<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended August 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
-------- --------
Commission File Number 0-26774
------------------------------
TST/Impreso, Inc.
(Exact name of registrant as specified in its charter)
------------------------------
Delaware 75-1517936
(State or other jurisdiction of (I.R.S. Employer
or incorporation or organization) Identification No.)
652 Southwestern Blvd., Coppell, Texas 75019
(Address of principal executive offices) (Zip code)
(972) 462-0100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK , $0.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days).
YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of November 22, 1996, based upon the closing sale price of the
Common Stock as reported on the Nasdaq National Market, was approximately
$9,648,000.
There were 5,247,730 shares of the registrant's Common Stock outstanding
as of August 31, 1996.
List hereunder the documents, all or portions of which are incorporated by
reference herein and the Part of the Form 10-K into which the document
is incorporated: Proxy Statement to be filed with respect to the
Registrant's Annual Meeting of Stockholders to be held on
January 28,1997---Part III.*
* As stated under various items of this Annual Report, only certain specified
portions of such document are incorporated by reference herein.
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PART I
ITEM 1. BUSINESS
GENERAL
TST/Impreso, Inc. and subsidiaries (the "Company") is a manufacturer and
distributor to dealers and other resellers of paper products for commercial and
home use in domestic and international markets. Through its three manufacturing
facilities and 47 warehouse locations throughout the United States, the Company
manufactures and distributes its products under its own label, generic labels
and private labels. The Company has strategically located its distribution
points so as to enable its products to be delivered to customers in most major
cities in the United States within 24 hours. The Company has over 3,000
customers ranging in size from small business form dealers to large office
product wholesalers with multiple offices and branches. An increasing segment
of the customer base has been the large and medium mass merchants, including
computer and office superstores. The Company's primary method of generating
sales contacts is through its own sales force, manufacturers' sales
representatives, extensive marketing programs, referrals and reputation.
On October 12, 1995, the Company closed the offering of 1,100,000 shares of its
Common Stock to the public at $6.00 per share, and on November 14, 1995, the
Company closed the sale of an additional 147,730 shares of its Common Stock
pursuant to the Underwriters' over-allotment option. The offering was made
pursuant to a Prospectus, dated October 6,1995. The proceeds of the offering
were used for repayment of the indebtedness in the approximate amount of $4.9
million and the remainder was used for general corporate and working capital
purposes.
PRODUCTS
The Company operates in the hard copy supply market, which encompasses those
paper and printing products used with a hard copy output or "imaging" device
such as mechanical typewriters, xerographic copy machines, dot matrix
("impact") or laser ("non-impact") computer printers and facsimile machines.
The Company's present product line consists of: (i) continuous computer stock
business forms; (ii) thermal facsimile paper; (iii) cut sheet paper for use in
laser printers, copying machines and plain paper facsimile machines; and (iv)
cut sheet paper for use in ink-jet printers.
Continuous Computer Stock Business Forms. The Company produces a wide variety
of continuous computer stock business forms in various types of papers (bond,
recycled, carbon and carbonless, and groundwood papers), formats (printing for
readability and contrast) and basis weights. The large population of printer
models that are in service today makes this variety of products necessary,
particularly in high-speed printer applications where the type of paper affects
printer wear and in high-volume applications where economy is needed. To ensure
high quality printing, the Company primarily uses wet offset presses, which
yield better clarity and definition than dry printing. Raw paper stock is
quality control-tested prior to and during production to ensure correct tensile
strength, capacity, thickness, moisture content and finish. In general, the
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Company produces standard continuous computer stock business forms. On request,
the Company occasionally produces customized forms for larger customers.
Thermal Facsimile Paper. The Company manufactures two classes of thermal
facsimile paper, standard and high sensitivity, each of which is currently
offered in 24 different roll sizes. The Company's newest product in the thermal
facsimile paper market is its Heavyweight 20#, which is designed to have the
look and feel of premium copier paper. The Company also offers a low-priced,
Ultra High Quality grade thermal facsimile paper usable with Group IV thermal
facsimile machines. Group IV thermal facsimile machines utilize advanced
technology (similar to that in high speed 35mm film), enabling them to transmit
documents at a speed of four seconds per page instead of the normal 30 seconds
required by Group III machines, the current standard in the industry.
The thermal facsimile papers manufactured by the Company are suitable for use
with all original equipment manufacturers' ("OEMs") machines currently on the
market and are warranted against damage that the paper may cause to a
customer's thermal facsimile machine. In addition, the packaging method
employed by the Company heat-seals the wrapper, thereby inhibiting static by
ensuring a uniform moisture content. Static within thermal facsimile machines
causes thermal head burn out and results in paper curl.
Cut Sheet Paper for use in Copying Machines, Laser Printers and Plain Paper
Facsimile Machines. The Company offers this type of cut sheet in legal and
letter size, including three-hole punch in letter size. A major portion of
these cut sheets is purchased mill-direct and private-labeled under the name of
IMPRESO(R) DATABOND. IMPRESO DATABOND is a high durability, high resolution
sheet designed specifically for use with all types of copying machines, laser
printers and plain paper facsimile machines. IMPRESO DATABOND is brighter,
whiter and smoother than ordinary paper and reproduces text and graphics with
superior clarity and contrast. The Company's cut sheet papers for use in
copying machines, laser printers and plain paper facsimile machines are
OEM-approved.
Cut Sheet Paper for use in Ink-Jet Printers. The Company offers ink-jet paper
for use in ink-jet printers which use a pattern of dots to form characters. The
print head in an ink-jet printer uses an ultra fine nozzle to spray droplets of
electrically-charged, low viscosity ink onto printing paper to form characters,
symbols or graphics. The high density character resolution (a matrix of 1,000
dots per character or 16 dots per millimeter) virtually eliminates any space
between dots and results in perfectly shaped characters. There are three types
of ink-jet paper: plain, monochrome and color. The Company currently offers two
types of coated ink-jet paper, each of which controls ink absorption to a
different degree: monochrome ink-jet paper, designed primarily for use when
printing in black and white, and color ink-jet paper, designed to withstand
heavy ink saturation when printing in color.
Value-Added Cut Sheet Paper. The Company purchased a sheeter that was to be
used with new and existing presses enabling the Company to produce "value-added
cut sheet" paper. Although
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product availability was expected by management in October 1996, due to
design problems with the first prototype machine delivered to the Texas plant
in early 1996, two other contracts for similar machines were cancelled while
the vendor re-designs the electrical system. The faulty design has delayed the
Company's entry into the value-added cut sheet market by approximately one
year. In the interim, the Company has purchased two high volume commodity
sheeters, one for each of the Texas and West Virginia plants, which are
scheduled to be in full production by December 1996. These high volume
commodity sheeters do not produce value-added cut sheet products. Once the
prototype sheeter is working properly the Company will offer a complete line of
both printed and/or perforated cut sheets (for example, billing statement forms
printed on both the front and back and perforated to provide a remittance slip-
e.g. credit card or utility statements). The market for this product is
relatively new, but is expected by the Company to grow rapidly because of the
shift in the United States hard copy supply market from the use of continuous
feed forms to cut sheet forms.
