-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HK7KBDk0rBoAaNISCVMLe4Zj6UTsu2l3go9hxIeLsNUM6nV/HXfoq77v7e8oPCMr YHh1UWQ8s+aNXF528BelWw== 0000891554-99-001760.txt : 19990906 0000891554-99-001760.hdr.sgml : 19990906 ACCESSION NUMBER: 0000891554-99-001760 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990621 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990903 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUNNINGHAM GRAPHICS INTERNATIONAL INC CENTRAL INDEX KEY: 0001053949 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 223561164 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-24021 FILM NUMBER: 99706117 BUSINESS ADDRESS: STREET 1: 629 GROVE STREET CITY: JERSEY CITY STATE: NJ ZIP: 07310 BUSINESS PHONE: 2012171990 MAIL ADDRESS: STREET 1: 629 GROVE STREET CITY: JERSEY CITY STATE: NJ ZIP: 07310 8-K/A 1 AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): June 21, 1999 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. (Exact name of Registrant as specified in Charter) New Jersey 0-24021 22-3561164 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 5 Burma Road, Jersey City, New Jersey 07305 (Address of principal executive office) (Zip Code) Registrant's telephone number including area code: (201) 217-1990 629 Grove Street, Jersey City, New Jersey 07310 (Former name or Former Address, if Changed Since Last Report) This Form 8-K/A amends and supplements (i) the form 8-K dated June 21, 1999 filed with the Securities and Exchange Commission (the "SEC") on August 6, 1999 relating to the acquisition by Cunningham Graphics International, Inc. (the "Company") of Venus Holdings Limited and affiliates ("Venus") and (ii) the Form 8-K dated July 14, 1999 filed with the SEC on August 6, 1999 relating to the acquisition by the Company of MVP Graphics, Inc. and affiliates. This Form 8-K/A contains the information referred to in Items 2 and Items 7 of the form. Item 2. Acquisition or Disposition of Assets Venus Holdings Limited Pursuant to a Stock Purchase Agreement dated as of June 21, 1999 (the "Agreement") among Venus, Brian Coles, Wendy Kathleen Coles, and Brian Coles and Wendy Coles as the trustees of the Brian and Wendy Coles Retirement Relief Trust (collectively, the "Sellers"), Cunningham Graphics International, Inc. (the "Company") and RODA Limited (the "Buyer") acquired all of the issued and outstanding capital stock of Venus, a London corporation. The purchase price of the acquisition was $6.1 million and was funded through the Company's revolving line of credit. Under the terms of the purchase agreement, the Company may be required to pay the Sellers up to an additional $1.5 million, depending upon the earnings, as defined, of Venus during the years 1999 through 2002. The Company intends to have Venus continue its operations in the manner conducted prior to the acquisition. In connection with the Agreement, Venus entered into a three year employment agreement dated as of June 21, 1999 with Brian Coles. MVP Graphics, Inc. Pursuant to a Stock Purchase Agreement dated as of July 14, 1999 (the "Agreement") among MVP Graphics, Inc. and Super Pack, Inc. (collectively "MVP Graphics"), George Chou, Brown Tsui, Wayne Hsieh, William Shaw, Jackie Chou, Mon Yin Lee, Li-Chin Hao Hsieh and Fung Yuan Wu (collectively, the "Sellers"), Cunningham Graphics International, Inc. (the "Company"), and CGII California Holdings, Inc. (the "Buyer) acquired all of the issued and outstanding capital stock of MVP Graphics, Inc. a California corporation. The purchase price of the acquisition was $3.6 million and was funded through the Company's revolving line of credit. Under the terms of the purchase agreement, the Company may be required to pay the Sellers up to an additional $1.2 million, depending upon the earnings, as defined, of MVP Graphics during the years 1999 through 2002. The Company intends to have MVP Graphics, Inc. continue its operations in the manner conducted prior to the acquisition. The Buyer will change its name to MVP Graphics, Inc. In connection with the Agreement MVP Graphics, entered into three year employment agreements dated July 14, 1999 with certain of the Sellers. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Business Acquired See Index to Financial Statements and Pro Forma Financial Information below. (b) Pro Forma Financial Information See Index to Financial Statements and Pro Forma Financial Information below. (c) Exhibits Exhibit No. Description ----------- ----------- 10.34 Agreement for the sale and purchase of the entire issued share capital of Venus Holdings Limited dated June 21, 1999 by and among Venus, Brian Coles, Wendy Kathleen Coles, and Brian Coles and Wendy Coles as the trustees of the Brian and Wendy Coles Retirement Relief Trust (collectively, the "Sellers"), Cunningham Graphics International, Inc. (the "Company") and RODA Limited (the "Buyer"). (Exhibit 10.34 to Current Report on Form 8-K for the event occurring on June 21, 1999) 23.1 Consent of Kingston Smith 23.2 Consent of Campo & Scherr L.L.C. INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION FINANCIAL STATEMENTS PAGE - -------------------------------------------------------------------------------- VENUS HOLDINGS LIMITED Company Information F-1 Report of the Directors F-2 Report of the Auditors F-3 Consolidated Profit and Loss Account F-4 Consolidated Balance Sheet F-5 Company Balance Sheet F-6 Consolidated Cash Flow Statement F-7 Notes to the Consolidated Financial Statements F-9 MVP GRAPHICS, INC. Independent Auditors Report F-19 Combined Balance Sheet F-20 Combined Statement of Income and Retained Earnings F-22 Combined Statement of Cash Flows F-23 Notes to Combined Financial Statements F-24 PRO FORMA FINANCIAL INFORMATION Introduction to the Unaudited Pro Forma Combined Financial Statements F-31 Unaudited Pro Forma Combined Balance Sheet as of June 30, 1999 F-32 Unaudited Pro Forma Combined Statement of Income for the Year Ended December 31, 1998 F-33 Unaudited Pro Forma Combined Statement of Income as of June 30, 1999 F-34 Notes to Unaudited Pro Forma combined Financial Statements F-35 SIGNATURES 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 hereunto duly authorized. Cunningham Graphics International, Inc. ---------------------------------------- (Registrant) Dated: September 3, 1999 By: /s/ Robert M. Okin --------------------- Name: Robert M. Okin Title: Senior Vice President and Chief Financial Officer Venus Holdings Limited Company Information Directors B. Coles W. Coles N. Rowlinson Secretary W. Coles Registered Office Devonshire House 60 Goswell Road London EC1M 7AD Company Number 2652738 Auditors Kingston Smith Devonshire House 60 Goswell Road London EC1M 7AD Bankers Barclays Bank plc 155 Bishopsgate London EC2M 3XA F-1 Venus Holdings Limited Report of the Directors The directors have pleasure in presenting their report and financial statements for the year ended 31st October 1998. Principal Activity and Business Review The principal activity of the group throughout the year was that of printing and providing allied services. The directors are satisfied with the results for the year and the financial position at the year end. The group has continued to maintain its recent levels of growth through tight management control and maintaining its competitive advantage throughout the year. The directors expect continued growth in the foreseeable future. During the year the group incurred exceptional costs as a result of its phased move from the City to the Docklands. The company's manufacturing and service facilities are now entirely located at the Docklands. Results and Dividends The results of the group for the year are set out on page 4. The directors do not recommend the payment of a final dividend. Directors and their Interests The directors who served the company throughout the year together with their interests (including family interests) in the shares of the company and other group undertakings at the beginning and end of the year were as follows: Ordinary Shares of (pound)1 each 31st October 1998 31st October 1997 No. No. B. Coles 37,500 3 W. Coles 12,500 1 N. Rowlinson -- -- On 13th March 1998 the company issued a further 49,996 ordinary shares of (pound)1 each to B. Coles and W. Coles by way of a bonus issue. On the same date B. Coles transferred 10,000 of his ordinary shares to an interest-in-possession trust, of which he and W. Coles are co-trustees. Year 2000 Assuring the ongoing operations of our business and computer systems into the next millennium is a key focus of the directors. A comprehensive review of all systems is being carried out to ensure that: 1) all business and computer systems will correctly process future dates. 