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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
333-45235
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER
[GRAPHIC OMITTED]
PERRY JUDD'S HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 51-0365965
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
575 WEST MADISON STREET, WATERLOO, WISCONSIN 53594
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
920-478-3551
----------------------------------------------------
(Registrant's telephone number, including area code)
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 in the past 90 days. YES[X] No [ ]
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<PAGE>
PERRY JUDD'S HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
INDEX
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Page
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months ended September 30, 1998 and
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Minority Interests,
Preferred Stock and Stockholders' Equity as of
September 30, 1998 and December 31, 1997 . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1998 and September 30, 1997. . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . . . . . 7 - 9
Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 10 - 12
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 13
2
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------------- ------------
(Unaudited) (Note)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (unrestricted). . . . . . . . . . $ 1,574 $ 3,779
Cash and cash equivalents (restricted). . . . . . . . . . . 40,289 --
Accounts receivable - net of allowance for
doubtful accounts of $840 and $1,266,
respectively. . . . . . . . . . . . . . . . . . . . . . . 47,232 44,282
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 20,680 18,474
Deferred income taxes . . . . . . . . . . . . . . . . . . . 390 1,039
Other current assets. . . . . . . . . . . . . . . . . . . . 2,270 1,818
------------- ------------
Total current assets. . . . . . . . . . . . . . . 112,435 69,392
Property, plant and equipment, at cost. . . . . . . . . . . 117,203 136,630
Accumulated depreciation and amortization . . . . . . . . . (21,449) (14,822)
------------- ------------
Property, plant and equipment - net . . . . . . . . . . . . 95,754 121,808
Goodwill - net. . . . . . . . . . . . . . . . . . . . . . . 20,759 28,597
Other assets - net. . . . . . . . . . . . . . . . . . . . . 12,104 13,557
------------- ------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . $241,052 $233,354
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses . . . . . . . . . . . $ 36,766 $ 33,609
Income taxes payable. . . . . . . . . . . . . . . . . . . . 4,900 808
Borrowings under revolving credit facility. . . . . . . . . 2,876 --
Current maturities of long-term debt. . . . . . . . . . . . 3,583 2,085
------------- ------------
Total current liabilities . . . . . . . . . . . . 48,125 36,502
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . 140,123 143,186
Deferred income taxes . . . . . . . . . . . . . . . . . . . 12,154 11,645
Other long-term liabilities . . . . . . . . . . . . . . . . 8,823 8,712
------------- ------------
Total liabilities . . . . . . . . . . . . . . . . 209,225 200,045
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MINORITY INTERESTS: Redeemable Preferred Stock
Series A, B and D with stated redemption value
of $100 per share, aggregate liquidation value of
$8,002 and $7,138 at September 30, 1998 and
December 31, 1997, respectively . . . . . . . . . . . . . . 7,057 6,935
------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock - par value $0.001 per share,
775,000 shares authorized, 106,786 and 95,620
shares issued and outstanding, respectively . . . . . . . 10,679 9,562
Common stock - par value $0.001 per share,
1,000,000 shares authorized, 860,010
shares issued and outstanding . . . . . . . . . . . . . . 1 1
Additional paid-in capital. . . . . . . . . . . . . . . . . 21,500 21,500
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (7,410) (4,689)
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Total stockholders' equity. . . . . . . . . . . . 24,770 26,374
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . $241,052 $233,354
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</TABLE>
Note: Derived from audited financial statements. See notes to condensed
consolidated financial statements.
