SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-6004
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Scanforms, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 23-1704876
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
181 Rittenhouse Circle
Keystone Park, Bristol, Pa. 19007
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(215) 785-0101
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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
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At August 12, 1996, 3,546,648 shares of common stock, $0.01 par value, were
outstanding.
Page 1 of 13
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
SCANFORMS, INC.
BALANCE SHEET
ASSETS JUNE 30, OCTOBER 1,
1996 1995
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(Unaudited)
Current assets:
Cash and cash equivalents $ 8,961,007 $ 2,910,264
Note receivable - current portion 7,200 7,747
Accounts receivable, net of allowance for
doubtful accounts of $447,607 - June 30,
1996 and $410,000 - October 1, 1995 4,890,167 3,673,623
Inventories (Note 2) 1,039,877 1,665,313
Other current assets 361,695 316,012
Deferred income taxes 216,296 266,030
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Total current assets 15,476,242 8,838,989
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Property, plant and equipment - at cost, net of
accumulated depreciation of $12,436,054 -
March 31, 1996 and $11,824,356 - October 1,
1995 8,046,024 7,768,880
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Other assets:
Note receivable - long-term portion 7,269 12,201
Other 60,931 73,136
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Total other assets 68,200 85,337
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$23,590,466 $16,693,206
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 883,807 $ 730,692
Accounts payable 1,489,218 1,738,699
Customer advances 6,492,109 3,045,342
Income taxes payable 635,586 189,549
Other current liabilities 991,178 563,196
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Total current liabilities 10,491,898 6,267,478
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Long-term debt, net of current maturities 4,188,156 3,900,535
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Deferred income taxes 758,097 960,419
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Stockholders' equity:
Preferred stock, $1 par;
500,000 shares authorized; none issued
Common stock, $0.01 par; - -
6,000,000 shares authorized; issued and
outstanding 3,546,648 35,467 35,467
Capital in excess of par 1,388,462 1,388,462
Retained earnings 7,133,421 4,548,826
Less: Note receivable from stockholder (405,035) (407,981)
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Total stockholders' equity 8,152,315 5,564,774
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$23,590,466 $16,693,206
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See accompanying notes to financial statements.
Page 2 of 13
UNAUDITED
SCANFORMS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Thirty Nine Weeks Ended Thirteen Weeks Ended
June 30 July 2 June 30 July 2
1996 1995 1996 1995
----------- ----------- ---------- ----------
Net sales $24,671,347 $18,596,480 $8,594,850 $5,098,425
Cost of sales 16,213,957 13,385,840 5,395,872 3,715,445
----------- ----------- ---------- ----------
Gross profit on sales 8,457,390 5,210,640 3,198,978 1,382,980
Operating expense 3,604,550 3,005,143 1,257,049 946,216
----------- ----------- ---------- ----------
Income from operations 4,852,840 2,205,497 1,941,929 436,764
Other expenses:
Merger and acquisition
costs 542,484 - 265,484 -
Interest cost (23,333) 313,515 (30,245) 115,186
----------- ----------- ---------- ----------
Income before income taxes 4,333,689 1,891,982 1,706,690 321,578
Income taxes 1,749,094 776,407 702,965 136,212
----------- ----------- ---------- ----------
Net income 2,584,595 1,115,575 1,003,725 185,366
Retained earnings-beginning 4,548,826 2,978,287 6,129,697 3,908,496
----------- ----------- ---------- ----------
Retained earnings-ending $ 7,133,421 $ 4,093,862 $7,133,422 $4,093,862
----------- ----------- ---------- ----------
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Weighted average number of
common shares fully diluted 3,709,691 3,652,866 3,709,691 3,652,866
----------- ----------- ---------- ----------
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Net earnings per common
share fully diluted $ 0.70 $ 0.30 $ 0.27 $ 0.05
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See accompanying notes to financial statements.
Page 3 of 13
UNAUDITED
SCANFORMS, INC.