2) our trading relationships with suppliers and customers will continue to operate without disruption. The total estimated costs of these reviews have not been quantified but are not expected to be material. Auditors Kingston Smith have indicated their willingness to continue in office and in accordance with the provisions of the Companies Act it is proposed that they be re-appointed auditors to the company for the ensuing year. By Order of the Board Devonshire House /s/ BRIAN COLES 60 Goswell Road --------------- London B. Coles EC1M 7AD Director Date: 20 June 1999 F-2 Venus Holdings Limited Directors' Responsibilities and Report of the Auditors Statement of Directors' Responsibilities Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the group and of the profit or loss for that period. In preparing those financial statements, the directors are required to select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent and prepare the financial statements on a going concern basis unless it is inappropriate to assume that the company will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Auditors' Report to the Members of Venus Holdings Limited We have audited the financial statements on pages 4 to 18 which have been prepared under the historical cost convention and the accounting policies set out on pages 9 and 10. Respective Responsibilities of Directors and Auditors As described above the company's directors are responsible for the preparation of the financial statements. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. Basis of Opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the company and of the group as at 31st October 1998 and of the profit of the group for the year then ended and have been properly prepared in accordance with the Companies Act 1985. /s/ Kingston Smith Chartered Accountants and Registered Auditors Devonshire House 60 Goswell Road London EC1M 7AD Date: 20 June 1999 F-3 Venus Holdings Limited Consolidated Profit and Loss Account For the year ended 31st October 1998
Note 1998 1997 (pound) (pound) Turnover - continuing operations 2 7,626,243 6,843,519 Cost of sales (5,221,663) (4,311,116) ---------- ---------- Gross Profit 2,404,580 2,532,403 Distribution costs (248,695) (254,366) Administrative expenses (1,814,244) (1,571,159) ---------- ---------- Operating Profit 3 341,641 706,878 Interest receivable and similar income 4 27,041 25,090 Interest payable and similar charges 5 (120,592) (131,149) ---------- ---------- Profit on Ordinary Activities before Taxation 248,090 600,819 Taxation 7 (96,153) (144,213) ---------- ---------- Profit for the Financial Year 15 151,937 456,606 Minority interest (3,851) (12,566) ---------- ---------- 148,086 444,040 Dividends on equity shares 15,16 (2,450) (10,500) ---------- ---------- Retained Group Profit for the Financial Year 145,636 433,540 ========== ==========
There are no recognised gains and losses in the year other than the profit for the year. F-4 Venus Holdings Limited Consolidated Balance Sheet at 31st October 1998
Note At 31st October 1998 At 31st October 1997 (pound) (pound) (pound) (pound) Fixed Assets Tangible assets 8 4,082,894 2,107,242 Investments 9 250,000 250,000 -------------- --------------- 4,332,894 2,357,242 Current Assets Stock 10 148,172 97,256 Debtors 11 1,733,341 1,563,395 Investments 38,719 62,830 Cash at bank and in hand 72,461 469,496 --------------- -------------- 1,992,693 2,192,977 Creditors: Amounts falling due within one year 13 (2,289,765) (1,683,870) --------------- -------------- Net Current (Liabilities)/Assets (297,072) 509,107 -------------- --------------- Total Assets less Current Liabilities 4,035,822 2,866,349 Creditors: Amounts falling due after more than one year 14 (2,008,406) (1,061,564) Provision for Liabilities and Charges Deferred taxation 18 (214,374) (141,230) -------------- --------------- Net Assets 1,813,042 1,663,555 ============== =============== Capital and Reserves Called up share capital 15 50,000 4 Profit and loss account 1,715,564 1,607,674 -------------- --------------- Equity Shareholders' Funds 1,765,564 1,607,678 Equity minority interests 47,478 55,877 -------------- --------------- 15 1,813,042 1,663,555 ============== ===============
Approved by the board on 20 June 1999 B. Coles /s/ BRIAN COLES, Director --------------- F-5 Venus Holdings Limited Consolidated Balance Sheet at 31st October 1998
Note At 31st October 1998 At 31st October 1997 (pound) (pound) (pound) (pound) Fixed Assets Tangible assets 8 4,400 -- Investments 9 1,254,705 1,240,589 -------------- --------------- 1,259,105 1,240,589 Current Assets Amount owed by subsidiary undertaking not repayable within one year 400,000 -- Debtors 11 111,839 494,297 Investments 12 38,719 62,830 Cash at bank and in hand 23,831 92,030 --------------- -------------- 574,389 649,157 Creditors: Amounts falling due within one year 13 (52,250) (232,086) --------------- -------------- Net Current Assets 522,139 417,071 -------------- --------------- Total Assets less Current Liabilities 1,781,244 1,657,660 ============== =============== Capital and Reserves Called up share capital - equity interest 15 50,000 4 Revaluation reserve 15 1,254,705 1,240,589 Profit and loss account 15 476,539 417,067 -------------- --------------- Shareholders' Funds 15 1,781,244 1,657,660 ============== ===============
Approved by the board on 20 June 1999 B. Coles /s/ BRIAN COLES, Director --------------- F-6 Venus Holdings Limited Consolidated Cash Flow Statement For the year ended 31st October 1998
Note 1998 1998 1997 1997 (pound) (pound) (pound) (pound) Net Cash Inflow from Operating Activities 1 1,235,408 1,168,951 Returns on Investments and Servicing of Finance Interest received 27,041 25,090 Interest paid (8,185) (5,344) Interest element of finance lease rentals payments (112,407) (103,829) --------------- ------------- Net Cash Outflow from Returns on Investments and Servicing of Finance (93,551) (84,083) Taxation Corporation tax paid (176,341) (176,569) --------------- ------------- Tax Paid (176,341) (176,569) Capital Expenditure and Financial Investment Purchase of tangible fixed assets (2,752,345) (1,093,833) Purchase of current asset investments (683,848) (800,272) Proceeds from sale of fixed assets 61,670 316,300 Proceeds from sale of investments 31,570 715,469 --------------- ------------- Net Cash Outflow for Capital Expenditure and Financial Investment (2,659,105) (862,336) Equity Dividends Paid -- (20,000) Financing Capital element of finance lease rental payments 1,224,783 78,484 -------------- -------------- (Decrease)/Increase in Cash (468,806) 104,447 ============== ============== Reconciliation of Net Cash Flow to Movement in Net Debt (pound) (pound) (Decrease)/increase in cash in the period (468,806) 104,447 Cash outflow from movement in lease financing (1,224,783) (78,484) -------------- -------------- Movement in net debt in the year (1,693,589) 25,963 Net debt at 1st November 1997 (727,331) (753,394) -------------- -------------- Net debt at 31st October 1998 (see Note 2) (2,420,920) (727,331) ============== ==============
F-7 Venus Holdings Limited Notes to the Consolidated Cash Flow Statement For the year ended 31st October 1998
1 Reconciliation of Operating Profit to Net Cash 1998 1997 Inflow from Operating Activities (pound) (pound) Operating profit 341,641 706,878 Depreciation charges 716,113 580,030 Increase in stocks (50,916) (7,999) Increase in debtors (169,946) (365,411) Increase in creditors 407,065 277,794 Profit on sale of tangible assets (1,090) (22,341) --------------- --------------- 1,242,867 1,168,951 =============== ===============
2 Analysis of Net Debt At At At 31st October Cash 31st October Cash 31st October 1996 Flow 1997 Flow 1998 (pound) (pound) (pound) (pound) (pound) Cash at bank and in hand 365,049 104,447 469,496 (468,806) 690 Finance leases (1,118,343) (78,484) (1,196,827) (1,224,783) (2,421,610) -------------- --------------- -------------- --------------- -------------- (753,294) (25,953) (727,331) (1,693,589) (2,420,920) ============== =============== ============== =============== ==============