MARKETING AND DISTRIBUTION
The Company markets its products to approximately 3,000 customers through its
own sales force and established manufacturers' representatives. The Company's
targeted customers are "dealers" who generally have a working knowledge of the
product as well as an established customer base. The Company presently has 50
distribution points nationwide (47 warehouses and three plants), which enable
the Company to deliver products to most major cities in the United States
within 24 hours. The Company's primary method of generating revenue is through
its own sales force. The members of this sales force generally seek business
within specific geographic territories. Manufacturers' representatives serve as
an important supplementary source of sales and marketing. Their territories are
identified by specific accounts or prospects, primarily those of a retail
nature.
The Company's customers are comprised of the following:
Business Forms Dealers. Business Forms Dealers are typically small businesses,
nationwide.
Wholesale Stationers. Wholesale Stationers supply a large variety of office
products to office product dealers. The wholesale stationers do not sell
directly to the end-user.
Office Products Dealers. Office Products Dealers or businesses generally
purchase much of their products from the wholesale stationers, but often
negotiate directly with manufacturers such as the Company.
Paper Merchants. Paper merchants sell all types of papers to printers and
dealers, and directly to end-users.
Consumer Electronics Stores. Consumer Electronic Stores sell retail to the end
user in a broad spectrum electronics environment .
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Mass Merchants. Mass merchants are retail sections of department, grocery or
drug stores that sell computer, copier and facsimile-related supplies.
Computer Superstores. Computer Superstores sell computer products and their
accessories retail.
Wholesale Clubs/Office Superstores. Wholesale Clubs/Office Superstores, which
comprise the fastest growing segment of the office products market, sell large
volumes of inventory near wholesale prices to end-users and dealers and do not
generally provide the credit, delivery, and other types of services support
that the wholesale stationers provide their customers.
Original Equipment Manufacturers (OEMs). These manufacturers make the business
machines in which paper products are used. Many OEMs have their own privately
labeled consumables to market as a secondary sale to their business machines,
such as calculators and facsimile machines. Catalog Sales. Catalog companies
publish their own catalogs and send them to customers, who then order
merchandise by telephone or facsimile and have it delivered. .
Buying Groups. These are groups of dealers, ranging from ten to 400 members,
that combine their buying power to receive, among other things, volume discount
pricing and rebate incentives from manufacturers.
Although the Company has specialized in select markets and has emphasized
service and long-term relationships to meet customers needs more effectively,
there are no long-term contractual relationships between the Company and any of
its customers. One single customer, Staples, Inc., represented 22% of the
Company's revenues during the fiscal year ended August 31, 1996. However, that
customer only represented 8.3% of the Company's revenues for October 1996. No
other single customer represented 10% or more of the Company's revenues during
fiscal year ended August 31, 1996. However, the loss of this customer or any of
the Company's significant customers could have a material adverse effect on the
Company's business.
MANUFACTURING
The Company manufactures computer stock forms at each of its three
manufacturing facilities in Coppell, Texas; Fontana, California; and
Kearneysville, West Virginia. The Company's equipment for its continuous
computer stock business forms product line includes rotary presses and
collators. The rotary presses range in size from 22 inch cylinder x 32 inch web
to 25.5 inch cylinder x 36 inch web and provide the Company with the ability to
produce a broad spectrum of form sizes. Each piece of machinery requires a
skilled operator and, in certain cases, support personnel are required. The
Company's equipment is well-suited to produce nearly all of the computer
business stock forms products required by a forms distributor or retailer. The
Company maintains a quality assurance team of 45 individuals who participate in
the manufacturing and packaging of all of the Company's products. The Company
continues to monitor any new product requirements of its forms distributors and
to assess what new equipment or equipment modifications may be required to
produce such products.
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The Company has rewinder slitters for the conversion of thermal facsimile paper
only at the Company's manufacturing facility in Coppell, Texas. The thermal
facsimile paper is then distributed to the other plants for further
distribution to the warehouses. The Company also operates sheet presses similar
to a quick print.
The Company is considering applying for the ISO 9001 Certification, which is a
world wide certification representing the consistent, high quality of the
products produced by a manufacturer. Receipt of such certification will create
opportunities for sales for the Company from purchasers who would not purchase
from an uncertified manufacturer. However, there can be no assurance that the
Company will receive such certification, or that such certification will create
additional revenue for the Company.
By December 1996, three new sheeters are scheduled to be operating at the Texas
and West Virginia plants. One sheeter has been purchased and capitalized, and
two sheeters have been financed through an operating lease agreement with an
option to purchase the equipment in five years. Substantially all other
printing and manufacturing equipment used in the manufacture of the Company's
products are owned by the Company, subject to liens.
RAW MATERIALS
An adequate supply of raw materials is essential to the Company's business. The
Company purchases raw paper, coated thermal facsimile paper, carbon and
carbonless paper (consisting of a wide variety of weights, widths, colors,
sizes and qualities), packaging and other supplies from a number of different
companies around the world. In addition, many of the Company's mill suppliers
work directly with OEMs to develop papers which meet OEM specifications. The
Company believes that it has a good relationship with all of its current
suppliers.
SEASONALITY
The Company does not consider its business to be seasonal.
BACKLOG
The Company manufactures and/or distributes over 350 different varieties of
standard and custom business forms, 55 varieties of thermal facsimile paper,
three types of laser, copy and plain paper facsimile paper and three types of
ink-jet paper. The dollar value of the order backlog as of August 31, 1996, and
August 31, 1995, was estimated to be $1.3 and $1.6 million respectively. The
Company's ability to fill orders is directly impacted by the general cyclical
pattern of the paper industry and its ability to purchase the raw materials and
finished goods necessary to fill customer orders. The decrease in backlog is
related to oversupply of raw materials and depressed market conditions.
COMPETITION
The Company is subject to competition from a number of other business
organizations, some of which have substantially greater financial, human and
other resources than the Company. The Company competes principally with
manufacturers like the Company which distribute their
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continuous computer stock forms through dealers, resellers and/or retailers
and, to a lesser extent, manufacturers who distribute their own products
directly to end-users. Weak industry conditions have caused the major
direct-selling companies, which are much larger than the Company, to sell
direct and to dealers. In some cases, this has led to customers of the Company
reducing their selling prices to compete with these dealers. In turn, this has
caused increased competition among companies selling continuous computer stock
business forms through dealers. In addition, a consolidation among entities in
this market has created greater competition for the Company. The Company
believes that it effectively competes on the basis of the following: its
nationwide distribution network, which enables products to be delivered to its
customers in most major cities in the United States within 24 hours; a larger
number of items providing customers cost-effective, efficient purchasing and
volume discounts; and by providing high-quality products and customer-oriented
services.
TRADEMARKS
The Company uses the trademark IMPRESO for certain products the Company
manufacturers and distributes. The trademark is registered in the United
States, which registration was renewed in August 1995, and is effective until
August 1999. The IMPRESO trademark is also registered in Canada, the United
Kingdom, France, Benelux and Italy, which registrations will be subject to
renewal commencing in October 1997. The Company believes that the IMPRESO
trademark has significant name recognition and is important in marketing and
achieving visibility of the Company's products. The goodwill value associated
with the name IMPRESO has been pledged as an asset to the Company's current
primary secured lender under the Company's revolving line of credit.
