Executive under Section 5(a) or (c) hereof,
such payments shall thereafter be made to such person or persons as Executive
may specifically designate (successively or contingently) to receive payments
under this
9
<PAGE>
Agreement following Executive's death by filing a written beneficiary
designation with the Company during the Executive's lifetime. Such
beneficiary designation shall be in such form as may be prescribed
by the Company and may be amended from time to time or may be revoked
by Executive pursuant to written instruments filed with the Company
during his lifetime. Beneficiaries designated by Executive may be
any natural or legal person or persons, including a fiduciary, such
as a trustee or a trust or the legal representative of an estate.
Unless otherwise provided by the beneficiary designation filed by
Executive, if all of the persons so designated die before Executive on
the occurrence of a contingency not contemplated in such beneficiary
designation, then the amount payable under this Agreement shall be
paid to the Executive's estate.
8. MISCELLANEOUS. This Agreement shall also be subject to the
following provisions:
(a) Executive represents and warrants to the Company that he
has the authorization, power and right to deliver, execute, and fully
perform his obligations under this Agreement in accordance with its terms.
(b) This Agreement contains a complete statement of all the
arrangements between the parties with respect to Executive's employment
by the Company, this Agreement supersedes all prior and existing negotiations
and agreements between the parties concerning Executive's employment, and
this Agreement can only be changed or modified pursuant to a written
instrument duly executed by each of the parties hereto.
(c) If any provision of this Agreement or any portion thereof is
declared invalid, illegal, or incapable of being enforced by any court of
competent jurisdiction, the remainder of such provisions and all of the
remaining provisions of this Agreement shall continue in full force and
effect.
(d) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of Delaware.
10
<PAGE>
(e) All compensation payable hereunder shall be subject to such
withholding taxes and deductions as may be required by law.
(f) This Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the Company. Except as expressly provided
herein, Executive may not sell, transfer, assign, or pledge any of his rights
or interests pursuant to this Agreement.
(g) Any rights of Executive hereunder shall be in addition to any
rights Executive may otherwise have under benefit plans, agreements, or
arrangements of the Company to which he is a party or in which he is a
participant, including, but not limited to, any Company-sponsored employee
benefit plans. Provisions of this Agreement shall not in any way abrogate
Executive's rights under such other plans, agreements, or arrangements.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
EXECUTIVE LASER TECH COLOR, INC.
/s/ Damien Gough By: /s/ Brian Mason
- ------------------------------- ------------------------------------
Damien Gough Name: Brian Mason
Title: Chairman of the Board and
Chief Executive Officer
12
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF BIG FLOWER PRESS HOLDINGS, INC.
1. Big Flower Press Holdings, Inc. owns 100% of the common stock of (a) Big
Flower Press, Inc. and (b) Webcraft Technologies, Inc.,
2. Big Flower Press, Inc. owns 100% of the common stock of Treasure Chest
Advertising Company, Inc.
3. Treasure Chest Advertising Company, Inc. owns 100% of the common stock of
(a) KTB Associates, Inc. and (b) Retail Graphics Holding Company.
4. Retail Graphics Holding Company owns 100% of the common stock of
(a) Retail Graphics Printing Company and (b) Retail Graphics Company.
5. Webcraft Technologies, Inc. owns 100% of the common stock of (a) Webcraft
Games, Inc., (b) Webcraft Chemicals, Inc., (c) KSS Transportation
Corporation and (d) Webtech Holdings, Inc.
6. Webtech Holdings, Inc. owns 100% of the common stock of (a) Webcraft
Investors, Inc. and Webcraft Midwest, Inc.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-85816 and 333-2152 of Big Flower Press Holdings, Inc. on Form S-8 of our
reports, dated May 3, 1996, appearing in this Transition Report on Form 10-K
of Big Flower Press Holdings, Inc. for the six months ended December 31, 1995.
DELOITTE & TOUCHE LLP
Los Angeles, California
June 14, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 2 THROUGH 4 OF THE COMPANY'S FORM 10-K FOR THE TRANSITION PERIOD FROM
JULY 1, 1995 TO DECEMBER 31, 1995 AND ITS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,598
<SECURITIES> 0
<RECEIVABLES> 138,751
<ALLOWANCES> 7,340
<INVENTORY> 41,797
<CURRENT-ASSETS> 205,623
<PP&E> 178,856
<DEPRECIATION> 41,018
<TOTAL-ASSETS> 554,088
<CURRENT-LIABILITIES> 179,400
<BONDS> 0
0
0
<COMMON> 157
<OTHER-SE> 77,774
<TOTAL-LIABILITY-AND-EQUITY> 554,088
<SALES> 532,352
<TOTAL-REVENUES> 532,352
<CGS> 459,843
<TOTAL-COSTS> 459,843
<OTHER-EXPENSES> 38,998
<LOSS-PROVISION> 2,548
<INTEREST-EXPENSE> 20,578
<INCOME-PRETAX> 10,385
<INCOME-TAX> 5,329
<INCOME-CONTINUING> 5,056
<DISCONTINUED> 0
<EXTRAORDINARY> (19,248)
<CHANGES> 0
<NET-INCOME> (14,192)
<EPS-PRIMARY> (1.29)
<EPS-DILUTED> (1.29)
</TABLE>
