<PAGE>
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-20759
COMMEMORATIVE BRANDS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3915801
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7211 CIRCLE S ROAD, AUSTIN, TEXAS 78745
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512) 440-0571
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
--- ---
<PAGE>
INDEX
Item
Number Page Number
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
As of November 30, 1997 (unaudited) and August 30, 1997 1
Consolidated Income Statements -
For the three months ended November 30, 1997 and November 30,
1996 and for the three months ended November 30, 1996 for
ArtCarved and November 24, 1996 for Balfour (all unaudited) 2
Consolidated Statements of Stockholders Equity -
As of November 30, 1997 (unaudited), August 30, 1997
(audited) and March 28, 1996 (unaudited) 3
Statement of Cash Flows -
For the three months ended November 30, 1997 and November 30,
1996 and for the three months ended November 30, 1996 for
ArtCarved and November 24, 1996 for Balfour (all unaudited) 4
Notes to Consolidated Financial Statements 5 - 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 - 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
<PAGE>
PART 1 -- FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements and Notes
COMMEMORATIVE BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data )
November 30, August 30,
1997 1997
----------- ----------
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 2,277 $ 2,174
Accounts receivable, net 36,919 26,444
Inventories 14,217 11,767
Prepaid expenses and other current assets 7,012 8,522
-------- --------
Total current assets 60,425 48,907
Property, plant and equipment, net 34,152 33,460
Trademarks, net 30,003 30,197
Goodwill, net 82,205 82,935
Other assets, net 5,823 5,370
-------- --------
Total assets $212,608 $200,869
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 3,155 $ 4,188
Accounts payable and accrued expenses 26,275 20,893
Current portion of long-term debt 625 750
-------- --------
Total current liabilities 30,055 25,831
Long-term debt, net of current portion 131,400 124,700
Other long-term liabilities 10,022 9,885
-------- --------
Total liabilities 171,477 160,416
Commitments and contingencies
Stockholders' Equity
Preferred Stock, $.01 par value, 750,000 shares
authorized
Series A, 100,000 shares issued and outstanding 1 1
Series B, 375,000 shares issued and outstanding 4 4
Common Stock, $.01 par value, 750,000 shares
authorized, 375,000 issued and outstanding 4 4
Additional paid-in capital 50,161 50,161
Retained earnings (deficit) (9,039) (9,717)
-------- --------
Total stockholders' equity 41,131 40,453
-------- --------
Total liabilities & stockholders' equity $212,608 $200,869
-------- --------
-------- --------
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
COMMEMORATIVE BRANDS, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
For the Three Months Ended *
---------------------------------------------------------
Predecessors
---------------------------
ArtCarved Balfour
November 30, November 30, November 30, November 24,
1997 1996 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 38,364 $ - $ 21,963 $ 19,535
Cost of sales 17,226 - 9,626 8,762
-------- ------ -------- --------
Gross profit 21,138 - 12,337 10,773
Selling, general and
administrative expenses 16,560 - 8,110 10,536
-------- ------ -------- --------
Operating income 4,578 - 4,227 237
Interest expense, net 3,600 - 2,503 619
-------- ------ -------- --------
Income (loss) before provision
for income taxes 978 - 1,724 (382)
Provision for income taxes - - - 10
-------- ------ -------- --------
Net income (loss) $ 978 $ - $ 1,724 $ (392)
-------- ------ -------- --------
Preferred dividends (300) - - -
-------- ------ -------- --------
Net income (loss) to
common stockholders $ 678 $ - $ 1,724 $ (392)
-------- ------ -------- --------
-------- ------ -------- --------
Net income (loss) per common
and common equivalent share
outstanding $ 1.81 $ -
-------- ------
-------- ------
Common and common
equivalent shares outstanding 375,000 -
-------- ------
-------- ------
</TABLE>
- ---------------
*Commemorative Brands, Inc. completed the acquisitions of ArtCarved and
Balfour on December 16, 1996, and until such date, engaged in no business
activities other than those in connection with the Acquisitions and financing
thereof.
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
COMMEMORATIVE BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data )
(Unaudited)
<TABLE>
Preferred Stock Common Stock
------------------------------------ ----------------
Series A Series B Additional Retained
---------------- ---------------- Paid-in Earnings
Shares Amount Shares Amount Shares Amount Capital (Deficit) Total
---------------- ---------------- ---------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 28, 1996 - $ - - $ - - $ - $ - $ - $ -
(date of inception)
Issuance of Common Stock - - - - 375,000 4 2,666 - 2,670
Issuance of Preferred Stock 100,000 1 375,000 4 - - 47,495 - 47,500
Accrued Preferred Stock Dividends - - - - - - - (850) (850)
Net loss - - - - - - - (8,867) (8,867)
---------------- ---------------- ---------------- ---------- --------- ---------
Balance, August 30, 1997 100,000 $ 1 375,000 $ 4 375,000 $ 4 $ 50,161 $ (9,717) $ 40,453
Accrued Preferred Stock Dividends - - - - - - - (300) (300)
Net income - - - - - - - 978 978
---------------- ---------------- ---------------- ---------- --------- ---------
Balance, November 30, 1997 100,000 $ 1 375,000 $ 4 375,000 $ 4 $ 50,161 $ (9,039) $ 41,131
---------------- ---------------- ---------------- ---------- --------- ---------
---------------- ---------------- ---------------- ---------- --------- ---------
</TABLE>
Commemorative Brands, Inc., completed the acquisitions of ArtCarved and
Balfour on December 16, 1996, and until such date, engaged in no business
activities other than those in connection with the Acquisitions and
financing thereof.
<PAGE>
COMMEMORATIVE BRANDS, INC.