SERVICE AND SUPPORT
The Company believes that customer service is an important factor in product
sales and customer satisfaction. Service and support include the Company's own
in-house trucking that back-hauls goods for other entities, which reduces
transportation costs and improves customer service. An in-house graphics
department designs and prepares layouts of packaging and produces negatives
which allows the Company speed and flexibility when bringing new products or
packaging into the market place. The Company also sells its graphics
capabilities to its customers. The Company's customer services also include a
technologically advanced computer system which sends by facsimile a bill of
lading to the appropriate distributing warehouse and an order acknowledgement
to the receiving customer when an order is entered by a customer service
representative. The Company's computer system automatically monitors and
factors inventory levels at each warehouse, can calculate the amount of weight
of paper the Company must purchase and manufacture to fulfill an entered order,
can identify which of the Company's plant locations will manufacture the order,
and can establish the amount of necessary raw materials to enable the Company
to timely process the order.
The Company also has a three person collection and credit department. Payment
terms are generally net 30 days. Skilled, knowledgeable staff evaluate
extensions of credit and make written and verbal requests for payment from
those customers whose invoices are not paid within agreed
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payment terms. The Company also maintains in-house counsel who assists the
credit department in difficult collections.
The Company offers a 120-day warranty on all of its products. To date, warranty
expense has been minimal.
ENVIRONMENTAL REGULATION
The Company does not believe that compliance with any environmental regulations
that may be applicable to it will have a material effect on the Company's
capital expenditures, earnings or competitive position.
EMPLOYEES
At August 31, 1996, the Company had 152 full-time employees. Of these
individuals, 99 were engaged in manufacturing, 22 were engaged in sales and
marketing and 31 were administrative and clerical personnel. None of the
Company's employees is currently covered by a collective bargaining agreement.
The Company considers its employee relations to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Age at
Name August 31,1996 Position
- ---- -------------- --------
<S> <C> <C>
Marshall D. Sorokwasz 53 President, Chief Executive Officer,
Treasurer and Director
Richard D. Bloom 64 Senior Vice President of Operations
and Director
Donald E. Jett 52 Secretary and Director
John L. Graves 52 Vice President of Manufacturing
Jeffrey W. Boren 31 Vice President of Sales, Marketing
Susan M. Atkins 47 Vice President of Finance
</TABLE>
Marshall D. Sorokwasz is one of the founders of the Company and has been its
President, Chief Executive Officer and a Director since its organization in
1976.
Richard D. Bloom is one of the founders of the Company and has been its Vice
President and a Director since inception.
Donald E. Jett is one of the founders of the Company and has been its Secretary
and a Director since inception.
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John L. Graves was promoted to Vice President of Manufacturing in June of 1986.
Prior to being elected Vice President, Mr. Graves was Operations Manager from
the time he was hired to work for the Company in August of 1981.
Jeffrey W. Boren has been Vice President of Sales, Marketing since March of
1995. From March of 1994 to March of 1995, he was National Sales Manager;
before that, he held various sales positions within the Company.
Susan M. Atkins has been Vice President of Finance and Chief Financial Officer
of the Company since December 1995. Ms. Atkins was Controller of the Company
prior to her election as Vice President of Finance and Chief Financial Officer.
ITEM 2. PROPERTIES
As of August 31, 1996, the Company operated three manufacturing plants
encompassing an aggregate of approximately 166,890 square feet of space. The
Company owns its manufacturing plants in Coppell, Texas and Kearneysville, West
Virginia. The West Virginia property is encumbered by mortgages maturing in
2023. The Company's plant in Fontana, California is occupied pursuant to a
month-to-month tenancy, with a monthly rental payment of $6,500. The Company's
executive offices are located at the Coppell, Texas manufacturing facility and
utilize approximately 60,000 square feet. The Company maintains a regional
sales office in Huntington, New York pursuant to a lease expiring March 31,
1997. In addition, warehousing costs incurred for the approximately 45
warehouses utilized throughout the country by the Company were approximately
$421,000 for the fiscal year ended August 31, 1996. Annual mortgage payments
for year ended August 31, 1996, including interest, and minimum lease payments
relating to the Company's facilities are approximately $100,000 and $87,000,
respectively. As of November 25, 1996, the Company leased 47 warehouses with
immediate plans of expansion into a leased warehouse in Montreal, Quebec under a
month-to-month lease. The Company believes its facilities are in good condition
as well as suitable and adequate for its current business needs. Management
estimates that, as of August 31, 1996, the Company was operating at full
capacity for the manufacture of cut sheet products, at approximately 33% for
continuous business forms, and 33% for thermal facsimile paper, which will allow
the Company to acquire additional continuous business forms and thermal
facsimile paper business with no further capital investment.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
STOCKHOLDER MATTERS
TST/Impreso, Inc.'s Common Stock is quoted on the Nasdaq National Market
("NNM") under the symbol "TSTI." The high and low closing prices for the
Company's Common Stock, as reported in NNM, are as follows:
<TABLE>
<CAPTION>
Price Range
-----------
High Low
<S> <C> <C>
1996 Fiscal Year and Period
First quarter (October 5,1995-Nov) $7.1250 $6.1250
Second quarter (Dec-Feb) 7.0000 6.3750
Third quarter (Mar-May) 8.4375 6.0000
Fourth quarter (June-Aug) 10.0000 5.5000
</TABLE>
On November 22, 1996, the closing price for the Company's Common Stock on NNM
was $7.625.
As of November 22, 1996 the Company's Common Stock was held by approximately
1,281 stockbrokers of record, including holdings through nominee or street name
accounts with brokers.
The Company has not paid any dividends on the Common Stock since inception and
does not intend to pay any dividends to its stockholders in the foreseeable
future. The Company currently intends to reinvest earnings, if any, in the
development and expansion of its business. The declaration of dividends in the
future will be at the discretion of the Board of Directors and will depend upon
the earnings, capital requirements and financial position of the Company,
general economic conditions, and other pertinent factors.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data of the Company as of and
for the five years ended August 31, 1996. The historical financial data as of
August 31, 1996, has been derived from the historical financial statements of
the Company, which financial statements have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report included
elsewhere herein. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements appearing elsewhere in this
document.
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SELECTED FINANCIAL DATA (a)
(In thousands, except per share data)
Years Ended August 31,
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated
Statement of
Operations Data:
- --------------------------------------------------------------------------------------------------------------------------
Net Sales $47,722,988.00 $37,036,456.00 $25,924,008.00 $26,086,038.00 $36,004,181.00
- --------------------------------------------------------------------------------------------------------------------------
Operating income $ 3,005,459.00 $ 2,480,004.00 $ 577,695.00 $ (490,620.00) $(5,813,436.00)
(loss) before
extraordinary item
- --------------------------------------------------------------------------------------------------------------------------
Extraordinary item $ 296,291(c) $ 523,326(c) -- $ 4,283,467(b) --
(net of taxes)
- --------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 3,301,750.00 $ 3,003,330.00 $ 577,695.00 $ 3,792,847.00 $(5,813,436.00)
- --------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per
common share:
- --------------------------------------------------------------------------------------------------------------------------
Income (loss)
before
extraordinary item-- $ 0.59 $ 0.62 $ 0.14 $ (0.12) $ (1.45)
- --------------------------------------------------------------------------------------------------------------------------
Net Income (loss)-- $ 0.65 $ 0.75 $ 0.14 $ 0.95 $ (1.45)
- --------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
- --------------------------------------------------------------------------------------------------------------------------
Total assets $16,961,105.00 $14,586,211.00 $11,433,934.00 $11,438,597.00 $12,609,602.00
- --------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 1,091,789.00 $ 3,602,917.00 $ 5,461,747.00 $ 6,715,071.00 $ 1,050,000.00
(excluding current
maturities)
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' $12,978,058.00 $ 3,725,825.00 $ 722,495.00 $ 144,800.00 $(3,648,047.00)
investment (deficit)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Selected Financial Data
(a) This schedule should be read in conjunction with the Company's
audited consolidated financial statements and related notes
thereto.