STATEMENT OF CASH FLOWS
Thirty Nine Weeks Ended
June 30 July 2
1996 1995
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Cash flows from operating activities:
Cash received from customers $27,131,460 $18,971,990
Cash paid to suppliers and employees (18,859,441) (16,850,160)
Interest received 359,645 132,557
Interest paid (330,823) (438,204)
Income taxes paid (1,455,644) (1,168,887)
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Net Cash Provided 6,845,197 647,296
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Cash flows from investing activities:
Purchases of plant and equipment (389,016) (1,147,168)
Proceeds on sale of equipment 360 -
Additional CSV on life insurance (7,496) -
Payment of vendor note receivable 5,479 -
Payment of note from stockholder 2,946 2,761
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Net cash (used in) investing
activities (387,727) (1,144,407)
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Cash flows from financing activities:
Issuance of common shares of
capital stock - 200
Paid in surplus on issuance of
common shares of capital stock - 5,800
Proceeds from long-term debt 169,665 3,850,737
Repayment of long-term debt (528,283) (3,592,896)
Principle payments under capital
lease obligations (48,109) (17,252)
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Net cash from (used in) financing
activities (406,727) 246,589
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Net increase(decrease) in cash 6,050,743 (250,522)
Cash:
Beginning 2,910,264 3,522,546
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Ending $ 8,961,007 $ 3,272,024
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See accompanying notes to financial statements.
Page 4 of 13
UNAUDITED
SCANFORMS, INC.
STATEMENT OF CASH FLOWS
RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM
OPERATING ACTIVITIES
Thirty Nine Weeks Ended
June 30 July 2
1996 1995
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Net Income $ 2,584,595 $ 1,115,575
Adjustments to reconcile net income
to net cash (used in) operating
activities:
Depreciation and amortization 956,069 814,209
(Gain)Loss on disposal of fixed assets 2,906 (20,375)
Deferred finance charges 6,597 50,867
Increase in allowance for doubtful
accounts 45,006 45,006
Decrease(Increase) in assets:
Accounts receivable (1,261,550) 729,371
Inventories 625,436 (635,926)
Other current assets (45,683) (99,261)
Deferred income taxes 49,734 (999)
Other assets 13,104 (88,726)
Increase(decrease) in liabilities:
Accounts payable (249,481) (124,950)
Customer advances 3,446,767 (759,803)
Other current liabilities 427,982 13,789
Income taxes payable 446,037 (279,076)
Deferred income taxes (202,322) (112,405)
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Net cash from operating activities $ 6,845,197 $ 647,296
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SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES
Property acquired under capital leases $ 847,463 $ -
See accompanying notes to financial statements.
Page 5 of 13
UNAUDITED
SCANFORMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
Accounting Period:
The registrant employs a fifty-two, fifty-three week year for financial
accounting purposes. Accordingly, these quarterly financial statements are for
the thirty nine week and thirteen week periods ended June 30, 1996 and July 2,
1995. The fiscal year ending September 29, 1996 will consist of fifty-two
weeks.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of the
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the thirty nine weeks and thirteen weeks
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 29, 1996. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the fiscal year ended October 1,
1995.