STATEMENTS OF CASH FLOWS
(In thousands - unaudited)
<TABLE>
For the Three Months Ended *
--------------------------------------------------------
Predecesors
---------------------------
ArtCarved Balfour
November 30, November 30, November 30, November 24,
1997 1996 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 978 $ - $ 1,724 $ (392)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities-
Depreciation and amortization 1,678 - 1,464 471
Provision for doubtful accounts 177 - 108 -
Changes in assets and liabilities-
Increase in receivables (10,652) - (5,398) (7,371)
Decrease (increase) in inventories (2,450) - 104 (965)
Decrease in prepaid expenses and other current assets 1,510 - 1,331 343
Increase in other assets (390) - (1,822) (19)
Increase in overdraft, accounts payable and accrued expenses 4,125 - 3,572 2,728
Increase in deferred compensation - - - 8
--------- ----- -------- -------
Net cash provided by (used in) operating activities (5,024) - 1,083 (5,197)
--------- ----- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets - - - 440
Purchases of property, plant and equipment (1,448) - (182) (22)
--------- ----- -------- -------
Net cash provided by (used in) by investing activities (1,448) - (182) 418
--------- ----- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in advances - - 18,891 -
Proceeds from borrowings from Parent, net - - - 4,853
Note borrowings (payments), net 6,575 - (15,336) -
Payments on capital leases - - - (74)
--------- ----- -------- -------
Net cash provided by financing activities 6,575 - 3,555 4,779
--------- ----- -------- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 103 - 4,456 -
CASH AND CASH EQUIVALENTS, beginning of period 2,174 - - 59
--------- ----- -------- -------
CASH AND CASH EQUIVALENTS, end of period $ 2,277 $ - $ 4,456 $ 59
--------- ----- -------- -------
--------- ----- -------- -------
SUPPLEMENTAL DISCLOSURE
Cash paid during the period for-
Interest $ 346 $ - $ 4,456 $ 6
--------- ----- -------- -------
--------- ----- -------- -------
Taxes $ - $ - $ - $ 8
--------- ----- -------- -------
--------- ----- -------- -------
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
Accrued preferred stock dividends $ 300 $ - $ - $ -
--------- ----- -------- -------
--------- ----- -------- -------
</TABLE>
- --------------
*Commemorative Brands, Inc., completed the acquisitions of ArtCarved and Balfour
on December 16, 1996, and until such date, engaged in no business activities
other than those in connection with the Acquisitions and financing
thereof.
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
COMMEMORATIVE BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BACKGROUND AND ORGANIZATION
Commemorative Brands, Inc., a Delaware corporation (together with its
subsidiaries, CBI or the Company), is a manufacturer and supplier of class
rings and other graduation-related scholastic products for the high school
and college markets and manufactures and markets recognition and affinity
jewelry designed to commemorate significant events, achievements and
affiliations. The Company's scholastic product line consists of high school
and college class rings (the Company's predominate product offering) and
graduation-related fine paper products such as announcements, name cards and
diplomas. The Company is a leading manufacturer of class rings in the United
States with its corporate office and primary manufacturing facilities located
in Austin, Texas.
CBI was initially formed in March 1996 by Castle Harlan Partners II, L.P.
(CHP II), a Delaware limited partnership and private equity investment fund,
for the purpose of acquiring ArtCarved and Balfour (as defined below) and,
until December 16, 1996, engaged in no business activities other than in
connection with the Acquisitions (as defined below) and the financing thereof.
The accompanying consolidated financial statements have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes the disclosures are adequate
to make the information presented not misleading. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for the periods presented have been included. Operating results
for the current quarter ending November 30, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending
August 29, 1998.
(2) MERGERS AND ACQUISITIONS
On December 16, 1996, the Company completed the acquisitions (the
Acquisitions) of substantially all of the scholastic and recognition and
affinity product assets and businesses of the ArtCarved Class Rings
(ArtCarved) operations of CJC Holdings, Inc. (CJC), from CJC and certain
assets and liabilities of L. G. Balfour Company, Inc. (Balfour), from Town &
Country Corporation (Town & Country).
In consideration for ArtCarved, CBI paid CJC, in cash, the sum of $115.1
million and assumed certain related liabilities. In consideration for
Balfour, CBI paid Town & Country, in cash, the sum of $45.9 million and
assumed certain related liabilities. In addition, CBI purchased the gold on
consignment to Balfour, as of the closing date for a cash purchase price of
approximately $5.4 million.
<PAGE>
The following represents the allocation of the purchase prices for ArtCarved
and Balfour to their respective assets and liabilities based on third-party
appraisals and management's estimate of fair values. The allocation of the
purchase prices (including transaction costs) for the Acquisitions is as set
forth below (in thousands):
ArtCarved Balfour
--------- -------
Current assets $ 23,220 $35,497
Property, plant and equipment 17,039 15,042
Goodwill 64,127 17,885
Trademarks 17,740 13,000
Other long-term assets 1,687 171
Accounts payable and accrued expenses (6,066) (22,334)
Other long-term liabilities -- (6,808)
-------- -------
$117,747 $52,453
-------- -------
-------- -------
The Company has closed substantially all of the former Balfour manufacturing
and administration facilities and moved the former Balfour operations from
Attleboro, Massachusetts, to Austin, Texas.
(3) THE PREDECESSORS
The Company completed the Acquisitions of ArtCarved and Balfour on December
16, 1996. The accompanying financial statements include the predecessor
operations of ArtCarved as a division of CJC and Balfour as a wholly owned
subsidiary of Town & Country for historical periods prior to the acquisition
date of December 16, 1996.
The ArtCarved predecessor financial statements present information with
respect to the assets and businesses acquired by the Company from CJC (the
Business). Since the Business was not operated nor accounted for as a
separate entity for the periods presented in the accompanying financial
statements, it was necessary for management to make allocations (carve-outs)
for certain accounts to reflect the financial statements of the Business.
Management considers the allocations to be reasonable and believes the
accompanying financial statements materially represent the operations of the
Business on a stand-alone basis.