(b) Settlement of unsecured creditors and restructuring of notes
payable.
(c) Early extinguishment of debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1996, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 1995
Net Sales--- Net sales for the year ended August 31, 1996, ("Fiscal 1996")
increased $10.7 million, or 28.9%, to $47.7 million as compared to the year
ended August 31, 1995, ("Fiscal
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1995") as a result of increased volume because of the expansion in the
Company's customer base and increased sales.
Gross Profit--- Gross profit for Fiscal 1996, increased $1.2 million, or 14.3%,
to $9.4 million as compared to Fiscal 1995. The increase was primarily the
result of increased sales. The Company's gross profit margin for Fiscal 1996,
was 19.8% as compared to 22.3% for Fiscal 1995. The decrease in the gross
profit percentage was primarily the result of reduced selling prices and costs
increasing as a percentage of net sales.
Selling, General and Administrative Expenses--- SG & A expenses for Fiscal
1996, were $4.6 million, or 9.5% of net sales, as compared to $4.2 million, or
11.2% for Fiscal 1995. SG & A expenses as a percentage of net sales declined
during this period, primarily because of reductions in bonus expense.
Interest Expense--- Interest Expense decreased by $642,000 or approximately 63%
to $378,000 for Fiscal 1996, from $1,020,000 for Fiscal 1995. This decrease is
primarily attributable to the pay down of the Company's line of credit to
$138,000 as of August 31, 1996, as compared to $3,843,000 as of August 31,
1995.
Income Before Taxes And Extraordinary Gain--- Income before taxes and
extraordinary gain for Fiscal 1996, was $4.6 million as compared to $3.1
million for Fiscal 1995, an increase of $1.5 million, or 48.2%. The increase
for Fiscal 1996, is primarily due to increased sales volume, increased gross
profits, improved operating efficiencies, reduced interest expense and a
decline in other SG & A expenses as a percent of net sales.
Extraordinary Gain--- The Company recorded an extraordinary gain totalling
$296,000, net of related income tax expense of $158,000 for Fiscal 1996, and an
extraordinary gain totalling $523,000, net of related income tax expense of
$298,000 for Fiscal 1995. The gains resulted from the Company's early payment
of prepetition notes payable for discounted amounts.
Income Taxes--- The Company's provision for income taxes was $1.6 million for
Fiscal 1996, as compared to $600,000 for Fiscal 1995. The increase was
primarily due to increased pre-tax profits and utilization of net operating
loss during Fiscal 1995. The effective tax rate for Fiscal 1996, was 34.0 % as
compared to 22.9 % for Fiscal 1995.
RESULTS OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1995, AS COMPARED TO THE
YEAR ENDED AUGUST 31, 1994
Net Sales--- Net sales increased by $11.1 million, or approximately 43%, to $37
million for Fiscal 1995, from $25.9 million for the year ended August 31, 1994
("Fiscal 1994"). This increase was primarily attributable to expansion of the
Company's sales efforts and the resulting increase in the Company's customer
base and larger sales to customers such as large office superstores.
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Cost of Sales--- Cost of sales increased by $6.8 million, or approximately 31%,
to $28.8 million for Fiscal 1995, from $22 million for Fiscal 1994. The
increase was attributable to increased sales volume and an increase in the cost
of raw materials utilized by the Company. Cost of sales includes purchases of
raw materials, labor and related overhead and inventory charges. Cost of sales
as a percentage of net sales decreased, however, to approximately 78% for
Fiscal 1995, from approximately 85% for Fiscal 1994, because of increased
demand for the Company's products and increased selling prices.
Gross Profit--- Gross profit increased by $4.4 million, or 111%, to $8.3
million for Fiscal 1995, from $3.9 million for Fiscal 1994. Approximately $2.6
million of this increase was attributable to an increase in gross profit as a
percentage of sales to approximately 22% for Fiscal 1995, from approximately
15% for Fiscal 1994. The increase in the gross profit percentage rate was
primarily due to increased selling prices resulting from increased prices of
raw materials which were successfully passed along to the Company's customers,
and increased demand for the Company's products. The remaining increase in
gross profit for Fiscal 1995, was attributable to increased sales volume due to
increased demand.
Selling, General and Administrative Expenses--- Selling, general and
administrative expenses increased by $1.6 million or 62%, to $4.2 million for
Fiscal 1995, from $2.6 million for Fiscal 1994. Included in selling, general
and administrative expenses was compensation expense. The increase was
primarily attributable to the reinstatement of employee wages from reduced
salary levels, which the Company instituted at the time of the Bankruptcy, and
the provision for bonuses totalling $652,000 for two of the Company's executive
officers. Selling, general and administrative expenses as a percentage of net
sales increased to approximately 11% for Fiscal 1995, from approximately 10%
for Fiscal 1994.
Interest Expense--- Interest expense increased by $137,000, or approximately
15%, to $1,020,000 for Fiscal 1995, from $883,000 for Fiscal 1994. This
increase was attributable to increased borrowing under the Company's line of
credit, an increase in the graduated interest payments on notes payable under
the Plan of Reorganization and higher interest rates on loans indexed by the
prime rate.
Net Income--- Net income increased $2.4 million, or 420%, to $3 million for
Fiscal 1995, from $578,000 for Fiscal 1994. This increase was primarily
attributable to increased sales and increased gross profit and was partially
attributable to a non-cash extraordinary gain of $523,000 (net of taxes of
$298,000) recognized during Fiscal 1995, resulting from debt reduction and
restructuring in connection with the Bankruptcy.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $3.9 million for Fiscal 1996, as
compared with $1.4 million for Fiscal 1995. The increase in the Company's net
cash provided by operations primarily related to the increase in profitability
of the Company, the decrease in accounts
12
<PAGE> 14
receivable and the increase in accounts payable.
Net cash used in investing activities was $1.1 million for Fiscal 1996, as
compared with $429,000 used in investing activities for Fiscal 1995. The
Company's net cash used in investing activities primarily related to the
purchase of new equipment.
Net cash used in financing activities was $547,000 for Fiscal 1996, as compared
with $879,000 used in financing activities for Fiscal 1995. In Fiscal 1996, the
Company received proceeds from issuance of Common Stock to the public. These
proceeds have been used primarily to pay down the Company's line of credit and
to extinguish prepetition notes at discounted amounts.
Working capital increased to $9.8 million at August 31, 1996, from $3.5 million
at August 31, 1995, an increase of $6.3 million or 180%. This increase is
primarily attributable to the pay down of the Company's line of credit to
$138,000 at August 31, 1996, from $3.8 million at August 31, 1995, and an
increase of cash and cash equivalents to $2.4 million as compared to $92,000 at
August 31,1995.
