<PAGE>
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K/A
----------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
September 18, 1997
-----------------------------------------------------
(Date of earliest event reported)
BIG FLOWER HOLDINGS, INC.
BIG FLOWER PRESS HOLDINGS, INC.
- -----------------------------------------------------------------------------
(Exact names of registrants as specified in their charters)
Delaware 0-29474 13-397-1556
Delaware 1-14084 13-376-8322
(States of Incorporation) (Commission File Numbers) (IRS Employer
Identification Nos.)
3 East 54th Street
New York, NY 10022
- ------------------------------------------------------------------------------
(Address of Registrants' principal executive offices)
(212) 521-1600
- ------------------------------------------------------------------------------
(Registrants' telephone number)
- ------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The financial statements for Olwen Direct Mail, Ltd. ("Olwen"), the
businesses operating as Riverside County Publishing Company ("RCPC") and
Columbine JDS Systems, Inc. ("Columbine") are filed herewith. The financial
statements of Gamma One, Inc., a Delaware corporation ("Gamma One"),
Broadcast System Software Limited ("BSS") and IMPCO Enterprises, Inc., a
Delaware corporation ("IMPCO"), are not included as an exhibit to this Form
8-K/A as the assets acquired do not constitute a "significant amount of
assets", individually or in the aggregate, as that phrase is defined in the
Instructions to Item 2 of Form 8-K.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined financial information of
the Registrants, reflecting the acquisitions of Olwen, RCPC, Columbine and
Gamma One, is filed herewith. Although not a significant subsidiary, the
effect of Gamma One is included in the unaudited pro forma condensed combined
financial statements to allow a more meaningful analysis of the Registrants'
pro forma operating results. The effect of the purchases of BSS and IMPCO
were not significant to the Registrants' operations nor to the pro forma
operating results and, therefore, are not included in the unaudited pro forma
condensed combined financial statements.
(c) Exhibits.
2.1 Agreement, dated September 18, 1997, between Big Flower Limited and
Peter Rivett, Andrew Ruddle and 3i Group PLC.(1)
2.2 Asset Purchase Agreement, dated as of September 19, 1997, by and
between Treasure Chest Advertising Company, Inc. and Gruner + Jahr
Printing & Publishing Co.(2)
- ------------------------
(1) Incorporated by reference to Big Flower Press Holdings, Inc. Current
Report on Form 8-K, dated September 18, 1997, concerning the
consummation of the Registrants' acquisition of Olwen (File #1-14084).
(2) Incorporated by reference to Big Flower Press Holdings, Inc. Current
Report on Form 8-K, dated October 15, 1997, concerning the consummation
of the Registrants' acquisition of Riverside County Publishing Company
(File #1-14084).
2
<PAGE>
Exhibits (continued)
2.3 Stock Purchase Agreement, dated as of September 19, 1997, among Big
Flower Press Holdings, Inc., Columbine JDS Systems, Inc., Columbine
BIAS, Ltd., each of the shareholders who is a signatory thereto and
each of the optionees who is a signatory thereto.(3)
2.4 First Amendment to Stock Purchase Agreement, dated as of October 29,
1997, by and among Big Flower Press Holdings, Inc., Columbine JDS
Systems, Inc., and its stockholders and option holders.(3)
99.1 Big Flower Press Holdings, Inc. press release dated September 18,
1997.(1)
99.2 Big Flower Press Holdings, Inc. press release dated October 15,
1997.(2)
99.3 Big Flower Holdings, Inc. press release dated November 3, 1997.(3)
99.4 Financial statements of Olwen. *
99.5 Financial statements of RCPC. *
99.6 Financial statements of Columbine. *
99.7 Pro forma condensed combined financial data. *
- ------------------------
* Being filed herewith
(1) Incorporated by reference to Big Flower Press Holdings, Inc. Current
Report on Form 8-K, dated September 18, 1997, concerning the
consummation of the Registrants' acquisition of Olwen (File #1-14084).
(2) Incorporated by reference to Big Flower Press Holdings, Inc. Current
Report on Form 8-K, dated October 15, 1997, concerning the consummation
of the Registrants' acquisition of Riverside County Publishing Company
(File #1-14084).
(3) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
Form 8-K, dated October 31, 1997, concerning the consummation of the
Registrants' acquisition of Columbine (File #0-29474).
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIG FLOWER HOLDINGS, INC.
/s/ Richard L. Ritchie
----------------------
Richard L. Ritchie
Executive Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
DATE: November 24, 1997
BIG FLOWER PRESS HOLDINGS, INC.
/s/ Richard L. Ritchie
----------------------
Richard L. Ritchie
Executive Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
DATE: November 24, 1997
4
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
2.1 Agreement, dated September 18, 1997, between Big Flower Limited and
Peter Rivett, Andrew Ruddle and 3i Group PLC. (1)
2.2 Asset Purchase Agreement, dated as of September 19, 1997, by and
between Treasure Chest Advertising Company, Inc. and Gruner + Jahr
Printing & Publishing Co.(2)
2.3 Stock Purchase Agreement, dated as of September 19, 1997, among Big
Flower Press Holdings, Inc., Columbine JDS Systems, Inc., Columbine
BIAS, Ltd., each of the shareholders who is a signatory thereto and
each of the optionees who is a signatory thereto.(3)
2.4 First Amendment to Stock Purchase Agreement, dated as of October 29,
1997, by and among Big Flower Press Holdings, Inc., Columbine JDS
Systems, Inc., and its stockholders and option holders.(3)
99.1 Big Flower Press Holdings, Inc. press release dated September 18,
1997.(1)
99.2 Big Flower Press Holdings, Inc. press release dated October 15, 1997.(2)
99.3 Big Flower Holdings, Inc. press release dated November 3, 1997.(3)
- ------------------------
(1) Incorporated by reference to Big Flower Press Holdings, Inc. Current
Report on Form 8-K, dated September 18, 1997, concerning the
consummation of the Registrants' acquisition of Olwen (File #1-14084).
(2) Incorporated by reference to Big Flower Press Holdings, Inc. Current
Report on Form 8-K, dated October 15, 1997, concerning the consummation
of the Registrants' acquisition of Riverside County Publishing Company
(File #1-14084).
(3) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
Form 8-K, dated October 31, 1997, concerning the consummation of the
Registrants' acquisition of Columbine (File #0-29474).
5
<PAGE>
EXHIBIT
NO.
- -------
99.4 Financial statements of Olwen. *
99.5 Financial statements of RCPC. *
99.6 Financial statements of Columbine. *
99.7 Pro forma condensed combined financial data. *
- ------------------------
* Being filed herewith
6
<PAGE>
Exhibit 99.4
OLWEN DIRECT MAIL LIMITED
Non statutory financial statements
for the year ended 30 June 1997
<PAGE>
<TABLE>
<CAPTION>
PAGES
---------
<S> <C>
Report of the auditors....................................................... 1
Consolidated profit and loss account......................................... 2
Statement of total recognised gains and losses............................... 2
Consolidated balance sheet................................................... 3
Consolidated cash flow statement............................................. 4
Notes to the cash flow statement............................................. 5--6
Notes to the financial statements............................................ 7--19
</TABLE>
<PAGE>
Report of the auditors to the Directors of
OLWEN DIRECT MAIL LIMITED
We have audited the accompanying consolidated balance sheets of Olwen Direct
Mail Limited and its subsidiaries as of 30 June 1996 and 1997 and the related
consolidated profit and loss accounts, cash flows, and total recognised gains
and losses for each of the three years in the period ended 30 June 1997, all
expressed in pounds sterling. These financial statements are the
responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with United Kingdom Auditing
Standards which do not differ in any significant respect from United States
generally accepted auditing standards. These standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. 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 presentation of the financial statements. 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 Olwen Direct Mail Limited
and its subsidiaries as of 30 June 1996 and 1997 and their profits and cash
flows for each of the three years ended 30 June 1997, in conformity with
accounting principles generally accepted in the United Kingdom (which differ
in certain significant respects from generally accepted accounting principles
in the United States as set out in note 25).
/s/ Coopers & Lybrand
----------------------
Coopers & Lybrand
Chartered Accountants and Registered Auditors
London
13 November 1997
1
<PAGE>
OLWEN DIRECT MAIL LIMITED
Consolidated profit and loss account
for the year ended 30 June 1997
<TABLE>
<CAPTION>
NOTES 1995 1996 1997
L L L
<S> <C> <C> <C> <C>
Turnover................................................... 2 13,322,904 16,940,699 18,414,951
Cost of sales.............................................. 8,318,837 10,444,055 10,381,079
------------ ------------ ----------
Gross profit............................................... 5,004,067 6,496,644 8,033,872
Administrative expenses.................................... 4,047,415 4,725,789 4,733,755
------------ ------------ ----------
956,652 1,770,855 3,300,117
Share of profit of joint venture........................... 28,159 (1,374) --
------------ ------------ ----------
Operating profit........................................... 3 984,811 1,769,481 3,300,117
Interest receivable........................................ 4 14,167 45,784 52,847
Interest payable and similar charges....................... 5 (196,710) (375,869) (269,083)
Amortisation of goodwill................................... (24,461) (31,627) (12,263)
------------ ------------ ----------
Profit on ordinary activities before taxation.............. 777,807 1,407,769 3,071,618
Tax on profit on ordinary activities....................... 6 113,726 532,168 1,053,448
------------ ------------ ----------
Profit on ordinary activities after taxation for the
financial year........................................... 664,081 875,601 2,018,170
Minority interests......................................... 133,678 114,560 --
------------ ------------ ----------
Profit for the financial year.............................. 530,403 761,041 2,018,170
Dividends paid and payable................................. 7 400,000 225,000 995,000
------------ ------------ ----------
Retained profit for the year............................... 130,403 536,041 1,023,170
------------ ------------ ----------
------------ ------------ ----------
Earnings per ordinary share................................ 9.61 7.61 19.88
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Statement of Total Recognised Gains and Losses
<TABLE>
<CAPTION>
1995 1996 1997
L L L
<S> <C> <C> <C>
Profit for the financial year................................ 530,403 761,041 2,018,170
Foreign exchange differences................................. 394 650 (13,649)
------------ ------------ ------------
Total gains and losses recognised............................ 530,797 761,691 2,004,521
------------ ------------ ------------
------------ ------------ ------------
All turnover and operating profits are derived from continuing operations.