F-8 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 1 Accounting Policies Accounting Basis and Standards The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards. Basis of Consolidation The group profit and loss account and balance sheet consist of the financial statements of the parent company and its subsidiary undertakings. Turnover Turnover represents the invoiced value of goods sold and services provided net of credit notes and excluding value added tax. Depreciation Depreciation on fixed assets is provided at rates estimated to write off the cost, less estimated residual value, of each asset over its expected useful life as follows: Leasehold property straight line over the period of the lease Plant and machinery 15% - 25% straight line Motor vehicles 25% straight line Fixtures and fittings 10% straight line Stocks Stocks and work in progress are stated at the lower of cost and net realisable value. Cost is calculated as follows: Raw materials cost of purchase on first in, first out basis Work in progress cost of raw materials and labour based on normal level of activity Net realisable value is based on estimated selling price less any futher costs to be incurred to completion and sale. Deferred Taxation Deferred tax is accounted for under the liability method in respect of the taxation effects of all timing differences which are expected to reverse in the future, calculated at the rate at which it is estimated that tax will be payable. Pension Scheme Arrangements The company operates a defined contribution pension scheme, the assets of the scheme being held separately from the assets of the company. The pension cost charge represents contributions payable to the scheme. Leased Assets Assets held under finance leases and hire purchase contracts are capitalised in the Balance Sheet and depreciated over their expected useful lives. The interest element of the rental obligations is charged to the Profit and Loss Account over the period of the lease (and represents a constant proportion of the balance of capital repayments outstanding). Rentals paid under operating leases are charged to income on a straight line basis over the lease term. Foreign Exchange Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange prevailing at the accounting date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transactions. All differences on exchange are taken to the Profit and Loss Account. Goodwill Goodwill is determined by comparing the amount paid on the acquisition of a subsidiary undertaking and the group's share of the aggregate fair value of its separable net assets and is written off to consolidated reserves in the year. F-9 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 (Continued) 1 Accounting Policies (Continued) Employee Share Ownership Trust In accordance with the requirements of the Accounting Standards Board which took effect for accounting periods ending on or after 22nd June 1995, the net assets represented by contributions made by the company to the trustees of The Apollo Employee Benefit Trust are to be consolidated with those of the company until the shares held by the trust are allocated unconditionally to employees or former employees of the company. As a consequence, shares in Apollo UK Limited held by The Apollo Employee Benefit Trust are included as a fixed asset investment of the group. Where trust assets vest in employees by reference to predetermined future service obligations, any related company contributions to the trust are charged in the Profit and Loss Account over the period of service involved. Otherwise contributions are charged in the Profit and Loss Account as incurred in accordance with the prudence concept. 2 Turnover Turnover is attributable to the one principal activity of the group which arose wholly in the United Kingdom.
3 Operating Profit 1998 1997 (pound) (pound) The operating profit is stated after charging/(crediting): Auditors' remuneration - company 4,900 1,200 - group 13,700 12,400 Depreciation - owned tangible fixed assets 343,335 237,598 Depreciation - assets held under finance leases and hire purchase contracts 372,778 342,432 Hire of equipment 141,215 30,716 Other operating lease rentals - land and buildings 213,658 126,277 Profit on sale of fixed assets (1,090) (22,342) ============== ==============
4 Interest Receivable and Similar Income 1998 1997 (pound) (pound) Bank interest receivable 17,814 20,913 Profit on investments 7,459 -- Income from investments 1,768 4,177 -------------- -------------- 27,041 25,090 ============== ==============
5 Interest Payable and Similar Charges 1998 1997 (pound) (pound) Bank overdraft and loan interest 481 329 Finance leases and hire purchase contracts 112,407 103,829 Other interest payable 1,968 98 Loss on investments -- 21,976 Loss on foreign exchange transactions 5,736 4,917 -------------- -------------- 120,592 131,149 ============== ==============
F-10 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 (Continued)
6 Directors and Employees 1998 1997 (pound) (pound) Staff costs during the year were as follows: Wages and salaries 2,516,755 2,239,126 Social security costs 247,205 219,692 Pension costs 28,757 94,547 -------------- -------------- 2,792,717 2,553,365 ============== ==============
The average monthly number of persons employed by the company, including directors, during the year was as follows:
Number Number Administration 53 43 Production 37 26 Selling and distribution 8 12 -------------- -------------- 98 81 ============== ==============
Directors' Emoluments: (pound) (pound) Remuneration for management services 131,521 224,617 Pension contributions 6,934 76,921 -------------- -------------- 138,455 301,538 ============== ============== Highest paid director 84,656 194,413 ============== ==============
During the year the group paid (pound)4,785 (1997 - (pound)74,772) into the defined contribution pension scheme on behalf of the highest paid director. All the directors are included in the defined contribution pension scheme.
7 Taxation 1998 1997 (pound) (pound) U.K. Corporation tax at the rate of(pound)Nil% (1997 - 28.8%) -- 153,924 Corporation tax - underprovision in respect of prior year 23,009 -- Deferred taxation 73,144 (9,711) -------------- -------------- 96,153 144,213 ============== ==============
F-11 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 (Continued)
8 Tangible Assets Leasehold Fixtures Group Land and Plant and Motor and Buildings Machinery Vehicles Fittings Total Cost (pound) (pound) (pound) (pound) (pound) At 1st November 1997 76,654 3,272,769 216,743 83,368 3,649,534 Additions 93,154 2,273,083 112,084 274,024 2,752,345 Disposals -- (16,000) (86,995) -- (102,995) -------------- --------------- -------------- --------------- -------------- At 31st October 1998 169,808 5,529,852 241,832 357,392 6,298,884 -------------- --------------- -------------- --------------- -------------- Depreciation At 1st November 1997 30,069 1,448,430 26,717 37,076 1,542,292 Charge for the year 12,358 633,041 44,259 26,455 716,113 Eliminated on disposal -- (9,600) (32,815) -- (42,415) -------------- --------------- -------------- --------------- -------------- At 31st October 1998 42,427 2,071,871 38,161 63,531 2,215,990 -------------- --------------- -------------- --------------- -------------- Net Book Value At 31st October 1998 127,381 3,457,981 203,671 293,861 4,082,894 ============== =============== ============== =============== ============== At 31st October 1997 46,585 1,824,339 190,026 46,292 2,107,242 ============== =============== ============== =============== ==============
The net book value of fixed assets includes an amount of (pound)3,236,066 (1997 - (pound)1,645,166) in respect of assets held under finance leases and hire purchase contracts. Net obligations under finance leases and hire purchase contracts are secured on the assets acquired. Fixtures Company and Fittings Cost (pound) Acquired during the year and at 31st October 1998 4,400 -------------- Depreciation Charge for the year and at 31st October 1998 -- -------------- Net Book Value At 31st October 1998 4,400 ============== 9 Fixed Asset Investments Group Unlisted Investments Cost and Net Book Value (pound) At 1st November 1997 and 31st October 1998 250,000 ============== F-12 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 (Continued) 9 Fixed Asset Investments (Continued) Employee Share Ownership Trust The investment represents the cost of 3,500 ordinary (pound)1 shares in Apollo UK Limited at a price of (pound)71.43 per share. On 27th April 1995 Performance Securities Limited, acting as the sole trustee of The Apollo Employee Benefit Trust approved the purchase of these shares which are required to be included in the assets of the company until they vest in the employees or former employees of the company in accordance with the terms of the trust (see Note 1). None of the shares had vested conditionally or unconditionally at the balance sheet date and no option had been granted over them. The total cost of the shares is (pound)250,000 (1997 - (pound)250,000) and in the directors' opinion the value of the investments is not less than the cost.