The Company believes that the working capital generated from operations, along
with the availability of funds under the Company's line of credit and its cash
and cash equivalents, will be sufficient to finance the Company's working
capital requirements for the Company's fiscal year ending August 31, 1997. Such
belief is based on certain assumptions, including the continuation of current
operations of the Company and no extraordinary adverse events, and there can be
no assurance that such assumptions are correct. In addition, contingencies or
expansion opportunities may arise which may require the Company to obtain
additional capital. Accordingly, there can be no assurance that the Company
will generate sufficient revenues to fund its plans for expansion after such
period. There can be no assurance that any additional financing will be
available if needed, or, if available, will be on terms acceptable to the
Company.
IMPACT OF INFLATION
Inflation is not expected to have a significant impact on the Company's
business.
FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and the Results of
Operations and other sections of this Annual Report contain "forward-looking
statements" about the Company's prospects for the future, such as its ability
to generate sufficient working capital, its ability to continue to maintain
sales to justify capital expenses, and its ability to generate additional sales
to meet business expansion. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected, including availability of raw materials, availability of thermal
facsimile, computer, laser and color ink jet paper, to the cyclical nature of
the industry in which the Company operates, the potential of technological
changes which would adversely affect the need for the Company's products, and
price fluctuations which
13
<PAGE> 15
could adversely impact the large inventory required in the Company's business.
Parties are cautioned not to rely on any such forward-looking beliefs or
judgments in making investment decisions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants
Consolidated Balance Sheets as of August 31, 1996
and 1995 F-2
Consolidated Statements of Operations for the Years
Ended August 31, 1996, 1995, and 1994. F-3
Consolidated Statements of Stockholders' Equity for
the Years Ended August 31, 1996, 1995 and 1994 F-6 F-5
Consolidated Statements of Cash Flows for the Years
Ended August 31, 1996, 1995, and 1994. F-7
Notes to Consolidated Financial Statements F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
</TABLE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
For information concerning this item, see "Item 1. Business--Executive Officers
of the Company" of Part I hereof and the table and text under the caption "Name
of Nominee and Certain Biographical Information" in the Proxy Statement to be
filed with respect to the Annual Meeting of Shareholders to be held on January
28, 1997 (the "Proxy Statement"), which information is incorporated herein by
reference.
14
<PAGE> 16
ITEM 11. EXECUTIVE COMPENSATION
For information concerning this item, see the text and table under the caption
"Compensation of Executive Officers" in the Proxy Statement, which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
For information concerning this item, see the table and text under the caption
"Information Concerning Certain Shareholders" in the Proxy Statement, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item, see the text under the caption "Other
Information Concerning Directors, Officers and Shareholders" in the Proxy
Statement, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements:
The financial statements of the Company filed in this Annual Report on Form
10-K are listed in Item 8.
2. Financial Statement Schedules:
The financial statement schedules of the Company filed in this Annual Report on
Form 10-K are listed in the attached Index to Financial Statement Schedules.
3. Exhibits:
The exhibits required to be filed as part of this Annual Report on Form 10-K
are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period covered
by this report.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TST/Impreso, Inc.
By: /s/Marshall D. Sorokwasz
-----------------------------
Marshall D. Sorokwasz, President
Dated: November 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Marshall D. Sorokwasz President, Principal Executive November 25, 1996
- ------------------------ Officer, Treasurer and Director
Marshall D. Sorokwasz
/s/Richard D. Bloom Senior Vice President of Operations November 25, 1996
- ------------------------ Director
Richard D. Bloom
/s/Donald E. Jett Secretary, Director November 25, 1996
- ------------------------
Donald E. Jett
/s/Susan M. Atkins Vice President of Finance, November 25, 1996
- ------------------------ Principal Financial Officer,
Susan M. Atkins Principal Accounting Officer
/s/Jay W. Ungerman
- ------------------------ Director November 25, 1996
Jay W. Ungerman
/s/Robert F. Troisio
- ------------------------ Director November 25, 1996
Robert F. Troisio
/s/Bob L. Minyard
- ------------------------ Director November 25, 1996
Bob L. Minyard
</TABLE>
16
<PAGE> 18
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of August 31, 1996
and 1995 F-3
Consolidated Statements of Operations for the Years
Ended August 31, 1996, 1995, and 1994 F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended August 31, 1996, 1995, and 1994 F-6
Consolidated Statements of Cash Flows for the Years
Ended August 31, 1996, 1995, and 1994 F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of TST/Impreso, Inc.:
We have audited the accompanying consolidated balance sheets of
TST/Impreso, Inc. (a Delaware corporation) and subsidiaries as of August 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended August 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TST/Impreso, Inc.
and subsidiaries as of August 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 4, 1996
F-2
<PAGE> 20
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31,
----------
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,368,395 $ 92,081
Trade accounts receivable, net of allowance
for doubtful accounts of $163,633 at August 31,
1996, and $200,000 at August 31, 1995 2,890,411 3,533,022
Investments 250,000 --
Inventories 6,343,731 6,613,504
Prepaid expenses and other 301,731 38,197
----------- -----------
Total current assets 12,154,268 10,276,804
----------- -----------
Property, plant, and equipment, at cost 12,465,865 11,825,798
Less-Accumulated depreciation (8,372,733) (8,005,330)
----------- -----------
Net property, plant, and equipment 4,093,132 3,820,468
----------- -----------
Other assets:
Deposits and other 708,751 483,985
Investments 4,954 4,954
----------- -----------
Total assets $16,961,105 $14,586,211
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE> 21
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31,
----------
1996 1995
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,563,662 $ 1,016,129
Accrued liabilities 239,886 325,545
Accrued bonuses 175,000 540,539
Accrued income taxes 69,235 168,010
Current maturities of long-term debt 36,769 83,583
Line of credit 138,391 3,843,083
Prepetition liabilities
Current maturities of prepetition
accounts payable 25,722 202,940
Current maturities of long-term debt 74,975 586,853
----------- -----------
Total current liabilities 2,323,640 6,766,682
Deferred income tax liability 567,618 490,787
Long-term portion of prepetition debt,
net of current maturities 1,088,480 3,563,725
Long-term debt, net of current maturities 3,309 39,192
----------- -----------
Total liabilities 3,983,047 10,860,386
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0l par value; 5,000,000
shares authorized; 0 shares issued and
outstanding at August 31, 1996, and
August 31, 1995 -- --
Common Stock, $.0l par value; 15,000,000
shares authorized; 5,247,730 shares
issued and outstanding at August 31,
1996, and 4,000,000 shares issued and
outstanding at August 31, 1995 52,477 40,000
Warrants 110 --
Additional paid-in capital 5,937,896 --
Retained earnings 6,987,575 3,685,825
----------- -----------
Total stockholders' equity 12,978,058 3,725,825
----------- -----------
Total liabilities and
stockholders' equity $16,961,105 $14,586,211
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 22
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended August 31,
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Sales $47,722,988 $37,036,456 $25,924,008
Cost of sales 38,290,812 28,782,134 22,013,235
----------- ----------- -----------