</TABLE>
2
<PAGE>
OLWEN DIRECT MAIL LIMITED
Consolidated balance sheet
as at 30 June 1997
<TABLE>
<CAPTION>
NOTES 1996 1997
L L
<S> <C> <C> <C>
Fixed assets
Tangible assets........................................................... 9 3,519,319 3,410,396
Investments............................................................... 10 29,000 2
----------- -----------
3,548,319 3,410,398
----------- -----------
Current assets
Stocks and work in progress............................................... 11 182,288 221,121
Debtors................................................................... 12 4,205,033 4,811,238
Cash at bank and in hand.................................................. 1,617,289 1,467,356
----------- -----------
6,004,610 6,499,715
Creditors: amounts falling due within one year............................ 13 5,592,921 5,836,687
----------- -----------
Net current assets........................................................ 411,689 663,028
----------- -----------
Total assets less current liabilities..................................... 3,960,008 4,073,426
Creditors: amounts falling due after more than one year................... 14 (1,962,628) (1,187,617)
Provisions for liabilities and charges
Deferred taxation......................................................... 17 (19,020) (22,389)
----------- -----------
Net assets................................................................ 1,978,360 2,863,420
----------- -----------
----------- -----------
Capital and reserves
Called up share capital................................................... 18 100,000 101,513
Share premium account..................................................... 19 282,481 417,692
Profit and loss account................................................... 19 1,334,694 2,344,215
----------- -----------
Equity shareholders' funds................................................ 20 1,717,175 2,863,420
Minority interests........................................................ 261,185 --
----------- -----------
1,978,360 2,863,420
----------- -----------
----------- -----------
</TABLE>
The financial statements on pages 2 to 19 were approved by the board of
directors on 13 November 1997 and were signed on its behalf by:
A Fisher M Gamber
Director Director
/s/ A Fisher /s/ M Gamber
3
<PAGE>
OLWEN DIRECT MAIL LIMITED
Consolidated cash flow statement
for the year ended 30 June 1997
<TABLE>
<CAPTION>
NOTES 1995 1996 1997
L L L
<S> <C> <C> <C> <C>
Net cash inflow from operating activities.................. 1 786,638 3,148,985 4,213,625
----------- ----------- -----------
Returns on investments and servicing of finance............ 2 (257,543) (330,085) (187,236)
Taxation................................................... (339,585) (159,815) (633,908)
Capital expenditure........................................ 2 (472,655) (413,965) (817,055)
Acquisitions and disposals................................. 2 (21,115) (101,450) (136,726)
Financing.................................................. 2 853,154 (322,630) (1,894,467)
Equity dividends paid...................................... (400,000) (225,000) (995,000)
----------- ----------- -----------
(Decrease)/increase in cash in period...................... 148,894 1,596,040 (450,767)
----------- ----------- -----------
----------- ----------- -----------
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the period.................. 148,894 1,596,040 (450,767)
Cash inflow/(outflow) from decrease in debt and hire
purchase................................................. (3,008,150) 194,438 1,850,892
----------- ----------- -----------
Change in net debt resulting from cash flows............... (2,859,256) 1,790,478 1,400,125
----------- ----------- -----------
Movement in net debt in the period......................... (2,859,256) 1,790,478 1,400,125
Net debt at 1 July......................................... (1,176,620) (4,035,876) (2,245,398)
----------- ----------- -----------
Net debt at 30 June........................................ 3 (4,035,876) (2,245,398) (845,273)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
4
<PAGE>
OLWEN DIRECT MAIL LIMITED
Notes to the cash flow statement for the year to 30 June 1997
1 Reconciliation of operating profit to net cash inflow
from operating activities
<TABLE>
<CAPTION>
1995 1996 1997
L L L
<S> <C> <C> <C>
Operating profit......................................................... 984,811 1,769,481 3,300,117
Depreciation charges..................................................... 803,017 1,085,599 994,654
(Profit)/loss on sale of tangible fixed assets........................... (246,231) 115,729 (25,101)
Write down of investment................................................. -- 1,374 --
(Increase)/decrease in stocks............................................ (108,042) 50,948 (38,833)
(Increase)/decrease in debtors........................................... (1,173,012) 36,159 (413,705)
Increase/(decrease) in creditors......................................... 526,095 89,695 396,493
----------- ----------- -----------
Net cash inflow from operating activities................................ 786,638 3,148,985 4,213,625
----------- ----------- -----------
----------- ----------- -----------
2 Analysis of cash flows for headings netted in the cash flow statement
Returns on investments and servicing of finance
Interest received........................................................ 14,167 45,784 52,847
Interest paid............................................................ (196,710) (375,869) (269,083)
Dividends to minority shareholders....................................... (75,000) -- --
Dividends from associate................................................. -- -- 29,000
----------- ----------- -----------
Net cash (outflow) from returns on investments and servicing of
finance................................................................ (257,543) (330,085) (187,236)
----------- ----------- -----------
----------- ----------- -----------
Capital expenditure
Purchase of tangible fixed assets........................................ (1,219,002) (438,015) (953,294)
Receipts from sale of tangible fixed assets.............................. 746,347 24,050 136,239
----------- ----------- -----------
Net cash (outflow) from capital expenditure.............................. (472,655) (413,965) (817,055)
----------- ----------- -----------
----------- ----------- -----------
Acquisitions and disposals
Purchase of minority..................................................... (21,115) (101,450) (136,726)
----------- ----------- -----------
----------- ----------- -----------
Financing
New loans................................................................ 2,500,000 1,524,500 --
Capital repayments on finance, lease obligations and loans............... (1,691,648) (1,847,130) (1,894,467)
Issue of share capital................................................... 44,802 -- --
----------- ----------- -----------
Net cash inflow/(outflow) from financing................................. 853,154 (322,630) (1,894,467)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
5
<PAGE>
OLWEN DIRECT MAIL LIMITED
Notes to the cash flow statement
for the year ended 30 June 1997
3 Analysis of changes in net debt
<TABLE>
<CAPTION>
At 30 June At 30 June At 30 June
1995 Cashflow 1996 Cashflow 1997
L L L L L
<S> <C> <C> <C> <C> <C>
Net cash:
Cash at bank and in hand........... 120,995 1,496,294 1,617,289 (149,933) 1,467,356
Bank overdraft..................... (99,746) 99,746 -- (300,834) (300,834)
--------------- ----------- --------------- ----------- ---------------
21,249 1,596,040 1,617,289 (450,767) 1,166,522
--------------- ----------- --------------- ----------- ---------------
Debt:
Hire purchase...................... (2,571,031) 551,763 (2,019,268) 649,608 (1,369,660)
Loans.............................. (1,486,094) (357,325) (1,843,419) 1,201,284 (642,135)
--------------- ----------- --------------- ----------- ---------------
(4,057,125) 194,438 (3,862,687) 1,850,892 (2,011,795)
--------------- ----------- --------------- ----------- ---------------
Total.............................. (4,035,876) 1,790,478 (2,245,398) 1,400,125 (845,273)
--------------- ----------- --------------- ----------- ---------------
--------------- ----------- --------------- ----------- ---------------
Analysed in balance sheet
Cash at bank and in hand........... 120,995 1,617,289 1,467,356
Bank overdraft..................... (99,746) -- (300,834)
Hire purchase
within one year.................. (754,962) (727,351) (624,475)
after one year................... (1,816,069) (1,291,917) (745,185)
Loans
within one year.................. (654,416) (1,172,708) (199,703)
after one year................... (831,678) (670,711) (442,432)
--------------- --------------- ---------------
(4,035,876) (2,245,398) (845,273)
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
6
<PAGE>
OLWEN DIRECT MAIL LIMITED
Notes To The Financial Statements
1 Principal accounting policies
These non-statutory financial statements have been prepared in accordance
with applicable Accounting Standards in the United Kingdom. A summary of the
more important accounting policies, which have been applied consistently, is set
out below.
Basis of accounting
The financial statements are prepared in accordance with the historical cost
convention.
Tangible fixed assets
The cost of tangible fixed assets is their purchase cost, together with any
incidental costs of acquisition.
Depreciation is calculated so as to write off the cost of tangible fixed
assets, less their estimated residual values, over the expected useful economic
lives of the assets concerned. The principal rates used for this purpose are:
<TABLE>
<CAPTION>
%
<S> <C> <C>
Plant and machinery.................................... 20-25 reducing balance
Motor vehicles......................................... 33 straight line
Fixtures and fittings.................................. 25 reducing balance
Computer equipment..................................... 25 reducing balance
Leasehold improvements................................. 25 reducing balance
</TABLE>
Goodwill
Goodwill arising on the acquisition of subsidiaries is capitalised and
eliminated by amortisation through the profit and loss account over its useful
economic life.
Finance and operating leases
Costs in respect of operating leases are charged on a straight line basis
over the lease term. Leasing agreements which transfer to the company
substantially all the benefits and risks of ownership of an asset are treated as
if the asset had been purchased outright. The assets are included in fixed
assets and the capital element of the leasing commitments is shown as
obligations under finance leases. The lease rentals are treated as consisting of
capital and interest elements. The capital element is applied to reduce the
outstanding obligations and the interest element is charged against profit in
proportion to the reducing capital element outstanding. Assets held under
finance leases are depreciated over the shorter of the lease terms and the
useful lives of equivalent owned assets.
7
<PAGE>
OLWEN DIRECT MAIL LIMITED
Stocks and work in progress
Stocks and work in progress are stated at the lower of cost and net
realisable value. In general, cost is determined on a first in first out basis
and includes transport and handling costs. Where necessary, provision is made
for obsolete, slow moving and defective stocks.
Turnover
Turnover, which excludes value added tax and trade discounts, represents the
invoiced value of goods and services supplied during the year.
Deferred taxation
Provision is made for deferred taxation, using the liability method, on all
material timing differences to the extent that it is probable that a liability
or asset will crystallise. Full provision is made for deferred taxation on
timing differences arising from the provision of employee pensions.
Foreign currencies
The profit and loss accounts of overseas operations are translated into
sterling at the exchange rate in operation at the month end of the underlying
transactions. The balance sheets of overseas operations are translated into
sterling at the closing rates.
2 Turnover
The group's turnover, which is derived from providing a complete direct mail
service can be analysed as follows:
<TABLE>
<CAPTION>
1995 1996 1997
L L L
------------ ------------ ------------
<S> <C> <C> <C>
UK...................................................................... 11,762,372 15,018,385 17,246,081
USA..................................................................... 1,560,532 1,922,314 1,168,870
------------ ------------ ------------
13,322,904 16,940,699 18,414,951
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
8
<PAGE>
OLWEN DIRECT MAIL LIMITED
3 Operating profit
<TABLE>
<CAPTION>
1995 1996 1997
L L L
---------- ---------- ----------
<S> <C> <C> <C>
This is stated after charging:
Directors' remuneration (note 8)........................................... 1,041,720 873,464 647,779
Staff costs (note 8)....................................................... 4,030,854 5,094,064 5,740,912
Auditors' remuneration for audit........................................... 25,000 21,000 16,000
Depreciation--owned by the group........................................... 378,859 419,821 439,154
Depreciation--held under finance leases and hire purchase contracts........ 424,158 665,778 555,500
Fees paid to auditors for non-audit services............................... -- 31,823 26,138
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
4 Interest receivable
<TABLE>
<CAPTION>
1995 1996 1997
L L L
--------- -------- ---------
<S> <C> <C> <C>
Bank deposit interest......................... 14,167 45,784 52,847
--------- -------- ---------
--------- -------- ---------
</TABLE>
5 Interest payable and similar charges
<TABLE>
<CAPTION>
1995 1996 1997
L L L
--------- --------- ---------
<S> <C> <C> <C>
On hire purchase................................................................. 98,358 168,164 156,131
On bank overdrafts............................................................... 86,964 1,061 2,976
On other loans repayable within five years....................................... 11,388 206,644 109,976
--------- --------- ---------
196,710 375,869 269,083
--------- --------- ---------
--------- --------- ---------
</TABLE>
6 Tax on profit on ordinary activities
<TABLE>
<CAPTION>
1995 1996 1997
L L L
--------- --------- ----------
<S> <C> <C> <C>
The tax charge for the year comprises:
Based on the profit for the year
UK corporation tax at marginal rates........................................... 95,139 470,730 980,316
US federal taxes............................................................... -- 90,793 40,574
Deferred taxation UK........................................................... 875 -- --
Deferred taxation US........................................................... -- (39,355) 3,369
--------- --------- ----------
96,014 522,168 1,024,259
Under provision in previous years.............................................. 10,673 10,000 29,189
Taxation on profits of joint ventures.......................................... 7,039 -- --
--------- --------- ----------
113,726 532,168 1,053,448
--------- --------- ----------
--------- --------- ----------
9
<PAGE>
</TABLE>
OLWEN DIRECT MAIL LIMITED