Company 1998 1997 (pound) (pound) Amounts attributable to interest in subsidiary company 1,254,705 1,240,589 ============== ==============
The following details relate to the company's subsidiary undertakings:
Effective percentage Country of Class of shares Nature of Name incorporation of share held business Apollo (UK) Limited England Ordinary 96.5% Printing Subsidiaries of Apollo (UK) Limited: Artemis Colour Limited England Ordinary 96.5% Printing Performance Securities Limited England Ordinary 96.5% Dormant Apollo Offset Limited England Ordinary 96.5% Dormant Apollo Translation Limited England Ordinary 96.5% Dormant
All subsidiary undertakings prepare accounts to 31st October.
10 Stocks Group Company 1998 1997 1998 1997 (pound) (pound) (pound) (pound) Raw materials 105,225 60,634 -- -- Work in progress 42,947 36,622 -- -- --------------- --------------- -------------- -------------- 148,172 97,256 -- -- =============== =============== ============== ==============
11 Debtors Group Company 1998 1997 1998 1997 (pound) (pound) (pound) (pound) Trade debtors 1,225,131 1,195,148 -- -- Amounts owed by subsidiary undertakings -- -- 36,679 -- Other debtors 350,378 137,941 75,160 357,629 Prepayments and accrued income 157,832 93,638 -- - Cash held by brokers -- 136,668 -- 136,668 --------------- --------------- -------------- -------------- 1,733,341 1,563,395 111,839 494,297 =============== =============== ============== ==============
F-13 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 (Continued)
12 Current Asset Investments Group Company 1998 1997 1998 1997 (pound) (pound) (pound) (pound) Other investments 38,719 62,830 38,719 62,830 =============== =============== ============== ==============
The company holds listed investments with a cost value of (pound)38,719 (1997 - (pound)62,830), of which (pound)30,550 (1997 - (pound)57,830) are listed on a recognised stock exchange. The total investments listed on a recognised stock exchange have a market value of (pound)26,698 (1997 - (pound)66,545).
13 Creditors: Amounts falling due Group Company within one year 1998 1997 1998 1997 (pound) (pound) (pound) (pound) Bank loans and overdrafts 71,771 -- -- -- Trade creditors 825,086 667,496 -- -- Amounts owed to parent undertaking - -- -- 20,982 Corporation tax - 153,332 -- 27,779 Advance corporation tax 2,625 2,625 2,625 2,625 Social security and other taxes 121,041 142,788 35,000 70,000 Other creditors 372,332 75,995 -- -- Obligations under hire purchase and finance lease contracts 663,204 385,263 -- -- Proposed dividends 12,950 10,500 10,500 10,500 Accruals and deferred income 220,756 245,871 4,125 100,200 --------------- --------------- -------------- -------------- 2,289,765 1,683,870 52,250 232,086 =============== =============== ============== ==============
14 Creditors: Amounts falling due Group Company after more than one year 1998 1997 1998 1997 (pound) (pound) (pound) (pound) Deferred employee benefits 250,000 250,000 -- -- Obligations under finance leases and hire purchase contracts 1,758,406 811,564 -- -- --------------- --------------- -------------- -------------- 2,008,406 1,061,564 -- -- =============== =============== ============== ==============
15 Shareholders' Funds Called Up Profit Group Share and Loss Capital Account Total 1998 (pound) (pound) (pound) At 1st November 1997 4 1,663,551 1,663,555 Transfer to profit and loss account -- 151,937 151,937 Bonus issue 49,996 (49,996) - Dividend -- (2,450) (2,450) --------------- -------------- -------------- At 31st October 1998 50,000 1,763,042 1,813,042 =============== ============== ==============
F-14 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 (Continued) 15 Shareholders' Funds (Continued)
Called Up Profit Company Share Revaluation and Loss Capital Reserve Account Total (pound) (pound) (pound) (pound) At 1st November 1997 4 1,240,589 417,067 1,657,660 Surplus arising on the revaluation of -- the investment in the subsidiary 14,116 -- 14,116 Bonus issue 49,996 -- (49,996) - Transfer to profit and loss account -- -- 109,468 109,468 --------------- --------------- -------------- -------------- At 31st October 1998 50,000 1,254,705 476,539 1,781,244 =============== =============== ============== ==============
The company share capital comprises: 1998 1997 (pound) (pound) Authorised 50,000 Ordinary shares of(pound)1 each 50,000 50,000 ============== ============== Called up, allotted and fully paid: 50,000 (1997 - 4) Ordinary shares of(pound)1 each 50,000 4 ============== ==============
On 13th March 1998 the company issued a further 49,996 ordinary shares of (pound)1 each to B. Coles and W. Coles by way of a bonus issue. On the same date B. Coles transferred 10,000 of his ordinary shares to an interest-in-possession trust of which he and W. Coles are co-trustees. 16 Dividends 1998 1997 (pound) (pound) Proposed dividends on equity shares 2,450 10,500 ============== ============== 17 Future Financial Commitments (a) Operating leases At 31st October 1998 the group had annual commitments under operating leases as set out below:
1998 1998 1997 1997 Land and Land and Buildings Other Buildings Other (pound) (pound) (pound) (pound) Operating leases which expire: Within one year -- 2,040 -- -- In the second to fifth year -- 246,588 -- -- After five years 279,864 -- 279,864 -- --------------- --------------- -------------- -------------- 279,864 248,628 279,864 -- =============== =============== ============== ==============
At the year end the company had no annual commitments under operating leases. F-15 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 (Continued) 17 Future Financial Commitments (Continued) (a) Finance leases At 31st October 1998 the group had obligations under finance leases and hire purchase contracts which are set out below: 1998 1997 (pound) (pound) Gross amount payable: Within one year 663,204 385,263 In the second to fifth year 1,758,406 811,564 --------------- -------------- 2,421,610 1,196,827 =============== ============== Finance leases and hire purchase contracts are analysed as follows: Due within one year (Note 13) 663,204 385,263 Due after more than one year (Note 14) 1,758,406 811,564 --------------- -------------- 2,421,610 1,196,827 =============== ============== At the year end the company had no obligations under finance leases and hire purchase contracts. 18 Provision for Liabilities and Charges Deferred taxation Provision for deferred taxation has been made in these financial statements in accordance with the accounting policy described in Note 1. The amounts provided and the full potential liability are as follows:
Group Company Potential Liability Potential Liability and and Amount Provided Amount Provided 1998 1997 1998 1997 (pound) (pound) (pound) (pound) Accelerated capital allowances 214,374 141,230 -- -- =============== ============== =============== ==============
Group Company 1998 1998 (pound) (pound) At 1st November 1997 141,230 -- Transferred to profit and loss account (Note 7) 73,144 -- --------------- -------------- At 31st October 1998 214,374 -- =============== ==============
19 Capital Commitments 1998 1997 (pound) (pound) Group capital commitments as at 31st October 1998 are as follows: Expenditure contracted but not provided for in the financial statements 32,108 444,429 =============== ==============