Gross profit 9,432,176 8,254,322 3,910,773
----------- ----------- -----------
Other costs and expenses:
Selling, general, and administrative 4,551,029 4,165,586 2,572,094
Interest expense 377,528 1,019,972 883,455
Other (income) expense, net (54,047) (6,144) (122,471)
----------- ----------- -----------
Total other costs and expenses 4,874,510 5,179,414 3,333,078
----------- ----------- -----------
Income before income tax expense and
extraordinary gain 4,557,666 3,074,908 577,695
Income tax expense:
Current 1,475,376 104,117 --
Deferred 76,831 490,787 --
----------- ----------- -----------
Income before extraordinary gain 3,005,459 2,480,004 577,695
Extraordinary gain from debt reduction and
restructuring, net of tax effect of $157,516
and $298,222 respectively 296,291 523,326 --
----------- ----------- -----------
Net income $ 3,301,750 $ 3,003,330 $ 577,695
----------- ----------- -----------
Income per share (primary and fully diluted):
Income before extraordinary gain $0.59 $ 0.62 $0.14
Extraordinary gain 0.06 0.13 --
----------- ----------- -----------
Net income per common share $0.65 $ 0.75 $0.14
----------- ----------- -----------
Weighted average shares outstanding 5,094,637 4,000,000 4,000,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 23
TST/IMPRESO,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value Additional
-------------- Paid-In Retained Treasury
Shares Amount Capital Warrants Earnings Stock Total
---------------------- ---------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, August 31, 1993 4,332,900 $43,329 $34,671 $ -- $111,800 $(45,000) $144,800
Net income -- -- -- -- 577,695 -- 577,695
--------- ------- ---------- ---- ---------- -------- -----------
BALANCE, August 31, 1994 4,332,900 43,329 34,671 -- 689,495 (45,000) 722,495
Net income -- -- -- -- 3,003,330 -- 3,003,330
Retirement of treasury stock (332,900) (3,329) (34,671) -- (7,000) 45,000 --
--------- ------- ---------- ---- ---------- -------- -----------
BALANCE, August 31, 1995 4,000,000 40,000 -- -- 3,685,825 -- 3,725,825
Issuance of warrants -- -- -- 110 -- -- 110
Net income -- -- -- -- 3,301,750 -- 3,301,750
Sale of stock 1,247,730 12,477 5,937,896 -- -- -- 5,950,373
--------- ------- ---------- ---- ---------- -------- -----------
BALANCE, August 31, 1996 5,247,730 $52,477 $5,937,896 $110 $6,987,575 $ -- $12,978,058
--------- ------- ---------- ---- ---------- -------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 24
TST/IMPRESO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31
---------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,301,750 $3,003,330 $577,695
Adjustments to reconcile net income to net cash
flow provided by operating activities-
Extraordinary gain (453,807) (821,548) --
Depreciation and amortization 369,114 407,862 512,894
Deferred income taxes 76,831 490,787 --
Gain on sale of assets -- -- (110,553)
Decrease in restricted cash -- -- 357,200
(Increase) decrease in accounts receivable, net 642,611 (1,091,027) (345,004)
(Increase) decrease in inventories 269,773 (1,999,011) (465,809)
(Increase) decrease in prepaid expenses and other (34,701) 20,704 52,948
Increase (decrease) in cash overdraft -- (389,350) 156,632
Increase in accounts payable 547,533 772,204 76,845
Increase (decrease) in accrued liabilities (85,659) 266,900 (17,300)
Increase (decrease) in accrued bonuses (365,539) 540,539 --
Increase (decrease) in accrued income taxes (98,775) 168,010 --
Increase in other current assets (228,833) -- --
---------- ---------- --------
Net cash provided by operating activities 3,940,298 1,369,400 795,548
---------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (641,967) (44,071) (282,898)
Sales of property, plant, and equipment, net 189 4,456 217,571
Purchase of investments (250,000) -- --
Change in other noncurrent assets (224,766) (389,352) 98,557
---------- ---------- --------
Net cash provided by (used in) investing
activities (1,116,544) (428,967) 33,230
---------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (payments) on line of credit (3,704,692) 570,125 (81,507)
Payments on prepetition debt (2,710,534) (1,366,259) (922,264)
Additions (payments) on postpetition debt, net (82,697) (82,461) 205,236
Sale of common Stock 5,950,483 -- --
---------- ---------- --------
Net cash used in financing activities (547,440) (878,595) (798,535)
---------- ---------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,276,314 61,838 30,243
Cash and cash equivalents, beginning of year 92,081 30,243 --
---------- ---------- --------
Cash and cash equivalents, end of year $2,368,395 $ 92,081 $ 30,243
---------- ---------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 25
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS:
TST/Impreso, Inc., a Delaware corporation, is a manufacturer and distributor to
dealers and other resellers of paper products for commercial and home use in
domestic and international markets. The Company's product line consists of
standard continuous computer stock business forms for use in computer printers;
thermal facsimile paper for use in thermal facsimile machines; and cut sheet
paper for use in copying machines, plain paper facsimile machines, laser
printers, and ink-jet printers. TST/Impreso, Inc. has three wholly owned
subsidiaries: Big Time Paper, Inc., TST/Impreso of California, Inc., and Texas
Stock Tab of West Virginia, Inc. Each subsidiary was formed to support
activities of TST/Impreso, Inc. (referred to collectively with its consolidated
subsidiaries as the "Company").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Financial Reporting - Bankruptcy Proceedings
In accordance with the American Institute of Certified Public Accountants
Statement of Position (SOP) No. 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code," the Company did not qualify to adopt
"fresh start" reporting upon emergence from bankruptcy in 1993 due to a less
than 50% change in equity ownership upon emerging from bankruptcy. Pursuant to
SOP No. 90-7, reorganization costs have been reported separately, and
forgiveness of debt has been reported as an extraordinary item in the
accompanying consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of TST/Impreso, Inc.
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions with its consolidated subsidiaries have been eliminated.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly-
liquid investments with original maturities of three months or less to be cash
equivalents.
Investments
The Company purchased an investment in debt securities in August 1996. The
securities mature August 15, 2006. In accordance with SFAS No.115, "Accounting
for Certain Investments in Debt and Equity Securities," the securities are
properly classified as short term because the securities are liquid and the
Company does not intend to hold the securities until maturity. No unrealized
gain or loss has been included as a separate component of stockholders' equity
as historical cost approximates fair market value.
Use of Estimates
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-8
<PAGE> 26
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Disclosures about Fair Value of Financial Instruments
In accordance with SFAS No.107, "Disclosures about Fair Value of Financial
Instruments," the following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and short-term investments
The carrying amount approximates fair value because of the short
maturity of those instruments.
Long-term debt
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-
term debt is approximately $1,135,000. The fair market value of the
Company's debt is less than what the Company will pay. This is the
result of the Company obtaining favorable interest rates on its
prepetition debt.
Inventories
Inventories are stated at the lower of cost (principally on a first-in, first-
out basis) or market and include material, labor, and factory overhead.
Property, Plant, and Equipment
Property, plant, and equipment are stated at acquisition or construction cost.
Expenditures for maintenance, repairs, and improvements which do not extend the
useful lives of assets are charged to appropriate expense accounts in the year
incurred. Upon disposition of an asset, cost and accumulated depreciation are
removed from the accounts, and any gain or loss is included in the results of
operations. Depreciation and amortization are computed on the straight-line
basis using the estimated useful lives of the respective assets, which range
from 3 to 30 years.
Revenue Recognition
Sales are generally recorded when products are shipped to customers.