7 Dividends
<TABLE>
<CAPTION>
1995 1996 1997
L L L
--------- --------- ---------
<S> <C> <C> <C>
Ordinary-interim paid........................................................... 400,000 112,500 995,000
-final.................................................................. -- 112,500 --
--------- --------- ---------
400,000 225,000 995,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
8 Directors' remuneration and staff costs
Directors' remuneration includes the
following amounts:
<TABLE>
<CAPTION>
1995 1996 1997
L L L
---------- ---------- ----------
<S> <C> <C> <C>
Chairman and highest paid director (to 31 December 1996) 297,440 174,935 75,711
Chairman and highest paid director (from 1 January 1997)................... -- -- 163,091
---------- ---------- ----------
---------- ---------- ----------
Staff costs including directors' remuneration can be analysed as follows:
1995 1996 1997
L L L
---------- ---------- ----------
<S> <C> <C> <C>
Administration............................................................. 2,239,084 2,389,311 2,543,959
Production................................................................. 2,833,490 3,578,217 3,844,732
---------- ---------- ----------
5,072,574 5,967,528 6,388,691
Number Number Number
Average weekly number of persons (including directors)..................... 195 222 243
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
10
<PAGE>
OLWEN DIRECT MAIL LIMITED
9 Tangible fixed assets
<TABLE>
<CAPTION>
Leasehold Motor Fixtures and
property vehicles Plant and machinery fittings Computer equipment Total
L L L L L L
----------------- ------------- ------------------- ------------------ ------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Group cost
At 1 July
1995..... 662,058 143,078 3,725,601 507,407 1,477,188 6,515,332
Additions.. -- 29,995 413,946 10,606 111,660 566,207
Disposals.. (43,815) (45,688) (23,156) (157,149) (228,491) (498,299)
Transfers.. -- -- (30,145) 30,145 -- --
------- ------------- ---------- -------- ---------- ----------
At 1 July
1996..... 618,243 127,385 4,086,246 391,009 1,360,357 6,583,240
Additions.. 2,125 191,869 415,720 59,907 327,248 996,869
Disposals.. (71,121) (72,142) (92,651) (25,362) (40,378) (301,654)
Transfers.. (11,835) -- 568,547 -- (556,712) --
------- ------------- ---------- -------- ---------- ----------
At 30 June
1997..... 537,412 247,112 4,977,862 425,554 1,090,515 7,278,455
------- ------------- ---------- -------- ---------- ----------
Depreciation
At 1 June
1995..... 309,205 92,626 1,069,546 313,182 552,283 2,336,842
Charge..... 60,259 35,882 642,440 55,148 291,870 1,085,599
Disposals.. -- (40,162) (12,424) (139,946) (165,988) (358,520)
------- ------------- ---------- -------- ---------- ----------
At 1 July
1996..... 369,464 88,346 1,699,562 228,384 678,165 3,063,921
Charge for
year..... 44,172 64,679 665,752 47,661 172,390 994,654
Disposals.. (2,722) (46,068) (90,975) (21,146) (29,605) (190,516)
Transfers.. (6,842) -- 282,183 -- (275,341) --
------- ------------- ---------- -------- ---------- ----------
At 30 June
1997..... 404,072 106,957 2,556,522 254,899 545,609 3,868,059
------- ------------- ---------- -------- ---------- ----------
Net book
value
At 30 June
1997..... 133,340 140,155 2,421,340 170,655 544,906 3,410,396
------- ------------- ---------- -------- ---------- ----------
------- ------------- ---------- -------- ---------- ----------
At 30 June
1996..... 248,779 39,039 2,386,684 162,625 682,192 3,519,319
------- ------------- ---------- -------- ---------- ----------
------- ------------- ---------- -------- ---------- ----------
At 30 June
1995..... 353,853 50,452 2,656,055 194,225 924,905 4,178,490
------- ------------- ---------- -------- ---------- ----------
------- ------------- ---------- -------- ---------- ----------
</TABLE>
Included in fixed assets are assets held under hire purchase agreements. The
cost and net book value of these assets are shown below:
11
<PAGE>
OLWEN DIRECT MAIL LIMITED
<TABLE>
<CAPTION>
1995 1996 1997
L L L
---------- ---------- ----------
<S> <C> <C> <C>
Cost....................................................................... 3,423,171 3,308,248 3,262,187
Net book value............................................................. 2,953,747 2,416,161 1,904,236
</TABLE>
10 Investments
<TABLE>
<CAPTION>
1996 1997
L L
--------- ---------
<S> <C> <C>
Associated undertakings........................................................................... 2 2
Cost.............................................................................................. 28,998 --
--------- ---------
At 30 June 1997................................................................................... 29,000 2
--------- ---------
--------- ---------
</TABLE>
Details of investments, all of which are in ordinary shares and are held by
Olwen Direct Mail Limited, are as follows:
<TABLE>
<CAPTION>
Name of company Country of incorporation Holding Nature of business
- --------------------------------- --------------------------------- ----------- ---------------------------------
<S> <C> <C> <C>
Subsidiary undertakings:
Olwen Press Limited England and Wales 100% Dormant
Olwen Envelopes Limited England and Wales 100% Dormant
Olwen Mailing Services Limited England and Wales 100% Dormant
Olwen International Direct Mail, USA Direct mail services
Inc. 100%
Olwen Graphics Services Limited England and Wales 100% Dormant
Olwen Data Management Limited England and Wales 100% Dormant
All the above companies have the same accounting year as the parent company.
Associated undertakings
KMM Olwen(Mailing) Limited England and Wales 50% Dormant
KMM Olwen (Data Services) Limited England and Wales 50% Dormant
</TABLE>
The associated undertakings ceased trading on 30 April 1995.
11 Stocks and work in progress
<TABLE>
<CAPTION>
1996 1997
L L
--------- ---------
<S> <C> <C>
Raw materials and consumable................................................................ 87,143 121,953
Work in progress............................................................................ 95,145 99,168
--------- ---------
182,288 221,121
--------- ---------
--------- ---------
</TABLE>
12
<PAGE>
OLWEN DIRECT MAIL LIMITED
12 Debtors
<TABLE>
<CAPTION>
1996 1997
L L
---------- -----------
<S> <C> <C>
Amounts falling due within one year
Trade debtors.............................. 3,927,418 4,179,840
Other debtors.............................. -- 41,418
VAT repayment due.......................... 72,196 33,593
ACT recoverable............................ 56,250 248,750
Corporation tax recoverable................ -- 19,013
Prepayments and accrued income............. 149,169 288,624
---------- -----------
4,205,033 4,811,238
---------- -----------
---------- -----------
</TABLE>
13 Creditors: amounts falling due within one year
<TABLE>
<CAPTION>
1996 1997
L L
---------- ----------
<S> <C> <C>
Amounts falling due within one year
Bank overdraft.......................................................................... -- 300,834
Loans(note 15).......................................................................... 1,172,708 199,703
Hire purchase........................................................................... 727,351 624,475
Trade creditors......................................................................... 1,608,246 1,860,016
Other creditors......................................................................... 940,375 1,077,997
Other taxes and social security......................................................... 549,363 570,113
Corporation tax......................................................................... 566,753 982,924
ACT payable............................................................................. 28,125 220,625
---------- ----------
5,592,921 5,836,687
---------- ----------
---------- ----------
</TABLE>
3i Group plc have a fixed and floating charge over all the assets of the company
and its UK subsidiaries. National Westminster Bank plc have a second charge of
mortgage debenture over the fixed and floating assets of the company.
14 Creditors: amounts falling due after more than one year
<TABLE>
<CAPTION>
1996 1997
L L
---------- ----------
<S> <C> <C>
Hire purchase........................................................................... 1,291,917 745,185
Loans (note 15)......................................................................... 670,711 442,432
---------- ----------
1,962,628 1,187,617
---------- ----------
---------- ----------
</TABLE>
13
<PAGE>
OLWEN DIRECT MAIL LIMITED
15 Loans
<TABLE>
<CAPTION>
1996 1997
L L
---------- ---------
<S> <C> <C>
Amounts payable within one year........................................................... 1,172,708 199,703
Amounts payable within two to five years.................................................. 670,711 442,432
---------- ---------
1,843,419 642,135
---------- ---------
---------- ---------
</TABLE>
At 30 June 1996 there was a short term loan of L500,000 bearing interest at
2.38% over National Westminster Bank plc base rate which was repaid in November
1996.
The long term loan from 3i Group plc bears interest at 9.9% and is repayable
in monthly instalments of 21,198 over a five year period commencing in June
1995. It is secured by a fixed and floating charge on all the assets of the
company.
16 Other financial commitments
The group's operating lease commitments are as follows:
<TABLE>
<CAPTION>
1996 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
Buildings Other Buildings Other
----------- --------- ----------- ---------
Operating leases which expire:
Within one year....................................................... -- 86,741 -- 16,583
In two to five years.................................................. -- 182,212 -- 115,880
In over five years.................................................... 326,677 -- 349,425 --
----------- --------- ----------- ---------
326,677 268,953 349,425 132,463
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
14
<PAGE>
OLWEN DIRECT MAIL LIMITED
17 Deferred taxation
<TABLE>
<CAPTION>
1996 1997
L L
--------- ---------
<S> <C> <C>
Accelerated capital allowances............................................................... 58,375 58,375
Deferred expenses............................................................................ (39,355) (35,986)
--------- ---------
19,020 22,389
--------- ---------
--------- ---------
Movements on the deferred tax account comprised:
Balance at 1 July............................................................................ 58,375 19,020
Profit and loss account...................................................................... (39,355) 3,369
--------- ---------
19,020 22,389
--------- ---------
--------- ---------
The amount of deferred taxation unprovided at the year end amounted to:
Accelerated capital allowances............................................................... 116,125 94,000
--------- ---------
--------- ---------
</TABLE>
18 Called up share capital
<TABLE>
<CAPTION>
1996 1997
L L
--------- ---------
<S> <C> <C>
Authorised
Ordinary equity shares of L1 each........................................................... 75,000 75,000
"A" ordinary equity shares of L1 each....................................................... 25,000 25,000
"B" ordinary equity shares of L1 each....................................................... 10,000 10,000
"C" ordinary equity shares of L1 each....................................................... -- 10,000
--------- ---------
110,000 120,000
--------- ---------
--------- ---------
Allotted, called up and fully paid
Ordinary shares of L1 each.................................................................. 75,000 75,000
"A" ordinary equity shares of L1 each....................................................... 25,000 25,000
"C" ordinary equity shares of L1 each....................................................... -- 1,513
--------- ---------
100,000 101,513
--------- ---------
--------- ---------
</TABLE>
The "A" ordinary shares are entitled to a fixed cumulative preferential net
cash dividend of L9 per share per annum.
The "C" ordinary shares were issued to the minority shareholder in Olwen
Mailing Services Limited to simplify the group structure. The consideration
provided had a fair value of L136,724.
15
<PAGE>
OLWEN DIRECT MAIL LIMITED
19 Reserves
<TABLE>
<CAPTION>
Profit and loss
account Share Premium
L L
--------------------- --------------
<S> <C> <C>
At 1 July 1995............................................................ 798,003 282,481
Retained profit for the year.............................................. 536,041 --
Foreign exchange difference............................................... 650 --
---------- ----------
At 30 June 1996........................................................... 1,334,694 282,481
Retained profit for the year.............................................. 1,023,170 --
Foreign exchange difference............................................... (13,649) --
New share capital issue................................................... -- 135,211
---------- ----------
At 30 June 1997........................................................... 2,344,215 417,692
---------- ----------
---------- ----------
</TABLE>
20 Reconciliation of movements in shareholders' funds
<TABLE>
<CAPTION>
1995 1996 1997
L L L
---------- ---------- ----------
<S> <C> <C> <C>
Profit for the year reported in the profit and loss account................ 530,403 761,041 2,018,170
Dividends paid............................................................. (400,000) (225,000) (995,000)
---------- ---------- ----------
130,403 536,041 1,023,170
---------- ---------- ----------
---------- ---------- ----------
New share capital issue.................................................... 44,802 -- 1,513
Foreign exchange difference................................................ 394 650 (13,649)
Share premium.............................................................. -- -- 135,211
---------- ---------- ----------
Net addition to shareholders' funds........................................ 175,599 536,691 1,146,245
Opening shareholders' funds................................................ 1,004,885 1,180,484 1,717,175
---------- ---------- ----------
Closing shareholders' funds................................................ 1,180,484 1,717,175 2,863,420
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Closing shareholders' funds are represented entirely by equity interests.
16
<PAGE>
OLWEN DIRECT MAIL LIMITED
21 Capital commitments
At 30 June 1997 the Group had commitments for the purchase of fixed assets
totalling L343,065 (1996: L173,645)
22 Related party transactions
The company had the following loans from shareholders:
<TABLE>
<CAPTION>
3i 1995 1996 1997
L L L
--------- ---------- ---------
<S> <C> <C> <C>
Outstanding at 30 June......................................................... 986,094 823,088 642,135
Interest payable in year....................................................... 8,250 90,411 73,421
P C Rivett
Outstanding at 30 June......................................................... 500,000 1,020,331 --
Interest payable in year....................................................... 3,138 116,233 36,555
</TABLE>
The 3i loan is secured by a fixed and floating charge on all the assets of
the company and its UK subsidiaries.