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS CONDITIONS
The results of operations of the Company for the fiscal year ended August 30,
1997 and the three months ended November 30, 1997, were adversely impacted as
a result of the ongoing consolidation of the Attleboro and North Attleboro,
Massachusetts operations into the Austin, Texas facilities (the
"Combination"). Consolidation and integration of operations related to the
Combination required substantial time and cost due to complications arising
from the integration of different order entry and manufacturing processes
required for the Balfour ring product line. The time to train new personnel
and implement the Balfour class ring operations was extensive and has
resulted in ring manufacturing headcount levels higher than those experienced
in the predecessor companies. The additional headcount is anticipated to
remain in place at least through January 1998, to provide service levels
comparable to those experienced in Massachusetts. The Company anticipates
incurring costs from inefficiencies and a higher than expected headcount
during at least the first two quarters of fiscal 1998. There can be no
assurance that the operations formerly conducted by each of the Company's
predecessors will be fully integrated or as to the amount of any cost savings
that may result from such integration.
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
SEASONALITY
The Company's scholastic product sales tend to be seasonal. Class ring sales
are highest during October through December (which overlaps the Company's
first and second fiscal quarters), when students have returned to school
after the summer recess and orders are taken for delivery of class rings to
students before the winter holiday season. Sales of the Company's fine paper
products are predominantly made during February through April (which overlaps
the Company's second and third fiscal quarters) for graduation in May and
June. ArtCarved and Balfour historically experienced operating losses during
the period of the Company's fourth fiscal quarter, which includes the summer
months when school is not in session. The Company's recognition and affinity
product line is not seasonal in any material respect, although sales
generally are highest during the winter holiday season and in the period
prior to Mother's Day. As a result, the effects of seasonality of the class
ring business on the Company are tempered by the Company's relatively broad
product mix. As a result of the foregoing, the Company's working capital
requirements tend to exceed its operating cash flows from July through
December.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 revises the standards for computing
earnings per share currently prescribed by Accounting Principles Board (APB)
Opinion No. 15. SFAS No. 128 retroactively revises the presentation of
earnings per share in the financial statements and is required to be adopted
by the Company for the fiscal year ending August 29, 1998. The earnings per
share in the accompanying financial statements is computed pursuant to APB
Opinion No. 15 and is the same that would be required for basic earnings per
share under SFAS No. 128 which is determined using only the weighted average
shares outstanding. The Company also has outstanding warrants and stock
options that are not included in the computation of diluted earnings per
share under SFAS No. 128 because to do so would be antidilutive.
SFAS No. 129, "Disclosure of Information About Capital Structure," will
require additional disclosure of information about an entity's capital
structure, including information about dividend and liquidation preferences,
voting rights, contracts to issue additional shares, conversion and exercise
prices, etc. The Company is required to adopt this statement for the fiscal
year ending August 29, 1998.
SFAS No. 130, "Reporting Comprehensive Income," is required to be adopted by
the Company for the fiscal year ending August 28, 1999, and the statement
requires the presentation of comprehensive income in an entity's financial
statements. Comprehensive income represents all changes in equity of an
entity during the reporting period, including net income and charges directly
to equity, which are excluded from net income. This statement is not
anticipated to have any impact on the Company as the Company currently does
not enter into any transactions which result in charges (or credits) directly
to equity (such as additional minimum pension liability changes, currency
translation adjustments, unrealized gains and losses on available-for-sale
securities, etc.).
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," is required to be adopted by the Company for the fiscal year
ending August 28, 1999. SFAS No. 131 provides revised disclosure guidelines
for segments of an enterprise based on a management approach to defining
operating segments. The Company currently operates in only one industry
segment and analyzes operations on a company-wide basis; therefore, the
statement is not expected to impact the Company.
<PAGE>
(5) INVENTORIES
A summary of inventories is as follows (in thousands):
November 30, August 30,
1997 1997
------------ ----------
Raw materials $10,484 $ 8,769
Work in process 2,435 1,877
Finished goods 1,298 1,121
------- -------
$14,217 $11,767
------- -------
------- -------
Cost of sales includes depreciation and amortization of $522,000, $541,000
and $145,000 for the three months ended November 30, 1997, November 30, 1996
and November 24, 1996 for Commemorative Brands, Inc., ArtCarved and Balfour,
respectively (see Note 1).
(6) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
November 30, August 30,
1997 1997
------------ ----------
11% senior subordinated notes due 2007 $ 90,000 $ 90,000
Term loan facility 24,625 24,750
Bank revolver 17,400 10,700
-------- --------
Total debt 132,025 125,450
Less-current portion 625 750
-------- --------
Total long-term debt $131,400 $124,700
-------- --------
-------- --------
The weighted average interest rate of debt outstanding as of November 30,
1997 and August 30, 1997 was 10.5 percent.
11 PERCENT SENIOR SUBORDINATED NOTES
The Company's 11 percent senior subordinated notes mature on January 15,
2007. The notes are redeemable at the option of the Company, in whole or in
part, at any time on or after January 15, 2002, plus accrued and unpaid
interest and liquidated damages (as defined), if any, thereon to the date of
redemption. In the event the Company completes one or more public equity
offerings (as defined) on or before January 15, 2000, the Company may, in its
discretion, use the net cash proceeds to redeem up to 33-1/3 percent of the
original principal amount of the notes at a redemption price equal to 111
percent of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of redemption, with the net
proceeds of one or more public equity offerings, provided that at least
66-2/3 percent of the original principal amount of the notes remains
outstanding immediately after each such redemption.
The 11 percent senior subordinated notes contain certain covenants that,
among other things, limit the ability of the Company (a) to incur additional
indebtedness and issue preferred stock, (b) to pay dividends or make certain
other restricted payments, (c) to enter into transactions with affiliates,
(d) to create certain liens, (e) to make certain asset
<PAGE>
dispositions and (f) to merge or consolidate with, or transfer substantially
all of its assets to, another person. The Company was in compliance with all
debt covenants as of November 30, 1997 and August 30, 1997.