Cash Flow Information
Cash paid for interest expense during the fiscal years 1996, 1995, and 1994,
was $377,528, $1,019,972, and $883,455, respectively. See note 3 for discussion
of noncash amounts related to extraordinary items. Cash paid for income taxes
during the fiscal years 1996 and 1995, was $1,813,263 and $230,000,
respectively. No cash was paid for income taxes during fiscal year 1994.
Earnings Per Common Share
Earnings per share is based on the weighted average number of common shares
outstanding. Common share equivalents have not been included in the computation
of earnings per share as the dilution of these equivalents is not considered
material.
F-9
<PAGE> 27
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EXTRAORDINARY ITEMS:
During the year ended August 31, 1995, the Company recorded a noncash
extraordinary gain totalling $523,326, net of related income tax expense of
$298,222. The extraordinary gain resulted primarily from the Company's early
extinguishment of two notes payable to a financial institution and the early
settlement of claims to certain prepetition creditors.
During the year ended August 31, 1996, the Company recorded a noncash
extraordinary gain totaling $296,291, net of related income tax expense of
$157,516. The extraordinary gain primarily resulted from the Company's early
extinguishment of two notes payable to financial institutions with an aggregate
face amount of approximately $3.1 million for a negotiated discounted amount of
approximately $2.6 million.
4. INVENTORY:
Inventory consisted of the following:
<TABLE>
<CAPTION>
August 31,
---------
1996 1995
---- ----
<S> <C> <C>
Finished goods $3,642,869 $3,281,390
Raw materials 2,296,347 2,852,881
Supplies 351,909 403,679
Work-in-process 52,606 75,554
---------- ----------
Total $6,343,731 $6,613,504
---------- ----------
</TABLE>
5. PROPERTY, PLANT, AND EQUIPMENT:
Property, plant, and equipment is comprised of the following:
<TABLE>
<CAPTION>
August 31,
---------
1996 1995
---- ----
<S> <C> <C>
Computer forms manufacturing plants and
equipment $10,933,388 $10,313,669
Furniture, fixtures, and other 1,532,477 1,512,129
----------- -----------
12,465,865 11,825,798
Less-Accumulated depreciation and amortization (8,372,733) (8,005,330)
----------- -----------
Total $ 4,093,132 $ 3,820,468
----------- -----------
</TABLE>
6. LONG-TERM DEBT AND LINE OF CREDIT:
The following is a summary of long-term debt and line of credit:
<TABLE>
<CAPTION>
August 31,
---------
1996 1995
---- ----
<S> <C> <C>
Postpetition-
Note payable to a commercial financial corporation
under revolving credit line maturing May 1997,
secured by inventories, trade accounts receivable,
equipment, and a personal guarantee by the trustee
of a trust which is a majority shareholder, interest
payable monthly at prime plus 1.0% (9.25% at
August 31, 1996). $138,391 $3,843,083
</TABLE>
F-10
<PAGE> 28
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C>
Note payable to a commercial financial
corporation, payable in monthly installments,
security, interest and maturity date, same as
above. 40,078 122,775
Prepetition-
Note payable to a commercial financial
corporation, secured by equipment, and a
personal guarantee by the trustee of a
trust which is a majority shareholder,
payable in monthly installments through
April 1999, including interest at prime
plus 1.5% (9.75% at August 31, 1996). -- $1,735,190
Note payable to a financial institution,
secured by property, and a personal
guarantee by the trustee of a trust
which is a majority shareholder, payable
in monthly installments of $11,500
(inclusive of interest at 8%) through
May 1999, at which time the unpaid
principal and accrued interest become due. -- 1,220,636
Prepetition accounts payable and taxes
payable, unsecured, prepetition accounts
payable paid subsequent to August 31, 1995. 77,165 202,940
Note payable to a bank, secured by property,
payable in monthly installments of $4,815
(including interest at 6%) through May 2000,
at which time the remaining balance becomes
due and payable. 611,926 643,243
Other notes payable, secured by a personal
guarantee by the trustee of a trust which is
a majority shareholder, and certain property,
plant, and equipment, maturity dates ranging
from 1996 to 2023, interest rates ranging
from 4% to 10.5%. 500,086 551,509
----------- -----------
Total 1,367,646 8,319,376
Less-Current maturities 275,857 4,716,459
----------- -----------
$ 1,091,789 $ 3,602,917
----------- -----------
</TABLE>
Prepetition amounts listed above represent the renegotiated amounts and terms
under the plan of reorganization.
The revolving credit line is limited to the lesser of $5,000,000 or a
percentage of eligible trade accounts receivable and inventories (as defined).
The availability of the revolving credit line was $4,862,000 and $1,157,000 as
of August 31, 1996 and 1995, respectively. The line of credit, as amended, has
restrictive covenants requiring the maintenance of a minimum tangible net worth
and working capital requirements, as defined. As of August 31, 1996 and 1995,
the Company was in compliance with all covenants.
For purposes of the following future maturities schedule, the postpetition line
of credit is shown below as a current maturity as borrowings are limited to
accounts receivable and inventories.
F-11
<PAGE> 29
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future maturities of long-term debt and line of credit at August 31, 1996, are
as follows:
<TABLE>
<S> <C>
1997 $ 137,466
1998 100,514
1999 75,102
2000 35,233
2001 37,253
Thereafter 843,687
----------
$1,229,255
----------
</TABLE>
7. LEASE AGREEMENTS:
The Company is obligated under various operating leases for equipment and a
building, which expire at various dates during the next three years. Future
annual minimum lease payments as of August 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $ 23,292
1998 23,292
1999 1,836
</TABLE>
In November 1996, the Company entered into an operating lease for two custom
designed sheet processing systems. The lease extends for seven years with an
option to purchase the equipment after the fifth year. Lease payments are due
monthly, with annual aggregate payments totaling approximately $159,000.
8. SIGNIFICANT CUSTOMERS:
The Company sells its paper products to dealers and other resellers of paper
products for commercial and home use. The Company reviews all existing
customers financial condition periodically and for average days outstanding in
accounts receivable. Receivables are generally due in 30 days from sale. There
have been no unusual credit losses relating to customers. One customer
accounted for approximately 22% of sales for the year ended August 31, 1996.
9. COMMITMENTS AND CONTINGENCIES:
In the opinion of management, the Company has no pending legal proceedings
which could have a material adverse effect on the results of operations or
financial position of the Company.
10. FEDERAL INCOME TAXES:
Change in Accounting Principle - Accounting for Income Taxes
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No.109 ("SFAS No.109"), which requires, among other
things, an asset and liability approach for financial accounting and reporting
for income taxes. The Company adopted SFAS No. 109 on September 1, 1992. The
adoption had no financial impact on the Company.