P C Rivett is a former director of the company.
23 Contingent liabilities
At 30 June 1997 the company and group had contingent liabilities of L252,316
in respect of documentary credits which have been transacted in the normal
course of business.
24 Post balance sheet event
On 18 September 1997 the entire share capital of the company was acquired by
Big Flower Press Holdings Inc., its current immediate and ultimate holding
company.
The shareholders loan and hire purchase creditors have been repaid as part of
this arrangement at a cost of L2,036,350.
25 Summary of differences between UK and US GAAP
The financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("UK GAAP"). These
accounting principles differ in certain material respects from accounting
principles generally accepted in the United States ("US GAAP"). Described below
are the material differences between UK GAAP and US GAAP, affecting the combined
net income and shareholders' equity which are set forth in the tables that
follow.
17
<PAGE>
OLWEN DIRECT MAIL LIMITED
Deferred taxes
Under UK GAAP, deferred taxation is accounted for using the liability method
to the extent that it is considered probable that a liability or asset will
crystallise in the foreseeable future. Under US GAAP, deferred taxation is
provided on all temporary differences and carry forwards, deferred tax assets
are recognised to the extent that it is more likely than not that they will be
realised, and where doubt exists as to whether a deferred tax asset will be
realised, an appropriate valuation allowance is established.
Effect of material differences between UK and US GAAP and additional
disclosures
(a) Net income
<TABLE>
<CAPTION>
1996 1997
L L
---------- ----------
<S> <C> <C>
Net income reported under UK GAAP........................................... 536,041 1,023,170
Deferred taxes.............................................................. 59,000 22,125
---------- ----------
Net income in accordance with US GAAP....................................... 595,041 1,045,295
---------- ----------
---------- ----------
(b) Shareholders' equity
1996 1997
---------- ----------
Shareholders' equity reported under UK GAAP................................. 1,717,175 2,863,420
Deferred taxes.............................................................. (116,125) (94,000)
---------- ----------
Shareholders' equity in accordance with US GAAP............................. 1,601,050 2,769,420
---------- ----------
---------- ----------
</TABLE>
(c) Cash flows
The combined cash flow statements prepared in accordance with UK GAAP
present substantially the same information as that required under US GAAP. Under
US GAAP however, there are certain differences from UK GAAP with regard to
classification of items within the cash flow statement and with regard to the
definition of cash and cash equivalents.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, capital expenditure
and financial investment, acquisitions and disposals, and equity dividends paid.
Under US GAAP, three categories of cash flow activity are reported, being
operating activities, investing activities and financing activities. Cash flows
from taxation and returns on investments and servicing of finance would, with
the exception of dividends paid and cost of financing, be included as operating
activities under US GAAP. The payment of dividends and cost of financing would
be included under financing activities under US GAAP.
18
<PAGE>
OLWEN DIRECT MAIL LIMITED
Under US GAAP, cash and equivalents do not include bank loans and overdrafts
repayable within three months from the date of the advance as is the case under
UK GAAP. Under US GAAP, all short-term borrowings are included under financing
activities.
Set out below, for illustrative purposes, is a summary combined statement of
cash flows under US GAAP.
<TABLE>
<CAPTION>
1996 1997
L L
---------- -----------
<S> <C> <C>
Net cash provided by operating activities............................................... 3,035,847 3,662,545
Net cash outflow from investing activities.............................................. (644,500) (1,001,837)
Net cash flow from financing activities................................................. (795,307) (2,810,642)
---------- -----------
Net increase/(decrease) in cash and cash equivalents under US GAAP...................... 1,596,040 (149,934)
Overdrafts with original maturity less than three months................................ -- (300,833)
---------- -----------
Net increase/decrease in cash balances under UK GAAP.................................... 1,596,040 (450,767)
</TABLE>
19
<PAGE>
Exhibit 99.5
RCPC GROUP
(A group of operating units of
Gruner + Jahr Printing Division)
COMBINED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
<PAGE>
[PRICE WATERHOUSE LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management of Gruner + Jahr
Printing Division
In our opinion, the accompanying combined balance sheet and the related
combined statements of income and group equity and of cash flows present
fairly, in all material respects, the financial position of RCPC Group (a
combination of operating units of Gruner + Jahr Printing Division) at June
30, 1997, 1996, and 1995 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Group's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards which require that
we plan and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
October 15, 1997
Minneapolis, Minnesota
1
<PAGE>
RCPC GROUP
COMBINED BALANCE SHEET
JUNE 30
<TABLE>
<CAPTION>
ASSETS 1997 1996 1995
------ ----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash.................................................................. $ 58,464 $ -- $ 101,853
Trade receivables, less allowances of $1,379,494,
$1,904,332 and $1,668,724, respectively......................... 19,762,556 19,150,929 18,216,936
Inventories........................................................ 6,137,589 8,315,384 9,820,939
Other receivables.................................................. 235,521 154,897 84,096
Prepaid expenses and deposits...................................... 64,863 16,900 62,975
----------- ----------- -----------
Total current assets............................................ 26,258,993 27,638,110 28,286,799
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements.............................................. 2,222,880 2,214,912 2,214,912
Buildings and improvements......................................... 6,755,635 5,651,523 5,224,500
Machinery and equipment............................................ 60,164,653 60,329,294 52,570,698
Construction in progress........................................... 516,260 379,638 4,442,692
----------- ----------- -----------
69,659,428 68,575,367 64,452,802
Less--accumulated depreciation..................................... (43,056,956) (39,178,719) (33,578,900)
----------- ----------- -----------
26,602,472 29,396,648 30,873,902
----------- ----------- -----------
OTHER ASSETS:
Intangibles, net of accumulated amortization of $1,571,000,
$1,450,769 and $1,330,625, respectively......................... 516,015 636,159 756,303
Other long-term assets............................................. 336,008 244,380 80,355
----------- ----------- -----------
Total assets................................................. $53,713,488 $57,915,297 $59,997,359
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND GROUP EQUITY
----------------------------
CURRENT LIABILITIES:
Accounts payable................................................... $ 8,403,148 $ 6,343,574 $10,656,296
Accrued compensation............................................... 3,238,261 2,658,791 2,824,745
Accrued workers' compensation...................................... 494,612 491,210 468,229
Other accrued liabilities.......................................... 454,655 341,043 411,355
----------- ----------- -----------
Total current liabilities....................................... 12,590,676 9,834,618 14,360,625
----------- ----------- -----------
LONG-TERM DEBT:
Payable to Division................................................ 10,851,958 17,966,403 17,407,918
Other long-term debt............................................... 933,295 953,295 797,233
----------- ----------- -----------
11,785,253 18,919,698 18,205,151
----------- ----------- -----------
TOTAL LIABILITIES..................................................... 24,375,929 28,754,316 32,565,776
----------- ----------- -----------
CONTINGENCIES
GROUP EQUITY.......................................................... 29,337,559 29,160,981 27,431,583
----------- ----------- -----------
Total liabilities and group equity.............................. $53,713,488 $57,915,297 $59,997,359
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE>
RCPC GROUP
STATEMENT OF COMBINED INCOME AND GROUP EQUITY
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales....................................................... $ 136,583,901 $ 139,583,492 $ 116,541,940
Costs and expenses:
Cost of goods sold........................................... 112,878,395 119,737,949 94,800,299
Selling and administrative expense........................... 11,174,385 9,690,687 9,618,349
Depreciation and amortization................................ 5,310,875 6,043,490 5,851,961
-------------- -------------- --------------
129,363,655 135,472,126 110,270,609
-------------- -------------- --------------
Income from operations.......................................... 7,220,246 4,111,366 6,271,331
Other (income) expense:
Interest expense............................................. 715,030 1,294,578 991,202
Interest income.............................................. (20,749) (36,256) (31,179)
Other, net................................................... 1,399 (32,447) 8,156
-------------- -------------- --------------
695,680 1,225,875 968,179
-------------- -------------- --------------
Net income...................................................... 6,524,566 2,885,491 5,303,152
Distribution to Division, net................................... (6,347,988) (1,156,093) (2,076,284)
-------------- -------------- --------------
Increase in Group equity........................................ 176,578 1,729,398 3,226,868
Beginning of year Group equity.................................. 29,160,981 27,431,583 24,204,715
-------------- -------------- --------------
End of year Group equity........................................ $ 29,337,559 $ 29,160,981 $ 27,431,583
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE>
RCPC GROUP
STATEMENT OF COMBINED CASH FLOWS
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 6,524,566 $ 2,885,491 $ 5,303,152
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 5,310,875 6,043,490 5,851,961
Loss on disposal of assets....................................... 15,428 53,659 2,490
Changes in assets and liabilities:
Receivables...................................................... (611,627) (933,993) (5,002,138)
Inventories...................................................... 2,177,795 1,505,555 (5,114,120)
Prepaid expenses and other current assets........................ (128,587) (24,726) 390,118
Accounts payable and accrued liabilities......................... 2,756,058 (4,526,007) 6,519,071
Other long-term assets........................................... (91,628) (164,025) (54,104)
------------- ------------ ------------
Net cash provided by operating activities..................... 15,952,880 4,839,444 7,896,430
------------- ------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment.......................... (2,419,393) (4,500,951) (5,742,749)
Proceeds from sale of equipment..................................... 7,410 1,200 6,622
------------- ------------ ------------
Net cash used in investing activities......................... (2,411,983) (4,499,751) (5,736,127)
------------- ------------ ------------
Cash flows from financing activities:
Payable to Division, net............................................ (7,114,445) 558,485 (42,191)
Issuance of long-term debt.......................................... 156,062
Repayment of long-term debt......................................... (20,000)
Distribution to Division, net....................................... (6,347,988) (1,156,093) (2,076,284)
------------- ------------ ------------
Net cash used in financing activities......................... (13,482,433) (441,546) (2,118,475)
------------- ------------ ------------
Net increase (decrease) in cash........................................ 58,464 (101,853) 41,828
Cash at beginning of the year.......................................... -- 101,853 60,025
------------- ------------ ------------
Cash at end of the year................................................ $ 58,464 $ -- $ 101,853
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
Supplemental disclosure:
Cash paid during the years for interest, net of amount capitalized,
approximated interest expense.
See accompanying notes to combined financial statements.
4
<PAGE>
RCPC GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1--OPERATIONS AND BASIS OF PRESENTATION
RCPC Group (the Group) is a combination of operating units of Gruner +
Jahr Printing Division (the Division). The Division is a component of Gruner
+ Jahr Printing and Publishing Co.--a Delaware general partnership (the
Partnership). The Group's financial statements represent the combined
operations and financial position of Riverside County Publishing Company and
First Graphics (collectively RCPC), PrepSAT Riverside and PrepSAT San Leandro
(collectively PrepSAT) and West Coast Ink. The Group's operations primarily
consist of the preparation and printing of newspaper inserts.
NOTE 2--ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is generally recognized on a job when the production process has
been completed and the product is shipped.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost
determined on a first-in, first-out (FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and includes interest
capitalized in connection with long-term construction projects. Approximately
$10,000, $56,000 and $43,000 of interest was capitalized during the years
ended June 30, 1997, 1996 and 1995, respectively. Replacements and
improvements are capitalized; maintenance and repairs are charged to expense
as incurred. Asset and accumulated depreciation accounts are relieved for
dispositions with resulting gains or losses reflected in earnings.
Depreciation is calculated using the straight-line method over the
estimated useful lives as follows: 3 to 10 years for machinery, equipment and
vehicles and 16 to 33 years for buildings. The costs of leasehold
improvements are amortized over the lesser of the useful lives or the terms
of the respective leases. Depreciation expense was $5,190,731, $5,923,346,
and $5,731,817 in the years ended June 30, 1997, 1996 and 1995, respectively.