NOTE 2 - INVENTORIES:
Inventories consisted of the following:
June 30 October 1
1996 1995
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Raw materials $ 874,637 $1,288,936
Work in process 165,240 376,377
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$1,039,877 $1,665,313
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NOTE 3 - SUBSEQUENT EVENTS:
On July 31, 1996, the Company entered into an Agreement and Plan of Merger
("Big Flower Merger Agreement") with Big Flower Press Holdings, Inc. ("Big
Flower") and Scanforms Acquisition Corp., an indirect wholly owned subsidiary of
Big Flower ("Sub") which provides, among other things, for the merger of Sub
with and into the Company ("Big Flower Merger"). In the Big Flower Merger,
each outstanding share of the common stock, par value $0.01 per share, of the
Company (the "Shares") (other than Shares held by Big
Page 6 of 13
UNAUDITED
SCANFORMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - SUBSEQUENT EVENTS (CONTINUED):
Flower and its subsidiaries, the Company and stockholders who perfect appraisal
rights under Delaware law) will be converted into a fraction of a share of
common stock, par value $0.01 per share, of Big Flower (the "Big Flower Shares")
equal to $5.75 divided by the average closing price of the Big Flower Shares on
the New York Stock Exchange during the ten trading day period ending three
trading days prior to the meeting of the Company's stockholders to vote upon
approval and adoption of the Big Flower Merger Agreement, provided that in no
event will the fraction of a Big Flower Share be greater than .4423 or less than
.3833. The Big Flower Merger Agreement may be terminated by the Company if such
average price of the Big Flower Shares is less than $11.50 and by Big Flower if
such average price of the Big Flower Shares is greater than $16.50. Consummation
of the Big Flower Merger is conditioned upon, among other things, the approval
of the Big Flower Merger Agreement by at least a majority of the outstanding
Shares. Robert A. Samans, President and Chairman of the Board of Directors of
the Company, and Sebastian A. Carcioppolo, a director of the Company (together
the "Management Group"), have agreed to vote the Shares they beneficially own,
representing approximately 44% of the outstanding Shares, in favor of approval
of the Big Flower Merger Agreement.
In anticipation of the execution of the Big Flower Merger Agreement, the
Board of Directors of the Company, on the advice of the independent committee of
the Board, and SCFM Corp., a Delaware corporation which is wholly owned by the
Management Group ("SCFM"), have terminated the Agreement and Plan of Merger,
dated as of February 15, 1996, as amended, by and between the Company and SCFM
(the "Management Group Merger Agreement"). Pursuant to the Management Group
Merger Agreement, SCFM would have been merged with and into the Company (the
"Management Group Merger"), and each outstanding Share (other than Shares held
by SCFM, the Company and stockholders who perfect appraisal rights under
Delaware law), would have been converted into the right to receive $3.80 in
cash.
Page 7 of 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THIRTY NINE WEEKS ENDED JUNE 30, 1996 VS.
THIRTY NINE WEEKS ENDED JULY 2, 1995
The Company's net sales increased from $18,596,480 during the thirty nine
weeks ended July 2, 1995 to $24,671,347 during the thirty nine weeks ended
June 30, 1996, a 32.7% increase, principally reflecting an increase in customer
demand. Gross profit increased by 62.3% from $5,210,642 to $8,457,390 in the
period. The increase in gross profit was primarily the result of the higher
sales volume and the resultant increase in production efficiency.
Operating expense was $3,604,550 and $3,005,143 for the first thirty nine
weeks of fiscal 1996 and fiscal 1995, respectively. The increase of 19.9% was
due to various factors, including increased sales compensation on higher sales
volumes, other compensation expense, the payment of performance bonuses,
consulting fees and the preparation of the annual report, which factors were
offset by more delivery service charges being passed on to customers.
Merger and acquisition costs for the thirty nine weeks ended June 30, 1996
are fees incurred by the Company in connection with the Management Group and Big
Flower acquisition proposals presented to the Company and costs incurred by the
Management Group in connection with the Management Group Merger Agreement (which
costs the Company has agreed to pay pursuant to the Management Group Merger
Agreement) in the amount of $444,387. Such merger and acquisition costs were
principally for evaluation and a fairness opinion by the Company's financial
advisor, together with legal and accounting fees. In addition $108,096 was
incurred or accrued in connection with negotiation and due diligence costs
relating to the Big Flower Merger as explained in Subsequent Events.
Interest cost decreased by $336,848 from $313,515 to $23,333 in interest
income over interest expense during the first thirty nine weeks of fiscal 1996
as compared to the same period in fiscal 1995. The decrease was due primarily
to the reduction of interest rates under the loan agreements which were entered
into in July of 1995, additional interest income earned as a result of higher
cash balances and a decrease in the write off of deferred finance expense.
RESULTS OF OPERATIONS: THIRTEEN WEEKS ENDED JUNE 30, 1996 VS.