REVOLVING CREDIT, TERM LOAN AND GOLD CONSIGNMENT AGREEMENT
The Company has a revolving credit, term loan and gold consignment agreement
(the Bank Agreement) with a group of banks pursuant to which the Company
initially borrowed $25 million under a term loan facility and may borrow up
to $35 million under a revolving credit and gold facility. Loans outstanding
under the Bank Agreement bear interest at either fixed or floating rates
based upon the interest rate option selected by the Company.
TERM LOAN FACILITY
The term loan facility (Term Loan) matures on December 16, 2003. The Company
may prepay the Term Loan at any time. The Company must repay specified
amounts of the Term Loan in 28 consecutive quarterly installments, which
commenced March 31, 1997.
REVOLVING CREDIT AND GOLD FACILITIES
The revolving credit and gold facilities permit borrowings of up to a maximum
aggregate principal amount of $35 million based upon availability under a
borrowing base based on eligible receivables and eligible inventory (each as
defined), with a sublimit of $5 million for letters of credit and $10 million
for gold borrowing or consignment. Management believes that it will have
sufficient availability under these facilities to meet its working capital
needs.
The Bank Agreement contains certain financial covenants that require the
Company to maintain certain minimum levels of (a) senior funded debt to
earnings before interest, taxes, depreciation and amortization (EBITDA, as
defined), (b) consolidated EBITDA and (c) interest coverage. The Bank
Agreement also contains other covenants which, among other things, limit the
ability of the Company and its subsidiaries to (a) incur additional
indebtedness, (b) acquire and dispose of assets, (c) create liens, (d) make
capital expenditures, (e) pay dividends on or redeem shares of the Company's
capital stock and (f) make certain investments. The Company was in
compliance with all debt covenants under the Bank Agreement as of November
30, 1997 and August 30, 1997.
CONSIGNED GOLD
Under the Company's gold consignment/loan arrangement, the Company has the
availability to have on consignment up to 26,000 ounces of gold approximating
$10 million. Alternatively, upon maximizing the $25 million revolver, the
Company would have the availability to draw in funds up to $10 million for
the purchase of gold. Another option, if the revolver is maximized, is a
combination of drawing upon the consigned inventory and gold loan funds up to
a maximum value of $10 million. Under this arrangement, the Company is
limited to a maximum value of $10 million in consigned inventory and/or gold
loan funds. For the three months ended November 30, 1997 and the fiscal year
ended August 30, 1997 (see Note 1), the Company expensed approximately
$78,000 and $203,000, respectively, in connection with consignment fees.
Under the terms of the consignment arrangement, the Company does not own the
consigned gold until it is shipped in the form of a ring to a customer.
Accordingly, the Company does not include the value of consigned gold in
inventory or the corresponding liability for financial statement purposes.
As of November 30, 1997 and August 30, 1997, the Company held approximately
16,990 ounces and 16,265 ounces, respectively, valued at $5.0 million and
$5.3 million, respectively, of gold on consignment from one of its lenders.
The Company's management believes the carrying amount of long-term debt,
including the current maturities, approximates fair value as of November 30,
1997 and August 30, 1997, based upon current rates offered for debt with the
same or similar debt terms.
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES
Certain Company facilities and equipment are leased under agreements expiring
at various dates through 2005.
The Company is a party to certain contracts with some of its sales
representatives whereby the representatives have purchased from their
predecessor sales representative the right to sell the Company's products in
a territory. The contracts generally provide that the value of these rights
is primarily determined by the amount of business achieved by a successor
sales representative and is therefore not determinable in advance of
performance by the successor sales representative.
The Company is not party to any pending legal proceedings other than ordinary
routine litigation incidental to the business. In management's opinion,
adverse decisions on those legal proceedings, in the aggregate, would not
have a materially adverse impact on the Company's results of operations or
financial position.
(8) INCOME TAXES
For the three months ended November 30, 1997, no current or deferred
provision or benefit exists due to the net operating losses and loss
carry-forwards incurred by the Company.
(9) STOCKHOLDERS' EQUITY
The Company is authorized to issue 750,000 shares of preferred stock, par
value $.01 per share, and 750,000 shares of Common Stock, par value $.01 per
share. The Company currently has issued and outstanding 100,000 shares of
Series A Preferred, 375,000 shares of Series B Preferred and 375,000 shares
of Common Stock.
SERIES A PREFERRED STOCK (SERIES A PREFERRED)
The holders of shares of Series A Preferred are not entitled to voting
rights. Dividends on the Series A Preferred are payable in cash, when, as and
if declared by the board of directors of the Company, out of funds legally
available therefor, on a quarterly basis, commencing on January 31, 1997.
Dividends on the Series A Preferred accrue at a rate of 12 percent per annum,
whether or not such dividends have been declared and whether or not there
shall be funds legally available for the payment thereof. Any dividends
which are declared shall be paid pro rata to the holders. No dividends or
interest shall accrue on any accrued and unpaid dividends. The Company's 11
percent senior subordinated notes and bank debt restrict the Company's
ability to pay dividends on the Series A Preferred.
The Series A Preferred is not subject to mandatory redemption. The Series A
Preferred is redeemable at any time at the option of the Company; however,
the Company's 11 percent senior subordinated notes and bank debt restrict the
Company's ability to redeem the Series A Preferred. In the event of any
liquidation, dissolution or winding up of the Company, the holders of the
Series A Preferred shall receive payment of the liquidation value of $100 per
share plus all accrued and unpaid dividends prior to the payment of any
distributions to the holders of the Series B Preferred or the holders of the
common stock of the Company (Common Stock). So long as shares of the Series
A Preferred remain outstanding, the Company may not declare, pay or set aside
for payment dividends on, or redeem or otherwise repurchase any shares of,
the Series B Preferred or Common Stock.