INTANGIBLES
Intangible assets consist primarily of goodwill. Goodwill represents the
unamortized excess of the cost of acquiring net assets over the fair value of
those assets at the date of acquisition. Goodwill is being amortized over 15
years. The Company periodically evaluates the recovery of intangibles based
on an analysis of estimated undiscounted future cash flows.
5
<PAGE>
INCOME TAXES
The Group is included in the tax return of the Division's parent, a
partnership; therefore, no provision for income taxes has been provided on
earnings as the liability for federal and state income taxes accrues to the
individual partners.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments primarily consist of cash, short-term
trade receivables and payables for which current carrying amounts approximate
fair market value. As explained in Note 3, the Group has an amount payable to
the Division for which there is no interest cost.
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.
NOTE 3--COST ALLOCATIONS FROM THE DIVISION
The primary components of cost allocations from the Division for the
years ended June 30 are as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------
<S> <C> <C> <C> <C>
SELLING AND
COST OF ADMINISTRATIVE INTEREST
GOODS SOLD EXPENSE EXPENSE TOTAL
----------- ------------- ---------- ------------
Information technology..................................... $ 84,798 $ 84,798
Corporate administration................................... 1,777,279 1,777,279
Workers' compensation...................................... $ 672,500 672,500
Employee benefits.......................................... 308,355 308,355
PrepSAT administration..................................... 845,000 845,000
Insurance.................................................. 172,070 172,070
Interest................................................... $ 636,876 636,876
----------- ------------- ---------- ------------
Total................................................ $ 980,855 $ 2,879,147 $ 636,876 $ 4,496,878
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------
<S> <C> <C> <C> <C>
SELLING AND
COST OF ADMINISTRATIVE INTEREST
GOODS SOLD EXPENSE EXPENSE TOTAL
----------- ------------- ------------ ------------
Information technology................................... $ 65,463 $ 65,463
Corporate administration................................. 788,600 788,600
Workers' compensation.................................... $ 570,900 570,900
Employee benefits........................................ 297,406 297,406
PrepSAT administration................................... 774,000 774,000
Insurance................................................ 161,775 161,775
Interest................................................. $ 1,217,556 1,217,556
----------- ------------- ------------ ------------
Total.............................................. $ 868,306 $ 1,789,838 $ 1,217,556 $ 3,875,700
----------- ------------- ------------ ------------
----------- ------------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------
<S> <C> <C> <C> <C>
SELLING AND
COST OF ADMINISTRATIVE INTEREST
GOODS SOLD EXPENSE EXPENSE TOTAL
----------- ------------- ---------- ------------
Information technology..................................... $ 75,393 $ 75,393
Corporate administration................................... 1,007,300 1,007,300
Workers' compensation...................................... $ 412,343 412,343
Employee benefits.......................................... 267,066 267,066
PrepSAT administration..................................... 546,962 546,962
Insurance.................................................. 166,032 166,032
Interest................................................... $ 920,053 920,053
----------- ------------- ---------- ------------
Total................................................ $ 679,409 $ 1,795,687 $ 920,053 $ 3,395,149
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
</TABLE>
Information technology costs and corporate administration costs are
charged to the Group based on actual usage which is tracked through an
activity-based costing system. Workers' compensation, employee benefits and
PrepSAT administration costs are allocated based on employee headcount.
Insurance costs are charged to the Group based on property and vehicle values
with liability insurance being allocated based on sales dollars. Interest
costs are allocated based on relative levels of fixed assets, gross inventory
and accounts receivable. Management believes its cost allocations to the
Group reasonably approximates the actual associated costs incurred.
At June 30, 1997, 1996 and 1995, the Group had a payable to the Division
of $10,851,958, $17,966,403 and $17,407,918, respectively. No interest is
charged on the payable balance.
Sales to the Division approximated $153,000, $31,000 and $248,000 for the
years ended June 30, 1997, 1996 and 1995, respectively.
7
<PAGE>
NOTE 4--INVENTORIES
The components of inventories at June 30 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials and supplies.............................................. $ 5,362,059 $ 7,432,026 $ 8,868,841
Work-in-process......................................................... 775,530 883,358 952,098
------------ ------------ ------------
$ 6,137,589 $ 8,315,384 $ 9,820,939
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE 5--OTHER LONG-TERM DEBT
Other long-term debt consists of participating loans amounting to
$933,295, $953,295 and $797,233 at June 30, 1997, 1996 and 1995,
respectively. Interest is computed based upon return on total assets for RCPC
for the year. The amount of interest for the years ended June 30, 1997, 1996
and 1995 was $78,154, $77,022 and $67,740, respectively. The loans are
payable 1-1/2 years after demand.
NOTE 6--LEASES
The Group has noncancelable operating leases for machinery and equipment
with terms ranging from one to six years. Future minimum rentals under such
leases were approximately as follows at June 30:
<TABLE>
<S> <C>
1998 $ 602,184
1999 86,125
2000 15,900
2001 15,900
2002 15,900
Thereafter 7,950
--------
$ 743,959
--------
--------
</TABLE>
Rental expense under all leases for the years ended June 30, 1997, 1996
and 1995 approximated $599,000, $538,000 and $554,000, respectively.
NOTE 7--EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN
The PrepSAT units of the Group participate in a profit sharing plan
maintained by the Division which covers employees who have completed at least
one year of continuous service. The plan is funded by discretionary
contributions from the Group. The Group contributed $64,145, $46,003 and
$25,120 for the years ended June 30, 1997, 1996 and 1995, respectively.
8
<PAGE>
DEFERRED COMPENSATION PLAN
The Group has an investment plan available to employees who have
completed at least one year of continuous service. The investment plan is
intended to qualify as a deferred compensation plan under Section 401(k) of
the Internal Revenue Code of 1986. Employees may generally contribute up to
15% of their salary to the plan. The Group contributed $29,919, $26,447 and
$25,049 for the plan years ended December 31, 1996, 1995 and 1994,
respectively, for RCPC employees of the Group. Employee contributions vest
immediately.
VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION PLAN
The Group, with the exception of RCPC, participates in a Voluntary
Employees' Beneficiary Association Plan maintained by the Division to fund
health care benefits available to all full-time employees. The plan is
primarily funded by contributions from the Group. Group contributions to the
plan for the year ended June 30, 1997, 1996 and 1995 were $592,225, $174,719
and $278,674, respectively.
NOTE 8--CONTINGENCIES
In July 1994, the Group was sued for damages resulting from alleged
breach of a sub-contracting agreement between RCPC and a competitor made in
February 1991. The competitor claimed this breach resulted in a loss of work
and future profits from growth, a lost opportunity to purchase a new printing
press, and caused them to absorb certain software development costs. Total
damages claimed by the competitor are approximately $31.7 million.
It is the Group's belief the lawsuit is without merit and the Group will
prevail in court. During the fiscal years ended June 30, 1997, 1996 and 1995
the Group incurred approximately $800,000, $106,000 and $71,000,
respectively, in legal expenses related to this case.
NOTE 9--SUBSEQUENT EVENT
On October 15, 1997, the Partnership sold substantially all of the assets
and related liabilities of the Group, which liabilities excluded, amongst
other items, the lawsuit discussed in Note 8.
9
<PAGE>
Exhibit 99.6
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Columbine JDS Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Columbine JDS
Systems, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended December 31, 1996 and the period from February 15, 1995
(commencement of operations) to December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Columbine JDS
Systems, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the year ended December 31, 1996
and the period from February 15, 1995 (commencement of operations) to December
31, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 7, 1997
1
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS (NOTE 4)
Current assets:
Cash and cash equivalents........................................................... $ 3,330,259 1,443,364
Receivables:
Trade, less allowance of $804,548 and $749,320 in 1996 and 1995, respectively..... 8,099,502 9,078,658
Other, less allowance of $118,000 in 1995......................................... 414,614 1,350,391
------------ ------------
8,514,116 10,429,049
Inventory........................................................................... 124,841 145,658
Deferred income taxes (note 6)...................................................... 654,709 588,321
Prepaid expenses and other.......................................................... 469,496 738,418
------------ ------------
Total current assets............................................................ 13,093,421 13,344,810
------------ ------------
Equipment, leasehold improvements and computer software:
Computer equipment.................................................................. 5,181,578 3,946,956
Furniture and fixtures.............................................................. 1,060,154 996,185
Leasehold improvements.............................................................. 456,221 426,074
Computer software................................................................... 654,943 193,019
------------ ------------
7,352,896 5,562,234
Less accumulated depreciation and amortization...................................... (2,776,167) (1,179,007)
------------ ------------
Net equipment, leasehold improvements and computer software..................... 4,576,729 4,383,227
------------ ------------
Other assets:
Excess of cost over fair value of net assets acquired less accumulated amortization
of $4,479,928 and $2,068,975 in 1996 and 1995, respectively (note 1).............. 31,545,531 33,750,310
Purchased software, less accumulated amortization of $3,073,270 and $1,364,668 in
1996 and 1995, respectively (notes 1 and 3)....................................... 5,635,083 7,123,183
Software development costs, less accumulated amortization of $36,122 and $1,305 in
1996 and 1995, respectively....................................................... 1,559,250 400,372
Other............................................................................... 3,678 309,048
------------ ------------
38,743,542 41,582,913
------------ ------------
Total assets.................................................................... $ 56,413,692 59,310,950
------------ ------------
------------ ------------
</TABLE>
2
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 1,603,072 1,466,573
Accrued compensation payable..................................................... 1,619,043 1,398,116
Other accrued liabilities........................................................ 1,889,159 2,275,495
Current portion of long-term debt (note 4)....................................... 3,921,331 3,999,798
Deferred revenue................................................................. 1,174,331 1,622,073
------------- -------------
Total current liabilities.................................................... 10,206,936 10,762,055
Deferred income taxes (note 6)..................................................... 2,200,088 2,414,875
Long-term debt, less current portion (note 4)...................................... 13,963,500 17,884,831
Other liabilities.................................................................. 1,363 25,317
------------- -------------
Total liabilities............................................................ 26,371,887 31,087,078
------------- -------------
Minority interests................................................................. 190,039 32,664
Stockholders' equity (notes 1 and 5):
Class A cumulative preferred stock, $.01 par value; 5,000 shares authorized;
3,344 shares issued and outstanding (liquidation preference of $3,344,000)..... 3,344,000 3,344,000
Common stock, $.01 par value; 2,000,000 shares authorized; 1,000,000 shares
issued and outstanding......................................................... 10,000 10,000
Additional paid-in capital....................................................... 24,404,791 24,404,791
Retained earnings................................................................ 2,092,975 432,417
Total stockholders' equity................................................... 29,851,766 28,191,208
Commitments and contingencies (note 8)
------------- -------------
Total liabilities and stockholders' equity................................... $ 56,413,692 59,310,950
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM
FEBRUARY 15, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Revenue:
Software license and system fees................................................... $ 38,477,185 32,150,536
Computer hardware sales............................................................ 8,611,067 6,894,913
Computer product sales............................................................. 5,477,774 4,335,339
Consulting fees.................................................................... 4,373,553 3,798,159
Communications and page printing fees.............................................. 1,604,766 1,790,543
Maintenance fees................................................................... 1,564,759 1,460,277
Other.............................................................................. 1,123,875 837,230
------------- ------------
Total revenue.................................................................... 61,232,979 51,266,997
Cost of sales of computer hardware and related products and services................. 13,065,022 11,503,594
------------- ------------
Revenue net of cost of sales of computer hardware and related products and
services....................................................................... 48,167,957 39,763,403
Operating expenses:
Selling, general and administrative expenses....................................... 37,200,499 29,633,200
Depreciation and amortization...................................................... 5,747,899 4,619,938
Relocation expenses................................................................ 1,652 1,562,759
Purchased in process research and development (note 1)............................. -- 916,281
------------- ------------
Total operating expenses......................................................... 42,950,050 36,732,178
------------- ------------
Earnings before interest, minority interests and income taxes.................... 5,217,907 3,031,225
Interest expense..................................................................... 1,448,142 1,538,546
Earnings before minority interests and income taxes.............................. 3,769,765 1,492,679
Minority interests................................................................... 143,059 (6,561)
------------- ------------
Earnings before income taxes..................................................... 3,626,706 1,499,240