3
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ -------------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . $71,962 $40,035 $218,767 $105,611
OPERATING EXPENSES:
Costs of production . . . . . . . . . . . . . . . . 57,459 33,353 173,250 86,676
Selling, general and administrative . . . . . . . . 7,713 3,351 24,094 10,362
Depreciation. . . . . . . . . . . . . . . . . . . . 2,717 1,643 8,840 4,873
Amortization of intangibles . . . . . . . . . . . . 500 101 1,480 301
--------- --------- ---------- ----------
68,389 38,448 207,664 102,212
--------- --------- ---------- ----------
INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . 3,573 1,587 11,103 3,399
--------- --------- ---------- ----------
OTHER (INCOME) EXPENSES:
Interest expense. . . . . . . . . . . . . . . . . . 4,026 1,501 11,727 4,417
Amortization of deferred financing costs. . . . . . 299 150 885 450
Interest income . . . . . . . . . . . . . . . . . . (802) (10) (944) (30)
Loss (gain) on sale of assets . . . . . . . . . . . 158 296 59 296
Other, net. . . . . . . . . . . . . . . . . . . . . 91 (95) 293 0
--------- --------- ---------- ----------
3,772 1,842 12,020 5,133
--------- --------- ---------- ----------
LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . (199) (255) (917) (1,734)
BENEFIT FOR INCOME TAXES . . . . . . . . . . . . . . . 97 45 98 625
--------- --------- ---------- ----------
LOSS BEFORE DIVIDENDS ON
REDEEMABLE PREFERRED STOCK. . . . . . . . . . . . . (102) (210) (819) (1,109)
DIVIDENDS ON REDEEMABLE
PREFERRED STOCK . . . . . . . . . . . . . . . . . . 263 257 785 766
--------- --------- ---------- ----------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . $ (365) $ (467) $ (1,604) $ (1,875)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF MINORITY INTERESTS, PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
MINORITY INTERESTS PREFERRED STOCK COMMON STOCK
----------------------- ------------------------- ----------------------
CARRYING CARRYING CARRYING ACCUMULATED
SHARES VALUE SHARES VALUE SHARES VALUE DEFICIT
-------- -------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997. . . . . . . . . 69,348 $6,935 95,620 $ 9,562 860,010 $21,501 $(4,689)
Net loss . . . . . . . . . . . . . -- -- -- -- -- -- (1,604)
Stock dividends. . . . . . . . . . 1,219 122 11,166 1,117 -- -- (1,117)
-------- -------- --------- ---------- --------- ---------- -------------
September 30, 1998 . . . . . . . . 70,567 $7,057 106,786 $10,679 860,010 $21,501 $(7,410)
-------- -------- --------- ---------- --------- ---------- -------------
-------- -------- --------- ---------- --------- ---------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
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<TABLE>
<CAPTION>
NINE MONTHS
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,604) $ (1,875)
Adjustments to reconcile net
loss to net cash flows
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 11,205 5,624
Deferred income tax provision . . . . . . . . . . . . . . . . 709 (680)
Loss (gain) on sale of fixed assets . . . . . . . . . . . . . 59 296
Changes in operating assets and liabilities:
Accounts receivable - net . . . . . . . . . . . . . . . . . (8,211) (9,115)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . (4,266) 774
Accounts payable and accrued expenses . . . . . . . . . . . 5,625 2,685
Other assets and liabilities - net. . . . . . . . . . . . . (2,767) (1,021)
------------ ------------
Net cash provided (used) by operating activities . . . 750 (3,312)
------------ ------------
INVESTING ACTIVITIES -
Proceeds from sale of fixed assets. . . . . . . . . . . . . . 2,903 1,097
Proceeds from sale / leaseback. . . . . . . . . . . . . . . . 20,938 --
Proceeds from Port City sale. . . . . . . . . . . . . . . . . 29,374 --
Additions to property, plant and equipment - net. . . . . . . (16,951) (585)
------------ ------------
Net cash provided by investing activities. . . . . . . 36,264 512
------------ ------------
FINANCING ACTIVITIES -
Financing costs incurred. . . . . . . . . . . . . . . . . . . (241) --
Increase in revolving debt. . . . . . . . . . . . . . . . . . 2,876 4,991
Debt repayments . . . . . . . . . . . . . . . . . . . . . . . (1,565) (4,291)
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Net cash provided by financing activities. . . . . . . 1,070 700
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . 38,084 (2,100)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . 3,779 2,183
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CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . $ 41,863 $ 83
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
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1. BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements
have been prepared by Perry Judd's Holdings, Inc. (along with its
subsidiaries, the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect normal and recurring
adjustments, which are, in the opinion of the Company, considered necessary
for a fair presentation. As permitted by these regulations, these statements
do not include all information required by generally accepted accounting
principles to be included in an annual set of financial statements, however,
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest audited financial statements.