<PAGE>
SERIES B PREFERRED STOCK (SERIES B PREFERRED)
The holders of shares of Series B Preferred are entitled to one vote per
share, voting together with the holders of the Common Stock as one class on
all matters presented to the shareholders generally. No dividends accrue on
the Series B Preferred.
Dividends may be paid on the Series B Preferred if and when declared by the
board of directors of the Company out of funds legally available therefor.
The Series B Preferred is nonredeemable. In the event of any liquidation,
dissolution or winding up of the Company, the holders of the Series B
Preferred shall receive payment of the liquidation value of $100 per share
plus any accrued and unpaid dividends prior to the payment of any
distributions to the holders of the Common Stock of the Company. So long as
shares of the Series B Preferred remain outstanding, the Company may not
declare, pay or set aside for payment any dividends on the Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders, including the
election of directors, and vote together as one class with the holders of the
Series B Preferred.
Dividends may be paid on the Common Stock if and when declared by the board
of directors of the Company out of funds legally available therefor. The
Company does not expect to pay dividends on the Common Stock in the
foreseeable future.
COMMON STOCK PURCHASE WARRANTS
The Company has issued warrants, exercisable to purchase an aggregate of
21,405 shares of Common Stock (or an aggregate of approximately 5.4 percent
of the outstanding shares of Common Stock on a fully diluted basis), at an
initial exercise price of $6.67 per share, at any time on or after December
16, 1997, and on or before January 31, 2008.
In accordance with a subscription agreement entered into by the Company and
CHP II and certain of its affiliates (the Castle Harlan Group), the Company
granted the Castle Harlan Group certain registration rights with respect to
the shares of capital stock owned by them pursuant to which the Company
agreed, among other things, to effect the registration of such shares under
the Securities Act of 1933 at any time at the request of the Castle Harlan
Group. The Company also granted to the Castle Harlan Group unlimited
piggyback registration rights on certain registrations of shares of capital
stock by the Company.
STOCK-BASED COMPENSATION PLAN
The Company has one stock option plan (the 1997 Stock Option Plan), effective
as of July 29, 1997, for which a total of 69,954 shares of Common Stock have
been reserved for issuance; 35,484 of those shares were available for grant
to directors and employees of the Company as of November 30, 1997. The 1997
Stock Option Plan provides for the granting of both incentive and
nonqualified stock options. Options granted under the 1997 Stock Option Plan
have a maximum term of 10 years and are exercisable under the terms of the
respective option agreements at fair market value of the Common Stock at the
date of grant. Payment of the exercise price must be made in cash or in whole
or in part by delivery of shares of the Company's Common Stock. All Common
Stock issued pursuant to the 1997 Stock Option Plan is subject to a voting
trust agreement.
<PAGE>
(10) RELATED - PARTY TRANSACTIONS
The Company entered into a management agreement dated December 16, 1996 (the
Management Agreement), with Castle Harlan, Inc. (the Manager), pursuant to
which the Manager agreed to provide business and organizational strategy,
financial and investment management and merchant and investment banking
services to the Company upon the terms and conditions set forth therein. As
compensation for such services, the Company agreed to pay the Manager $1.5
million per year, which amount has been paid in advance for the first year
and is payable quarterly in arrears thereafter. The agreement is for a term
of 10 years, renewable automatically from year to year thereafter unless the
Castle Harlan Group then owns less than 5 percent of the then outstanding
capital stock of the Company. The Company has agreed to indemnify the
Manager against liabilities, costs, charges and expenses relating to the
Manager's performance of its duties, other than such of the foregoing
resulting from the Manager's gross negligence or willful misconduct. The
indenture dated as of December 16, 1996, between the Company and Marine
Midland Bank, as trustee, related to the 11 percent senior subordinated notes
and in the Company's Bank Agreement prohibits payment of the management fee
in the event of a default by the Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In the following discussions, unless the context otherwise requires (i)
the term "CBI" refers to Commemorative Brands, Inc. prior to the consummation
of the acquisition of ArtCarved and Balfour (the "Acquisitions"), (ii) the
term "ArtCarved" refers to the predecessor class ring assets, businesses, and
operations of CJC Holdings, Inc. acquired by CBI, (iii) the term "Balfour"
refers to the predecessor class rings assets, businesses and operations of
L. G. Balfour Company, Inc. acquired by CBI, and (iv) the term "the Company"
refers to CBI consolidated with its subsidiaries as combined with ArtCarved
and Balfour after giving effect to the Acquisitions.
GENERAL
The Company is a manufacturer and supplier of class rings and
graduation-related scholastic products for the high school and college
markets and also manufactures and markets recognition and affinity jewelry
designed to commemorate significant events, achievements and affiliations.
CBI was initially formed in March 1996 by Castle Harlan Partners II, L.P.,
a Delaware limited partnership and private equity investment fund ("CHP II")
for the purpose of acquiring ArtCarved and Balfour. On December 16, 1996, CBI
completed the Acquisitions. Until December 16, 1996, CBI engaged in no
business activities other than in connection with the Acquisitions and the
financing thereof. The Company has a 52/53-week fiscal year ending on the
last Saturday of August.
RESULTS OF OPERATIONS
The financial statements of the Company for the three months ended
November 30, 1997, reflect operations for the three months ended November 30,
1997. The financial statements are presented for the predecessors, ArtCarved
and Balfour, for the three months ended November 30, 1996 and November 24,
1996, respectively.
The results of operations of the Company for the three months ended
November 30, 1997 were adversely impacted as a result of the ongoing
consolidation of the Attleboro and North Attleboro, Massachusetts operations
into the Austin, Texas facilities (the "Combination"). Consolidation and
integration of operations related to the Combination required substantial
time and cost due to complications arising from the integration of different
order entry and manufacturing processes required for the Balfour ring product
line. The time to train new personnel and implement the Balfour class ring
operations was extensive and has resulted in ring manufacturing headcount
levels higher than those experienced in the predecessor companies. The
additional headcount is anticipated to remain in place at least through
January 1998, to provide service levels comparable to those experienced in
Massachusetts. The Company anticipates incurring costs from inefficiencies
and a higher than expected headcount during at least the first two quarters
of fiscal 1998. There can be no assurance that the operations formerly
conducted by each of the Company's predecessors will be fully integrated or
as to the amount of any cost savings that may result from such integration.