Income tax expense (note 6).......................................................... 1,690,268 841,103
------------- ------------
Net earnings..................................................................... 1,936,438 658,137
Less preferred stock dividends....................................................... (275,880) (225,720)
------------- ------------
Net earnings attributable to common stockholders................................. $ 1,660,558 432,417
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM
FEBRUARY 15, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------- --------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ------------ ---------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT FEBRUARY 15, 1995........... -- $ -- -- $ -- -- -- --
Preferred and common shares issued in
connection with formation of the
Company (notes 1 and 5)............... 3,344 3,344,000 1,000,000 10,000 24,404,791 -- 27,758,791
Preferred stock dividends............... -- -- -- -- -- (225,720) (225,720)
Net earnings............................ -- -- -- -- -- 658,137 658,137
----- ------------ ---------- --------- ------------ ---------- ------------
BALANCES AT DECEMBER 31, 1995........... 3,344 3,344,000 1,000,000 10,000 24,404,791 432,417 28,191,208
Preferred stock dividends............... -- -- -- -- -- (275,880) (275,880)
Net earnings............................ -- -- -- -- -- 1,936,438 1,936,438
----- ------------ ---------- --------- ------------ ---------- ------------
BALANCES AT DECEMBER 31, 1996........... 3,344 $ 3,344,000 1,000,000 $ 10,000 24,404,791 2,092,975 29,851,766
----- ------------ ---------- --------- ------------ ---------- ------------
----- ------------ ---------- --------- ------------ ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM
FEBRUARY 15, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings...................................................................... $ 1,936,438 658,137
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization................................................... 5,747,899 4,619,938
Minority interests.............................................................. (92,625) 3,595
Purchased in process research and development................................... -- 871,000
Provision (credit) for uncollectible receivables................................ (62,772) (43,262)
Deferred income tax benefit..................................................... (281,175) (480,596)
Gain on sale of equipment....................................................... 1,347 --
Changes in operating assets and liabilities, net of effect of business
combinations:
Receivables................................................................... 1,977,705 (2,792,322)
Inventory..................................................................... 20,817 383,007
Prepaid expenses and other current assets..................................... 268,922 (66,789)
Other assets.................................................................. 305,370 508,645
Accounts payable and accrued liabilities...................................... (28,910) 1,668,116
Deferred revenue and other liabilities........................................ (471,696) 465,106
------------- -------------
Net cash provided by operating activities................................... 9,321,320 5,794,575
------------- -------------
Cash flows from investing activities:
Cash paid to acquire net assets in formation of the Company....................... (184,010) (38,222,336)
Net assets acquired in business combinations, net of cash acquired................ -- (1,339,191)
Investment by Joint Venture Partner............................................... 250,000 --
Capital expenditures.............................................................. (1,810,540) (1,099,877)
Software development costs........................................................ (1,414,197) (401,677)
------------- -------------
Net cash used by investing activities....................................... (3,158,747) (41,063,081)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt...................................................... -- 42,000,000
Principal payments on debt........................................................ (3,999,798) (21,751,497)
Capital contributions received in formation of the Company........................ -- 16,000,000
Preferred stock dividends......................................................... (275,880) (225,720)
Cash acquired in formation of the Company......................................... -- 689,087
------------- -------------
Net cash provided (used) by financing activities............................ (4,275,678) 36,711,870
------------- -------------
Net increase in cash and cash equivalents................................... 1,886,895 1,443,364
Cash and cash equivalents at beginning of period.................................... 1,443,364 --
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 3,330,259 1,443,364
------------- -------------
------------- -------------
Supplemental schedule of non-cash financing activities:
Common stock issued in formation of the Company................................... $ -- 24,414,791
------------- -------------
------------- -------------
Preferred stock issued in formation of the Company................................ $ -- 3,344,000
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................ $ 1,575,876 1,395,954
------------- -------------
------------- -------------
Cash paid for income taxes........................................................ $ 2,082,724 1,044,554
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Columbine JDS Systems, Inc. (CJDS) commenced operations on February 15, 1995
for the purpose of operating as a holding company for the operations of
Columbine Systems, Inc. (CSI), Columbine Cable Systems, Inc. (CCSI) and JDS
Systems, Inc. (JDS) (collectively the Company).
The Company's business is developing, marketing, installing and supporting
comprehensive computer software systems for use in buying and selling media,
primarily in the broadcast television, radio and cable television industries. In
addition, the Company sells computer hardware and related products. The
Company's operations are both domestic and international.
The formation of CJDS was accomplished through an initial capitalization of
$1,000 and the acquisition of the outstanding common shares of CSI, CCSI and JDS
as described below. On February 14, 1995, JDS purchased substantially all of the
net assets, including the debt payable to the seller, of Jefferson-Pilot Data
Services, Inc. (Jefferson-Pilot) for $32,100,000, using primarily capital of $16
million contributed by its shareholder on that date and the proceeds from bank
debt in the amount of $19 million (see note 4). On February 15, 1995, the
shareholder of JDS exchanged its shares in JDS for 502,000 shares of CJDS'
common stock, representing a 50.2% ownership interest in CJDS. Also, on February
15, 1995, the former shareholders of CSI and CCSI exchanged 100% of their common
shares in those entities for 407,000 and 90,000 shares of CJDS' common stock,
respectively. Accordingly, the former CSI and CCSI shareholders retained a 40.7%
and 9% interest, respectively, in CJDS after its formation. The value of CJDS'
shares issued to the former CSI and CCSI shareholders was based on the imputed
value of the 50.2% interest in CJDS' shares acquired by the shareholder of JDS
in exchange for its shares in JDS which had been capitalized at $16 million on
the previous day. As a result of the common control of JDS and CJDS, the
transactions to acquire the net assets of Jefferson-Pilot by JDS on February 14,
1995 have been included in the accompanying consolidated financial statements.
In addition, the former shareholders of CSI and CCSI received $3,387,021 in
cash and 3,344 shares of CJDS's Class A cumulative preferred stock valued at
$3,344,000. Accordingly, the total consideration for the CSI and CCSI common
shares was as follows:
<TABLE>
<S> <C>
Value of CJDS shares issued.................................... $15,840,637
CJDS preferred shares.......................................... 3,344,000
Cash........................................................... 3,387,021
-----------
$22,571,658
-----------
-----------
</TABLE>
The formation of the Company was accounted for using the purchase method of
accounting. However, as a result of the ownership of a portion of CJDS' common
stock by the former shareholders of CSI and CCSI, only that portion of the CSI
and CCSI net assets acquired by the new shareholders (59.3% for CSI and 91% for
CCSI) was subject to purchase accounting
7
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION AND BUSINESS (CONTINUED)
adjustments. Accordingly, the shares subject to purchase accounting were
recorded at $8,414,791. The total consideration subject to purchase accounting
treatment was $14,306,553. The remaining net assets were recorded at the former
shareholders' historical cost basis, which totaled $838,259.
The total acquisition price for the common stock of CSI, CCSI and JDS,
including transaction costs of $1,626,223, was allocated as follows:
<TABLE>
<S> <C>
Current assets, excluding deferred taxes....................... $ 9,577,154
Current liabilities............................................ (7,360,196)
Equipment...................................................... 4,288,868
Purchased software............................................. 7,277,000
Other assets................................................... 817,793
Purchased in-process research and development.................. 491,000
Debt........................................................... (833,656)
Deferred revenue............................................... (36,980)
Deferred income taxes, net..................................... (2,327,422)
Excess of cost over fair value of net assets acquired.......... 35,535,261
----------
Purchase price consideration............................... $47,428,822
----------
----------
</TABLE>
As a result of the above transactions, CSI, CCSI, and JDS are wholly-owned
subsidiaries of CJDS.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of CJDS and its three wholly owned subsidiaries and one majority owned
subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.
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
at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(C) INVENTORY
Inventory, primarily computer hardware, is valued at the lower of
cost or market using the specific identification basis.
8
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) EQUIPMENT, LEASEHOLD IMPROVEMENTS AND COMPUTER SOFTWARE
Equipment, leasehold improvements and computer software are recorded at
cost and depreciated and amortized over the assets' estimated useful
lives or the lease term, which is generally five years, using the
straight-line method.
(E) SOFTWARE DEVELOPMENT AND RESEARCH AND DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed.
Costs to establish the technological feasibility of computer software
products are expensed as incurred. Costs incurred subsequent to the
establishment of technological feasibility are capitalized until the
related product is available for general release or sale and is
amortized on a product-by-product basis, using the straight-line method
over a five-year period. The Company periodically evaluates the
estimated net realizable value of each software product and provides for
impairment as necessary. Total amortization expense was $34,817 and
$1,305 in 1996 and 1995, respectively.
The Company expenses research and development costs, other than software
development costs, as they are incurred. Research and development costs
totaled $7,512,920 and $4,365,383 for the year ended December 31, 1996
and for the period from February 15, 1995 to December 31, 1995,
respectively.
(F) PURCHASED SOFTWARE AND EXCESS OF COST OVER THE FAIR VALUE OF NET ASSETS
ACQUIRED
Purchased software costs, relating to the formation of the Company as
described in note 1, are amortized over a 5-year period using the
straight-line method. Excess of cost over the fair value of net assets
acquired is amortized using the straight-line method over 15 years.
(G) IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121)
which requires that long-lived assets and certain identifiable
intangibles held and used by an entity, including goodwill and purchased
software, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss is recognized when estimated
undiscounted future cash flows expected to be generated by the asset is
less than its carrying value. Measurement of impairment loss is based on
the fair value of the asset, which is generally determined using
valuation techniques such as the discounted present value of expected
future cash flows. The adoption of SFAS 121 as of January 1, 1996 had no
effect on the consolidated financial statements of the Company.
9
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) Revenue Recognition and Deferred Revenue
The Company recognizes initial software license revenue upon delivery,
implementation and acceptance of the software and after all significant
obligations of the Company have been fulfilled. Revenue from system
fees, which entitles the licensee to use of the software and technical
support, is recognized ratably over the term of the contract. Revenue
from consulting and service bureau fees, are recognized as the services
are performed. Revenue from software development contracts is recognized
using the percentage-of-completion method over the development period.
Revenue from the sale of computer hardware is recognized upon shipment.
Computer hardware maintenance revenue is recognized ratably over the
term of the contract.
Deferred revenue includes system fees, installation fees and maintenance
fees paid in advance.
(i) Income Taxes
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes
(SFAS 109). Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(J) STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation plan
using the intrinsic value based method prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations (APB 25). The Company has
provided pro forma disclosures of net income as if the fair value based
method of accounting for this plan, as prescribed by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), had been applied. Pro forma disclosures include
the effects of employee stock options granted during the periods ended
December 31, 1996 and 1995.
(K) RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to conform with the 1996
consolidated financial statement presentation.
10
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) BUSINESS COMBINATIONS AND INVESTMENTS IN JOINT VENTURES
Effective October 1, 1995, CSI acquired substantially all of the assets of
an operating division of New BMP Software Partners (BMP) for $1,800,000. The
acquisition was accounted for using the purchase method of accounting and the
purchase price, including transaction costs of $88,687, was allocated as
follows:
<TABLE>
<S> <C>
Equipment....................................................................... $ 172,850
Purchased software.............................................................. 750,000
Purchased in-process research and development................................... 380,000
Other assets, including excess cost over the fair value of net assets
acquired...................................................................... 585,837
---------
$1,888,687
---------
---------
</TABLE>
On September 11, 1995, CSI purchased the licensing rights to a software
program from ICA Systems, Inc. (ICA) and Maryland Systems Group, Inc. Prior to
the purchase, CSI had a license agreement to sell the software in return for
royalties. Simultaneously with this purchase, CSI established a new company,
Columbine JDS ABU, Inc. (ABU), to which the software was contributed. CSI and
ICA ownership percentages are 90% and 10%, respectively. Total consideration for
the purchase was $180,000 cash, ABU stock valued at $29,067, transaction costs
of $10,599 and cancellation of an $81,279 prepaid royalty, for a total of
$300,945, which was recorded as purchased software.