THIRTEEN WEEKS ENDED JULY 2, 1995
The Company's net sales increased from $5,098,425 during the thirteen weeks
ended July 2, 1995 to $8,594,850 during the thirteen weeks ended June 30, 1996,
a 68.6% increase, principally reflecting
Page 8 of 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS: THIRTEEN WEEKS ENDED JUNE 30, 1996 VS.
THIRTEEN WEEKS ENDED JULY 2, 1995 (CONTINUED)
an increase in orders by a major customer. Gross profit increased by 131.3%
from $1,382,980 to $3,198,978. The increase in gross profit was primarily the
result of the higher sales volume, and the resultant increase in production
efficiency and utilization of plant facilities.
Operating expense was $1,257,049 and $946,216 for the third quarter
thirteen weeks of fiscal 1996 and fiscal 1995, respectively. The increase of
32.9% was due to increased sales compensation on the higher sales volume,
advertising, trade shows and performance bonus compensation expense.
Merger and acquisition costs for the thirteen weeks ended June 30, 1996 are
fees incurred by the Company in connection with the Management Group and Big
Flower acquisition proposals presented to the Company and costs incurred by the
Management Group in connection with the Management Group Merger Agreement (which
costs the Company has agreed to pay pursuant to the Management Group Merger
Agreement) in the amount of $157,387. Such merger and acquisition costs were
principally for evaluation and a fairness opinion by the Company's financial
advisor, together with legal and accounting fees. In addition $108,096 was
incurred or accrued in connection with negotiation and due diligence costs
relating to the Big Flower Merger as explained in Subsequent Events.
Interest cost decreased by $145,431 from $115,186 to $30,245 in excess
interest income over interest expense during the third quarter thirteen week
period of fiscal 1996 as compared to the same period in fiscal 1995. The
decrease was due primarily to the reduction of interest rates under the loan
agreements which were entered into in July of 1995, additional interest income
earned as a result of higher cash balances and a decrease in the write off of
deferred finance expense.
GENERAL:
Continuing price pressure in the direct mail industry has kept overall
pricing flat in selected segments of the business. The Company, because of its
investment in upgrading its press quality performance and with the acquisition
of additional personalization equipment, is in a favorable position to compete.
On July 31, 1996, the Company entered into the Big Flower Merger Agreement
with Big Flower and Sub which provides, among other things, for the merger of
Sub with and into the Company. In the Big Flower Merger, each outstanding Share
(other than Shares
Page 9 of 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
GENERAL (continued):
held by Big Flower and its subsidiaries, the Company and stockholders who
perfect appraisal rights under Delaware law) will be converted into a fraction
of a Big Flower Share equal to $5.75 divided by the average closing price of the
Big Flower Shares on the New York Stock Exchange during the ten trading day
period ending three trading days prior to the meeting of the Company's
stockholders to vote upon approval and adoption of the Big Flower Merger
Agreement, provided that in no event will the fraction of a Big Flower Share be
greater than .4423 or less than .3833. The Big Flower Merger Agreement may be
terminated by the Company if such average price of the Big Flower Shares is less
than $11.50 and by Big Flower if such average price of the Big Flower Shares is
greater than $16.50. Consummation of the Big Flower Merger is conditioned upon,
among other things, the approval of the Big Flower Merger Agreement by a least a
majority of the outstanding Shares. Each of Robert A. Samans, President and
Chairman of the Board of Directors of the Company, and Sebastian A. Carcioppolo,
a director of the Company, has agreed to vote the Shares he beneficially owns,
representing, in the aggregate, approximately 44% of the outstanding Shares, in
favor of approval of the Big Flower Merger Agreement. See Item 5 of this report
and Note 3 of the financial statements.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's working capital increased to $4,984,344 as of June 30, 1996,
an increase of $2,412,833 or 93.8% from $2,571,511 on October 1, 1995. The
increase was the result of an increase in net income for the thirty nine week
period.