At the year end the company had no capital commitments. F-16 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 (Continued) 20 Profit for the Financial Year As permitted by section 230 of the Companies Act 1985, the Profit and Loss Account of the company is not presented as part of these financial statements. The group profit for the financial year of (pound)145,636 (1997 - (pound)443,540) includes a profit of (pound)109,468 (1997 - (pound)437,067) which is dealt with in the financial statements of the company. 21 Related Parties The group has taken advantage of the exemptions conferred by FRS 8 paragraph 3c not to make disclosures concerning related parties. 22 Differences between UK and US Accounting Principles (a) Employee Share Trust arrangements Under UK GAAP, the Company's ordinary shares held by the employee share trust are included at historic net book value in fixed asset investments. Under US GAAP, such shares are treated as treasury stock and included in shareholders' equity. (b) Goodwill UK GAAP allows negative goodwill arising on consolidation to be written off to reserves. Under US GAAP, the excess of net assets over cost (i.e. negative goodwill) is not recorded in the financial statements unless all identifiable non-current assets have been reduced to zero. If this circumstance arises, the bargain purchase element is recorded as a deferred credit. (c) Deferred taxation Deferred taxation is provided on a full provision basis under US GAAP. Under UK GAAP, no provision is made unless there is reasonable evidence that such deferred taxation will be payable in the foreseeable future. (d) Ordinary dividends Under UK GAAP, the proposed dividends on ordinary shares as recommended by the directors, are deducted from shareholders' equity and shown as a liability in the balance sheet at the end of the period to which they relate. Under US GAAP, such dividends are only deducted from shareholders' equity at the date of declaration of the dividend. (e) Cash Flows The Cash Flow Statement has been prepared in accordance with UK Financial Reporting Standard 1 (Revised) -'Cash Flow Statements'. The principal differences between this statement and cash flow statements presented in accordance with US Financial Accounting Standard 95 are as follows: o Under UK GAAP, net cash flow from operating activities is determined before considering cash flows from: (i) returns on investments and servicing of finance; and (ii) taxes paid, under US GAAP net cash from operating activities is determined after these items. o Under UK GAAP capital expenditure is classified separately, while under US GAAP, it is classified as an investing activity. F-17 Venus Holdings Limited Notes to the Consolidated Financial Statements For the year ended 31st October 1998 (Continued) 22 Differences between UK and US Accounting Principles (continued) (e) Cash Flows (continued) Set out below is a summary consolidated cash flow statement under US GAAP:
1998 (pound) (pound) Net cash inflow from operating activities (UK GAAP) 1,235,408 Returns on investment and servicing of finance (93,551) Taxation (176,341) ------------ Net cash inflow from operating activities (US GAAP) 965,516 Net cash outflow from investing activities (2,659,105) Net cash inflow from financing activities 1,224,783 -------------- Net decrease in cash under US GAAP (468,806) ============== Net decrease in cash under UK GAAP (468,806) ==============
The following is a summary of material adjustments to net income and shareholders' equity which would have been required if US GAAP had been applied instead of UK GAAP: 1998 1997 (pound) (pound) Net income - UK GAAP 145,636 433,540 Ordinary dividends 2,450 10,500 -------------- -------------- Net income - US GAAP 148,086 444,040 ============== ============== 1998 1997 (pound) (pound) Shareholders' equity - UK GAAP 1,813,042 1,663,555 Employee share trust - arrangements (250,000) (250,000) Negative goodwill (1,183,060) (1,183,060) Ordinary dividends 2,450 10,500 -------------- -------------- Shareholders' equity - US GAAP 382,432 240,995 ============== ============== F-18 July 1, 1999 To the Stockholders MVP Graphics, Inc. We have audited the accompanying combined balance sheet of MVP Graphics, Inc. and Combined Affiliate as of December 31, 1998, and the related statements of income and retained earnings, and cash flows for the year then ended. 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 audit. We conducted our audit 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 audit provides 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 MVP Graphics, Inc. as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Campo & Scherr, L.L.C. Campo & Scherr, L.L.C. F-19 MVP GRAPHICS, INC. AND COMBINED AFFILIATE COMBINED BALANCE SHEET DECEMBER 31, 1998 ASSETS CURRENT ASSETS: Cash $ 18,410 Accounts receivable (Net of Allowance for Doubtful Accounts of $139,996) 981,638 Inventory 36,500 Prepaid expenses and other current assets 60,620 Note receivable - current portion 14,782 ---------- 1,111,950 ---------- PROPERTY AND EQUIPMENT - NET 1,421,983 ---------- OTHER ASSETS: Note receivable 66,294 Deposits 16,248 Organization costs - Net 387 ---------- 82,929 ---------- $2,616,862 ========== F-20 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 301,715 Accrued expenses and other current liabilities 242,440 Income taxes payable 42,388 Current portion of notes payable - stockholders 163,892 Current portion of capital lease obligations 450,504 ---------- 1,200,939 ---------- LONG-TERM LIABILITIES - CAPITAL LEASE OBLIGATIONS 1,061,042 ---------- STOCKHOLDERS' EQUITY: Common stock 250,000 Additional Paid-In Capital 50,000 Retained earnings 54,881 ---------- Total Stockholders' Equity 354,881 ---------- $2,616,862 ========== See accompanying notes F-21 MVP GRAPHICS, INC. AND COMBINED AFFILIATE COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1998 NET SALES $ 7,101,426 ----------- OPERATING EXPENSES: Costs of production 4,258,566 Selling, general and administrative 2,449,724 Depreciation and amortization 31,183 ----------- 6,739,473 ----------- INCOME FROM OPERATIONS 361,953 Interest expense (182,807) Interest income -- Other income (expense) 25,281 ----------- INCOME BEFORE INCOME TAXES 204,427 Provision for income taxes 94,800 ----------- NET INCOME 109,627 BEGINNING DEFICIT (54,746) ----------- ENDING RETAINED EARNINGS $ 54,881 =========== See accompanying notes F-22 MVP GRAPHICS, INC. AND COMBINED AFFILIATE COMBINED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 Cash Flows From Operating Activities: Net Income $ 109,627 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation and amortization 422,870 Provision for bad debts 90,562 Increase in accounts receivable 7,788 Increase in prepaid expenses and other current assets (41,386) Decrease in other assets 81,265 Decrease in accounts payable (263,764) Decrease in accrued expenses and other current liabilities (9,521) Increase in income taxes payable 30,507 --------- Net Cash Provided By Operating Activities 427,948 --------- Cash Flows From Investing Activities: Payments for purchase of property and equipment (32,609) --------- Net Cash Used In Investing Activities (32,609) --------- Cash Flows From Financing Activities: Principal payments on capital lease obligations (356,147) Repayments of stockholder loans (65,000) Principal payments on long-term debt (6,222) --------- Net Cash Used In Financing Activities (427,369) --------- NET DECREASE IN CASH (32,030) CASH - BEGINNING OF YEAR 50,440 --------- CASH - END OF YEAR $ 18,410 ========= See accompanying notes F-23 MVP GRAPHICS, INC. AND COMBINED AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1998 Note A: Summary of Significant Accounting Policies: Business Activity MVP Graphics, Inc., incorporated in 1993, is a commercial sheet-fed printer serving the Los Angeles and Orange County markets. MVP provides services in all areas of commercial printing, including pre-press, printing and post-press operations. Super Pack, Inc., its combined affiliate and incorporated in 1997, performs chipboard die cutting, and manufactures boxes and packaging supplies. Operations The accompanying combined financial statements include the accounts of MVP Graphics, Inc. (MVP) and Super Pack, Inc. (Super Pack), an S Corporation. These companies are related through common ownership and are collectively referred to herein as the "Company". All significant intercompany balances and transactions have been eliminated in combination. Inventory Inventory which consists principally of raw materials is stated at lower of cost (first-in, first-out basis) or market. Property and Equipment Property and equipment is stated at cost less accumulated depreciation. Depreciation is principally calculated using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the life of the related lease by the straight line method. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. F-24 MVP GRAPHICS, INC. AND COMBINED AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED DECEMBER 31, 1998 Note B: Concentrations: 1. At December 31, 1998, two accounts with combined bank balances of approximately $273,543 were maintained in a bank insured by the Federal Deposit Insurance Corporation (FDIC). This balance is approximately $173,543 in excess of the insured amounts of $100,000. 2. During 1998, the Company purchased approximately $862,000 of materials from one vendor which represented approximately 35% of total purchases. 