In connection with the Jefferson-Pilot asset acquisition, JDS entered into
two joint ventures with Donovan Data Systems, Inc. (DDS) in which each
participant has a 50% interest. During 1996, the Company entered into a joint
venture with PerfectSync, Inc. in which each participant has a 50% interest. The
assets, liabilities and operations of the joint ventures, which are not
significant, have been consolidated with those of the Company in the
accompanying consolidated financial statements.
11
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Note payable to bank with interest at a variable rate (7% and 7.25% at December 31,
1996 and 1995, respectively), due in quarterly principal installments of $821,500
through March 31, 2002, secured by substantially all of the assets of the Company
(a)................................................................................ $ 17,249,500 20,535,500
Note payable to BMP, imputed interest at 8%, due in annual installments of principal
and interest of $450,000 through 1997, secured by BMP customer contracts and
related business records........................................................... 416,667 802,469
Unsecured note payable to Jefferson-Pilot, non-interest bearing, due in monthly
installments of $27,333 through August 1997........................................ 218,664 546,660
------------- ------------
17,884,831 21,884,629
Less current portion................................................................. (3,921,331) (3,999,798)
------------- ------------
Long-term debt, less current portion............................................. $ 13,963,500 17,884,831
------------- ------------
------------- ------------
</TABLE>
(a) Effective February 15, 1995, in connection with the formation of the
Company, CJDS entered into a $23,000,000 term loan agreement with a
bank, to be used for the acquisition of JDS, CSI and CCSI, repayment of
the $19,000,000 note assumed from JDS, as well as other working capital
requirements. This note is subject to certain debt covenant restrictions
requiring the maintenance of certain financial ratios and minimum
consolidated net worth.
In connection with the term loan, the Company also entered into an
arrangement for a $2 million line of credit which bears interest at a
variable rate. No borrowings are outstanding under the line-of-credit at
December 31, 1996.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997....................................................... $ 3,921,331
1998....................................................... 3,286,000
1999....................................................... 3,286,000
2000....................................................... 3,286,000
2001....................................................... 3,286,000
Thereafter................................................. 819,500
----------
$17,884,831
----------
----------
</TABLE>
12
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) STOCKHOLDERS' EQUITY
CLASS A CUMULATIVE PREFERRED STOCK
The Class A preferred stock accrues dividends at the rate of 10% per annum
as of December 31, 1996, and increases 1% per year on February 15 of each year
thereafter to a maximum rate of 13%. The preferred shares are redeemable at any
time at the option of the Company for $1,000 per share plus any accrued, but
unpaid, dividends and have a liquidation preference of $3,344,000.
STOCK OPTIONS
The Company has a stock option plan, whereby the Company may grant options
to its employees for up to 86,957 shares of common stock. The exercise price of
each option is equal to the fair value of the underlying common shares, as
determined by the Company's Board of Directors, and have a maximum term of ten
years. Pursuant to this plan, the Company granted options for 54,348 shares on
February 15, 1995. One fifth of these options vest each year on the anniversary
date of the grant. The Company has also granted options for 6,522 and 5,435
shares on December 31, 1996 and 1995, respectively. These options were fully
vested at the date of grant.
As discussed in note 1(j), the Company applies APB Opinion 25 and related
interpretations in accounting for its stock option plan. Accordingly, because
the Company grants its options at or above market value no compensation cost has
been recognized for its Plan. Had compensation cost for the Company's
stock-based compensation plan been determined based upon the fair value of
options on the grant dates, consistent with the provisions of SFAS 123, the
Company's 1996 and 1995 pro forma net earnings would have been $1,866,376 and
$591,232, respectively. The weighted average fair value of options granted
during 1996 and 1995 were $3.28 and $4.48 per share, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions: no
expected dividends, expected life of the options of two years in 1996 and three
years in 1995 and a risk-free interest rate ranging from 5.12% to 5.52%.
13
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) STOCKHOLDERS' EQUITY (CONTINUED)
A summary of option activity for the year ended and period ended December
31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
EXERCISE OPTIONS
SHARES PRICE EXERCISABLE
--------- ----------- -----------
<S> <C> <C> <C>
Outstanding at February 14, 1995.................................................. --
Granted........................................................................... 59,783 $ 31.81
---------
Outstanding at December 31, 1995.................................................. 59,783 31.81 5,435
-----------
-----------
Granted........................................................................... 6,522 31.81
---------
Outstanding at December 31, 1996.................................................. 66,305 31.81 22,827
--------- -----------
--------- -----------
</TABLE>
(6) INCOME TAXES
Income tax expense for the year ended December 31, 1996 and the period from
February 15, 1995 (commencement of operations) to December 31, 1995 is comprised
of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Current income tax expense......................................... $ 1,879,103 1,141,637
Deferred income tax benefit........................................ (281,175) (480,596)
Withholding taxes on foreign sales................................. 92,340 180,062
------------ ----------
Total tax expense................................................ $ 1,690,268 841,103
------------ ----------
------------ ----------
</TABLE>
Income tax expense differs from the amount computed by applying the
statutory federal income tax rate of 34% to earnings before income taxes, as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Expected federal income tax expense................................. $ 1,233,080 509,742
State taxes, net of federal effect.................................. 173,516 77,095
Nondeductible goodwill amortization................................. 220,502 199,294
Withholding taxes on foreign sales.................................. 92,340 180,062
Other, net.......................................................... (29,170) (125,090)
------------ ----------
Actual income tax expense......................................... $ 1,690,268 841,103
------------ ----------
------------ ----------
</TABLE>
14
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences that result in deferred
tax assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Deferred tax assets -- current:
Accounts receivable, primarily due to differences in accounting for uncollectible
accounts........................................................................... $ 304,610 324,083
Accrued expenses, due to differences in the period of recognition for financial
statement and income tax purposes.................................................. 325,995 225,002
Other................................................................................ 24,104 39,236
------------ ----------
Total deferred tax asset -- current................................................ $ 654,709 588,321
------------ ----------
------------ ----------
Deferred tax liabilities -- noncurrent:
Software development costs, due to differences in carrying values for financial
statement and income tax purposes and difference in amortization method............ $ 2,101,758 2,318,246
Equipment and leasehold improvements, primarily due to differences in depreciation on
a basis of acquired assets for income tax and financial statement purposes......... 98,330 96,629
------------ ----------
Total deferred tax liability -- noncurrent......................................... $ 2,200,088 2,414,875
------------ ----------
------------ ----------
</TABLE>
(7) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan under Section
401(k) of the Internal Revenue Code, in which substantially all employees are
eligible to participate. The Plan provides for employer matching contributions
of up to 2% of an employee's gross compensation. The Company made contributions
to the Plan of $337,295 and $215,478 during 1996 and 1995, respectively.
(8) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment under operating leases. The
future minimum rental payments under these leases for years ending December 31
are as follows:
<TABLE>
<S> <C>
1997...................................................... $1,435,000
1998...................................................... 775,000
1999...................................................... 663,000
2000...................................................... 576,000
2001...................................................... 576,000
Thereafter................................................ 192,000
---------
Total..................................................... $4,217,000
---------
---------
</TABLE>
15
<PAGE>
COLUMBINE JDS SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense totaled $1,424,183 and $1,616,126 for the year ended December
31, 1996 and for the period from February 15, 1995 to December 31, 1995,
respectively.
INVENTORY FINANCING AGREEMENT
The Company has granted a security interest in its inventory to a major
supplier. The security interest is limited to inventory acquired from the
supplier and is further limited to a total of $1,000,000.
16
<PAGE>
Exhibit 99.7
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined financial data is
based on, and should be read in conjunction with, the consolidated financial
statements of Big Flower Holdings, Inc. and its subsidiaries (the "Company")
or, prior to October 17, 1997, those of Big Flower Press Holdings, Inc. and
its subsidiaries ("BFP"). These financial statements were filed in the BFP
annual report on Form 10-K for the year ended December 31, 1996 and
subsequent filings by BFP and the Company on Form 10-Q. The pro forma
information has been prepared to illustrate the effect of (a) the
acquisitions of Olwen, RCPC, Columbine and Gamma One, all accounted for under
the purchase method of accounting and (b) the issuance of convertible
preferred securities and subordinated notes, the proceeds of which were used
to repay borrowings related to the acquisitions under a credit facility
entered into by BFP (items (a) and (b) being referred to collectively as the
"Transactions").
The unaudited pro forma condensed combined balance sheet as of September
30, 1997, assumes that the Transactions occurred on that date. Since the
acquisition of Olwen was completed on September 18, 1997, its balance sheet
and the effects of financing the acquisition are reflected in the Company's
September 30, 1997, balances. The unaudited pro forma condensed combined
statements of operations for the nine months ended September 30, 1997, and
for the year ended December 31, 1996, assume that the Transactions were
consummated as of the first day of the periods presented.
The pro forma adjustments are based on preliminary estimates which are
derived from available information and certain assumptions. In accordance
with generally accepted accounting principles, the amount allocated to
in-process technology, approximately $55.7 million, will be charged to
expense as of October 31, 1997, the acquisition date of Columbine. This
adjustment has been excluded from the unaudited pro forma condensed combined
statements of operations as it is a non-recurring item. While the Company
believes, based on available information, that the fair values and
allocations included in the unaudited pro forma condensed combined financial
statements are reasonable estimates, final purchase accounting adjustments
will be made at the completion of the evaluations and estimates as of the
actual purchase dates. As a result, the final allocation of costs related to
the acquired companies may differ materially from that presented herein.
The unaudited pro forma condensed combined financial data excludes any
potential benefits that might result from the acquisitions due to synergies
that may be derived from the elimination of certain costs. The pro forma
financial data does not purport to represent what the Company's results of
operations actually would have been if the Transactions had actually occurred
on the date or for the periods indicated or what such results will be for any
future date or future periods.
7
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
BIG FLOWER(A) COLUMBINE RCPC GAMMA ONE ADJUSTMENTS PRO FORMA
------------- ----------- --------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents................... $ 3,804 $ 3,297 $ 6 $ 17 $ 7,124
Accounts receivable, net.................... 102,591 7,480 21,102 4,742 135,915
Inventories................................. 40,136 285 6,480 1,511 48,412
Prepaid expenses and other assets........... 6,764 388 204 135 7,491
Deferred income taxes....................... 17,240 601 17,841
------------- ----------- --------- ------ ----------- ----------
Total current assets.................... 170,535 12,051 27,792 6,405 216,783
Property, plant and equipment, net............ 325,033 4,334 25,763 2,102 357,232
Intangibles and other assets, net............. 318,939 36,465 812 $ 7,000 (c) 326,327
(36,889)(g)
Acquired technology........................... 16,969 (a) 16,969
Excess purchase cost over net assets acquired
(a)......................................... 123,359 (a) 123,359
55,715 (a)
(55,715)(f)
------------- ----------- --------- ------ ----------- ----------
TOTAL ASSETS............................ $ 814,507 $ 52,850 $ 54,367 $ 8,507 $ 110,439 $1,040,670
------------- ----------- --------- ------ ----------- ----------
------------- ----------- --------- ------ ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................ $ 124,943 $ 477 $ 9,119 $ 988 $ 135,527
Accrued liabilities......................... 68,829 5,736 2,791 2,182 $ 1,144 (f) 84,974
4,292 (a)
Current portion of long-term debt........... 473 3,729 1,860 (5,589)(a) 473
------------- ----------- --------- ------ ----------- ----------
Total current liabilities............... 194,245 9,942 11,910 5,030 (153) 220,974
Long-term debt, net of current portion........ 254,468 9,499 2,019 (11,518)(a) 354,593
100,125 (b)
Credit facility............................... 241,624 203,155 (a)(b) 253,761
17,107 (a)(b)
(215,125)(b)
7,000 (b)
Deferred income taxes......................... 18,244 1,665 76 19,985
Other long-term liabilities................... 13,843 46 13,889
------------- ----------- --------- ------ ----------- ----------
Total liabilities....................... 722,424 21,152 11,910 7,125 100,591 863,202
------------- ----------- --------- ------ ----------- ----------
Company-obligated manditorily redeemable
preferred securities of a subsidiary trust
(whose sole assets are convertible
subordinated debentures of the Company) due
2027........................................ 115,000 (b) 115,000
Stockholders' equity:
Preferred stock............................. 3,344 (3,344)(e) --
Common stock and additional paid in
capital................................... 116,020 24,431 (252) (24,179)(e) 143,264
27,244 (a)
Retained earnings (accumulated deficit)..... (22,843) 3,923 42,457 1,634 (48,014)(e) (79,702)
(55,715)(a)
(1,144)(f)
Other....................................... (1,094) (1,094)
------------- ----------- --------- ------ ----------- ----------
Total stockholders' equity.............. 92,083 31,698 42,457 1,382 (105,152) 62,468
------------- ----------- --------- ------ ----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 814,507 $ 52,850 $ 54,367 $ 8,507 $ 110,439 $1,040,670
------------- ----------- --------- ------ ----------- ----------
------------- ----------- --------- ------ ----------- ----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
(a) The acquisition of Olwen was completed on September 18, 1997.