COST SAVINGS
ELIMINATION OF OCCUPANCY AND FIXED OVERHEAD COSTS - Two of the three
Balfour facilities were closed during fiscal 1997 and the occupancy and
overhead costs including duplicative facilities-related personnel associated
with these two facilities (the Attleboro, Massachusetts ring manufacturing
plant and the North Attleboro, Massachusetts administrative facility) were
eliminated. These permanent cost savings amount to approximately $1.5
million on an annual basis and during fiscal 1997, approximately $400,000 of
cost savings were realized. The third Balfour facility, the North Attleboro
insignia plant, was not closed. This facility contains not only the insignia
plant, but also the Balfour ring tooling operation.
MANUFACTURING INTEGRATION - The move of the Balfour ring manufacturing
operation was substantially completed in June, 1997. Expanded manufacturing
capacity in Austin was adequate to absorb the additional production of the
<PAGE>
Balfour rings. However, difficulties were encountered in the efficient
manufacture of the Balfour rings. Certain of the cost savings achieved by
the Company by the reduction of duplicative personnel were offset by
additional labor and overhead incurred to manufacture Balfour rings.
Manufacturing inefficiencies were primarily caused by:
- People - The specific Balfour product knowledge that was "lost" due to
Massachusetts employees electing not to relocate to Texas resulted in
higher than normal training expenses and additional costs to temporarily
place former Balfour employees (managers and supervisors) in the Texas
plant.
- Tooling - Because Balfour ring tooling is older and more complicated to
use than the ArtCarved ring tooling, the Company experienced higher than
normal training costs and lower levels of efficiencies than the wax mold
operations at the Balfour Attleboro ring plant.
- Systems - The Balfour computer system is heavily dependent on manual
processing and human interaction. Difficulties were experienced in the
transfer of user knowledge and system documentation. Therefore, labor
costs in excess of those anticipated by management were incurred to enter,
schedule, track and ship the Balfour rings.
COMMEMORATIVE BRANDS, INC.
THREE MONTHS ENDED NOVEMBER 30, 1997 AS COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 1996 (ARTCARVED) AND THREE MONTHS ENDED NOVEMBER 24, 1996
(BALFOUR)
NET SALES - Net sales decreased $3.1 million, or 7.6%, to $38.4 million
for the three months ended November 30, 1997 from $22.0 million for the three
months ended November 30, 1996 for ArtCarved and $19.5 million for the three
months ended November 24, 1996 for Balfour. The decrease in sales resulted
from a decline in the sales of recognition and affinity products of
approximately $2.2 million and a delay of shipments of class rings due to the
transition of the Balfour operations from Massachusetts to Texas.
Substantially, all of the backlogged class rings were shipped in December.
GROSS PROFIT - Gross profit decreased $2.0 million, or 8.5%, to $21.1
million for the three months ended November 30, 1997 from $12.3 million for
the three months ended November 30,1996 for ArtCarved and $10.8 million for
the three months ended November 24, 1996 for Balfour. As a percentage of net
sales, gross profit was 55.1% for the three months ended November 30, 1997
compared to $12.3 million, or 56.2% for the three months ended November 30,
1996 for ArtCarved and $10.8 million, or 55.1%, for the three months ended
November 24, 1996 for Balfour. Gross profit for the three months ended
November 30, 1997 was adversely affected by the additional costs incurred in
connection with the Combination.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses decreased $2.1 million, or 11.2%, to $18.6 million
for the three months ended November 30, 1997 from $8.1 million for the three
months ended November 30, 1996 for ArtCarved and $10.5 million for the three
months ended November 24, 1996 for Balfour. As a percentage of net sales,
selling, general and administrative expenses decreased to 43.2% for the three
months ended November 30, 1997 from 44.9% for the three months ended November
30, 1996 for ArtCarved and for the three months ended November 24, 1996 for
Balfour. The decrease was a result of decreased selling and marketing
expenses primarily related to the recognition and affinity products offset by
an increase in general and administrative expenses as a percentage of net
sales as a result of the Combination.
OPERATING INCOME - As a result of the foregoing, operating income
increased $0.2 million, or 2.5%, to $4.6 million for the three months ended
November 30, 1997 from $4.2 million for the three months ended November 30,
1996 for ArtCarved and $0.2 million for the three months ended November 24,
1996 for Balfour. As a percentage of net sales,
<PAGE>
operating income increased to 11.9% for the three months ended November 30,
1997 from 10.8% for the three months ended November 30, 1996 for ArtCarved
and three months ended November 24, 1996 for Balfour.
INTEREST EXPENSE - Interest expense, net was $3.6 million for the three
months ended November 30, 1997. The majority of the interest expense was
related to the Bank Credit Facility of $25.3 million at rates ranging from
9% - 10% and interest on the $90.0 million of Notes, at a rate of 11%.
PROVISION FOR INCOME TAXES - Since the Company does not have a history of
generating income from operations, no tax benefit on operating losses has
been accrued.
NET INCOME - As a result of the foregoing, the Company had net income of
$1.0 million, or 2.5% of net sales, for the three months ended November 30,
1997 as compared to the net income of $1.3 million for the three months ended
November 30, 1996 for ArtCarved and three months ended November 24, 1996 for
Balfour.