3. During 1998, the Company had sales of approximately $1,200,000 to one customer which represented approximately 17% of total sales. Note C: Note Receivable: Note receivable from Merit Group, payable in monthly installments of $2,500 including interest imputed at 6.23%, per annum. $ 81,076 Less: Current portion 14,782 ---------- $ 66,294 ========== Note D: Property and Equipment: Property and equipment consists of the following: Equipment $2,850,709 Leasehold improvements 85,046 Furniture & fixtures 31,228 Transportation equipment 41,202 ---------- 3,008,185 Less: Accumulated depreciation 1,586,202 ---------- Net Property and Equipment $1,421,983 ========== F-25 MVP GRAPHICS, INC. AND COMBINED AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED DECEMBER 31, 1998 Note D: Property and Equipment (Continued): Included in depreciation expense of $422,660 is $335,014 of amortization of equipment on capital leases. Included in equipment is equipment under capital leases with a cost of $2,375,935 and accumulated amortization of $1,315,914. Note E: Financing Agreements: The Company had a $300,000 line of credit with Sanwa Bank which expired on June 30, 1999 and was not renewed. As of December 31, 1998, the Company had $300,000 available under the line of credit. Borrowings on the line bear interest at 9.75%. The debt was secured by the Company's equipment, inventory, accounts and contract rights, all receivables, general intangibles and other assets and was personally guaranteed by the stockholders of the Company. Note F: Notes Payable - Stockholders: Notes payable - stockholders consists of various notes bearing interest at 12%, due on demand, and collateralized by corporate assets. $ 163,892 ========== Interest expense for the year ended December 31, 1998 was approximately $26,000. F-26 MVP GRAPHICS, INC. AND COMBINED AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED DECEMBER 31, 1998 Note G: Capital Lease Obligations: The Company is obligated under capital leases for equipment expiring in various years through 2003. Capital lease obligations as of December 31 consist of the following: Lease payable to a leasing company, payable in monthly installments of $10,700 (including interest at 7.39% per annum), collateralized by the equipment. $ 238,044 Lease payable to a leasing company, payable in monthly installments of $7,192 (including interest at 6.226% per annum), collateralized by the equipment. 304,894 Lease payable to a leasing company, payable in monthly installments of $22,542 (including interest at 10.475% per annum), collateralized by the equipment. 742,408 Lease payable to a leasing company, payable in monthly installments of $5,400 (including interest at 8.92% per annum), collateralized by the equipment. 226,200 ------------ Total 1,511,546 Less: Current Portion (450,504) ------------ $1,061,042 ============ F-27 MVP GRAPHICS, INC. AND COMBINED AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED DECEMBER 31, 1998 Note G: Capital Lease Obligations (Continued): Minimum future lease payments under capital leases as of December 31, 1998 for each of the next five years and in the aggregate are: December 31, Amount ----------------- 1999 $ 572,550 2000 550,008 2001 421,608 2002 196,188 2003 12,821 ----------------- Total Minimum Lease Payments 1,753,175 Less: Amount representing interest 241,629 ----------------- Present Value of Minimum Lease Payments $1,511,546 ================= Interest expense for the year ended December 31, 1998 was approximately $123,000. Note H: Common Stock: Common stock consists of the following as of December 31, 1998:
Shares Issued Shares and Par-Value Authorized Outstanding Balance ---------------------- --------------------- ----------------------- ----------------- MVP Graphics, Inc. Stated value at $1,000 per share 100,000 200 $200,000 Superpack, Inc. Stated value at $1 per share 1,000,000 50,000 50,000 ----------------- $250,000 =================
F-28 MVP GRAPHICS, INC. AND COMBINED AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED DECEMBER 31, 1998 Note I: Employee Benefit Plan: The Company maintains a 401(k) Profit Sharing Plan which covers substantially all employees. Participants are permitted, in accordance with the provisions of Section 401(k) of the Internal Revenue Code, to contribute up to 15% of their gross earnings into the plan, subject to certain limitations. The Company matches up to 25% on the first 6% of the employees' contribution to the Plan on an annual basis. The Company may make additional discretionary contributions to the plan. Company contributions to the plan were approximately $96,000 for the year ended December 31, 1998. The stockholders of the Company are trustees of the plan. Note J: Commitments: The Company leases office and warehouse space under a three-year lease expiring July 2000, with an option to extend for three years. The future minimum rental payments for the next three (3) years and in the aggregate under the above lease agreement is as follows: Year Ending December 31, Amount ----------------------------------- ---------------- 1999 $ 113,952 2000 70,168 ---------------- Total Future Minimum Lease Payments $ 184,120 ================ Rent expense was approximately $70,000 for the year ended December 31, 1998. Note K: Income Taxes: The provision for income taxes, all current, for the year ended December 31, 1998 is $94,800. The provision for income taxes differs from the amount that would result from applying statutory rates because of certain nondeductible expenses, principally premiums for officers' life insurance and entertainment. F-29 MVP GRAPHICS, INC. AND COMBINED AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED DECEMBER 31, 1998 Note L: Cash Flows: 1. During the year ended December 31, 1998, the Company paid interest of approximately $183,000. Also, during the years ended December 31, 1998, the Company paid income taxes of approximately $65,000. 2. During the year ended December 31, 1998, the Company had the following Non-cash investing and financing transactions: Non-cash investing/financing: Acquisition of equipment under capital lease obligations of approximately $596,000. Non-cash investing: Accounts receivable trade were restructured as a note receivable for approximately $81,000. Non-cash financing: Loans payable to stockholders were capitalized as additional paid-in capital for $50,000. F-30 CUNNINGHAM GRAPHICS INTERNATIONAL, INC. INTRODUCTION TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements give effect to the acquisitions by Cunningham Graphics International, Inc. (the "Company") of: (i) Venus Holdings Limited ("Venus") on June 21, 1999 and (ii) MVP Graphics, Inc ("MVP Graphics") on July 14, 1999. The December 31, 1998 unaudited pro forma financial statements presented below were derived from: (a) the audited financial statements for the Company for the year ended December 31, 1998; (b) the audited financial statements for Venus for the year ended October 31, 1998; and (c) the audited financial statements for MVP Graphics and Combined Affiliate for the year ended December 31, 1998. The June 30, 1999 unaudited pro forma financial statements presented below were derived from: (a) the unaudited interim financial statements for the Company for the six months ended June 30, 1999; (b) the unaudited interim financial statements for Venus for the six months ended June 30, 1999; and, (c) the unaudited interim financial statements for MVP Graphics for the six months ended June 30, 1999. The unaudited pro forma balance sheet for Venus has not been presented separately for June 30, 1999, as the amounts have been included in the balance sheet of the Company. The unaudited pro forma combined financial statements, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements of Cunningham Graphics International, Inc. included in its Annual Report on Form 10-K for the year ended December 31, 1998. None of the pro forma financial statements included herein purport to be indicative of the Company's financial position or results of operations that would have occurred had the transactions been completed as of or at the beginning of the periods presented, nor do such statements purport to indicate the Company's financial condition or results of operations at any future date or for any future period. F-31 Unaudited Pro Forma Balance Sheet (in Thousands) The unaudited pro forma balance sheet presented below reflects the financial position of the Company as of June 30, 1999, together with the financial position of MVP Graphics, Inc. as of June 30, 1999. The June 30, 1999 balance sheet for Venus Holdings Limited has been included with the balance sheet of the Company as of June 30, 1999.