Effective December 16, 1997, the Company acquired all of the outstanding
capital stock of Judd's Incorporated ("Judd's") for approximately $101.5
million less outstanding indebtedness of Judd's. The acquisition was account
ed for under the purchase method of accounting and accordingly the results of
operations are included in the accompanying financial statements since the
acquisition date. The preliminary allocation of the purchase price is based
upon the estimated fair value of the assets acquired and liabilities assumed
as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired. . . . . . . . . . $108,394
Goodwill . . . . . . . . . . . . . . . . . . . . 28,073
Fair value of liabilities assumed. . . . . . . . (72,483)
Amounts paid to creditors and preferred
stockholders. . . . . . . . . . . . . . . . . 37,484
----------
Cash paid for net assets acquired. . . . . . . . $101,468
----------
----------
</TABLE>
Effective July 9, 1998, Judd and Detweiler, Inc., a wholly-owned
subsidiary of Judd's, merged with and into Judd's Incorporated.
Effective July 16, 1998, the Company and its subsidiaries completed the
following transactions:
a) The Company changed its name from Perry Judd's Incorporated to
Perry Judd's Holdings, Inc.
b) Mount Jackson Press, Inc. and Shenandoah Valley Press, Inc.,
wholly-owned subsidiaries of Judd's, merged with and into Judd's
Incorporated.
c) Judd's Incorporated merged with and into another wholly-owned
subsidiary of the Company, Perry Graphic Communications, Inc. The
surviving company, Perry Graphic Communications, Inc., changed its
name to Perry Judd's Incorporated, ("Perry Judd's"), which
continues to be a wholly-owned subsidiary of the Company.
2. DISPOSITION OF ASSETS
A. SALE OF CORPORATE OFFICE BUILDING
On July 6, 1998, a subsidiary of Perry Judd's ("Judd and Detweiler,
Inc."), consummated the sale of a corporate office building located
in Washington, D.C. The aggregate cash consideration received by
Perry Judd's in the transaction totaled approximately $2,550,000,
which amount is net of closing costs and fees of Perry Judd's.
B. SALE OF PORT CITY PRESS, INC.
On September 2, 1998, Perry Judd's consummated the sale of all of
the outstanding shares of capital stock of its wholly-owned
subsidiary, Port City Press, Inc. ("Port City"), to Mack Printing
Company. The aggregate cash consideration received by Perry Judd's
in the transaction totaled approximately $29,374,000, which amount
is net of closing costs and fees of Perry Judd's.
7
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
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C. SALE AND LEASEBACK
On August 17, 1998, Perry Judd's consummated an Agreement of
Purchase and Sale relating to the sale and leaseback by Perry
Judd's of three parcels of real property and industrial buildings
located in Pikesville, Maryland, Strasburg, Virginia and Mt.
Jackson, Virginia. As part of these Sale/Leaseback transactions
the Company and Perry Judd's entered into long-term leases as
lessees, with the buyer as lessor, for the properties. The Company
and Perry Judd's then subleased the Pikesville, Maryland property
to Port City, a then wholly owned subsidiary, under substantially
the same economic terms as those contained in the lease.
Perry Judd's received cash consideration from the buyer for the
properties of approximately $20,938,000, net of closing costs and
fees. The terms of the Leases include a twenty year term with an
initial annual lease payment of $2,258,667 and 14.5% escalations
scheduled at the start of the sixth, eleventh and sixteenth years.