Consequently, the historical balance sheet includes Olwen's assets and
liabilities, as well as the borrowings and goodwill related to the
acquisition. The pro forma purchase cost of the other acquisitions, and
the determination of the estimated remaining excess purchase cost over
the book value of the assets acquired is as follows:
(in thousands)
Purchase Cost:
Cash paid for acquisitions........................... $203,155
Debt assumed and repaid.............................. 17,107
Common stock and options issued (see note (d))....... 27,244
Estimated fees, costs and expenses................... 4,292
--------
Total purchase cost.................................... 251,798
Assets acquired:
Current.............................................. 46,248
Property, plant & equipment and other (1)............ 32,587
Liabilities assumed (net of debt
acquired in the acquisitions)....................... (23,080)
--------
Net assets acquired.................................... 55,755
--------
Excess of purchase cost over net
assets acquired:...................................... 196,043
Less identified intangibles:
Existing technology.................................. 16,969
In-process technology................................ 55,715
---------
Remaining estimated excess of purchase cost
over net assets acquired.............................. $123,359
---------
---------
The remaining estimated excess purchase cost over the book value of net
assets acquired has not been fully allocated to individual assets or
liabilities acquired. The Company believes a portion will be allocated to
property, plant and equipment and identifiable intangibles and the remainder
will be allocated to goodwill. The actual allocation will be based on the
estimated fair value of the tangible and intangible assets and liabilities of
the acquired companies as of the acquisition dates.
(1) For purposes of this pro forma, fair value of acquired property,
plant and equipment is assumed to approximate carrying value.
(b) The Company initially funded the acquisitions (including the repayment
of previously existing debt) through BFP's credit facility. In
connection with the acquisitions, a subsidiary trust of the Company
issued convertible preferred securities and BFP issued subordinated
notes, the proceeds of which were used to repay loans outstanding under
BFP's credit facility.
(in thousands)
--------------
Borrowings on credit facility for acquisitions............ $ 220,262
Proceeds from issuance of convertible securities.......... (115,000)
Proceeds from issuance of subordinated notes.............. (100,125)
Fees and expenses on issuance of convertible preferred
securities and subordinated notes (see note (c)).......... 7,000
---------
Net change to borrowings under credit facility............ $ 12,137
---------
---------
(c) Fees and expenses of approximately $7.0 million incurred in connection
with the issuance of subordinated notes and convertible preferred
securities will be capitalized and amortized over the terms of the notes
and securities. These fees and expenses were paid using borrowings under
the credit facility.
<PAGE>
(d) Represents the issuance of 1,041,000 shares of Big Flower Holdings, Inc.
common stock at market value of $22.9 million, based on a per share
price of $22, and options to purchase 396,000 shares of Big Flower
Holdings, Inc. common stock at an estimated market value of $4.3 million
(totaling $27.2 million). Assuming the proceeds from the exercise of the
options are used to repurchase common shares, the net aggregate number
of shares issued would be approximately 1,238,000.
(e) Represents the elimination of the acquired companies' historical capital
and retained earnings/ accumulated deficit.
(f) The following non-recurring charges are excluded from the unaudited pro
forma condensed combined statements of operations but are reflected in
the unaudited pro forma condensed combined balance sheet:
Write-off of in-process technology--approximately $55.7 million.
Accrual of $1.1 million of one-time, stay-on bonuses to certain key
employees, net of income taxes.
(g) Represents the elimination of the acquired companies' historical
goodwill and certain intangibles.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
BIG PRO FORMA
FLOWER COLUMBINE RCPC OLWEN GAMMA ONE ADJUSTMENTS PRO FORMA
--------- ----------- --------- --------------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $1,201,860 $ 61,233 $ 143,940 $ 29,632 $ 18,874 $1,455,539
Operating expenses:
Cost of production........... 971,789 13,065 123,560 16,075 11,268 1,135,757
Selling, general and
administrative............. 108,969 37,202 10,208 7,459 6,021 $ (4,872)(d) 164,987
Depreciation and amortization
of intangibles............. 51,759 5,748 5,695 1,604 1,424 3,277 (b) 69,507
--------- ----------- --------- ------- ------------- ----------- -----------
1,132,517 56,015 139,463 25,138 18,713 (1,595) 1,370,251
--------- ----------- --------- ------- ------------- ----------- -----------
Operating income............... 69,343 5,218 4,477 4,494 161 1,595 85,288
Other expense (income):
Interest expense............. 34,965 1,448 888 478 410 9,341 (c) 47,530
Amortization of deferred
financing costs............ 3,002 433 (c) 3,435
Dividends on convertible
preferred securities of a
subsidiary trust........... 6,900 (c) 6,900
Interest income.............. (712) (28) (740)
Sale of Webcraft Games, Inc.. 14,277 14,277
Other, net................... 12,813 143 (30) 12,926
--------- ----------- --------- ------- ------------- ----------- -----------
64,345 1,591 830 478 410 16,674 84,328
--------- ----------- --------- ------- ------------- ----------- -----------
Income (loss) before income
taxes........................ 4,998 3,627 3,647 4,016 (249) (15,079) 960
Income tax expense (benefit)... 8,283 1,690 1,373 (1) (5,488)(e) 5,857
--------- ----------- --------- ------- ------------- ----------- -----------
Income (loss) before
extraordinary item (f)....... $ (3,285) $ 1,937 $ 3,647 $ 2,643 $ (248) $ (9,591) $ (4,897)
--------- ----------- --------- ------- ------------- ----------- ----------
--------- ----------- --------- ------- ------------- ----------- ----------
Loss before extraordinary item
per common share and common
share equivalent............. $ (0.18) $ (0.25)(g)
--------- ----------
--------- ----------
Weighted average shares
outstanding.................. 18,315 1,238 19,553
--------- ----------- ----------
--------- ----------- ----------
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
BIG PRO FORMA
FLOWER COLUMBINE RCPC OLWEN (A) GAMMA ONE ADJUSTMENTS PRO FORMA
--------- ----------- --------- --------------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 955,918 $ 45,942 $ 103,899 $ 21,936 $ 17,282 $1,144,977
Operating expenses:
Cost of production............ 752,981 8,341 86,895 12,138 9,776 870,131
Selling, general and
administrative.............. 96,162 28,272 8,570 5,101 4,113 $ (6,489)(d) 135,729
Depreciation and amortization
of intangibles.............. 47,232 4,848 3,804 985 1,143 2,341 (b) 60,353
--------- ----------- --------- ------- ------------- ------------- ----------
896,375 41,461 99,269 18,224 15,032 (4,148) 1,066,213
--------- ----------- --------- ------- ------------- ------------- ----------
Operating income................ 59,543 4,481 4,630 3,712 2,250 4,148 78,764
--------- ----------- --------- ------- ------------- ------------- ----------
Other expense (income):
Interest expense.............. 29,309 913 520 192 327 7,472 (c) 38,733
Amortization of deferred
financing costs............. 1,277 325 (c) 1,602
Dividends on convertible
preferred securities of a
subsidiary trust............ 5,175 (c) 5,175
Interest income............... (257) (10) (267)
Other, net.................... 5,619 (151) (836) 4,632
--------- ----------- --------- ------- ------------- ------------- ----------
35,948 762 (326) 192 327 12,972 49,875
--------- ----------- --------- ------- ------------- ------------- ----------
Income (loss) before income
taxes......................... 23,595 3,719 4,956 3,520 1,923 (8,824) 28,889
Income tax expense (benefit).... 11,461 1,646 1,245 848 (1,857)(e) 13,343
--------- ----------- --------- ------- ------------- ------------- ----------
Income (loss) before
extraordinary item (f)........ $ 12,134 $ 2,073 $ 4,956 $ 2,275 $ 1,075 $ (6,967) $ 15,546
--------- ----------- --------- ------- ------------- ------------- -----------
--------- ----------- --------- ------- ------------- ------------- -----------
Income before extraordinary item
per common share and common
share equivalent:
Primary......................... $ 0.63 $ 0.75
--------- -----------
--------- -----------
Fully diluted................... $ 0.74
-----------
-----------
Weighted average shares
outstanding:
Primary......................... 19,379 1,238 20,617
--------- ------------- -----------
--------- ------------- -----------
Fully diluted................... 24,631
-----------
-----------
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Statements of Operations.
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Statements of Operations
(a) Represents the historical statement of operations for Olwen for the
period fom January 1, 1997, to its acquisition by the Company on
September 18, 1997.
(b) The pro forma adjustments to depreciation and amortization of
intangibles include the amortization of the estimated excess purchase
cost over book value and the amortization of the purchased technology
less amortization previously incurred on various intangibles. The excess
purchase price over net assets acquired is being amortized over periods
between 15 and 40 years and the existing technology is being amortized
over 7 years.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(in thousands)
Amortization of excess
purchase price over
book value.................. $ 5,109 $ 3,832
Amortization of existing
technology.................. 2,424 1,818
Eliminate amortization of pre
existing intangibles........ (4,256) (3,309)
------- -------
$ 3,277 $ 2,341
------- -------
------- -------
(c) The pro forma adjustments reflect (i) the interest on the newly issued
subordinated notes, the dividends on the newly issued convertible
preferred securities and estimated interest on additional borrowings
under BFP's credit facility which were used to finance the acquisitions,
(ii) the elimination of interest incurred by the acquired companies on
debt repaid upon acquisition and (iii) the amortization of deferred
issuance costs in connection with the newly issued subordinated notes
and the newly issued convertible preferred securities.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(in thousands)
Eliminate interest expense on
debt repaid upon
acquisition .................. $(3,224) $(1,952)
Additional interest expense on:
Credit facility borrowings
of $54.7 million at 6.75%..... 3,690 2,768
$100.0 million of subordinated
notes at 8 7/8%............... 8,875 6,656
------- -------
$ 9,341 $ 7,472
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Dividend -$115.0 million of
convertible preferred
securities at 6.00%........... $6,900 $ 5,175
------- -------
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Amortization of issuance costs
for subordinated notes
and convertible preferred
securities................... $ 433 $ 325
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(d) The pro forma adjustments to selling, general and administrative expense
represent excess management allocations to the acquired companies from
the prior owners. The adjustments for the nine months ended September
30, 1997 also reflect $3.2 million of one-time stay-on bonuses paid to
certain key employees of Olwen at the time of acquisition, which are
included in the historical financial statements.
(e) Pro forma tax adjustments reflect applying the Company's effective tax
rate of 48% to all pro forma adjustments for the respective periods and
applying such tax rates to the pre-tax income of RCPC (formerly a
division with no income taxes allocated).
(f) Amounts allocated to acquired in-process technology and one time stay-on
bonuses to certain key employees of the acquired companies have been
written off in the unaudited pro forma condensed combined balance sheet.
These after-tax charges of $55.7 million and $1.1 million (in addition
to the bonuses adjusted for in footnote (d)) have been excluded from the
unaudited pro forma condensed combined statements of operations as they
represent non-recurring items.
(g) The pro forma earnings per share calculation for the year ended December
31, 1996, excludes the anti-dilutive effect of conversion of the
convertible preferred securities.