SEASONALITY
The Company's scholastic product sales tend to be seasonal. Class ring
sales are highest during October through December (which overlaps the
Company's first and second fiscal quarters), when students have returned to
school after the summer recess and orders are taken for delivery of class
rings to students before the winter holiday season. Sales of the Company's
fine paper products are predominantly made during February through April
(which overlaps the Company's second and third fiscal quarters) for
graduation in May and June. ArtCarved and Balfour historically experienced
operating losses during the period of the Company's fourth fiscal quarter,
which includes the summer months when school is not in session. The
Company's recognition and affinity product line is not seasonal in any
material respect, although sales generally are highest during the winter
holiday season and in the period prior to Mother's Day. As a result, the
effects of seasonality of the class ring business on the Company are tempered
by the Company's relatively broad product mix. As a result of the foregoing,
the Company's working capital requirements tend to exceed its operating cash
flows from July through December.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1997, the Company had a $35.0 million Revolving Credit
Facility (as defined below) with a borrowing base limitation of $27.9 million
and had $5.5 million available for future borrowings under its Bank Credit
Facility, as defined below. As of December 15, 1997 the Company had a
borrowing base limitation of $34.2 million and had $11.8 million available
for future borrowings. The Borrowing base limitation is recalculated
monthly. Management believes that cash flows generated by existing operations
and its available Bank Credit Facility will be sufficient to fund its ongoing
operations. The Company's liquidity needs arise primarily from debt service
on the Bank Credit Facility and the Notes, defined below, payments required
under a Management Agreement with Castle Harlan, Inc. and working capital and
capital expenditure requirements.
The Company's cash used in operating activities for the three months ended
November 30, 1997, were primarily the net result of the Company's
seasonality. There were increased accounts receivable and increased
inventories, which were greater than the decrease in other assets and
increase in overdraft, accounts payable and accrued expenses. The majority of
the decrease in prepaid expenses and other current assets relates to the
prepaid management fee and prepaid advertising being lower at this time of
year.
Also affecting cash are the one-time costs associated with the closing of
the Attleboro facilities, moving expenses and set-up expenses in Austin. The
Company has established a $12.1 million reserve for these expenses. As of
November 30, 1997, $9.7 million of the costs have been incurred. The
remaining balance of $2.4 million represents reserves for remaining severance
expenses payable to Balfour employees and the moving expenses associated with
the metal stamping and tooling operations currently operating in Attleboro.
The Company projected capital expenditures for the fiscal year 1998 are $3.7
million. For the three months ended November 30, 1997, the Company incurred
$1.5 million in capital expenditures for manufacturing equipment, tools and
dies and software development.
<PAGE>
The following summarizes certain provisions of the bank credit agreement
governing the Revolving Credit, Term Loan and Gold Consignment Agreement (the
"Bank Credit Facility"), which was entered into as of December 16, 1996, by
and among the Company, as borrower, The First National Bank of Boston
("FNBB") and Rhode Island Hospital Trust National Bank ("RIHT", and together
with FNBB, as agent, the "Agents") and the financial institutions party
thereto.
The Bank Credit Facility consists of a senior secured credit facility of
up to $60,000,000, including (i) a $25,000,000 term loan facility (the "Term
Loan Facility"), (ii) a $25,000,000 revolving credit facility (with a letter
of credit sublimit of $5,000,000) (the "Revolving Credit Facility") and (iii)
a $10,000,000 gold consignment and revolving credit facility (the "Gold
Facility", and together with the Revolving Credit Facility, the "Revolving
Credit and Gold Facilities").
The Term Loan Facility matures on December 16, 2003. The Company may
prepay the Term Loan Facility at any time, except that any repayment of any
portion of the Term Loan Facility bearing interest at the Eurodollar Rate may
only be repaid on the last day of the Interest Period relating thereto. The
Company must repay the Term Loan Facility in 28 consecutive quarterly
installments, which commenced March 31, 1997. The final installment of
principal of the Term Loan Facility is due and payable on December 16, 2003.
In addition, subject to certain exceptions set forth in the Bank Credit
Agreement, the Company must make mandatory prepayments of the Term Loan
Facility from certain asset sales, equity issuances, and 50% of Consolidated
Excess Cash Flow (as defined).
Availability under the Revolving Credit Facility and the Gold Facility is
subject to a borrowing base limitation (the "Borrowing Base") based on the
aggregate of certain percentages of Eligible Receivables (as defined) and
Eligible Inventory (as defined) of the Company. The borrowing base
limitation is recalculated each month. If the aggregate amount of loans and
other extensions of credit under the Revolving Credit Facility and the Gold
Facility exceeds the Borrowing Base, the Company must immediately prepay or
cash collateralize its obligations under the Revolving Credit Facility to the
extent of such excess.
The Gold Facility consists of (a) a purchase and consignment facility,
pursuant to which RIHT, as gold agent, on behalf of the lenders under the
Gold Facility, will purchase amounts of gold inventory for the Company and
consign such amounts to the Company, (b) a consignment facility, pursuant to
which the gold agent, on behalf of the lenders under the Gold Facility, will
obtain and consign amounts of gold to the Company and (c) a revolving loan
facility.
Loans outstanding under the Bank Credit Facility bear interest at either
fixed or floating rates based upon the interest rate option selected by the
Company. The weighted average interest rate of debt outstanding as of
November 30, 1997 and August 30, 1997 was 10.5 percent.
The Revolving Credit and Gold Facilities may be borrowed, repaid and
reborrowed from time to time until December 16, 2001, subject to certain
conditions on the date of any such borrowing. Amounts of principal repaid on
the Term Loan Facility may not be reborrowed.
The Bank Credit Facility is secured by a first priority lien on
substantially all assets of the Company, including all accounts receivable,
inventory, equipment, general intangibles, real estate, buildings and
improvements and the outstanding stock of its subsidiaries. The Company's
U.S. subsidiary, CBI North America, Inc., has guaranteed the Company's
obligations and granted a similar security interest.