The initial annual rents by location are as follows:
<TABLE>
<S> <C>
Pikesville, Maryland $ 977,412
Strasburg, Virginia 1,029,676
Mt. Jackson, Virginia 251,579
----------
$2,258,667
</TABLE>
The proceeds net of income taxes payable, received for the sale of
the corporate office building, the sale of Port City, and the sale
and leaseback of real property are available only for future
acquisitions and capital expenditures under the Company's Credit
Agreement, subject to certain limitations for 270 days subsequent
to the receipt of proceeds. Any proceeds not utilized for such
purposes must be used to prepay term debt.
3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- --------------
<S> <C> <C>
Work-in-process . . . . . . . . . . . . . $ 8,610 $ 6,137
Raw materials and production supplies . . 12,070 12,337
--------------- --------------
Total . . . . . . . . . . . . . . . . . . $20,680 $18,474
--------------- --------------
--------------- --------------
</TABLE>
4. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in the financial
statements. The Company adopted this statement in the first quarter of
1998. The adoption of SFAS No. 130 did not have a material effect on
the Company's consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits", which standardizes the disclosure for pensions and other
postretirement benefits. The Company will adopt this statement for the
fiscal year ended 1998. The Company is currently evaluating the impact
SFAS No. 132 may have on additional disclosure, if any, to its
consolidated financial statements.
8
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
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5. CONTINGENCIES
In connection with the acquisition of Perry Printing, the Company issued
50,000 and 65,000 shares of Series A and B redeemable stock,
respectively, to the former owner of Perry Printing. During 1996, the
Company made two indemnity claims against the former owner of Perry
Printing principally involving breaches of warranties and
representations made on certain assets under its Asset Purchase
Agreement. Redemption features of the Series A redeemable preferred
stock provided the Company with the option to offset such claims as
immediate redemption of the Series A redeemable preferred stock up to
the maximum redemption value of $5 million. Accordingly, the carrying
value of the Series A redeemable preferred stock was reduced to $-0- in
the financial statements at December 31, 1996. The former owner of
Perry Printing has objected to these claims for indemnification and
management anticipates the claims may result in litigation but believes
the Company's position on the claims will be upheld.
Additionally, the Company has asserted a claim against the former owner
of Perry Printing for an approximate $1.8 million employee benefit
obligation incurred prior to April 28, 1995, which is now an obligation
of the Company to its employees covered by collective bargaining
agreements. This amount has been reflected as an increase to both
assets and liabilities pending resolution with the former owner of Perry
Printing. Management believes that its position will be upheld.
9
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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NINE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1997.
Net sales increased $113.2 million or 107.1% to $218.8 million for the
nine months ended September 30, 1998 from $105.6 million for the nine months
ended September 30, 1997. The increase resulted primarily from the addition
of sales from Judd's Incorporated, which the Company acquired effective
December 16, 1997, and substantially higher volume of production units from
new and existing customers. Paper costs were 26.7% of net sales for the nine
months ended September 30, 1998 versus 27.4% for the nine months ended
September 30, 1997.
Costs of production increased $86.6 million or 99.9% to $173.3 million
for the nine months ended September 30, 1998 from $86.7 million for the nine
months ended September 30, 1997, principally from the addition of Judd's
production for the first nine months of 1998 and overall increased volume of
production. Costs of production as a percent of net sales were 79.2% for the
nine months ended September 30, 1998 as compared to 82.1% experienced in the
nine months ended September 30, 1997, principally as a result of the benefits
from higher production volume and improved operating efficiencies gained from
capital investments.
Selling, general and administrative expenses increased $13.7 million or
132.5% to $24.1 million for the nine months ended September 30, 1998 compared
to $10.4 million for the nine months ended September 30, 1997. Selling,
general and administrative expenses increased as a percent of net sales to
11.0% in the 1998 period compared to 9.8% in the 1997 period. The majority
of the $13.7 million increase and the increase as a percent of net sales
related to adding the Judd's operation for the first nine months of 1998.
Depreciation expense increased $4.0 million or 81.4% to $8.8 million for
the nine months ended September 30, 1998 from $4.8 million for the nine
months ended September 30, 1997 as a result of including depreciation from
Judd's for the first nine months of 1998.