Certain other significant balance sheet changes during the thirty nine
weeks ended June 30, 1996 included an increase in customer advances of
$3,446,767 which will be used in the future for the purchase of postage as the
customers' mailings are delivered to the post office and for the payment of
invoices as the services are billed. An increase in accounts receivable of
$1,261,550 was due to higher billings in the third quarter of 1996, reflected in
the increased sales and decrease of $625,436 in inventories. Deferred income
taxes decreased as a result of the tax depreciation being less than the
financial depreciation. Other current liabilities increased due to expenses
which have been accrued and not paid, particularly the merger and acquisition
costs. The increase of $446,037 for income taxes is the result of the payment
of prepaid taxes based on taxing authorities policies as compared to the accrual
of such taxes based income.
Page 10 of 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
The Company has entered into lease agreements for computer and printing
equipment in the amount of $808,020 to be used in the personalization of the
direct mail. These leases are for five years with a fair market value purchase
price at the end of the leases. The Company also entered into lease agreements
for $39,443 of computer equipment used in the financial operations with terms of
36 months or less with a $1.00 buyout at the end of the lease. All of these
leases will be treated as capitalized leases and amortized over the estimated
useful lives of the equipment of 5 years.
During the first thirty nine weeks of 1996, the Company did not utilize its
working capital line of credit with its principal lending bank. The Company
believes that the cash flow generated from operations and the amount available
under its working capital line of credit (as of June 30, 1996, the availability
was zero due to extraordinary high customer deposits) will enable the Company to
meet its currently anticipated operating requirements during the fiscal year
1996.
Page 11 of 13
PART II OTHER INFORMATION
Item 5: OTHER INFORMATION
On July 31, 1996, the Company entered into the Big Flower Merger Agreement
with Big Flower and Sub, which provides, among other things, for the merger of
Sub with and into the Company. In the Big Flower Merger, each outstanding Share
(other than Shares held by Big Flower and its subsidiaries, the Company and
stockholders who perfect appraisal rights under Delaware law) will be converted
into a fraction of a Big Flower Share equal to $5.75 divided by the average
closing price of the Big Flower Shares on the New York Stock Exchange during the
ten trading day period ending three trading days prior to the meeting of the
Company's stockholders to vote upon approval and adoption of the Big Flower
Merger Agreement, provided that in no event will the fraction of a Big Flower
Share be greater than .4423 or less than .3833. The Big Flower Merger Agreement
may be terminated by the Company if such average price of the Big Flower Shares
is less than $11.50 and by Big Flower if such average price of the Big Flower
Shares is greater than $16.50. Consummation of the Big Flower Merger is
conditioned upon, among other things, the approval of the Big Flower Merger
Agreement by at least a majority of the outstanding Shares. Each of Robert A.
Samans, President and Chairman of the Board of Directors of the Company, and
Sebastian A. Carcioppolo, a director of the Company has agreed to vote the
Shares he beneficially owns, representing approximately 44% of the outstanding
Shares, in favor of approval of the Big Flower Merger Agreement.
In anticipation of the execution of the Big Flower Merger Agreement, the
Board of Directors of the Company, on the advice of the independent committee of
the Board, and SCFM have terminated the Management Group Merger Agreement.
Pursuant to the Management Group Merger Agreement, SCFM would have been merged
with and into the Company and each outstanding Share (other than Shares held by
SCFM, the Company and stockholders who perfect appraisal rights under Delaware
law), would have been converted into the right to receive $3.80 in cash.
Page 12 of 13
PART II OTHER INFORMATION (CONTINUED)
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
2(a) Agreement and Plan of Merger dated as of July 31, 1996, by
and among Big Flower Press Holdings, Inc, Scanforms
Acquisition Corp. and the Company.
27 Financial Data Schedule
b. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCANFORMS, INC.
DATE: August 14, 1996
/s/ Robert A. Samans
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Robert A. Samans, President
/s/ William P. Carey
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William P. Carey, Treasurer
(Principle Financial and
Accounting Officer)
Page 13 of 13