The Bank Credit Facility contains certain customary affirmative and
negative covenants, including, among other things, requirements that the
Company (i) periodically deliver certain financial information (including
monthly borrowing base, consigned metal and receivables aging reports), (ii)
not merge or make certain asset sales, (iii) not permit certain liens to
exist on its assets, (iv) not incur additional debt or liabilities except as
may be permitted under the terms of the Bank Credit Facility (v) not make
capital expenditures in excess of limits set forth in the Bank Credit
Facility (vi) not declare or make certain dividend payments, (vii) not make
certain investments or consummate certain acquisitions, (viii) not enter into
any consignment transactions as consignee (except for deliveries of
diamonds), (ix)
<PAGE>
not create a new subsidiary, (x) not establish any new bank account, and (xi)
establish concentration accounts with FNBB and direct all of its depositary
banks to transfer all amounts deposited (on a daily basis) to such
concentration accounts (for application in accordance with the Bank Credit
Facility). In addition, the Company must comply with certain financial
covenants, including maintaining a specified minimum interest coverage ratio
of Consolidated EBITDA to Consolidated Interest Expense, maximum Consolidated
Senior Funded Debt to Consolidated EBITDA and minimum Consolidated EBITDA (as
those terms are defined in the Bank Credit Agreement) in amounts set forth in
the Bank Credit Facility. Most of the covenants apply to the Company and its
subsidiaries, and the Company was in compliance with all of its covenants
under the Bank Credit Facility as of November 30, 1997 and August 30, 1997.
The Bank Credit Facility contains certain customary events of default,
including nonpayment, misrepresentation, breach of covenant, bankruptcy,
ERISA, judgments, change of control and cross defaults. In addition, the
Bank Credit Facility provides that it shall be an Event of Default if the
Company or any of its subsidiaries (other than its Mexican subsidiary) shall
be enjoined or restrained from conducting any material part of its business
for more than 30 days.
The Company's $90,000,000 aggregate principal amount of 11% Senior
Subordinated Notes mature on January 15, 2007 ("Notes"). The Notes are
redeemable at the option of the Company, in whole or in part, at any time on
or after January 15, 2002, plus accrued and unpaid interest and Liquidated
Damages (as defined), if any, thereon to the date of redemption. In the
event the Company completes one or more Public Equity Offerings (as defined)
on or before January 15, 2000, the Company may, in its discretion, use the
net cash proceeds to redeem up to 33 1/3% of the original principal amount of
the Notes at a redemption price equal to 111% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of redemption, with the net proceeds of one or more
Public Equity Offerings, provided that at least 66-2/3% of the original
principal amount of the Notes remains outstanding immediately after each such
redemption.
In the event of a Change of Control (as defined), each holder of the Notes
will have the right to require the Company to purchase all or any part of
such holder's Notes at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase. The Bank Credit
Facility prohibits the Company from purchasing any Notes upon a Change of
Control, and certain Change of Control events with respect to the Company
would constitute a default thereunder.
In the event of an Asset Sale (as defined), the Company is required to
apply any Net Proceeds (as defined) to permanently reduce senior
indebtedness, to acquire another business or long-term assets or to make
capital expenditures. To the extent such amounts are not so applied within
thirty days and the amount not applied exceeds $5.0 million, the Company is
required to make an offer to all holders of the Notes to purchase an
aggregate principal amount of Notes equal to such excess amount at a purchase
price in cash equal to 100% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of
purchase.
The Indenture dated as of December 16, 1996, between the Company and
Marine Midland Bank, as trustee (the "Indenture") pursuant to which the Notes
were issued contains certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to (a) incur additional
indebtedness and issue preferred stock, (b) pay dividends or make certain
other restricted payments, (c) enter into transactions with affiliates, (d)
create certain liens, (e) make certain asset dispositions, and (f) merge or
consolidate with, or transfer substantially all of its assets to, another
person. The Company was in compliance with all debt covenants as of November
30, 1997 and August 30, 1997.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although management believes
that the expectations reflected in such forward looking statements are based
upon reasonable assumptions, the Company can give no assurance that these
expectations will be achieved. Important factors that could cause actual
results to differ materially from the Company's expectations include general,
economic, business and market conditions, the volatility
<PAGE>
of the price of gold, competition, development and operating costs and the
factors that are disclosed in conjunction with the forward looking statements
included herein (collectively the "Cautionary Disclosures"). Subsequent
written and oral forward looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Disclosures.
<PAGE>
PART II - OTHER
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company is a
party to or which any of its property is subject. The Company monitors all
claims, and the Company accrues for those, if any, which management believes
are probable of payment. The Company has no pending administrative
proceedings related to environmental matters involving governmental
authorities.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule for the period ended November 30, 1997.
(b) The Company did not file any reports on Form 8-K during the three months
ended November 30, 1997.
<PAGE>
COMMEMORATIVE BRANDS, INC.
SIGNATURES
Commemorative Brands, Inc. has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMMEMORATIVE BRANDS, INC.
DATE: January 14, 1998 BY: /s/ Richard H. Fritsche
---------------------------------
Richard H. Fritsche
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule for the period ended November 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-END> NOV-30-1997
<CASH> 2,277
<SECURITIES> 0
<RECEIVABLES> 40,279
<ALLOWANCES> (3,360)
<INVENTORY> 14,217
<CURRENT-ASSETS> 60,425
<PP&E> 37,023
<DEPRECIATION> (2,871)
<TOTAL-ASSETS> 212,608
<CURRENT-LIABILITIES> (30,055)
<BONDS> (132,025)
0
0
<COMMON> (4)
<OTHER-SE> (41,127)
<TOTAL-LIABILITY-AND-EQUITY> (212,608)
<SALES> (38,364)
<TOTAL-REVENUES> (38,364)
<CGS> 17,226
<TOTAL-COSTS> 17,226
<OTHER-EXPENSES> 20,160
<LOSS-PROVISION> 177
<INTEREST-EXPENSE> 3,600
<INCOME-PRETAX> 978
<INCOME-TAX> 0
<INCOME-CONTINUING> 978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 678
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
</TABLE>