Income from operations increased $7.7 million to $11.1 million for the
nine months ended September 30, 1998 from $3.4 million for the nine months
ended September 30, 1997, due to the factors discussed in the preceding
paragraphs.
Interest expense increased $7.3 million to $11.7 million for the nine
months ended September 30, 1998 from $4.4 million for the nine months ended
September 30, 1997 as a result of an increased level of debt incurred from
the Judd's acquisition on December 16, 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1998 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1997.
Net sales increased $31.9 million or 79.7% to $71.9 million for the
three months ended September 30, 1998 from $40.0 million for the three months
ended September 30, 1997. The increase resulted primarily from the addition
of sales from Judd's for the third quarter of 1998 and substantially higher
volume of production units from new and existing customers. Paper costs were
26.8% of net sales for the three months ended September 30, 1998 versus 30.7%
for the three months ended September 30, 1997.
Costs of production increased $24.1 million or 72.3% to $57.5 million
for the three months ended September 30, 1998 from $33.4 million for the
three months ended September 30, 1997, principally from the addition of
Judd's production for the third quarter of 1998 and overall increased volume
of production. Costs of production as a percent of net sales were 79.8% for
the three months ended September 30, 1998 as compared to 83.3% experienced in
the three months ended September 30, 1997, principally as a result of the
benefits from higher production volume and improved operating efficiencies
gained from capital investments.
Selling, general and administrative expenses increased $4.4 million or
130.2% to $7.7 million for the three months ended September 30, 1998 compared
to $3.4 million for the three months ended September 30, 1997. Selling,
general and administrative expenses increased as a percent of net sales to
10.7% in the 1998 period compared to 8.4% in the 1997 period. The majority
of the $4.4 million increase and the increase as a percent of net sales
related to adding the Judd's operation for the third quarter of 1998.
Additionally, the percent of net sales increase is attributed to the change
in paper costs between the third quarter of 1998 and the third quarter of
1997.
Depreciation expense increased $1.1 million or 65.4% to $2.7 million for
the three months ended September 30, 1998 from $1.6 million for the three
months ended September 30, 1997 as a result of including depreciation from
Judd's for the third quarter of 1998.
Income from operations increased $2.0 million to $3.6 million for the
three months ended September 30, 1998 from $1.6 million for the three months
ended September 30, 1997, due to the factors discussed in the preceding
paragraphs.
Interest expense increased $2.5 million to $4.0 million for the three
months ended September 30, 1998 from $1.5 million for the three months ended
September 30, 1997 as a result of an increased level of debt incurred from
the Judd's acquisition on December 16, 1997.
10
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its capital and operating
requirements with a combination of cash flow from operations, borrowings and
external operating leases. Earnings before income taxes plus depreciation
and amortization was $10.3 million for the nine months ended September 30,
1998 and $3.9 million for the nine months ended September 30, 1997.
Working capital was $64.3 million and $32.9 million at September 30,
1998 and December 31, 1997, respectively. This increase was due primarily to
after tax net proceeds from the sale of fixed assets, sale/leaseback of real
property and sale of the Port City subsidiary, which totaled $45.8 million,
offset by capital expenditures of $16.9 million.
Since the inception of operations on April 28, 1995, the Company has
funded the majority of its needs for production equipment through operating
leases and borrowings under its Amended and Restated Credit Agreement dated
December 16, 1997, (the "Credit Agreement"). The Credit Agreement, which
provides for an aggregate commitment of $75 million, is comprised of a $45
million revolving credit facility based upon a borrowing base of eligible
accounts receivable and inventory amounts and a $30 million term loan
facility. The five-year Credit Agreement provides for monthly reductions in
its term loan facility and borrowings bear interest at rates that fluctuate
with the prime rate and the Eurodollar rate. As of September 30, 1998, the
Company had outstanding $2.9 million under its revolving credit facility at
an interest rate of 8.75%, and $28.5 million under its term loan facility at
an interest rate of 8.06%. As of September 30, 1998, the Company had
unutilized commitments of $41.5 million under its Credit Agreement.