F-12
<PAGE> 30
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred Income Taxes
Significant components of deferred income taxes at August 31, 1996 and 1995,
were as follows:
<TABLE>
<CAPTION>
August 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts receivable $ 55,635 $ 77,264
--------- ---------
Deferred tax liability:
Tax over book depreciation and amortization $(623,253) $(568,051)
--------- ---------
Net deferred tax assets (liability) $(567,618) $(490,787)
--------- ---------
</TABLE>
The Company's effective tax rate was different than the statutory federal
income tax rate for the years ended August 31, 1996 and August 31, 1995, as
follows (amounts include effects of extraordinary gain):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Federal income taxes at statutory rate $ 1,703,901 $ 1,324,795
State taxes, net of federal income tax benefit 64,363 58,512
Tax effect of nondeductible items 12,870 11,164
Utilization of NOL carryforwards --- (995,638)
AMT credit utilized (259,545) ---
Change in valuation allowance --- 482,857
Other 188,134 11,436
----------- -----------
$ 1,709,723 $ 893,126
----------- -----------
</TABLE>
NOLs
The Company's extraordinary gain from debt reduction and restructuring due to
bankruptcy reduced NOLs in 1993. In 1995, the Company utilized NOLS to
partially offset taxable income. There were no remaining NOLs available as of
August 31, 1996 and 1995.
11. RELATED PARTY TRANSACTIONS:
The Sorokwasz Irrevocable Trust whose trustee is president of the Company, and
the vice president of the Company own 58% and 21%, respectively, of the
outstanding Common Stock.
12. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." This pronouncement is effective for fiscal
years beginning after December 15, 1995, and requires the Company to evaluate
its long-term assets against certain impairment indicators. The Company
believes the impact of adopting this standard will not be material.
F-13
<PAGE> 31
TST/IMPRESO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In October 1995, the FASB issued SFAS No.123 "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provision no later
than fiscal years beginning after December 15, 1995, and adoption of the
recognition and measurement provision for nonemployee transactions entered into
after December 15, 1995. Pursuant to the new standard, companies are
encouraged, but not required, to adopt the fair-value method of accounting for
stockbased transactions. The Company expects to comply with the disclosure
provisions relative to SFAS No. 123 in fiscal year ending 1997.
13. STOCK OPTIONS:
During the quarter ended November 30, 1995, the Company granted 293,800 options
to certain employees, a Director and a consultant under its 1995 Stock Option
Plan (the "Plan"). These options were granted at an exercise price of $6.00 per
share, the fair market value at the date of grant. These options will become
exercisable at various dates beginning in April 1996, through April 1999.
Thirty-six hundred of those options were forfeited during the 1996 fiscal year.
On April 4,1996, 72,300 of the options granted under the Plan became
exercisable. The shares issuable on exercise of these options are restricted
from public sale until April 4,1997, by the Underwriters' Agreement.
On January 2, 1996, the Company elected two new outside Directors to its Board
of Directors. In accordance with the Plan, each Director received an automatic
grant of an option for 1,000 shares of Common Stock. These options were granted
at the fair market value at the date of grant with an exercise price of $6.75
per share, and are exercisable in two equal annual installments. Remaining
options available for grant under the Plan, including all forfeited options,
total 107,800.
In addition to options under the Plan, in October 1995, in connection with the
Company's initial public offering ("IPO"), the Company granted an option to
purchase up to 147,730 shares of Common Stock (over-allotment option) to its
Underwriters at $6.00 per share. The option was exercised in full on November
14, 1995.
Also in connection with the Company's IPO, the Company issued warrants to its
Underwriters for $.001 per warrant to purchase an aggregate of 110,000 shares
of Common Stock. The warrants became exercisable on October 5, 1996, for four
years at an exercise price of $7.20 per share.
The Company also issued warrants to two consultants. One warrant for 10,000
shares of Common Stock is exercisable for a period of five years from December
1, 1995, at an exercise price of $7.20 per share. The other warrant, also for
10,000 shares of Common Stock, became exercisable October 5, 1996, for a period
of four years at an exercise price of $6.60 per share.
F-14
<PAGE> 32
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants S-2
Schedule II - Valuation and Qualifying Accounts S-3
</TABLE>
S-1
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of TST/ Impreso, Inc. and subsidiaries
included in this Form 10-K and have issued our report thereon dated October 4,
1996.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statement schedules is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 4,1996
S-2
<PAGE> 34
SCHEDULE II
TST/IMPRESO, INC. AND SUBSIDIARIES(A)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994.
<TABLE>
<CAPTION>
Additions
Balance at Additions Charged Balance at
Beginning Charged to other End of
of Period to Income Accounts Deductions Period
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C>
August 31, 1996:
Allowance for doubtful accounts $ 200,000 -- -- $ (36,367)(b) $ 163,633
Deferred income tax valuation allowance -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total reserves and allowances $ 200,000 -- -- $ (36,367) $ 163,633
---------- ---------- ---------- ---------- ----------
August 31, 1995:
Allowance for doubtful accounts $ 200,000 $ 37,445 -- $ (37,445)(b) $ 200,000
Deferred income tax valuation allowance 482,857 -- -- (482,857)(c) --
---------- ---------- ---------- ---------- ----------
Total reserves and allowances $ 682,857 $ 37,445 -- $ (520,302) $ 200,000
---------- ---------- ---------- ---------- ----------
August 31, 1994:
Allowance for doubtful accounts $ 357,479 $ 85,384 -- $ (242,863)(b) $ 200,000
Allowance for excess and obsolete inventories 80,000 -- -- (80,000)(d) --
Deferred income tax valuation allowance 785,427 -- -- (302,570)(c) 482,857
---------- ---------- ---------- ---------- ----------
Total reserve and allowances $1,222,906 $ 85,384 -- $ (625,433) $ 682,857
---------- ---------- ---------- ---------- ----------
</TABLE>
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
(b) Write-off of uncollectible receivables.
(c) All deductions were offset by a decrease in deferred income tax
assets.
(d) Reversal of inventory reserve related to specifically identified
inventory items.
S-3
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF
NUMBER EXHIBIT
- ------ -------
<S> <C>
3(a) Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to Registration Statement on Form S-1
No. 33-93814)
3(b) By-laws of the Company (incorporated by reference to Exhibit
3.2 to Registration Statement on Form S-1 No. 33-93814)
10(a) 1995 Stock Option Plan (incorporated by reference to Exhibit
10.1 to Registration Statement on Form S-1 No. 33-93814)
10(b) Employment Agreement dated September 28,1995, between the
Company and Marshall Sorokwasz (incorporated by reference to
Exhibit 10.2 to Registration Statement on Form S-1 No.
33-93814)
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to Registration Statement on Form S-1 No.
33-93814)
27 Financial data schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 2,368,395
<SECURITIES> 250,000
<RECEIVABLES> 3,054,044
<ALLOWANCES> 163,633
<INVENTORY> 6,343,731
<CURRENT-ASSETS> 12,154,268
<PP&E> 12,465,865
<DEPRECIATION> 8,372,733
<TOTAL-ASSETS> 16,961,105
<CURRENT-LIABILITIES> 2,323,640
<BONDS> 0
0
0
<COMMON> 52,587
<OTHER-SE> 12,925,471
<TOTAL-LIABILITY-AND-EQUITY> 16,961,105
<SALES> 47,722,988
<TOTAL-REVENUES> 47,722,988
<CGS> 38,290,812
<TOTAL-COSTS> 38,290,812
<OTHER-EXPENSES> (54,047)
<LOSS-PROVISION> 163,633
<INTEREST-EXPENSE> 377,528
<INCOME-PRETAX> 4,557,666
<INCOME-TAX> 1,552,207
<INCOME-CONTINUING> 3,005,459
<DISCONTINUED> 0
<EXTRAORDINARY> 296,291
<CHANGES> 0
<NET-INCOME> 3,301,750
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