Pro Forma Company Company MVP Graphics Adjustments (a) Pro Forma --------------- ------------------- ----------------- ------------- Assets Current assets: Cash $ 2,874 $ 84 $ -- $ 2,958 Accounts receivable 17,294 1,256 18,550 Inventories 2,354 37 2,391 Prepaid expenses and other 999 20 1,019 Deferred income taxes 541 - 541 Note receivable - current portion - 18 18 --------------- ------------------- ----------------- ------------- Total current assets 24,062 1,415 -- 25,477 Property and equipment-net 28,013 1,263 29,276 Other assets 1,122 101 1,223 Goodwill 33,497 -- 2,941 36,438 --------------- ------------------- ----------------- ------------- $ 86,694 $ 2,779 $ 2,941 $ 92,414 =============== =================== ================= ============= Liabilities and stockholdrs' equity Current liabilities: Current portion of long-term debt $ 1,215 $ 164 $ -- $ 1,379 Revolving line of credit 1,037 -- 1,037 Current portions of obligations under capital lease 1,526 -- 1,526 Accounts payable 8,302 358 8,660 Accrued expenses 7,447 167 7,614 Income taxes payable -- 95 95 Other liabilities -- 43 --------------- ------------------- ----------------- ------------- Total current liabilities 19,527 827 -- 20,311 Long-term debt, net of current portion 3,958 243 3,580 7,781 Revolving line of credit - net of current portion 17,034 Obiligations under capital leases-net of current portion 2,915 1,070 3,985 Deferred income taxes 2,193 -- 2,193 Other long-term liabilities 73 73 --------------- ------------------- ----------------- ------------- Total liabilities 45,700 2,140 3,580 34,343 Total stockholders equity 40,994 639 (639) 40,994 --------------- ------------------- ----------------- ------------- $ 86,694 $ 2,779 $ 2,941 $ 92,414 =============== =================== ================= =============
F-32 Cunningham Graphics International, Inc. Unaudited Pro Forma Income Statements (in Thousands, Except per share data) For the year ended December 31, 1998 of the Company, together with the year ended December 31, 1998 of MVP Graphics, Inc. assuming the MVP Graphics, Inc. acquisition occurred as of January 1, 1998 and the year ended October 31, 1998 assuming the Venus acquistion occurred as of November 1, 1997.
Historical -------------------------------------------------------------------------------- Venus Pro Forma Pro Forma Holdings MVP Adjustments Adjustments Company Company Limited Graphics Venus MVP Pro Forma ------- ------- -------- -------- ----------- --------- Net sales $ 53,146 $ 12,769 $ 7,101 $ -- $ -- $ 73,016 Operating expenses: Costs of production 37,694 7,545 4,259 (223) (b) 49,275 Selling, general and administrative 7,783 3,454 2,450 (489) (b) (314) (f) 12,884 Depreciation and amortization 1,252 1,199 31 82 (c) 81 (g) 2,645 ------------ ---------- --------- ---------- -------- ----------- 46,729 12,198 6,739 (630) (233) 64,804 ------------ ---------- --------- ---------- -------- ----------- Income from operations 6,417 571 362 630 233 8,213 Interest expense (400) (203) (183) (441) (d) (251) (h) (1,477) Interest income 475 45 - 520 Other income (expense) 5 (10) 25 20 ------------ ---------- --------- ---------- -------- ----------- Income before income taxes 6,497 403 204 189 (18) 7,276 Provision for income taxes 2,489 161 95 48 (e) 16 (i) 2,809 ------------ ---------- --------- ---------- -------- ----------- Net income $ 4,008 $ 242 $ 109 $ 141 $ (34) $ 4,467 ============ ========== ========= ========== ======== =========== Pro Forma Data Income before income taxes $ 6,497 $ 7,276 Pro forma provision for income taxes 2,809 (a) 3,129 (a) ------------ ----------- Pro forma net income $ 3,688 4,147 ============ =========== Pro forma earnings prer common share: Basic $ 0.80 0.90 (j) ============ =========== Diluted $ 0.80 0.89 (j) ============ =========== Pro forma weighted average number of common shares: Basic 4,587,941 4,587,941 ============ =========== Diluted 4,637,024 4,637,024 ============ ===========
F-33 Cunningham Graphics International, Inc. Unaudited Pro Forma Income Statements (in Thousands, Except per share data) For the six months ended June 30, 1999 of the Company, together with the six months ended June 30, 1999 as if the acquisitions occurred as of January 1, 1998.