In connection with the acquisition of Judd's on December 16, 1997, the
Company issued 10 5/8% senior subordinated notes due December 15, 2007 in the
aggregate principal amount of $115 million. Interest on the notes accrues
from the date of original issuance and is payable semi-annually in arrears on
June 15 and December 15 of each year. The notes are redeemable, in whole or
in part, at the option of the Company on or after December 15, 2002 at
specified redemption prices plus accrued interest to the date of redemption.
Concentrations of credit risk with respect to accounts receivable are
limited due to the Company's diverse operations and large customer base. As
of September 30, 1998, the Company had no significant concentrations of
credit risk.
The Company believes that its liquidity, capital resources and cash
flows are sufficient to fund planned capital expenditures, working capital
requirements and interest and principal payments for the foreseeable future.
SEASONALITY
Results of operations for this interim period are not necessarily
indicative of results for the full year. The Company's operations are
seasonal. Historically, approximately two-thirds of its income from
operations has been generated in the second half of the fiscal year,
primarily due to the higher number of magazine pages, new product launches
and back-to-school and holiday catalog promotions.
11
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs having been
written using two digits rather than four to define the applicable year.
Consequently, any date-sensitive computer processing logic may recognize a
date using "00" for the year as the year 1900 rather than the year 2000. If
not remedied, this could result in erroneous warning messages, system
failures or miscalculations which could potentially disrupt operations or
cause less than optimum operating efficiencies.
The Company's business software applications have been reviewed for
their ability to operate correctly in the year 2000 and beyond. It has been
determined that some software package version upgrades and modification of
some existing internally developed programs will be required so that the
computer systems will properly recognize dates beyond December 31, 1999. The
Company believes that with minor modification and with the version upgrades,
the year 2000 issue can be mitigated. However, if such modifications and
conversions are not made, or are not completed in a timely fashion, the year
2000 issue could have a material impact on the business, results of
operations and financial condition of the Company.
The Company has initiated communications with its significant suppliers
and customers to determine the extent to which the Company is vulnerable to
those third parties' failure to remedy their own year 2000 issue. To the
extent that the Company is not satisfied that such third parties are
adequately prepared for the Year 2000, the Company intends to devise
contingency plans to ameliorate the effects on the Company's business in the
event the Year 2000 issue results in the unavailability of products and/or
services. There can be no guarantee that the systems of other companies on
which Perry Judd's systems rely will be converted in a timely fashion, or
that a failure to convert by another company would not have a material effect
on the Company. The Company has determined that it has no exposure to
contingencies related to the year 2000 issue for the printing services it has
sold.
The Company will utilize both internal and external resources to modify
internally developed programs and upgrade package software where indicated.
The Company plans to complete the year 2000 project no later than mid-1999.
The indicated software upgrades and version changes are being provided by the
software developers as part of the normal software support contracts for
those products. These costs are being expensed as incurred and are not
expected to have a material effect on the business, results of operations or
financial condition of the Company.
The costs of the project and the date on which the Company plans to
complete the year 2000 efforts are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third party software
developer modification plans and other factors. However, there can be no
guarantee that these estimates will be accurate and actual results could
differ materially from those estimates.
The Company does not separately track the internal costs incurred for
the Year 2000 project, but such costs are principally included in and
constitute a part of the related payroll costs for its information systems
group.
12
<PAGE>
PERRY JUDD'S HOLDINGS, INC.
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule for the period ended September 30, 1998
(filed in electronic form only).
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarterly period
ended September 30, 1998:
On September 17, 1998, the Company filed a Report on Form 8-K that
reported information under "Item 2. Acquisition or Disposition of
Assets" and "Item 5. Other Matters". The Report included Pro Forma
Financial Information relating to the transactions reported under
Item 2.
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 thereunto duly authorized.
PERRY JUDD'S HOLDINGS, INC.
Date: November 16, 1998 /s/ Verne F. Schmidt
------------------------------
Verne F. Schmidt
Senior Vice President and
Chief Financial Officer
13
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<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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7,057
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