Historical ------------------------------------------------------------------------------------- Pro Forma Pro Forma Venus Holdings MVP Adjustments Adjustments Company Company Limited Graphics Venus MVP Pro Forma ----------- ----------- ----------- ---------- ----------- ----------- Net sales $ 40,864 $ 4,604 $ 3,886 $ -- $ -- $ 49,354 Operating expenses: Costs of production 27,183 2,743 2,332 (107)(a) 32,151 Selling, general and administrative 6,821 1,417 930 (241)(a) 8,927 Non-recurring moving costs 840 -- 840 Depreciation and amortization 1,643 509 244 54 40 (e) 2,490 ----------- ----------- ----------- ---------- ----------- ----------- 36,487 4,669 3,506 (294) 40 44,408 ----------- ----------- ----------- ---------- ----------- ----------- Income from operations 4,377 (65) 380 294 (40) 4,946 Interest expense (310) (145) -- (210)(c) (136)(f) (801) Interest income -- 49 8 57 Other income (expense) 28 (174) 1 (145) ----------- ----------- ----------- ---------- ----------- ----------- Income before income taxes 4,095 (335) 389 84 (176) 4,057 Provision for income taxes 1,610 (69) 51 8 (d) 51 (g) 1,651 ----------- ----------- ----------- ---------- ----------- ----------- Net income $ 2,485 $ (266) $ 338 $ 76 $ (227) $ 2,407 =========== =========== =========== ========== =========== =========== Earnings per common share: Basic $ 0.44 ========== Diluted $ 0.44 ========== Pro forma earnings per common share: Basic 0.42 (h) =========== Diluted 0.42 (h) =========== Weighted average number of common shares: Basic 5,674,615 5,674,615 =========== =========== Diluted 5,711,188 5,711,188 =========== ===========
F-34 CUNNINGHAM GRAPHICS INTERNATIONAL, INC NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (In thousands, except per share data) 1. Acquisitions Acquisition of Venus Holdings Limited On June 21, 1999, the Company acquired all of the issued and outstanding capital stock of Venus Holdings Limited ("Venus"). The aggregate purchase price of the acquisition was $6.1 million and was funded through the Company's revolving line of credit. Under the terms of the purchase agreement, the Company may be required to pay the sellers up to an additional $1.5 million, depending upon the earnings, as defined, of Venus during the years 1999 through 2002. The Company estimates that the goodwill generated from the acquisition will be approximately $3.3 million, which will be amortized over 40 years. The pro-forma balances were derived from the audited financial statements for Venus for the twelve months ended October 31, 1998 expressed in Pounds Sterling. The balances were converted into U.S. dollars using an exchange rate of 1.67 for the balance sheet and an average rate of 1.67 for the income statement per Pound Sterling. Acquisition of MVP Graphics On July 14, 1999, the Company acquired all of the issued and outstanding capital stock of MVP Graphics, Inc. and SuperPack, Inc. (collectively, "MVP Graphics"). The aggregate purchase price of the acquisition was $3.6 million and was funded through the Company's revolving line of credit. Under the terms of the purchase agreement, the Company may be required to pay the Sellers up to an additional $1.2 million, depending upon the earnings, as defined, of MVP Graphics during the years 1999 through 2002. The Company estimates the goodwill generated from the transaction will be approximately $3.2 million and will be amortized over 40 years. F-35 2. Pro Forma Adjustments Statement of Operations for the year ended December 31, 1998 (a) The provision for income taxes represents the income tax provision that would have been reported had the Company been subject to federal and additional state income taxes during the entire year ended December 31, 1998. The provision for income taxes reflects an increase of $320 for the period January 1, 1998 through April 22, 1998. (b) Reflects the elimination of rent and utilities on a vacated facility of $223, as well as moving and severance payments of $489. (c) Reflects a net increase in depreciation and amortization expense of $82 attributable to the Venus transaction. Pro forma depreciation and amortization expense was determined based on a preliminary allocation of the purchase price to the operating assets acquired based on estimates of fair values and a 40 year life for goodwill. The actual allocation of the purchase price may differ from the estimated amounts for the following reasons: i) further information learned on the fair value of the assets acquired and (ii) the settlement of the earn-out amount in future years. (d) Reflects the increase in interest expense of $441 as if the Company had borrowed the purchase price from January 1, 1998 through December 31, 1998, payable with interest expense of 7%. (e) Reflects a pro forma provision for income taxes computed utilizing an effective tax rate of 31% for Venus Holdings Limited. Income taxes give effect to the non-deductibility of the goodwill. (f) Reflects a decrease in owners compensation and benefits to reflect the actual salaries and benefits to be incurred in accordance with the employment contracts. (g) Reflects a net increase in depreciation and amortization expense of $81 attributable to the MVP Graphics transaction. Pro forma depreciation and amortization expense was determined based on a preliminary allocation of the purchase price to the operating assets acquired based on estimates of fair values and a 40 year life for goodwill. The actual allocation of the purchase price may differ from the estimated amounts for the following reasons: i) further information learned on the fair value of the assets acquired and (ii) the settlement of the earn-out amount in future years. (h) Reflects the increase in interest expense of $251 as if the Company had borrowed the purchase price from January 1, 1998 through December 31, 1998, payable with interest expense of 7%. (i) Reflects a pro forma provision for income taxes computed utilizing an effective tax rate of 41% for MVP Graphics. Income taxes give effect to the non-deductibility of the goodwill. (j) Pro forma earnings per share was calculated based on the historical weighted average shares of the Company outstanding for the year ended December 31, 1998. F-36 2. Pro Forma Adjustments Balance Sheet at June 30, 1999
MVP GRAPHICS ------------------- (a) Purchase accounting adjustments to reflect the assets and liabilities at estimated fair value (in thousands): Goodwill 2,941 Stockholders equity: 639 Record financing used to complete acquisition: Borrowings on line of credit (3,580)
Statement of Operations for the six months ended June 30, 1999 (a) Reflects the elimination of rent and utilities on a vacated facility of $107, as well as moving and severance payments of $241. (b) Reflects a net increase in depreciation and amortization expense of $54 attributable to the Venus transaction. Pro forma depreciation and amortization expense was determined based on a preliminary allocation of the purchase price to the operating assets acquired based on estimates of fair values and a 40 year life for goodwill. The actual allocation of the purchase price may differ from the estimated amounts for the following reasons: (i) further information learned on the fair value of the assets acquired and (ii) the settlement of the earn-out amount in future years. (c) Reflects the increase in interest expense of $210 as if the Company had borrowed the purchase price from January 1, 1999 through June 21, 1999, payable with interest expense of 7%. (d) Reflects a pro forma provision for income taxes computed utilizing an effective tax rate of 31% for Venus Holdings Limited. Income taxes give effect to the non-deductibility of the goodwill. (e) Reflects a net increase in depreciation and amortization expense of $40 attributable to the MVP Graphics transaction. Pro forma depreciation and amortization expense was determined based on a preliminary allocation of the purchase price to the operating assets acquired based on estimates of fair values and a 40 year life for goodwill. The actual allocation of the purchase price may differ from the estimated amounts for the following reasons: i) further information learned on the fair value of the assets acquired and (ii) the settlement of the earn-out amount in future years. (f) Reflects the increase in interest expense of $136 as if the Company had borrowed the purchase price from January 1, 1999 through June 30, 1999, payable with interest expense of 7%. (g) Reflects a pro forma provision for income taxes computed utilizing an effective tax rate of 41% for MVP Graphics. Income taxes give effect to the non-deductibility of the goodwill. (h) Pro forma earnings per share was calculated based on the historical weighted average shares of the Company outstanding for the six months ended June 30, 1999. F-37 EX-23.1 2 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-52723) and in the related Prospectuses of our report dated June 20, 1999 with respect to the financial statements of Venus Holdings Limited. included in this Current Report (Form 8-K/A) of Cunningham Graphics International, Inc. dated September 2, 1999. /s/ Kingston Smith London September 2, 1999 EX-23.2 3 CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-52723) and in the related Prospectuses of our report dated July 1, 1999 with respect to the financial statements of MVP Graphics, Inc. included in this Current Report (Form 8-K/A) of Cunningham Graphics International, Inc. dated September 2, 1999. /s/ Campo & Scherr, L.L.C Rockaway, New Jersey September 2, 1999 -----END PRIVACY-ENHANCED MESSAGE-----